<PAGE>
As Filed With the Securities and Exchange Commission on January 25, 1999
Registration No. 333-67895
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 4
to
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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Proposed maximum
Title of each class of Amount maximum aggregate Amount of
securities to be to be offering price offering registration
registered registered per share price(2) fee
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ordinary Shares(1).... 44,600,000 $31.27 $1,394,642,000 $387,710(3)
- ------------------------------------------------------------------------------
</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(e).
(3) $180,700 of this amount was paid previously when the proposed maximum
offering price was listed as $650,000,000.
---------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 January 26, 1999.
[LOGO OF UNITED PAN-EUROPE COMMUNICATIONS N.V. APPEARS HERE]
United Pan-Europe Communications N.V.
40,000,000 Ordinary Shares
in the form of American Depositary Shares or Ordinary Shares
----------
This is an initial public offering of ordinary shares of United Pan-Europe
Communications N.V. UPC is also offering the ordinary shares in the form of
American Depositary Shares. Each ADS represents one ordinary share. This
prospectus relates to an offering of 17,600,000 ordinary shares, in the form of
ordinary shares or ADSs, in the United States. In addition, 22,400,000 ordinary
shares, in the form of ordinary shares or ADSs, are being offered outside the
United States.
At UPC's request, the underwriters have reserved ordinary shares worth $300
million (representing 10,157,750 shares at the midpoint of the offering price
range) out of the shares being offered in the United States for sale at the
initial public offering price to Microsoft Corporation. See "Underwriting". If
Microsoft purchases all of these shares, it will own approximately 8.3% and
United International Holdings, Inc. will own approximately 63% of UPC after the
offering.
UPC and the underwriters currently estimate that the initial public offering
price will be between (Euro)24.00 (NLG52.89) and (Euro)27.00 (NLG59.50) per
ordinary share. This is equivalent to a price range of $27.80 to $31.27 per ADS
at an exchange rate of (Euro)0.86341 per $1.00. 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 10 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 ADS Per Ordinary Share Total, at ADS price
------- ------------------ -------------------
<S> <C> <C> <C>
Initial public offering price.. $ (Euro) $
Underwriting discount.......... $ (Euro) $
Proceeds, before expenses, to
UPC........................... $ (Euro) $
</TABLE>
The U.S. underwriters may, under certain circumstances, purchase up to an
additional 1,150,000 ordinary shares, in the form of ordinary shares or ADSs,
from UPC at the initial public offering price less the underwriting discount.
The international underwriters may similarly purchase up to an additional
3,450,000 ordinary shares, in the form of ordinary shares or ADSs. All
information in this prospectus assumes that the underwriters do not purchase
additional shares.
----------
Joint Global Coordinators
Goldman Sachs International Morgan Stanley Dean Witter
----------
Goldman, Sachs & Co.
Morgan Stanley Dean Witter
Donaldson, Lufkin & Jenrette
----------
Prospectus dated , 1999.
<PAGE>
VIDEO, VOICE & DATA COMMUNICATIONS [Company Logo]
[MAP OF EUROPE AND ISRAEL IDENTIFYING LOCATION OF UPC'S OPERATING SYSTEMS]
VIDEO
We offer subscribers some of the most advanced analog video services
available today, as well as a large choice of FM radio programs. Approximately
3.4 million homes, an average of 70% of the homes passed by the cable in our
systems, subscribe to our basic tier video services. Many of our operations are
two-way capable, which allows us to offer additional revenue-generating
services.
VOICE
Our fiber and broadband coaxial cable network and current subscriber
relationships provide ready access to potential residential telephone
customers. We plan to offer local telephone services to our customers in
Austria, The Netherlands, France and Norway under the Priority Telecom name
(Nedpoint in the A2000 system in Amsterdam and surrounding areas). Our state-
of-the-art networks also create the opportunity to cost-effectively reach
potential business telephone customers on a pan-European basis.
DATA
Our chello broadband subsidiary is launching a European Internet access
gateway with specially created content. chello broadband plans to serve our
operating companies, as well as third-party cable operators across Europe. We
have already launched a cable modem-based, high-speed Internet access service
in many European markets.
2
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS: DELIVERING VIDEO, VOICE
& DATA COMMUNICATIONS OVER ONE WIRE
[DIAGRAM OF HOUSE WITH TELEVISION, COMPUTER AND TELEPHONE
AND BUSINESS LINE LOGOS]
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS: DELIVERING VIDEO, VOICE
& DATA COMMUNICATIONS OVER ONE WIRE
[DIAGRAM OF HOUSE WITH TELEVISION, COMPUTER AND TELEPHONE
AND BUSINESS LINE LOGOS]
<PAGE>
PROSPECTUS SUMMARY
This summary highlights more detailed information and financial statements
contained later in this prospectus. This summary 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".
General Information About Us and Our Business
Overview
United Pan-Europe Communications N.V. owns and operates cable-based
communications networks in ten countries in Europe and in Israel. We provide
cable television services. Some of our systems also provide telephone and
Internet access services. Today, our systems constitute the largest pan-
European group of broadband communications networks, based on numbers of
subscribers in more than one European country. We have systems in Austria, The
Netherlands, Belgium, Norway and France. These systems are strategically
located in the capital cities of Vienna, Amsterdam, Brussels, Oslo and suburban
Paris. We also have systems in Israel, Malta and Eastern Europe. We are a
subsidiary of United International Holdings, Inc., a leading international
provider of video, telephone and data services.
Our systems had about 5.9 million homes in their license areas at September
30, 1998. Of these, about 4.9 million homes were passed by the cable in our
network and thus capable of receiving our services. About 3.4 million of these
(70%) subscribed to our basic video services. We have majority ownership of our
Western European systems (other than the A2000 system in Amsterdam and
surrounding areas) and most of our other systems. Measured by our ownership
percentage of individual systems, we have an equity interest in about 3.0
million homes passed by, and 2.0 million subscribers served by, our cable
systems.
In our Western European markets, we are upgrading our existing network to
two-way transmission capability. This enables us to provide digital video,
telephone and Internet/data services. At September 30, 1998, our systems had
about 13,850 cable telephone and about 12,725 Internet access subscribers.
Relationship with Microsoft
We plan to establish a relationship with Microsoft Corporation to work
jointly on Internet, telephone and video projects. See "Relationship with
Microsoft" and "Risk Factors -- Our Relationship with Microsoft May Not Work
Out".
New Business Lines
We believe the European telecommunications market offers significant growth
opportunities. Most European Union member countries and Norway had opened their
telephone industries to competition by January 1, 1998. This liberalization
means that new providers can offer telephone and other telecommunications
services. Due to this change in regulation and technological advances, a single
cable link to the home can deliver video, telephone and Internet/data services.
We can now offer all three services as an integrated package in the markets
where we have upgraded our network. We have already begun to do so in some
markets.
We plan to offer local telephone services, called Priority Telecom (Nedpoint
in the A2000 systems), in our Austrian, Dutch, French and Norwegian systems.
A2000, the Amsterdam system, has offered cable telephone services since July
1997. By September 30, 1998, A2000 served approximately 16,000 lines covering
13,850 cable telephone subscribers. In November 1998, we launched cable
telephone service on a trial basis in Vienna.
We have launched a cable modem-based, high speed Internet access service in
Austria, Belgium, The Netherlands and Norway. Cable modem technology can
provide Internet access at speeds up to 100 times faster than traditional
modems using telephone lines. By September 30, 1998, we had more than 12,125
residential and 600 business cable modem Internet access subscribers. We will
begin offering new Internet access gateway and content services, which we call
chello broadband, in our upgraded Western European networks during the first
quarter of 1999.
3
<PAGE>
Network Upgrade
Since 1994, we have been upgrading our Western European cable television
infrastructure. When we upgrade, we replace parts of the coaxial cable with
fiber optic lines and upgrade the remaining coaxial cable to make it capable of
two-way transmission. By September 30, 1998, the upgraded parts of our networks
in Austria, Belgium, The Netherlands and France passed about 54% of the 2.6
million homes passed by those networks. We plan to reach about 87% by the end
of 1999.
By September 30, 1998, our systems had about 4,375 kilometers of high-
capacity active fiber optic infrastructure. We also had more than 35,340
kilometers of coaxial distribution cable. About 25,200 kilometers of this
coaxial cable is capable of two-way transmission.
Our Growth Strategy
We believe our leading position in providing video services across Europe
will help us to expand our three lines of business. Our strategy is to become a
leading provider of video distribution and programming services, telephone
services and Internet/data services.
The key elements of our strategy are to:
. keep increasing our average revenue per subscriber by developing our
expanded basic tier service, pay-per-view and audio-only program offerings,
. take advantage of our upgraded cable television infrastructure to offer
telephone and Internet/data services, and
. keep acquiring systems near our current systems and increase the percentage
we own in some systems.
Historical Growth
Most of our operating systems have provided video services for a long time.
These systems have grown significantly over the past few years, measured by the
number of subscribers and by revenues. We have grown by strategically acquiring
cable television systems and developing our existing systems. The operating and
financial information in the tables below show this growth.
We do not own 100% of all of our operating companies. The second table
measures the operating data by the percentage we own of our operating
companies. The third table presents consolidated financial information.
<TABLE>
<CAPTION>
At December 31,
----------------------------- At September 30,
Operating Data 1995 1996 1997 1998
- -------------- --------- --------- --------- ----------------
<S> <C> <C> <C> <C>
Homes in service area............ 4,332,400 4,007,760 4,134,656 5,867,686
Homes passed..................... 3,457,232 3,254,865 3,553,756 4,900,030
Two-way homes passed(1).......... -- -- 674,457 1,396,651
Basic Video subscribers(2)....... 2,153,422 2,061,197 2,311,708 3,430,903
Internet/data subscribers........ -- -- 1,907 12,736
Telephone subscribers............ -- -- 3,255 13,849
<CAPTION>
At December 31,
----------------------------- At September 30,
Proportionate Operating Data 1995 1996 1997 1998
- ---------------------------- --------- --------- --------- ----------------
<S> <C> <C> <C> <C>
Homes in service area............ 2,055,000 2,650,156 2,870,982 3,821,549
Homes passed..................... 1,635,938 2,088,108 2,351,539 3,008,195
Two-way homes passed(1).......... -- -- 541,082 919,653
Basic Video subscribers(2)....... 1,011,004 1,321,004 1,514,606 2,035,753
Internet/data subscribers........ -- -- 1,622 8,272
Telephone 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(3) 1996 1997 September 30, 1998
- ---------------------------------- ---------------- -------- -------- ------------------
(Dutch guilders, in thousands)
<S> <C> <C> <C> <C>
Revenues................ 100,179 245,179 337,155 305,237
Adjusted EBITDA(4)...... 33,756 85,877 116,030 107,792
Adjusted EBITDA Margin
(Adjusted
EBITDA/Revenues)....... 33.7% 35.0% 34.4% 35.3%
Net operating (loss)
income................. (2,468) 1,545 (28,004) (61,932)
Net Loss................ (41,529) (75,836) (165,966) (171,852)
Cash flows from
operating activities.... 38,493 41,542 132,584 52,071
Cash flows from
investing activities.... (500,106) (6,394) (402,340) (381,253)
Cash flows from
financing activities.... 465,508 (116,756) 326,482 275,910
</TABLE>
4
<PAGE>
- -------
(1) These are homes passed by coaxial cable or fiber plant capable of both
transmitting and receiving video, voice and data signals. Our Israeli
systems are not included in the total because they can provide only two-way
impulse pay-per-view video services.
(2) See "Business -- Historical Growth" for a description of how we calculate
the number of our basic video subscribers.
(3) We began as a joint venture in July 1995.
(4) Adjusted 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.
This information comes from our historical financial statements. Industry
analysts generally consider Adjusted EBITDA to be an appropriate measure of
the performance of cable television operations and communications companies
such as us. Adjusted EBITDA should not be considered as an alternative to
net income or to cash flows or to any other generally accepted accounting
principles measure of performance of liquidity or as an indicator of a
company's operating performance. This presentation of Adjusted EBITDA may
not be comparable to similarly titled measurements reported by other
companies because not all companies and analysts calculate EBITDA in the
same manner.
Relationship with UIH
United International Holdings, Inc. will own about 63% of our ordinary
shares and all of our priority shares after this offering. This means UIH will
continue to control us for the foreseeable future. The rules of the Amsterdam
Stock Exchange restrict the number of shares UIH may sell for the next three
years unless the shares are sold in a public offering. UIH is a leading
provider of video, voice and data services in Europe, the Asia/Pacific region
and Latin America. At September 30, 1998, UIH's systems passed 9.7 million
homes and served 4.4 million basic video subscribers. Measured by the
percentage it holds of its operating systems (including us), UIH's systems
passed 6.0 million homes and served 2.5 million subscribers. UIH's Class A
Common Stock trades on the Nasdaq National Market System under the
symbol "UIHIA".
The Offering
The information throughout this prospectus assumes that the underwriters do
not exercise their option to purchase additional ordinary shares in this
offering. The following information also assumes an initial public offering
price of (Euro)25.50, the midpoint of estimated offering price range.
<TABLE>
<S> <C>
The Offering............ U.S. offering 17,600,000 ordinary shares
International
offering 22,400,000 ordinary shares
--------------------------
Total 40,000,000 ordinary shares
==========================
</TABLE>
Directed Shares.... We have asked the underwriters to reserve ordinary
shares worth $300 million (representing 10,157,750
shares at the midpoint of the offering price
range) out of the shares being offered in the U.S.
offering for sale at the initial public offering
price to Microsoft Corporation.
Shares Outstanding...... After this offering, we will have 123,087,469
ordinary shares and 100 priority shares issued and
outstanding. Priority shares have special approval
and other rights.
Use of Proceeds......... We intend to use the net proceeds from the
offering:
. to improve our cable network to provide
telephone and Internet/data services, and to
pay for new activities in our video
distribution and programming businesses,
. pending such use, to repay debt of NLG620
million, which we intend to reborrow under the
same credit agreement for such use,
. to pay NLG445.6 million as part of the purchase
price for the remaining 49% of United Telekabel
Holding, our Dutch holding company,
. to repay other debt of approximately NLG270
million, and
. for general corporate purposes and future
acquisitions.
Listing/Trading
Symbols................. ADSs on Nasdaq: "UPCOY"
Ordinary shares on the Amsterdam Stock Exchange:
"UPC"
Risk Factors............ You should review the "Risk Factors" section for a
discussion of certain factors about us, the
industries in which we operate and this offering
that you should consider before buying ordinary
shares.
Payment and Delivery.... The underwriters expect to deliver the ADSs
against payment in U.S. dollars through The
Depository Trust Company's book-entry facilities
and to deliver the ordinary shares against payment
in euros through the book-entry facilities of
NECIGEF (the Dutch clearing house), Euroclear and
Cedel on or about February , 1999.
5
<PAGE>
American Depositary Shares
We are selling our ordinary shares in the form of ordinary shares or ADSs.
ADSs are American depositary shares that represent our shares. Each ADS will
represent one ordinary share. Citibank N.A. will issue the ADSs. Because ADSs
usually make owning foreign shares easier, ADSs are commonly used in offerings
by foreign companies. We are using them because we believe they will provide
you with the following benefits:
. Citibank will normally convert the cash dividends and other payments made
from Dutch guilders or euros to U.S. dollars for you. Citibank will also
assist you in claiming refunds for Dutch withholding taxes, if such refunds
are available.
. In those cases where we solicit your vote, we expect Citibank to put in
place procedures to allow you to vote the shares, so you will not need to
come to The Netherlands or comply with Dutch law to exercise your right to
vote.
. We expect to make certain information available in English. This would
include notices of meetings of shareholders, the taking of any action by
shareholders other than at a meeting, or of any action regarding
distributions on the shares. Citibank will make this information available
in the United States. We will also ask Citibank to send you or otherwise
make available to you other notices and reports made to shareholders and
our annual and semi-annual reports, which will also be in English.
. Although you must pay the fees associated with owning ADSs, you will not
need to make special custody arrangements and pay custody fees to hold the
shares in The Netherlands.
Your specific rights in the ADSs and in our ordinary shares underlying the
ADSs are set out in an agreement among us, Citibank and you, as an ADS holder.
To understand the terms of the ADSs, you should read carefully the section in
this prospectus entitled "Description of American Depositary Shares", which
describes the agreement. We also encourage you to read the agreement, which is
an exhibit to our registration statement filed with the U.S. Securities and
Exchange Commission. See "Available Information".
6
<PAGE>
Summary Consolidated Selected Financial Data of the Company
The December 31, 1995, 1996 and 1997 and September 30, 1998 financial data
come from our audited consolidated financial statements in this prospectus. The
September 30, 1997 information comes from unaudited financial statements in
this prospectus. Before the offering, we will convert every two of our ordinary
shares into three ordinary shares. We have prepared all of the information in
this prospectus as if this "stock split" has already happened.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
Six Months Ended December 31, September 30,
December 31, ---------------------- ----------------------
1995(1) 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(3).... (0.51) (0.94) (2.06) (1.60) (2.39)
========== ========== ========== ========== ==========
Weighted-average number
of common shares
outstanding(3)......... 81,000,000 81,000,000 80,488,992 81,000,000 71,801,865
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1997(2) As of September 30, 1998(3)
-------------------------- ---------------------------
(Dutch guilders, in thousands)
<S> <C> <C>
Balance Sheet Data:
Property, plant and
equipment.............. 483,693 527,069
Intangible assets....... 725,513 678,741
Total assets............ 1,919,815 1,849,968
Short-term and long-term
debt................... 1,261,533 1,343,201
Total liabilities....... 1,501,506 1,594,356
Total shareholders'
equity................. 411,530 221,347
</TABLE>
- -------
(1) We began operations as a joint venture in July 1995.
(2) We applied certain accounting changes to calculate this information to take
into account UIH's purchase of its partner's interest in us on December 11,
1997. For more information about these accounting changes, see "Pro Forma
Selected Consolidated Financial Data" and note 1 to the audited
consolidated financial statements at the back of this prospectus.
(3) We calculated "Basic and diluted loss per common share" by dividing net
loss available to ordinary shareholders by the weighted-average number of
ordinary shares outstanding during each period.
7
<PAGE>
Corporate Ownership Structure
The diagram below summarizes our operations and equity ownership percentages
in our operating systems on September 30, 1998. In November 1998, we increased
our ownership of the Israeli system to 46.6% and the Maltese system to 50%, and
sold our 20% interest in our Irish operating company. In December 1998, we
acquired from UIH 46.3% of the Hungarian (Monor) telephone system and 75% of
the programming service, Tara. At the same time we sell shares in this
offering, we will buy the 49% of our Dutch holding company, United Telekabel
Holding, that we do not own.
[FLOW CHART APPEARS HERE]
United Pan-Europe Communications N.V.(1)
Operating Systems
Consolidated Systems
Austria
Telekabel Group
95%
100%
Belgium
TVD
100%
Norway
Janco Multicom
99.6%(2)
France
Mediareseaux
Eastern Europe
Hungary(3) - 79.25%
Czech Republic - 100%
Romania(3) - 51-100%
Slovak Republic(3) - 75-100%
Unconsolidated Systems
51%
The Netherlands
United Telekabel
Holding
50%
A2000
100%
CNBH
Telekabel
Beheer
Israel
Tevel
Malta
Melita Cable
Business Lines
Video Distribution and
Programming Services
Telephony Services
Priority Telecom
Internet/Data Services
chello broadband
- -------
(1) This chart excludes a 33.5% interest in IPS, a group of programming
entities focusing on the Spanish- and Portuguese-speaking markets, which we
have agreed to purchase from UIH, and other interests.
(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) Our 79.25%-owned Hungarian system owns several operating companies. We own
51% of one Romanian local operating company and 100% of two others. We own
75% of one Slovakian local operating company and 100% of another.
8
<PAGE>
Summary Operating and Financial Data
<TABLE>
<CAPTION>
For the Nine Months
Ended
At September 30, 1998 September 30, 1998
--------------------------------------------------------------- -------------------------------
UPC Homes Two-Way Basic Basic Total Proportionate
Ownership Under Homes Homes Video Video Adjusted Adjusted
Interest License Passed Passed Subscribers Penetration Revenue EBITDA EBITDA(1)
--------- --------- --------- --------- ----------- ----------- ------- -------- -------------
(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(2).............. 25.5 575,000 569,459 329,101 516,729 90.7% 90,234 21,620 5,513
UTH(2)................ 51.0 935,132 907,078 422,902 855,277 94.3% 156,690 79,034 40,307
Norway................. 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(3).............. 23.3 600,000 568,999 -- 395,680 69.5% 222,481 121,338 28,272
Malta(3)............... 25.0 179,000 161,310 -- 68,149 42.2% 22,226 9,357 2,339
Ireland(3)............. 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................ 79.25 901,500 490,966 -- 413,119 84.1% 39,225 14,416 11,425
Czech Republic......... 100.0 229,531 148,963 -- 52,268 35.1% 6,618 (1,818) (1,818)
Romania:
Multicanal............ 100.0 70,000 21,220 -- 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(1).......... 3,821,549 3,008,195 919,653 2,035,753
========= ========= ========= =========
</TABLE>
- -------
(1) We have calculated proportionate information by multiplying the applicable
statistic for each operating system by our percentage ownership of the
operating system.
(2) At the same time as we sell shares in this offering, we will increase our
ownership of UTH to 100% and A2000 to 50%.
(3) In November 1998, we doubled our ownership of our Israeli system to 46.6%
and our Maltese system to 50%. As part of this transaction, we sold our
entire interest in our Irish system.
Our Address and Telephone Number
Our office address is Fred. Roeskestraat 123, 1070 BT Amsterdam, The
Netherlands. Our telephone number is +31 20 778 98 40.
9
<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.
We Expect to Continue to Make Net Losses for the Foreseeable Future
We have made net losses every year since we started business in July 1995.
Through September 30, 1998, we had recognized cumulative losses of about
NLG455.2 million. We have had positive operating cash flow since we started
business, but we are now actively expanding our video services business and
introducing other new lines of business. At the moment, the new lines of
business have negative cash flow. We expect negative cash flow from the new
business ventures to increase as these operations expand. We expect to incur
net losses for the foreseeable future. Continuing to make net losses could
increase our capital needs. If we never become profitable, the value of our
shares may fall.
Failure to Raise Necessary Capital Could Restrict Our Growth
Setting up and running cable television and telecommunications systems
needs much capital. A lack of capital could harm our business.
Many of our operating companies are expanding and upgrading their networks
to offer new services. Technological change may make even more upgrades
necessary if our operating companies are to compete in their markets. Our
financial resources, even with the proceeds from this offering, may not be
enough for our capital needs. Also, we plan that equipment vendors will finance
a good part of the cost of the equipment for our new services. This vendor
financing is not yet in place. We may not be able to secure vendor financing on
satisfactory terms. Not upgrading our operating systems or making other planned
capital expenditures could harm our operations and competitive position. We
have budgeted NLG515.1 million for capital expenditures in 1999 and during the
year we must also repay or refinance over NLG750 million of indebtedness. See
"Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Consolidated Capital
Expenditures" and "-- Liquidity and Capital Resources -- Sources of Capital".
We continue to look for acquisition opportunities in our existing markets.
We have agreed, for example, to buy our partner's interest in United Telekabel
Holding, our Dutch holding company. We have made no other commitments for any
significant transactions. We want to acquire systems near our existing systems
that we can run efficiently and in which we can introduce our new services. If
we pursue new acquisition or development opportunities, we may need to raise
more capital. We might do so by selling assets, issuing debt or equity or
borrowing funds. We are not sure whether we will be able to raise capital
through any of these or other methods. If we cannot, then the growth of our
business, our operating results and our financial condition would be harmed.
We are Highly Leveraged and Our Capacity to Borrow is Limited
We are highly leveraged. On September 30, 1998, we owed NLG303.6 million in
short-term consolidated debt and NLG1,039.6 million in long-term consolidated
debt. On September 30, 1998, our total long-term debt was about 80.3% of our
total capitalization. Many of our unconsolidated subsidiaries and affiliates
also have long- and short-term debt.
The terms of many of our debt facilities limit our borrowing capacity. They
also limit our ability to invest in some of our subsidiaries and certain
transactions between subsidiaries. The terms of UIH's debt securities also
restrict our ability to incur more debt.
Our Relationship with Microsoft May Not Work Out
We and Microsoft may never reach final agreement on the terms of our
relationship. Even if we do reach agreement, the relationship may not bring the
benefits that we expect. It is also possible that regulatory concerns may
hamper the development of our relationship. Our relationship will not be
exclusive and Microsoft may enter into similar relationships with other
European
10
<PAGE>
companies, including any of our competitors. We have reserved an allocation of
shares for Microsoft in this offering, but Microsoft might not buy any shares
in this offering.
The Success of Our New Telephone and Internet/Data Services Depends on Evolving
Technology
Technology in the cable television and telecommunications industry is
changing very rapidly. These changes influence the demand for our products and
services. We need to be able to anticipate these changes and to develop
successful new and enhanced products quickly enough for the changing market.
This will determine whether we can continue to grow and be competitive.
We plan to offer new services, including:
. additional video channels and tiers,
. pay-per-view services with frequent starting times (known as "impulse"
pay-per-view),
. high speed data and Internet access services, and
. cable telephone services.
We cannot guarantee that we will be able to achieve the technological
advances needed for these new services to be competitive. We also cannot be
sure that demand for our services will develop or be maintained in the light of
other new technological advances. There could be delays in introducing our new
services, such as cable modem-based high speed Internet access and cable
telephone. They may also not operate as intended.
Our New Telephone and Internet/Data Services Involve System, Marketing,
Competition and Timing Risks
We only recently began to offer local telephone and Internet/data services.
We face several risks in implementing these new services. They involve many
operating complexities. We will need to develop and enhance new services,
products and systems, as well as new marketing plans to sell the new services.
For example, we intend to introduce a comprehensive new billing system to
support our new telephone and Internet/data businesses. Until then, however, we
plan to employ enhanced versions of our existing customer care and billing
systems for these services. Problems with the existing or new systems could
delay the introduction of the new services, increase their costs, or slow down
successful marketing.
Our telephone services may not become profitable for a number of reasons.
Customer demand could be low, or we may encounter competition and pricing
pressure from incumbent and other telecommunications operators. Our network
upgrade may cost more than planned. Furthermore, our operating systems need to
interconnect their networks with those of the incumbent telecommunications
operators in order
to provide telephone services. Not all of our systems have interconnect
agreements in place. We are negotiating interconnect agreements for our planned
telephone markets that do not yet have them. This may involve time-consuming
negotiations and regulatory proceedings. Incumbent telecommunications operators
may not agree to interconnect on a time scale or at rates (and on other terms)
that will permit us to offer profitable telephone services.
We cannot guarantee that we will be able to introduce our new service
offerings on schedule. They may not meet our financial expectations. This would
impede our planned growth and financial condition.
The Scalability, Speed and Technology of the Network Has Not Been Proved for
Our New Telephone and Internet/Data Services
We cannot be sure whether our Internet access business will be able to
handle a large number of online subscribers at high data transmission speeds.
As the number of subscribers goes up, we may have to add more fiber connection
points in order to maintain the high speeds. This would need more capital,
which we may be unable to raise. If we cannot offer high data transmission
speeds, customer demand for our Internet/data services would go down. This
would harm our Internet/data business, our operating results and our financial
condition.
We have not yet tested the technology we plan to use for telephone services
for the numbers of subscribers we expect. It may not function successfully at
these scales. This would harm our
11
<PAGE>
telephone operations. We plan to use back-up batteries for our cable phones
for operation during power failures. These may run out in prolonged power
failures. This would interrupt the service and could lead to customer
dissatisfaction.
Lack of Necessary Equipment Could Delay or Impair Our Expansion
If we cannot obtain the equipment needed for our existing and planned
services, our operating results and financial condition may be harmed. For
example, a customer will need a digital set-top box to access the Internet or
receive our other enhanced services through a television set. These boxes are
being developed by several suppliers. If there are not enough affordable set-
top boxes for subscribers, however, we may have to delay our expansion plans.
We May Not Be Able To Obtain the Necessary Programming
Our success depends on obtaining or developing affordable and popular
programming for our subscribers. We may not be able to obtain or develop
enough competitive programming to meet our needs. This would reduce demand for
our video services, limiting their revenues. We rely on other programming
suppliers for most of our programming. In some markets, there is only a
limited amount of local language programming available. There we must
repackage other programming in the local language. We also plan to commit
substantial resources to obtaining and developing new programming. We expect
to seek partners for this. We may not, however, find the appropriate partners
or successfully implement our programming plans.
Developing Expanded Basic Tier Video Services Involves Risks
We may, where appropriate and permitted, move some of our more highly
valued channels from basic tiers, which are generally price regulated, to
expanded basic tiers for which we charge more. In many systems, we would need
consent from the local authorities to do this. We may be unable to obtain this
consent on satisfactory terms or on the desired schedule. Subscribers to the
basic tier services accustomed to receiving certain channels may not wish to
pay additional fees to receive these channels in the expanded basic tier.
Thus, the movement of channels out of the basic tiers could lead to customer
dissatisfaction.
We Expect Competition in Video Services to Increase
The cable television industry in many of our markets is competitive and
changing rapidly. We expect that competition with new entrants who have other
multi-channel television technologies will increase. These may include:
. direct to home satellite services,
. private cable systems, and
. ""wireless'' cable delivered by radio transmission.
We may also face competition from other communications and entertainment
media companies. These could include incumbent telecommunications operators.
In some franchise areas, our rights to provide video services are not
exclusive and we may have to compete with other cable operators.
The Competitiveness of the Telephone Services Industry Poses Risks for New
Entrants
We will face competition from incumbent telecommunications operators and
other new entrants to the European telephone market. Some of these competitors
have more experience in providing telephone services than we have. Some can
also devote more capital to these services than we can.
Developing a profitable telephone service will depend, among other things,
on whether we can:
. attract customers,
. maintain competitive prices,
. limit loss of customers, and
. provide high quality customer care and billing services without
incurring significant additional costs.
As part of our goal to offer integrated telecommunications services, we
plan to offer local and long distance telephone services. The long distance
telephone business is extremely competitive. Prices for long distance calls
have gone down significantly in recent years and we
12
<PAGE>
expect them to continue to drop. Increased competition may also push prices
down for local telephone services. Regulators may make incumbent
telecommunications operators lower their rates. Because these are our principal
competitors, this could force us to lower our rates to remain competitive.
Competition in Internet/Data Services is Also Growing Quickly
The Internet services business in Europe is highly competitive. At the
moment, we compete with Internet service providers that offer traditional
modems using telephone lines, including many incumbent telecommunications
operators. These providers usually employ traditional low-speed telephone lines
and higher speed connections. We expect chello broadband to face competition
from other Internet service providers that also use higher speed, higher
capacity cable modems. These include @Home and Roadrunner as they move to the
European market. In the future, we expect to compete with other
telecommunications service providers, including incumbent telecommunications
operators, using other broadband technologies.
Rapid Growth Would Impose Significant Challenges on Our Operations
We are pursuing a new business plan with initiatives across many new
business lines and countries. If we succeed, our operations will grow and
expand rapidly. We expect that this will place significant additional demands
on our management. A number of the members of our management joined us only
recently. If we achieve this growth, our continued success will depend on how
well we manage the growth. We will need to improve our information, management,
operational and financial systems. Our business, operating results and
financial condition may be harmed if we fail to manage growth effectively.
We Depend Upon Key Personnel
There is intense competition for qualified personnel in our businesses and
technologies. Our success and growth strategy depend upon being able to attract
and hold onto key management, technological and operating personnel. These
include Mark Schneider, John Riordan, Timothy Bryan, Scott Bachman, Timothy
Morel and Joseph Webster. It is particularly difficult for us to keep a
successful management team because many of them must live and work away from
their home countries. For example, our managing director of video entertainment
recently resigned for personal reasons and we are seeking an equally qualified
replacement. It is difficult to find other experienced managers. We may not be
able to attract and hold onto key employees. This could hinder the introduction
of our new services as planned and may harm our business, operating results and
financial condition.
Video Services Are Regulated in Most of Our Markets
In most of our markets, regulation of video services takes the form of
price controls and programming content restrictions. Also, in The Netherlands
and Austria, local municipalities have contractual rights that restrict our
flexibility to increase prices, change programming and introduce new services.
Such restrictions could limit our revenues and growth plans and have a
significant effect on our operations. For example, see "Regulation -- The
Netherlands -- Video Services".
Regulation May Affect Our Plans to Introduce Our New Telephone and
Internet/Data Services
The primary scope of current regulation in the telecommunications sector in
our Western European markets has been to remove the monopoly power of incumbent
telecommunications operators. While this has given us the opportunity to enter
the telephone and Internet/data markets, the regulatory regimes present some
risks. As we explained above, the markets are highly competitive, largely as a
result of such regulation. Also, our operating companies need to obtain and
retain licenses and other regulatory approvals for our new services. They may
not succeed. In order to offer our new services, our operating companies need
to connect their networks to those of the incumbent telecommunications
operators. The regulatory regimes in our Western European markets have been
designed to help us obtain fairly priced interconnect arrangements. As we found
in Austria, however, the regulatory process can be time-consuming. This may
impede our ability to obtain appropriate interconnect
13
<PAGE>
arrangements on schedule. Problems such as these would delay the introduction
of the new services.
The Internet access business has not been materially restricted by
regulation in our markets. The legal and regulatory environment of Internet
access and commerce is uncertain, however, and may change. New laws and
regulations may be adopted for Internet service offerings. Existing laws may be
applied to the new forms of electronic commerce. Uncertainty and new regulation
could increase our costs. It could also slow the growth of electronic commerce
on the Internet significantly. This could delay growth in demand for our
Internet/data services and limit the growth of our revenues. New and existing
laws may cover issues such as:
. sales and other taxes,
. user privacy,
. pricing controls,
. characteristics and quality of products and services,
. consumer protection,
. cross-border commerce,
. libel and defamation,
. copyright and trademark infringement,
. pornography, and
. other claims based on the nature and content of Internet materials.
In Austria, the local cities have veto rights over the introduction of new
services. This would include our telephone and Internet/data services. While
the cities have not used their veto power in the past, they could use this
power to restrict the manner in which we introduce our new services.
We Will Continue to be Controlled by UIH and Governed by the Terms of its Debt
Securities
After this offering, UIH will own approximately 63% of our ordinary shares
and all of our priority shares. As a result, UIH will be able to control the
election of all but one of the members of the Supervisory Board. Philips has
had the right to appoint one member since UIH acquired 50% of us from Philips
in 1997. UIH will be able to determine the outcome of almost all corporate
actions requiring the approval of our shareholders. Thus, UIH will continue to
control substantially all of our business affairs and policies.
The Supervisory Board has the power to approve transactions in which UIH
has an interest. This power is subject to directors' fiduciary duties to our
other shareholders. Nonetheless, conflicts may arise between the interests of
UIH and our other shareholders. For example, UIH may choose to invest in other
properties or have long-term debt obligations. UIH could cause us to provide
financial resources to our shareholders. This could limit our current strategy
of investing in our new businesses.
As a subsidiary of UIH, we are governed by the terms of UIH's debt
securities. We have agreed with UIH not to take any action that would result in
a breach of these terms. They limit our ability to incur more debt and issue
certain preferred stock. Our freedom to invest in entities that we do not
control is also limited. Even if we do not cause a breach of the terms of UIH's
debt securities, a breach that is not caused by us could still restrict us from
incurring more debt or taking other actions. Many other terms of UIH's debt
securities affect the way we operate and organize transactions.
Computer Systems May Not Achieve Year 2000 Readiness
We rely greatly on computer systems and other technological devices. These
may not be capable of recognizing dates beginning on January 1, 2000. This
problem could cause any of our cable television, telephone, Internet/data or
programming operations to malfunction or fail.
UIH's Board of Directors has set up a task force to assess and try to
remedy the effect of potential Year 2000 problems on its critical operations,
including those of UPC. Some of our critical operations depend on other
companies, such as our ability to connect our telephone customers to persons
who use other telephone service providers. We cannot control how these other
companies assess and remedy their own Year 2000 problems. We are communicating
with these companies to find out more about the status of their Year 2000
compliance programs. The task force will evaluate and develop contingency plans
as needed. These may not be sufficient, however, to prevent interruptions on
our systems. If we or other companies on whom we depend fail to
14
<PAGE>
implement Year 2000 procedures on time, our business, operating results and
financial condition could be significantly harmed.
Foreign Currency Exchange Rate Fluctuations May Cause Losses
In each country, our operating companies attempt to match costs, revenues,
borrowings and repayments in their local currencies. Nonetheless, they have had
to pay for a lot of equipment in currencies other than their own. This may
continue to be the case for the foreseeable future. On a consolidated basis, as
of September 30, 1998, about 25% of our debt was denominated in currencies
other than Dutch guilders. Some of our operating companies also owe debt and
have receivables that are denominated in other currencies. See "Management's
Discussion and Analysts of Financial Condition and Results of Operations --
Liquidity and Capital Resources". This exposes them to risk from foreign
currency exchange rate fluctuations.
At the UPC level, the value of our investment in an operating company is
affected by the exchange rate between the Dutch guilder and the local currency
of the operating company.
In general, neither we nor our operating companies try to reduce our
exposure to these exchange rate risks by using hedging transactions. We may
therefore suffer losses solely as a result of exchange rate fluctuations. Since
we began business, we have had cumulative foreign exchange losses of about
NLG59.1 million.
The Market for Our Shares May be Affected by Future Sales
After the offering, the 40,000,000 shares sold in the offering will be
freely tradeable in the United States without restriction or further
registration under the U.S. securities laws. They will also be freely tradable
on the Amsterdam Stock Exchange. Sales of shares after the offering by UIH, our
officers and directors, and our business partners, whom we expect will receive
shares at the same time as this offering, are subject to legal and contractual
restrictions. These restrictions will expire after varying time periods. The
market price of our shares could drop if substantial amounts of shares are sold
in the public market or if sales of substantial amounts of shares are expected
to occur. This could also impair our ability to raise capital through offering
equity securities. For more information about the legal and contractual
restrictions on the sale of shares by UIH, our officers and directors, and our
business partners, whom we expect will receive shares at the same time as this
offering, see "Shares Eligible for Future Sale".
Investors in the Offering Will Experience Immediate and Substantial Dilution
Purchasers of shares in the offering will experience immediate and
substantial dilution in the net tangible book value of NLG43.28 per share
(based on an assumed initial public offering price of NLG56.20 per share, the
midpoint of the estimated offering range). In addition, we have other
securities outstanding which, upon exercise or conversion, could result in
further dilution.
We Do Not Intend to Pay Dividends For the Foreseeable Future
We have never paid dividends on our shares. We do not intend to pay
dividends in the foreseeable future. The terms of some of our existing debt
facilities prevent us from paying dividends. At the moment, we do not have
sufficient statutory capital under Dutch regulations to make distributions. You
should therefore not expect to receive dividends on our shares in the
foreseeable future.
15
<PAGE>
USE OF PROCEEDS
Based on the midpoint of our estimated price range, the net proceeds to us
from the offering are expected to be approximately NLG2,248 million ((Euro)1,020
million and $1,181 million as of January 22, 1999). We plan to use the proceeds
from the offering:
. to fund costs, which we estimate to be approximately NLG500 million to
NLG750 million in the aggregate, associated with the network upgrade (40-
60%), the build and launch of our telephone and Internet/data businesses
(20-40%), and new activities in our video distribution and programming
businesses (15-25%),
. pending such use, to repay approximately NLG620 million of indebtedness
incurred under our senior revolving credit facility (the "Tranche A
Facility") which we plan to reborrow under that facility for those uses,
. to repay approximately NLG114 million of indebtedness incurred under our
bridge bank facility (the "Tranche B Facility"),
. to pay approximately NLG445.2 million as the cash portion of the purchase
price for the remaining 49% of UTH we do not own,
. to repay approximately NLG156 million of indebtedness and the interest
due thereon owed to UIH, and
. for general corporate purposes and future acquisitions.
Until the net proceeds of the offering are used as described above, we
intend to hold such proceeds in short-term, interest-bearing, investment grade
securities, including governmental obligations and other money market
instruments.
The Tranche A Facility bears interest at LIBOR plus a margin of 0.5% to
2.0% and matures in 2006. The Tranche B Facility bears interest at LIBOR plus a
margin of 4.5% to 6.0% and matures in June 1999. As of September 30, 1998,
approximately NLG971.9 million and NLG113.5 million were outstanding under the
Tranche A Facility and the Tranche B Facility, respectively. A portion of the
Tranche A Facility was used to refinance certain of our operating companies'
indebtedness. A portion of the Tranche A Facility and the entire Tranche B
Facility were used to fund UIH's acquisition of its partner's interest in us.
The UIH loan bears interest at 10.75% per annum. As of September 30, 1998,
approximately NLG156 million was outstanding under this loan. The funds loaned
by UIH were used to reduce our indebtedness under the Tranche B Facility and to
fund business operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
DIVIDEND POLICY
We have never declared or paid cash dividends on our ordinary shares. We do
not intend to pay dividends for the foreseeable future. Certain of our debt
facilities currently prohibit us from paying dividends. In addition, Dutch
regulations limit our distributions from statutory capital equity. See "Risk
Factors -- We Do Not Intend to Pay Dividends for the Foreseeable Future".
16
<PAGE>
EXCHANGE RATE DATA
We report all of our 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.
In the future, we expect to report our financial results in euros. The
fixed exchange rate is (Euro)0.45378 per NLG1.00. On January 22, 1999, the
exchange rate was (Euro)0.86341 per $1.00.
The following table sets forth, for the periods indicated, information
concerning the exchange rate at the end of the period, the average of the
exchange rates at 12:00 p.m. Eastern Standard Time on the last day of each
month during the applicable period and the high and low exchange rates for
Dutch guilders expressed in guilders per $1.00. On January 22, 1999, the
exchange rate was NLG1.9027 per $1.00.
<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........................ 1.95 1.74 1.60 1.73 2.03 1.88
Average exchange rate during
period........................ 1.86 1.81 1.60 1.69 1.97 2.02
Highest exchange rate during
period........................ 1.96 1.98 1.75 1.76 2.12 2.09
Lowest exchange rate during
period........................ 1.76 1.67 1.52 1.61 1.73 1.88
</TABLE>
- --------
(1) Source: Federal Reserve Statistical Release H.10(512). Exchange rates have
been rounded to the nearest 1/100th of one dollar.
The following table presents the spot rates used to translate the balance
sheets and the average rates used to translate the income statements of our
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>
17
<PAGE>
DILUTION
Our net tangible book value as of September 30, 1998, was negative NLG547.7
million or negative NLG7.63 per ordinary share. Pro forma for our purchase from
UIH of UIH's interests in Monor, Tara and IPS in exchange for our shares (the
"Pro Forma Adjustment"), 11,285,604 of our ordinary net tangible book value as
of September 30, 1998 would have been negative NLG534.9 million or negative
NLG6.44 per share. "Net tangible book value per share" is determined by
subtracting our total liabilities and minority interests from our total
tangible assets and dividing the remainder by the number of shares outstanding,
including those issued shares held by the foundation that administers our
Equity Stock Option Plan. See "Management -- Stock Option Plans". After giving
effect to our sale of 40,000,000 ordinary shares in the offering at an
estimated initial public offering price of NLG56.20 per share, the midpoint of
the estimated offering range, and application of the estimated proceeds
therefrom, our net tangible book value as of September 30, 1998, pro forma for
the Pro Forma Adjustment, our net tangible book value as of September 30, 1998
would have been NLG1,589.8 million or NLG12.92 per share. This represents an
immediate increase in net tangible book value of NLG19.36 per share to existing
shareholders and an immediate dilution in net tangible book value of NLG43.28
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:
Assumes initial offering Price Per Ordinary Share................. 56.20
Negative Net Tangible Book Value Per Ordinary Share (Including
the Pro Forma Adjustment) Before the Offering.................. (6.44)
Increase Per Ordinary Share Attributable to the Offering.......... 19.35
Net Tangible Book Value Per Ordinary Share, As Adjusted
to Reflect the Offering........................................ 12.92
Dilution Per Ordinary Share Purchases by New Investors............ 43.28
The following table sets forth as of September 30, 1998, pro forma for the
Pro Forma Adjustment, the number of ordinary shares purchased from us, the
total cash and other consideration paid to us and the average price paid per
share by existing shareholders and by the purchasers of the shares offered
hereby, at an assumed initial public offering price of NLG56.20 per share, the
midpoint of the estimated offering range. If the Discount Group exercises its
option to acquire approximately $90 million of our ordinary shares at 90% of
the per share price in this offering, shareholders will experience additional
dilution. See "Certain Transactions and Relationships -- The Discount Group's
Option".
<TABLE>
<CAPTION>
Ordinary Shares Total Consideration
------------------- --------------------------
Number Percent Amount Percent
----------- ------- ------------ ----------
(Dutch guilders
in thousands)
<S> <C> <C> <C> <C>
UIH...................... 77,087,469 62.63 633,949(1) 22.0%
Management and employees
Foundation(2)........... 6,000,000 4.87 -- --
Investors in the
offering................ 40,000,000 32.50 2,248,000 78.0%
----------- ----- ------------ -------
Total.................. 123,087,469 100% 2,881,949 100%
=========== ===== ============ =======
</TABLE>
- --------
(1) Represents the book value of all property contributed by UIH to us upon our
formation and afterwards, additional consideration paid by UIH to Philips
upon our formation and the amount paid by UIH to acquire Philips' interest
in us.
(2) Represents options exercised by employees, some of which are still subject
to our repurchase right. See "Management -- Stock Option Plans".
18
<PAGE>
CAPITALIZATION
The following table sets forth our non-restricted cash and cash
equivalents, short-term debt and consolidated capitalization as of September
30, 1998 and as adjusted to reflect the offering and the application of the net
proceeds from the offering, the Nuon Acquisition, and the issuance of
11,285,604 ordinary shares to UIH in connection with UIH's contribution of its
interest in Monor, Tara and IPS. The table should be read in conjunction with
our audited consolidated financial statements 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>
Non-restricted cash and cash
equivalents........................... 44,340 870,466 (1)
=============== ===============
Short-term debt:
Time Warner Note..................... 34,020 34,020
UTH short-term debt.................. -- 576,400 (2)
UIH Loan............................. 156,030 -- (1)
Tranche B Facility................... 113,519 -- (1)
--------------- ---------------
Total short-term debt.............. 303,569 610,420
=============== ===============
Long-term debt:
Tranche A Facility................... 971,978 351,978 (1)
Mediareseaux Facility................ 20,190 20,190
UTH long-term debt................... -- 224,092 (3)
Bank and other loans................. 47,464 47,464
--------------- ---------------
Total long-term debt............... 1,039,632 643,724
--------------- ---------------
Minority interest in subsidiaries...... 34,265 34,265
NUON equity obligation................. -- 106,000 (4)
--------------- ---------------
Shareholders' equity:
Ordinary shares...................... 54,000 82,602 (1)
Additional paid-in capital........... 631,323 2,605,287 (5)
Deferred compensation................ (5,826) (5,826)
Treasury stock....................... (122,662) --
Accumulated deficit.................. (318,089) (318,089)
Other cumulative comprehensive income
(loss) ............................. (17,399) (17,399)
--------------- ---------------
Total shareholders' equity......... 221,347 2,346,035
--------------- ---------------
Total capitalization............. 1,295,244 3,130,024
=============== ===============
</TABLE>
- --------
(1)Non restricted cash and cash equivalents have been increased for net
offering proceeds net of payment of the UIH loan, the Tranche B Facility,
NLG 620 million of the TRanche A Facility and funds due to Nuon for our
purchase of their 49% interest in UTH.
(2)Represents shot-term dent consolidated in connection with the purchase of
UTH. In January 1999, UTH received commitments from banks to refinance this
facility on a long-term basis.
(3)Represents long-term debt consolidated in connection with the purchase of
UTH.
(4)Represents our equity obligation to Nuon due six month s subsequent to
closing.
(5)Reflects the issuance of 11285,604 ordinary shares to UIH in connection with
UIH's contribution to us of its interests in Monor, Tara, and IPS and the
issuance of 40,000,000 common shares in the offering.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the six months ended
December 31, 1995, the years ended December 31, 1996 and 1997 and the nine
months ended September 30, 1998 have been derived from our audited consolidated
financial statements included in this prospectus. The following selected
consolidated financial data for the nine months ended September 30, 1997 has
been derived from unaudited financial statements included in this prospectus
that, in our opinion, 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 Electronics
N.V. ("Philips") contributed to us upon our 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 our opinion,
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 our predecessor.
The data set forth below for us is qualified by reference to, and should be
read in conjunction with, our audited consolidated financial statements and
notes thereto and also with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this prospectus.
<TABLE>
<CAPTION>
Predecessor in Interest UPC
---------------------------- -----------------------------------------------------------
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(1)
------- ------- ---------- ------------ ---------- ---------- ---------- ----------
(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(2)... n/a n/a n/a (0.51) (0.94) (2.06) (1.60) (2.39)
========== ========== ========== ========== ==========
Weighted-average number
of common shares
outstanding(2)........ n/a n/a n/a 81,000,000 81,000,000 80,488,992 81,000,000 71,801,865
========== ========== ========== ========== ==========
</TABLE>
- -------
(1) As a result of UIH's acquisition of Philips' interest in us and the
associated push-down of UIH's basis on December 11, 1997, this information
is presented on a "post-acquisition" basis.
(2) "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.
20
<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>
Selected 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 UIH's acquisition of Philips' interest in us and the
associated push-down of UIH's basis on December 11, 1997, this information
is presented on a "post-acquisition" basis.
21
<PAGE>
PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA
In August 1998, we and a Dutch energy company ("NUON") created United
Telekabel Holding ("UTH") by contributing each of our interests in Dutch cable
television systems to the new company (the "UTH Transaction"). We contributed
our 100% interest in CNBH and our 50% interest in A2000. NUON contributed its
100% interest in N.V. TeleKabel Beheer ("Telekabel Beheer"). We held 51% of
UTH, with NUON owning the remaining 49%. Effective August 1998, we
deconsolidated our assets contributed to UTH and accounted for our interest in
UTH under the equity method (see note 3 to the audited consolidated financial
statements included in this prospectus). In January 1999, we agreed to purchase
NUON's 49% ownership interest in UTH, increasing our ownership of UTH to 100%
(the "NUON Transaction"), for NLG487.6 million, plus interest at 5.5%
compounded annually from January 1, 1998. In addition, we will purchase from
NUON a NLG33.0 million subordinated loan dated December 23, 1998, and owed by
UTH to NUON, plus interest on the loan at 5.5% from December 23, 1998 until the
closing date. Upon closing of the NUON Transaction, we will consolidate 100% of
the results of UTH. See "Corporate Ownership Structure -- The Netherlands --
UTH".
The following unaudited pro forma consolidated condensed balance sheet
gives effect to the NUON Transaction as if it had occurred on September 30,
1998. The following
unaudited pro forma consolidated statement of operations for the year ended
December 31, 1997 gives effect to (1) UIH's acquisition of Philips' 50%
interest in us in December 1997 (the "UPC Acquisition") and (2) the UTH
Transaction and the NUON Transaction, as if both had occurred as of January 1,
1997. The following unaudited pro forma consolidated statement of operations
for the nine months ended September 30, 1998 gives effect to the UTH
Transaction and the NUON Transaction, as if both had occurred as of January 1,
1997.
The following pro forma consolidated condensed balance sheet and statements
of operations and notes thereto do not purport to represent what our 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 we believe are reasonable. The unaudited pro
forma consolidated condensed financial information and accompanying notes
should be read in conjunction with our audited consolidated financial
statements and the notes thereto, and other financial information, including
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", included in this prospectus.
<TABLE>
<CAPTION>
As of September 30, 1998
-------------------------------------
NUON
Historical Transaction(1) Pro Forma
Consolidated Condensed Balance Sheet: ---------- -------------- ---------
(Dutch guilders, in thousands)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents................. 44,340 2,562 46,902
Restricted cash........................... 9,265 -- 9,265
Subscriber receivables, net............... 12,369 13,810 26,179
Costs to be reimbursed by affiliated
companies, net........................... 25,369 -- 25,369
Other current assets...................... 54,174 69,527 123,701
--------- --------- ---------
Total current assets..................... 145,517 85,899 231,416
Marketable equity securities of parent, at
fair value............................... 58,025 -- 58,025
Investments in and advances to affiliated
companies, accounted for under the equity
method, net ............................. 365,724 (63,270)(2) 302,454
Property, plant and equipment, net........ 527,069 779,629 1,306,698
Goodwill and other intangible assets,
net...................................... 678,741 683,820 (3) 1,362,561
Deferred financing costs, net............. 22,142 -- 22,142
Non-current restricted cash and other
assets................................... 52,750 -- 52,750
--------- --------- ---------
Total assets............................. 1,849,968 1,486,078 3,336,046
========= ========= =========
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
As of September 30, 1998
------------------------------------
NUON
Historical Transaction(1) Pro Forma
---------- -------------- ---------
(Dutch guilders, in thousands)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued liabilities and
other current liabilities .............. 198,513 132,850 331,363
Short term debt.......................... 34,020 257,500(4) 291,520
Notes payable............................ 156,030 -- 156,030
Current portion of long term debt ....... 113,519 579,009 692,528
--------- --------- ---------
Total current liabilities............... 502,082 969,359 1,471,441
Long-term debt........................... 1,039,632 481,592(5) 1,521,224
Deferred taxes and other long-term
liabilities............................. 52,642 35,127 87,769
--------- --------- ---------
Total liabilities....................... 1,594,356 1,486,078 3,080,434
--------- --------- ---------
Minority interest in subsidiaries........ 34,265 -- 34,265
--------- --------- ---------
Shareholders' equity..................... 221,347 -- 221,347
--------- --------- ---------
Total liabilities and shareholders'
equity.................................. 1,849,968 1,486,078 3,336,046
========= ========= =========
</TABLE>
- --------
(1) The unaudited pro forma effects on the balance sheet include (1)
elimination of our equity investment in UTH, (2) the purchase of the
remaining 49% interest in UTH, including the purchase price allocation
related to the acquisition, and (3) additional debt assuming that the
acquisition of the remaining 49% ownership interest in UTH would be funded
with debt.
In accordance with the terms of the purchase agreement for the acquisition
of NUON's 49% interest in UTH and assuming offering proceeds of more than
NLG1,400 million, the purchase price, including the NLG33 million
subordinated note and interest, would be funded with approximately NLG445.2
million in cash proceeds from the offering and the remaining amount
totaling approximately NLG106 million would be satisfied by an issuance of
our ordinary shares to NUON or, at our option, cash six months subsequent
to closing. These pro formas have been prepared assuming the entire
purchase price will be settled in cash.
(2) Represents the net decrease in investments in and advances to affiliated
companies as a result of the NUON Transaction:
<TABLE>
<S> <C>
De-consolidation of UPC's historical investments in and
advances to UTH........................................... NLG(248,791)
Consolidation of historical UTH investments in and advances
to affiliated companies................................... NLG 185,521
-----------
NLG (63,270)
===========
</TABLE>
(3) Represents the increase in goodwill as a result of the NUON Transaction:
<TABLE>
<S> <C>
Consolidation of historical UTH goodwill...................... NLG403,629
Additional Pro Forma goodwill related to NUON Transaction..... NLG280,191
----------
NLG683,820
==========
</TABLE>
(4) Represents the increase in short-term debt for the portion of the seller
financing from NUON due no later than November 30, 1999 incurred in
connection with the NUON Transaction.
(5) Represents the increase in long-term debt as a result of the NUON
Transaction:
<TABLE>
<S> <C>
Consolidation of historical UTH long-term debt................ NLG224,092
Seller financing due December 31, 2000........................ NLG257,500
----------
NLG481,592
==========
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30, 1998
------------------------------------
Pro Forma
Adjustments
---------------
UTH and NUON
Historical Transactions(1) Pro Forma
---------- --------------- ---------
(Dutch guilders,
in thousands except per share data)
<S> <C> <C> <C>
Consolidated Condensed Statement of
Operations:
Service and other revenue................ 305,237 123,417 428,654
Operating expense........................ (97,472) (42,585) (140,057)
Selling, general and administrative
expense................................. (132,466) (29,836) (162,302)
Depreciation and amortization............ (137,231) (60,577)(4) (197,808)
-------- ------- --------
Net operating loss....................... (61,932) (9,581) (71,513)
Interest income.......................... 4,621 -- 4,621
Interest expense......................... (74,558) (50,282)(5) (124,840)
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) (59,863) (185,123)
Share in results of affiliated companies,
net..................................... (42,167) 5,509 (6) (36,658)
Minority interests in subsidiaries....... (4,838) -- (4,838)
Income tax benefit (expense)............. 413 -- 413
-------- ------- ========
Net loss................................. (171,852) (54,354) (226,206)
======== ======= ========
Basic and diluted net loss per common
share(2)................................ (2.39) (0.76) (3.15)
======== ======= ========
Supplemental basic and diluted net loss
per common share(2)..................... (1.43) (0.76) (2.05)
======== ======= ========
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
------------------------------------------------------------------------
Pro Forma Adjustments
--------------------------------------
UTH
UPC and NUON
Historical Acquisition(3) Transactions(1) Pro Forma
------------- --------------- ---------------- -------------
(Dutch guilders, in thousands except per share data)
<S> <C> <C> <C> <C>
Consolidated Condensed
Statement of
Operations:
Service and other
revenue................ 337,155 -- 137,233 474,388
Operating expense....... (111,919) -- (43,783) (155,702)
Selling, general and
administrative
expense................ (114,024) -- (35,682) (149,706)
Depreciation and
amortization........... (139,216) (19,704)(7) (58,255)(4) (217,175)
------------- ------------ ------------ -------------
Net operating loss...... (28,004) (19,704) (487) (48,195)
Interest income......... 6,512 -- -- 6,512
Interest expense........ (72,544) (12,483)(8) (54,535)(5) (139,562)
Provision for loss on
investment related
costs.................. (18,888) -- -- (18,888)
Foreign exchange gain
(loss) and other
expense................ (41,160) 8,441 (9) -- (32,719)
------------- ------------ ------------ -------------
Net loss before income
taxes and other items.. (154,084) (23,746) (55,022) (232,852)
Share in results of
affiliated companies,
net.................... (10,637) (8,169)(10) (4,731)(6) (23,537)
Minority interests in
subsidiaries........... (2,894) -- 683 (2,211)
Income tax benefit
(expense).............. 1,649 -- 3,081 4,730
------------- ------------ ------------ -------------
Net loss................ (165,966) (31,915) (55,989) (253,870)
============= ============ ============ =============
Basic and diluted net
loss per common
share(2)............... (2.06) (0.44) (0.78) (3.54)
============= ============ ============ =============
Supplemental basic and
diluted net loss per
common share(2)........ (2.06) 0.35 (0.78) (2.19)
============= ============ ============ =============
</TABLE>
- --------
(1) The unaudited pro forma effects on the statement of operations for the
nine months ended September 30, 1998 include (1) the consolidation of
Telekabel Beheer's historical statement of operations for the seven months
ended July 31, 1998, (2) the consolidation of UTH's statement of
operations for the two months ended September 30, 1998, (3) the reversal
of UPC's share in results of UTH recorded, (4) additional depreciation and
amortization related to the purchase price allocation for the acquisition
of Telekabel Beheer and (5) additional interest expense assuming the
acquisition of NUON's 49% ownership interest in UTH would be funded with
seller financing from NUON at an interest rate of 5.5% per annum.
The unaudited pro forma effects on the statement of operations for the year
ended December 31, 1997 include (1) the consolidation of Telekabel Beheer's
historical statement of operations for the year ended December 31, 1997, (2)
additional depreciation and amortization related to the purchase price
allocation for the acquisition of Telekabel Beheer and (3) additional
interest expense assuming the acquisition of NUON's 49% ownership interest
in UTH would be funded with seller financing from NUON at an interest rate
of 5.5% per annum.
In accordance with the terms of the purchase agreement for the acquisition
of NUON's 49% interest in UTH and assuming offering proceeds of more than
NLG1,400 million, the purchase price, including the NLG33 million
subordinated note and interest, would be funded with approximately NLG445.2
million in cash proceeds from the offering and the remaining amount
totaling approximately NLG106 million would be satisfied by an issuance of
our ordinary shares to NUON or, at our option, cash six months subsequent
to closing. These pro formas have been prepared assuming the entire
purchase price will be settled in cash.
(2) "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. Supplemental basic and
diluted net loss per common share gives pro forma effect to a reduction of
debt related interest expense for that debt that will be paid down from
offering proceeds. The number of pro forma outstanding shares has been
increased for the proceeds necessary to reduce the debt.
(3) In connection with UIH's acquisition of Philips' interest in us, our net
assets acquired by UIH were recorded at fair market value based on the
purchase price paid by UIH. As a result of our becoming essentially wholly
owned by UIH, certain purchase accounting adjustments, along with existing
basis differences, were pushed down to our financial statements and a new
basis of accounting was established for our net assets acquired by UIH.
The pro forma effects on the statement of operations for the year ended
December 31, 1997 include (1) 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 our net assets, (2) the increase
in interest expense from the new Tranche A Facility and Tranche B Facility
incurred to finance UIH's acquisition of Philips' interest in us, as well
as foreign exchange loss on the U.S. dollar-denominated Tranche B
Facility, (3) 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 (4) elimination of historical
interest expense on those existing credit facilities that were refinanced
through the proceeds from the Tranche A and Tranche B Facilities.
25
<PAGE>
(4) Represents the increase in depreciation and amortization as a result of
the NUON Transaction:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Consolidation of historical Telekabel
Beheer depreciation and
amortization........................ NLG(32,128) NLG(39,963)
Consolidation of historical UTH
depreciation and amortization for
the two months ended September 30,
1998................................ NLG(14,730) --
Additional amortization of excess
purchase price in connection with
the NUON Transaction................ NLG(13,719) NLG(18,292)
---------- ----------
NLG(60,577) NLG(58,255)
========== ==========
</TABLE>
(5) Represents the increase in interest expense as a result of the NUON
Transaction:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Consolidation of historical Telekabel
Beheer interest expense............. NLG(21,227) NLG(26,210)
Consolidation of historical UTH
interest expense for the two months
ended September 30, 1998............ NLG (7,811) --
Interest expense on NLG515 million
seller financing (assuming 5.5% per
annum) in connection with the NUON
Transaction......................... NLG(21,244) NLG(28,325)
---------- ----------
NLG(50,282) NLG(54,535)
========== ==========
</TABLE>
(6) Represents the net increase in share in results of affiliates as a result
of the NUON Transaction:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Reversal of UPC's historical share in
results of UTH for the two months
ended September 30, 1998............ NLG 8,325 --
Consolidation of historical Telekabel
Beheer share in results of
affiliated companies................ NLG 6,237 NLG(4,731)
Consolidation of historical UTH share
in results of affiliated companies.. NLG(9,053) --
--------- ---------
NLG 5,509 NLG(4,731)
========= =========
</TABLE>
(7) Represents additional depreciation and amortization as a result of the
step-up in basis of property, plant and equipment, license costs and
goodwill as a result of the UPC Acquisition (see note 1 to the audited
consolidated financial statements included in this prospectus).
(8) Represents the net increase in interest expense as a result of the UPC
Acquisition:
<TABLE>
<S> <C>
Elimination of historical interest expense on the PIK Notes... NLG28,743
Elimination of historical interest on refinanced credit
facilities................................................... NLG19,700
Additional interest expense on the Tranche A Facility
(assuming borrowings of NLG786,000 at an interest rate of
5.5%)........................................................ NLG(40,828)
Additional interest expense on the Tranche B Facility
(assuming borrowings of NLG224,000 at an interest rate of
9.5%)........................................................ NLG(20,098)
----------
NLG(12,483)
==========
</TABLE>
(9) Represents the net decrease in foreign exchange loss as a result of the
UPC Acquisition.
<TABLE>
<S> <C>
Elimination of historical foreign exchange loss of the PIK
Notes...................................................... NLG 43,441
Pro Forma foreign exchange loss on the Tranche B Facility... NLG(35,000)
==========
NLG 8,441
==========
</TABLE>
(10) Represents the net increase on share results of affiliated companies as a
result of the amortization of the step-up in basis of investments in and
advances to affiliated companies accounted for under the equity method as
a result of the UPC Acquisition.
26
<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. Our 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 our consolidated
financial statements and related notes included in this prospectus. These
consolidated financial statements provide additional information regarding our
financial activities and condition.
Introduction
Commencing our present business in July 1995, we currently own and operate
the largest pan-European group of broadband communications networks (based on
the number of subscribers in more than one European country) and offer analog
cable television services. We are further developing and upgrading our network
to provide digital video, voice and Internet/data services in our Western
European markets. We and Microsoft recently signed a letter of intent to
establish a relationship to work jointly on Internet, telephone and video
projects. See "Relationship with Microsoft" and "Risk Factors --Our
Relationship with Microsoft May Not Work Out".
As of September 30, 1998, we consolidated the results from our systems in
Austria, Belgium, Norway, France, Hungary, the Czech Republic, Romania and the
Slovak Republic. Unconsolidated systems included our interests in the Dutch,
Israeli and Maltese systems and programming interests in Hungary and the Czech
Republic. We account for these unconsolidated systems using the equity method
of accounting. During the nine-month period ended September 30, 1998, we
consolidated some of our Dutch systems for a seven-month period ended July 31,
1998. Thereafter, all of the Dutch systems were accounted for using the equity
method. At the closing of this offering, we will acquire the remaining 49%
interest in UTH, our Dutch holding company, and will begin consolidating the
results of UTH's systems other than A2000.
History of UPC
Since formation, we have developed largely through acquisitions. The most
recent acquisitions have resulted in significant growth in consolidated
revenues and expenditures.
July 1995 We 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 us, 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 us 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 our formation, we
A2000 Acquisition 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
27
<PAGE>
municipalities. Although this transaction closed in
September 1995, A2000 was accounted for using the equity
method of accounting, effective as of July 1, 1995.
September 1995 In September 1995, we acquired the remaining 96.2% of
KTE Acquisition the Dutch KTE system (the "KTE Acquisition") and began
consolidating its results.
September 1996 In September 1996, we increased our 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%. We subsequently sold our 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, we acquired 70.2% of Janco, a cable
Janco Acquisition system in Oslo, Norway, from Helsinki Media (the "Janco
Acquisition"). In November 1997, we merged Norkabel into
Janco to form Janco Multicom, of which we held 87.3%. In
November 1998, we acquired the remaining 12.7% of Janco
Multicom for approximately NLG37.2 million. Because of
certain contractual arrangements with Helsinki Media, we
have consolidated 100% of the operations of Janco
Multicom since formation.
December 1997 On December 11, 1997, we and UIH acquired the 50% of
UPC Acquisition our ordinary shares held by Philips for NLG450.0
million. As part of the UPC Acquisition, we purchased
3.17 million shares of Class A Common Stock of UIH held
by Philips (NLG66.8 million) and we and UIH purchased
all of the 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 We sold our unconsolidated interests in our systems
System Sales in France (Citecable) in 1996, Germany in 1997 and Spain
(1996-1998) in 1998 and our consolidated interest in Portugal in
1998.
January 1998 Effective January 1, 1998, we acquired the Combivisie
Combivisie cable television systems (the "Combivisie Acquisition")
Acquisition and in the region surrounding our KTE system in The
CNBH Formation Netherlands for a purchase price of NLG180.8 million.
Effective January 1, 1998, we 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, we 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 our 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. We gave Time
Warner the option, exercisable until March 26, 1999, 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 $18.25 million. Effective
June 30, 1998, we combined our interests in Kabelkom
with Kabeltel, a group of Hungarian cable television
systems located in Budapest and other large Hungarian
cities, forming Telekabel Hungary (the "Telekabel
Hungary Acquisition"). We own 79.25% of Telekabel
Hungary, Hungary's largest cable television operator and
started consolidating its results as of such date.
28
<PAGE>
August 1998 In August 1998, we and NUON combined all of our Dutch
UTH Formation broadband cable television and telecommunications
businesses to form UTH. We contributed 100% of CNBH and
50% of A2000 for our 51% interest in UTH. NUON
contributed 100% of Telekabel Beheer. We 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, we
have not consolidated the results of CNBH and account for
UTH using the equity method of accounting (although, as
described below, we have agreed to purchase the other 49%
of UTH). See "Pro Forma Selected Consolidated Financial
Data".
November 1998 We held our interest in the Israeli, Maltese and
Increase in Israeli Irish operating systems through a partnership with a
and subsidiary of Tele-Communications International, Inc.
Maltese Systems ("TINTA"). In November 1998, we acquired TINTA's indirect
Ownership 23.3% and 25.0% interests in the Israeli and Maltese
systems for approximately $88.5 million, net of closing
adjustments, doubling our respective interests in these
systems to 46.6% and 50%. We financed this acquisition
through a loan from our 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, we purchased from
System Riordan Communications Ltd. ("RCL"), an 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. The
purchase price was 384,531 shares of UIH we indirectly
held. In November 1998, we sold the newly-acquired 5%
interest in the Irish multi-channel television system,
together with our 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".
December 1998 In December 1998, UIH sold to us in exchange for
Purchase of Monor 6,330,340 of our ordinary shares UIH's
and Tara from UIH
. 50% voting and 46.3% economic interest in Monor
Communications Group Inc. ("Monor"), a company that
operates a traditional telephone system in the
Monor region of Hungary (see "Business --Operating
Companies -- Eastern Europe"), and
. 75% interest in Tara, a company with revenues of
approximately NLG1.0 million for the nine months
ended September 30, 1998. See "Relationship with
UIH and Related Transactions".
29
<PAGE>
January 1999 In January 1999, we agreed to buy NUON's 49%
Purchase of ownership interest in UTH for NLG487.6 million plus an
UTHMinority interest payment on this amount at a rate of 5.5% from
Interest January 1, 1998 until the closing date. In addition, we
will purchase from NUON a NLG33.0 million subordinated
loan dated December 23, 1998 owed by UTH to NUON plus
interest on the loan at 5.5% from December 23, 1998 until
the closing date. This transaction will close
concurrently with the completion of this offering. Half
of the purchase price is payable in cash and, assuming
offering proceeds of more than NLG1,400 million, and
additional 20% of the offering proceeds in excess of
NLG1,400 million is also payable in cash. The remaining
amount of the purchase price is due after six months in
our ordinary shares at their market value at that time
or, at our option, in cash. If we raise gross proceeds of
NLG2,100 million in this offering, approximately NLG445.2
million of cash will be payable at the closing with
approximately NLG106 million due after six months in our
ordinary shares or, at our option, in cash. We will own
100% of UTH following this acquisition. We will pledge
our shares in UTH to NUON to secure our performance of
the agreement.
Febuary 1999 .UIH has agreed to sell us, in exchange for 4,955,264
Purchase of IPS of our ordinary shares, UIH's approximately 33.5%
from UIH interest in IPS, a group of programming entities focusing
on the Spanish- and Portuguese-speaking markets. IPS had
revenues of approximately NLG23.5 million for the nine
months ended September 30, 1998. This transaction is
expected to close in February 1999. See "Relationship
with UIH and Related Transactions".
30
<PAGE>
Overview of Our Activities
Services
To date, our primary source of revenue has been video entertainment
services. For the year ended December 31, 1997 and the nine months ended
September 30, 1998, our video services accounted for approximately 95.1% and
92.4%, respectively, of our consolidated revenues. For the same periods, our
Internet/data service accounted for about 0.2% and 1.7%, respectively, of our
consolidated revenue and our telephone services accounted for 0% and 0.2%,
respectively.
Our 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, we also offer 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:
. acquisitions of systems, primarily in The Netherlands and Norway,
. subscriber growth from both well established and developing systems,
primarily in our Austrian and Eastern European systems, and
. 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 our revenue recognition policies, see note 2 of the
Notes to Consolidated Financial Statements.
We believe that an increasing percentage of our future revenues will come
from telephone and Internet/data services. See "Risk Factors -- The Success of
Our New Telephone and Internet/Data Services Depends on Evolving Technology",
"Business -- UPC Telephone Services: Priority Telecom" and "UPC Internet/Data
Services: High Speed Access and chello broadband".
Pricing
We usually charge a one-time installation fee when we connect 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 our 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 subject to EU and national
competition laws generally but are not subject to sector-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 us
and the program supplier or rates negotiated by cable associations. Franchise
fees, where applicable, are typically based upon a percentage of revenue and
typically range from 3% to 5% in Belgium and are approximately 13.5% in
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 such as stock-based compensation expenses, marketing, sales and
commissions, legal and accounting, office facilities and other overhead costs.
Stock based compensation expense results from our Stock Option and Phantom
Stock Option plans, which require variable plan accounting. Increases in the
fair market value of our shares results in compensation charges (or credits, in
the case of decreases in fair market value) that 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 us for cash. After the offering, we have 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.
31
<PAGE>
Results of Operations
The following table sets forth information from, or derived from, our
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 our 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 income
(loss).................. (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 Adjusted
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
Adjusted 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) Adjusted 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, our 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
subscriber growth and in revenue per subscriber in Austria, and increased
revenue from subscriber growth in the systems we are developing in France and
Eastern Europe. In addition, effective July 1, 1998, we began consolidating
Telekabel Hungary, which increased revenues during the period by NLG13.8
million.
During the year ended December 31, 1997, our 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
32
<PAGE>
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.
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, our 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, our operations 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 our 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. We expect operating expense as
a percentage of revenue to increase as new video, telephone and Internet/data
services are introduced.
During the year ended December 31, 1997, our 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, our 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 our 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 telephone services in
Austria, The Netherlands (CNBH), Norway and France. We expect SG&A expense as a
percentage of revenue to continue to increase as new video, telephone and
Internet/data services are introduced and due to increased stock-based
compensation expense. We anticipate incurring stock-based compensation expense
of approximately NLG240 million under our Stock Option Plan and Phantom Stock
Option Plan for the three months ended December 31, 1998 (based on an initial
public offering price of NLG56.20 per share, the midpoint of the offering price
range).
During the year ended December 31, 1997, our 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
33
<PAGE>
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 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.
Our allowance for doubtful accounts as a percentage of trade receivables
for the years ended December 31, 1996 and 1997 and the nine month period ended
September 30, 1998 was 37.9%, 43.2% and 43.4%, respectively. This high
allowance as a percentage of trade receivables results primarily from our
billing process, whereby subscribers receive and generally pay their invoice
before the service period begins. Therefore, most of our outstanding
receivables generally represent overdue accounts requiring consideration for an
allowance. As a percentage of revenue, our receivable balance is less than one
half of a month of revenue.
Depreciation and Amortization
During the nine months ended September 30, 1998, our 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 our Western European systems and new-
build for developing systems.
During the year ended December 31, 1997, our 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 our
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); Adjusted 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 the increase resulted from the stock-based compensation
charge of NLG32.5 million related to our 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 ("Adjusted EBITDA"). Adjusted 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. Adjusted EBITDA increased NLG30.1 million to NLG116.0
million from NLG85.9 million, a 35.0% increase. During the year ended December
31, 1997, Adjusted EBITDA as a percentage of revenue dropped from 35.0% in 1996
to 34.4%, a decrease of about 1.7%. This decrease was primarily related to
negative Adjusted EBITDA from developing systems in France and the Slovak
Republic.
During the year ended December 31, 1996, we generated operating income of
NLG1.5 million as compared to an annualized operating loss of
34
<PAGE>
NLG4.9 million for the six months ended December 31, 1995. This increase was
primarily related to depreciation and amortization expense. Adjusted EBITDA
increased NLG18.4 million to NLG85.9 million as compared to annualized Adjusted
EBITDA of NLG67.5 million for the six months ended December 31, 1995, a 27.3%
increase.
We believe the introduction of telephone services and Internet/data
services will have a negative impact on operating income and Adjusted EBITDA
during the remainder of 1998 and a significant negative impact on operating
income and Adjusted EBITDA during 1999. Thereafter, this negative impact is
expected to decline. The financial effect of the development of our video
programming businesses and the construction of our digital distribution
platform will depend upon our ability to find joint venture partners for these
new investments. If we are unable to find joint venture partners for these new
investments, we will be required to consolidate all of the losses of these new
investments. See "Risk Factors -- Failure to Raise Necessary Capital Could
Restrict Our Growth".
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. During 1997, we made a strategic decision
to sell our interest in our Portugese system due to competitive pressures
beyond our control. After receiving several offers for the sale of our
Portugese system substantially less than the carrying value of our investment,
we recorded a permanent impairment on the investment. The system was
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. We intend to repay part of our remaining U.S. dollar-denominated
indebtedness with proceeds from this 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 our 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 our U.S. dollar-denominated
indebtedness, primarily the PIK Notes. See "Risk Factors -- Foreign Currency
Exchange Rate Fluctuations May Cause Losses".
35
<PAGE>
Share in Results of Affiliated Companies, Net
The table below sets forth our 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(2).................. (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 we 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.
(2) During 1995, Other represented our share in results from our investments in
Spain, Germany, KTE (Netherlands) and France. During 1996, Other
represented our share in results from Spain, France and Germany. During
1997 and 1998, Other substantially represented our share in results from TV
Max, a Czech and Slovak Republic programming business.
For the nine months ended September 30, 1998, our 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 us by UIH. A2000
also had increased losses as it began to introduce telephone 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, we consolidated results from our Hungarian cable
television businesses and no longer accounted for them in share of results of
affiliated companies.
For the year ended December 31, 1997, our 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, our 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 our 1995 write-down to net realizable value of other investments in
Spain, France and Germany.
36
<PAGE>
Statements of Cash Flows
We 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.
Cash Flows from Investing Activities
We 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) such as 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, 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.
We 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 our 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 our upgrade and new-build construction and for
37
<PAGE>
acquisitions (NLG46.5 million) (primarily our acquisition of our 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.
We 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 our affiliates, primarily A2000
(NLG339.7 million), and acquisitions (NLG28.1 million), mainly in The
Netherlands.
Cash Flows from Financing Activities
We 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). We 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, we 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, we 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.
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, our cash flows from
financing activities were NLG465.5 million. Financing activities during the six
months ended December 31, 1995 included debt assumed in the KTE Acquisition and
funding of development projects in Eastern Europe.
38
<PAGE>
Consolidated Capital Expenditures
The table below sets forth our 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". Our 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 --
Failure to Raise Necessary Capital Could Restrict Our Growth".
<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(2)
------------ ------------ ------------- ------------ ------------
(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 telephone
(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 telephone
(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 broadband....... -- -- 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.
(2) UTH's projected capital expenditures are not included in the above table
but will become our full responsibility upon the completion of our purchase
of the remaining 49% of UTH. Total 1999 capital expenditures for UTH are
expected to be NLG187.5 million, including NLG81.4 million of cable
network, NLG43.1 million of customer premise equipment and NLG63.0 million
of Master Telecom Center and support systems and equipment.
Cable Network
Since our formation as a joint venture, we have been aggressively upgrading
our existing cable television system infrastructure and constructing our new-
build infrastructure with two-way high capacity HFC technology to support
digital video, telephone and Internet/data services. Capital expenditures for
the upgrade and new-build construction can be reduced at our discretion,
although such reductions require lead-time in order to complete work in
progress and can result in higher total costs of construction.
We expect that the upgrade of the cable network and related equipment will
cause us to write off some of our existing cable network and equipment. We do
not expect the write off to be
39
<PAGE>
significant, except in certain limited circumstances where it will be necessary
to rebuild the network. While there are some exceptions, most of the existing
cable plant and related equipment has been in service for over ten years and
the remaining book value is very low. While we believe the upgrade will extend
the life of our existing plant, we do not anticipate extending the useful life
of our existing coaxial cable and equipment for financial reporting purposes.
During the nine months ended September 30, 1998, we spent approximately
NLG104.8 million in cable network capital expenditures. We currently anticipate
cable network capital expenditures of approximately NLG53.5 million during the
last three months of 1998. For 1999, we have 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 telephone service, this includes the central
office switch and SDH and other telephone-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, we spent approximately
NLG8.1 million for Master Telecom Center equipment. For the last three months
of 1998, we currently anticipate spending approximately NLG21.5 million. For
1999, we have 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, cable phone equipment for telephone 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 we need the equipment for a subscriber.
During the nine months ended September 30, 1998, we spent approximately
NLG17.9 million on customer premise equipment. During the last three months of
1998, we anticipate spending approximately NLG12.3 million.
For 1999, we have budgeted capital expenditures for customer premise
equipment of approximately NLG86.3 million. We are 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 telephone. We
expect these negotiations to be completed shortly for equipment delivery in
late 1999.
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, we spent NLG23.3 million in total support systems and equipment. We
anticipate we will spend NLG24.5 million through the last three months of 1998.
For 1999, we have budgeted NLG18.4 million for support systems and equipment.
See "Risk Factors -- Our New Telephone and Internet/Data Services Involve
System, Marketing, Competition and Timing Risks".
New Businesses
In addition to the network infrastructure and related equipment and capital
resources described above, development of our newer businesses, chello
broadband and our digital distribution platform, require capital expenditures
for construction and development of our pan-European distribution and
programming facilities, including our origination facility, network operating
center, NVOD server complex and related support systems and equipment. For the
nine months ended September 30, 1998, we incurred capital expenditures of
approximately NLG1.3 million for chello broadband. We plan to spend
approximately NLG16.2 million for capital expenditures for chello broadband for
the last three months of 1998. We have budgeted for 1999 approximately NLG31.0
million and NLG32.6 million, respectively, for capital expenditures for
40
<PAGE>
chello broadband and our digital distribution platform.
Liquidity and Capital Resources
We have financed our operations and acquisitions primarily from (i) cash
contributed by UIH upon our formation; (ii) debt financed at the UPC corporate
level and project debt financed at the operating company level; and (iii)
operating cash flow. We have both well-established and developing systems. In
general, we have used the cash contributed by UIH upon formation and debt
financed at the UPC corporate level to fund acquisitions, developing systems
and corporate overhead. We have financed our well-established systems and, when
possible, our developing systems, 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. Developing systems are at various stages of construction and
development and generally depend on us for some of the funding for their
operating needs until project financing can be secured.
41
<PAGE>
Current Debt Facilities
We, our consolidated subsidiaries and our unconsolidated affiliates had the
following long-term and short-term debt outstanding as of September 30, 1998.
Debt denominated in currencies other than Dutch guilders has been translated to
Dutch guilders for the last column.
<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; 2002 FRF LIBOR + 0.75% FRF680.0 NLG20.2
(Mediareseaux) Acquisitions; Working to 2.0%
Capital
DIC Loan (UPC) To increase interests in 2000 8.0% per annum $90.0 -- (2)
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
fund new business
Janco Letter of Credit (UPC) To acquire minority share 2001 5% per annum n/a NLG37.6(3)
of Janco Multicom
Short-Term Debt
Time Warner Note Acquisition of Kabelkom June 1999 Non-interest bearing $18.0 NLG34.0
(UPC) distribution assets
Tranche B Facility (UPC) UPC Acquisition June 1999 LIBOR + 4.5% $125.0 NLG113.5
to 6.0%
Telekabel Hungary Capital Expenditures, April 1999 BUBOR + 2.5% DM65.6 -- (4)
Facility (Telekabel Hungary) Acquisitions; Working
Capital
Unconsolidated Affiliates:
UTH Facility (5)(6) Acquisitions; Capital Mar. 1999 Fixed rate of 8.15% 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)(6) Acquisition of Combivisie; 2008 AIBOR + 0.60% to NLG266.0 NLG209.3
Capital expenditures 1.6% per annum
Other (CNBH)(6) Various Various Various Various NLG17.4
Tevel Facilities (Tevel) Acquisition of Gvanim; 2007-2010 Fixed rate ranging NIS928.3 NLG513.7
Working Capital from 5.5%-6.0%
Melita Facility (Melita) Capital Expenditures; 2004 Cost of funding Lm9.0 NLG40.9
Refinancing + 1.0% to 2.5%
Monor Facility To repay indebtedness and 2006 LIBOR + 1.5% $50.0 $46.0
finance capital
expenditures
</TABLE>
- --------
(1) The Tranche A Facility is a revolving credit facility. The total commitment
of NLG1.1 billion (which will be reduced to NLG1.0 billion after this
offering) is reduced by 5% each quarter beginning December 31, 2001 until
final maturity.
(2) One of our subsidiaries drew down the full amount of this loan in November
1998.
(3) We 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.
(4) This facility was entered into after September 30, 1998. Telekabel Hungary
drew DM26.0 million under this facility in November 1998.
(5) The UTH Facility has been funded by NUON. UTH intends to replace this
facility and has received an underwritten commitment for such refinancing.
(6) We have agreed to buy the remaining 49% of UTH from NUON. Following this
acquisition, we intend to consolidate the results of UTH. CNBH is wholly-
owned by UTH.
42
<PAGE>
Tranche A Facility. In October 1997, we and Norkabel as borrowers entered
into a 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 owed by us, Telekabel Wien and
Janco Multicom was NLG620.0 million, NLG213.4 million and NLG138.5 million,
respectively. The Tranche A Facility is secured by a pledge of the stock and
assets of certain of our subsidiaries.
Our borrowings and those of our subsidiaries in Austria, Belgium and Norway
are limited by financial covenants under the Tranche A Facility. The principal
amount of all our borrowings and those of our subsidiaries may not exceed
certain multiples of total annualized net operating cash flow for us and our
subsidiaries. In addition, the principal amount of all our borrowings and those
of our subsidiaries may not exceed certain multiples of our cable television
net operating cash flow. Our borrowings and those of certain of our
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 our shareholders unless, among other
things, we achieve 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.
We have agreed with our lenders under this facility to reduce the Tranche A
Facility amount from NLG1.1 billion to NLG1.0 billion. We intend to repay up to
NLG620 million of the amount outstanding by us under the Tranche A Facility
with the proceeds of the offering, which we plan subsequently to reborrow under
that facility. See "Use of Proceeds".
Mediareseaux Facility. In July 1998, Mediareseaux entered into an FRF680.0
million (NLG228.8 million) term facility with Paribas (the "Mediareseaux
Facility") to finance capital expenditures, working capital and acquisitions.
The Mediareseaux Facility is secured by the assets of Mediareseaux and a pledge
of our stock of Mediareseaux. 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, we 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 Mediareseaux may pay to us.
DIC Loan. In November 1998, a subsidiary of DIC loaned us $90.0 million
(the "DIC Loan"). The DIC Loan was subsequently assigned to an Israeli bank. We
used the proceeds to acquire interests in the Israeli and Maltese systems. The
DIC Loan matures in November 2000 and is secured by our pledge of our 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 an additional 6% of
the principal amount, on maturity. The DIC Loan may be repaid on quarterly
prepayment dates with three
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months' prior notice by us. In connection with the DIC Loan, we granted our
partners in the Israeli system an option to acquire approximately $90.0 million
of ordinary shares at a price equal to 90% of the initial public offering
price. The exercise price of this option is payable in cash or delivery of the
DIC Loan promissory note. If we elect to receive payment in the form of the
promissory note, the DIC Loan will be cancelled. If we elect to receive payment
in cash, we intend to use the cash to repay the DIC Loan. See "Dilution" and
"Shares Eligible for Future Sale".
UIH Loan. We have entered into two promissory notes with UIH of $100.0
million (March 1998) and $20.0 million (July 1998). We have borrowed a total of
$79.0 million, excluding 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. The $100.0 million note is convertible at UIH's
option into ordinary shares and the $20.0 million note may be paid in our
ordinary shares held by one of our subsidiaries. Any conversion into or payment
in ordinary shares will be at the initial public offering price. We plan to
repay the UIH Loan with proceeds from the offering. See "Use of Proceeds".
Time Warner Note. In connection with the Kabelkom transaction, we entered
into an $18.0 million (NLG34.0 million) promissory note with Time Warner. The
Time Warner Note matures on the earlier of June 30, 1999 or 90 days after
written notice from Time Warner. We may, however, prepay the Time Warner Note
in certain instances. We expect that the Time Warner Note will be cancelled if
Time Warner exercises its option to acquire our 50% interest in HBO Hungary and
100% interest in TV Max.
Tranche B Facility. In connection with the UPC Acquisition, we entered into
a $125.0 million term Tranche B Facility with a syndicate of banks led by The
Toronto-Dominion Bank. In March 1998, we repaid $63.0 million of the Tranche B
Facility with proceeds borrowed from UIH. The Tranche B Facility is due on June
5, 1999 or the
earlier closing of this offering. The Tranche B Facility is secured by certain
of our assets, including a pledge of our shares in UIH.
We intend to repay 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 plus an additional cost of funding calculation. 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 plus an additional cost of funding calculation.
Telekabel Hungary is using the facility, among other things, to finance capital
expenditures and to acquire minority shares in our Kabelkom systems. We have
pledged our indirect 79.25% 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 short-term financing arrangement with
Telekabel Beheer, with a maximum availability of NLG690 million. This UTH
Facility bears interest at 8.15% per annum and is payable in March 1999. The
UTH Facility is secured by a pledge of all direct and indirect subsidiaries of
Telekabel Beheer.
UTH intends to replace this facility with a senior facility and a junior
facility and has received commitments, subject to due diligence and
documentation, from a number of lenders for such refinancing, as well as its
networks.
Bank of America N.T. & S.A., Citibank, N.A., Deutsche Bank AG London,
MeesPierson N.V. and Paribas issued a commitment for a ^295 million (NLG650
million) revolving facility to a subsidiary of UTH that will convert to a term
facility on December 31, 2001 (the "Senior UTH Facility"). A small portion of
this facility will be in the form of an overdraft facility that will be
available until December 31, 2007. This Senior UTH Facility will be used to
repay a portion of the UTH Facility and
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for capital expenditures. The Senior UTH Facility will bear interest at EURIBOR
(Euro Interbank Offered Rate) plus a margin between 0.75% and 2.25% based on
leverage multiples tied to UTH's net operating income. The Senior UTH Facility
will be secured by, among other things, a pledge over shares held by the
borrower and debt of Telekabel Beheer and will restrict Telekabel Beheer's
ability to incur additional debt.
Goldman Sachs Credit Partners, L.P., MeesPierson N.V. and Paribas issued a
commitment to UTH for a NLG217.5 million secured debt facility that will be due
March 31, 2001 (the "Junior UTH Facility"). The Junior UTH Facility will bear
interest at LIBOR plus a margin ranging from 4.75% to 8.5%. If the Junior UTH
Facility is not paid in full on its maturity date, it will automatically
convert to a term loan that will be due March 31, 2006, and UTH will be
required to issue warrants to the lenders to purchase up to 5% of its fully-
diluted capital stock. The Junior UTH Facility will be used to repay the
remaining UTH Facility and will be secured by, among other things, pledges of
UTH's stock in its subsidiaries and negative covenants. This facility will
restrict UTH's ability to incur additional debt.
Other than Bank of America and Citibank, all of the lenders under these two
facilities are underwriters or affiliates of underwriters in this offering. See
"Underwriting".
A2000 Facilities. In January 1996, A2000 and its wholly owned subsidiary KT
Amsterdam entered into bank facilities of NLG90.0 million and NLG375.0 million,
respectively. In October 1996, KT Hilversum, a wholly-owned subsidiary of
A2000, entered into a bank facility of NLG45.0 million. These facilities have
between nine- and ten-year terms and interest rates of AIBOR + 0.75% or AIBOR +
0.7% or a fixed-rate +0.7% or 0.75% per annum and restrict the borrowers from
incurring additional indebtedness, subject to certain exceptions. The A2000
facilities are secured by a pledge of the KT Amsterdam shares and its assets.
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. In
August 1998, this 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 certain 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 us under our general services agreement. In connection
with the CNBH Facility, we entered into a project support agreement providing,
among other things, for us to retain 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 Tevel Facilities bear interest
at a fixed margin of 5.5% to 6.0% over the Israeli consumer price index. The
loans mature in the years 2007 to 2010 and the repayment periods of the
principal amounts commence in the year 2000. The Tevel Facilities are secured
by Tevel's pledge of its ownership interest in Gvanim and limit Tevel's ability
to pay dividends, encumber its assets and incur indebtedness.
Melita Facility. In October 1996, Melita, which operates the Maltese
systems, entered into a secured term bond 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.
Monor Facility. In September 1997, Monor entered into a $50 million term
loan facility with a syndicate of banks led by Credit Lyonnais. The proceeds of
the Monor Facility were used to repay indebtedness and for capital expenditures
in the build-out of Monor's network. The Monor Facility matures on December 31,
2006 and bears interest at LIBOR plus 1.5%. The Monor Facility is secured by a
pledge over our and PenneCom's shares in Monor and its assets.
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Restrictions Under UIH Indenture
As a subsidiary of UIH, our activities are restricted by the covenants in
UIH's indenture dated February 5, 1998. The UIH Indenture generally limits the
additional amount of debt that we or our subsidiaries or controlled affiliates
may borrow, or preferred shares that we or they may issue. Generally,
additional borrowings, when added to existing indebtedness, must satisfy, among
other conditions, at least one of the following tests:
. not exceed 7.0 times the borrower's consolidated operating cash flow,
. operating cash flow must exceed 1.75 times its consolidated interest
expense, or
. not exceed 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 our ability to make
certain asset sales and certain payments. In connection with the offering, we
have agreed with UIH that we 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 -- We Will Continue to be
Controlled by UIH and Governed by the Terms of its Debt Securities" and
"Relationship With UIH and Related Transactions -- UIH Indenture".
Sources of Capital
We had approximately NLG44.3 million of unrestricted cash and cash
equivalents on hand as of September 30, 1998. We intend to reborrow under the
Tranche A Facility the amount repaid with proceeds of the offering. In
addition, we have additional borrowing capacity at the corporate and project
debt level including CNBH, Mediareseaux and Telekabel Hungary facilities. We
also have NLG12.3 million available from excess cash released after we
exercised our option to acquire the remaining interest in Janco, as well as
$22.0 million of proceeds from the sale of our Irish operating system, PHL.
We are obligated to satisfy significant payment and purchase obligations in
the near term, including, the repayment of:
. the Time Warner Note, payable on the earlier of 90 days after notice by
Time Warner or June 30, 1999,
. the Tranche B Facility which has been extended to the earlier of the
closing of the offering or June 1999,
. the UTH Facility, payable in March 1999, which UTH has received
commitments from its banks to replace, and
. the Telekabel Hungary Facility, payable in April 1999.
We believe that our existing capital resources combined with the
anticipated refinancing or extensions of some short-term facilities will enable
us to satisfy our requirements for the coming 12 months. Without such
refinancings and extensions, we may need to sell assets or obtain additional
equity or debt financing. See "Risk Factors -- We are Highly Leveraged and Our
Capacity to Borrow is Limited".
The proceeds from the offering are expected to be used primarily for
capital expenditures and to fund other costs associated with our network
upgrade, the build and launch of our telephone and Internet/data services new
businesses as well as our video distribution and programming businesses. We
will repay a portion of the Tranche A Facility with the proceeds from the
offering, but we then plan to reborrow the amount so repaid for such uses. A
portion of the proceeds from the offering will also be used to repay the
Tranche B Facility and the UIH Loan and pay part of the purchase price for the
remaining 49% of UTH we are acquiring. See "Use of Proceeds".
We may need to raise additional capital in the future to the extent we
pursue new acquisition or development opportunities or if cash flow from
operations is insufficient to satisfy our liquidity requirements. See "Risk
Factors -- Failure to Raise Necessary Capital Could Restrict Our Growth".
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Certain Dutch Property Tax Issues
One of our Dutch systems was recently assessed for a transfer tax on
immovable property in the amount of NLG1.8 million for the purchase of a cable
network. We have always regarded our cable networks as movable property and not
subject to such transfer tax. We are appealing this tax assessment. Should we
be unsuccessful, our Dutch systems may be assessed for taxes on similar
transactions. We cannot predict the extent to which the taxes could be assessed
retroactively or the amount of tax that our systems may be assessed for,
although it may be substantial. Because we will own 100% of UTH after the
closing of this offering, any tax liabilities assessed against our Dutch
systems (other than the A2000 systems) will be consolidated with our results.
We believe that, if our appeal is unsuccessful, most cable television companies
and other utilities in The Netherlands would become subject to similar tax
liabilities. If this happens, we expect these entities would lobby the Dutch
tax authorities against such tax assessments.
Inflation and Foreign CurrencyExchange Rate Risks
To date, we have not been impacted materially by inflation.
Our 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. We and
some of our 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 us to foreign currency exchange risks
on these monetary assets and liabilities. In general, we and our operating
companies do not execute hedge transactions to reduce our exposure to foreign
currency exchange rate risks. Accordingly, we may experience economic loss and
a negative impact on earnings and equity with respect to our holdings solely as
a result of foreign currency exchange rate fluctuations. See "Risk Factors --
Foreign Currency Exchange Rate Fluctuations May Cause Losses".
The functional currency for our 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 our 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 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. We intend 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
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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, our deferred start-up and organization costs were
insignificant. We intend 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. We currently are assessing the effect of
this new standard.
Year 2000 Conversion
Our cable television, programming, telephone 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 our cable
television and telephone 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 us and our operating
companies, and to implement necessary changes to address such problems. The
Task Force includes our staff and staff from UIH, and subcommittees at the
operating company levels and reports directly to the UIH Board. We will
continue to be a part of the Task Force following the offering. In creating a
program to minimize Year 2000 problems, the Task Force identified certain
critical operations of our 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, 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.
About 85% of our operating systems have completed the Identification Phase
and the Task Force is working on the Implementation Phase for these systems.
The remaining operating systems are expected to complete the Identification
Phase by March 1999. 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 us. Currently, the Task Force expects
to complete its research on substantially all of the items identified during
first quarter 1999. The Identification Phase for our 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, we expect the computer systems
for all corporate operations 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, we anticipate 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
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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 test procedures and contingency plans for critical components of
operating systems for the benefit of all its members. The test procedures are
expected to be available to members, including UIH, during the first quarter of
1999. Until the test procedures are completed, the working group will not
develop any contingency plans.
Third-Party Dependence
We believe that our largest Year 2000 risk is our dependence upon third-
party products. Two significant areas in which our systems depend upon third-
party products are programming and telephone interconnects. We do 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 we would not be able to provide our services
to our customers. We are 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. We expect, however, that more parties will disclose the extent of their
Year 2000 compliance programs during the first half of 1999. In addition, the
task force has been monitoring the web sites of these third parties for
information regarding their Year 2000 compliance programs and our and UIH's
purchasing department has begun to exert pressure on third party vendors for
Year 2000 compliance information. Nonetheless, we are unable to assess fully
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 of our operating systems is
responsible for inquiring of its vendors and other entities with which it does
business (e.g., utility companies, financial institutions and facility owners)
as to such entities' Year 2000 compliance programs. Each of our operating
companies has begun this process and to assist our operating companies in this
process, we have hired two Year 2000 consultants, one for Eastern Europe and
one for Western Europe, who will visit each operating company and work with
them to identify and report to us any potential Year 2000 compliance problems.
These consultants will also contact third party vendors regarding their Year
2000 compliance measures.
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 our 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 this process is not entirely within our
control. With respect to billing and customer care systems, we use standard
billing and customer care programs from several vendors. A few of our 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. We are generally upgrading our billing and
customer care systems for other reasons and do 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 of our systems.
Minority-Held Systems
We also have non-controlling interests in cable television and telephone
operations, including A2000. MediaOne International, our partner in A2000, is
undertaking and implementing a program to ensure that the operations of A2000
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will be Year 2000 compliant. The Task Force is including other minority
investments in its program. Of these investments, about 75% have completed
their Identification Phase of the program and the Task Force is in the process
of making recommendations to these entities as to Year 2000 compliance matters.
Our remaining investments are expected to complete the Identification Phase by
March 1999. No assurance can be given, however, that these entities will
implement the recommendations or otherwise be Year 2000 compliant. Overall, the
Task Force will continue to analyze the Year 2000 program and will revise the
program as necessary throughout the remainder of 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 our financial condition. In the course of our
business, we have made substantial capital investments over the past few years
in improving our systems, primarily for reasons other than to anticipate Year
2000 problems. Because the systems' upgrades also result in Year 2000
compliance, however, we have 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,
we currently estimate that these costs will not exceed NLG4.0 million
(excluding any costs associated with our interest in A2000). Although no
assurance can be made, we believe that the known Year 2000 compliance issues
can be remedied without a material financial impact on us. 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, we cannot predict the financial impact we
will experience if Year 2000 problems are caused by third parties upon which
our systems are dependent or experienced by entities in which we hold
investments. The failure of any one of these parties to implement Year 2000
procedures could have a material adverse impact on our operations and financial
condition.
European Economic and Monetary Union
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the euro. The participating countries adopted the euro as their
common legal currency on that day. The euro trades on currency exchanges and is
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 our accounting and management reporting systems currently are multi-
currency.
We intend to use the euro as our reporting currency by the end of 2000. We
do not expect the introduction of the euro to affect materially our cable
television and other operations. We have not yet taken steps to confirm that
the financial institutions and other third parties with whom we have financial
relationships are prepared for the use of the euro. Thus far, we have not
experienced any material problem with third parties as a result of the
introduction of the euro. We believe the introduction of the euro will not
require us to amend any of our financial instruments or loan facilities. We
believe the introduction of the euro will reduce our exposure to risk from
foreign currency and interest rate fluctuations.
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BUSINESS
Overview
We own and operate cable-based communications networks in ten countries in
Europe and in Israel. We provide cable television services. Some of our systems
also provide telephone and Internet access services. Today, our systems
constitute the largest pan-European group of broadband communications networks,
based on numbers of subscribers in more than one European country.
Company Growth Strategy
Our goal is to become a leading pan-European provider of integrated video,
telephone and Internet/data services. Key elements of our strategy to achieve
this goal are:
Continue to Increase Video Service Revenue Per Subscriber
We plan to continue increasing our average revenue per subscriber by
expanding our video services program offerings in the expanded basic tier
service, pay-per-view and digital audio areas. We plan to continue improving
our 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 our expanded basic tier more attractive to subscribers. We
are involved in several country-specific programming ventures that develop
local language programming for various markets. We are also developing,
together with partners, eight new pan-European channels for the cable
television market and have already secured a portion of the content required
for these channels.
We are seeking partners to construct a pan-European digital distribution
platform, UPC's EuroHits, that will enable digital distribution of our new
channels. Full digitalization, to be made possible by our network upgrade to
full two-way capability, will provide our Western European systems with
substantially more channel capacity. This increased channel capacity would
enable subscribers to customize their subscriptions for our 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 Our
Telephone Market Opportunity
We believe that the ability to leverage our existing subscriber base and
upgraded network will provide us with an advantage over other new entrants in
the telephone services market. In particular, we believe that our 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, we believe potential customers will be receptive to our
telephone services, which we intend to price at a discount to services offered
by incumbent telecommunications operators. We recently began marketing our pan-
European telephone business as Priority Telecom (Nedpoint in the A2000 systems)
and plan to offer these services in our Austrian, Dutch, Norwegian and French
systems.
Capitalize on Internet/Data Service Opportunity
We have launched residential and business cable-modem based high speed
Internet access services in Austria, Belgium, The Netherlands and Norway and
plan to launch our Internet portal and content business, branded as chello
broadband, in our upgraded Western European markets beginning in early 1999. We
believe that our chello broadband service will benefit from the rapid growth of
the Internet and will enable us to gain more customers in the business and
residential Internet market by capitalizing on our existing network
capabilities, continuing network upgrade and broad customer base in certain
markets with high personal computer penetration. In marketing chello broadband,
we intend to emphasize the speed, price advantages and compelling multi-media
portal and content of our cable modem-based Internet service. An integral part
of our strategy is to market chello broadband's services for sale to other
cable television systems.
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Consolidation and Acquisitions
We have realized significant gains in our businesses by selectively
acquiring cable television and telecommunications systems near our current
operating areas and increasing our ownership percentage in some systems. Our
strategy also has been to dispose of some minority ownership interests where
control could not be obtained and commence new greenfield projects where we
believed we could create significant value. We intend to continue this asset
rationalization program of selective acquisitions and dispositions.
Implementation of New Services
The following table shows the status of the implementation of the new
services that we are adding in addition to our 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 Telephone
- ------ ---------- ---------- ------------ ------------- ------------
<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) We began offering (1) an expanded basic tier in October 1996 in the A2000
systems in Amsterdam and surrounding areas and in December 1996 in our KTE
system in Eindhoven, (2) impulse pay-per-view in April 1997 in the A2000
systems and in June 1998 in our CNBH systems, (3) Internet access services
on a trial basis in October 1997 in portions of the A2000 systems, and (4)
cable telephone services on a trial basis in July 1997 in the A2000 system
in Purmerend and are currently offering these services in Hilversum,
Zaanstad and portions of Amsterdam.
UPC Video Services: Video Distribution and Programming
Video Distribution Overview
We own and operate established cable television systems and are
constructing new systems. At September 30, 1998, our operating systems had
approximately 3.4 million subscribers to their basic tier video services. Video
distribution services accounted for approximately 92.4% of our consolidated
revenue in the first nine months of 1998. An average of 70% of the homes passed
by our systems subscribe to our basic tier video services. We offer our
subscribers some of the most advanced analog video services available today and
a large choice of FM radio programs. In addition, because many of our
operations are two-way capable, we have been able to add more services. In many
systems, for example, we have introduced impulse pay-per-view services, which
enable subscribers to our expanded basic tier to select and purchase
programming services, such as movies and special events, directly by remote
control.
To increase our average revenue per subscriber, we are focusing on 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.
Our 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 our subscribers. We believe that we have the opportunity to apply these
principles to
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our 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 our average revenue per subscriber in all
systems.
Growth Strategy
We are focusing on a multi-part growth strategy: (i) create and/or acquire
additional channels and programming for pay-per-view services; (ii) increase
sales by integrating our video services with telephone and Internet/data
services; (iii) selectively upgrade our 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.
We have demonstrated that we can achieve higher average revenue per
subscriber in our 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).
We have increased our average revenue per subscriber by offering enhanced
services. For example, we have offered impulse pay-per-view services in some of
our markets for several years. In Israel, 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 our
Austrian and the A2000 systems, during the first nine months of 1998, the
average impulse pay-per-view monthly buy rate was over 1.7 and 1.0 per expanded
basic tier subscriber, respectively.
The chart below sets forth the average monthly revenue per subscriber for
certain of our 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 we do not expect that
we will achieve the average monthly revenue per subscriber in our systems that
is realized in the United Kingdom and the United States, these figures
illustrate the potential to increase our average monthly revenue per subscriber
through the introduction of enhanced service offerings.
[CHART APPEARS HERE]
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
A2000 14.25
UTH 17.95
Belgium 19.76
Austria 29.01
Janco 13.05
Norkabel 29.37
France 26.26
Malta 36.91
Israel 67.68
U.K.(1) 75.72
U.S.(2) 74.82
The Netherlands Norway
- --------------
(1) Kagan World Media, Ltd. Data is for the three months ended September 30,
1998.
(2) Paul Kagan Associates, Inc., Cable Television Investor
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The higher average revenue per subscriber in our 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 and migrating
channels from rate-regulated basic service to unregulated tiers. Our systems in
Austria, Belgium and The Netherlands have high penetration rates but generally
lower revenues per subscriber than our systems that were developed by UIH.
The digital pan-European distribution platform, if completed as planned,
would make it possible for our improved programming offerings to have a more
robust impact. We expect that a digital distribution platform will be in place
in our upgraded markets by the end of 1999. See "-- Digital Distribution
Platform".
Video Programming Overview/Growth Strategy
Popular programming is another key factor for increasing our video services
revenue. We believe it will also be a potential source of additional revenue
from sales to other cable television operators and satellite companies in
Europe. We have enhanced our existing, and are continuing to develop and
acquire new ownership interests in, programming services. The core of our
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. We intend to establish and manage these joint ventures
and also secure and distribute third-party channels and NVOD programming on a
pan-European basis. We expect that these new channels will be added to the
expanded basic tier in a number of our operating systems, furthering our
strategy of increasing average revenue per subscriber.
Current Programming Activities
We are 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. We believe that our
current programming ventures add value to our cable television networks by
providing compelling content to our subscribers. In connection with our
acquisition of Time Warner's interest in the Hungary cable television systems,
we have granted Time Warner an option to purchase our interests in the Czech
and Hungarian programming services.
We recently acquired UIH's 75% interest in Tara and have agreed to acquire
UIH's 33.5% interest in IPS. 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
We believe that we have a strong competitive opportunity to become a
provider of new channels due to our ready access to our customer base and our
ability to adapt our channels affordably for distribution to multiple European
markets and languages. We plan to (1) launch five new 24-hour channels by the
end of 1999 and three channels thereafter, (2) acquire rights to up to 30
channels created by third parties over the next few years and (3) 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 we 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
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.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, our role will
be limited to subtitling and dubbing, and therefore, our costs will be lower
than for new channels. In the case of new channels (Club, UPC Sport One and EX-
Extreme Sports), our role will also include content aggregation, channel design
and transmitting the channels to satellites for distribution. In addition to
developing our eight pan-European channels, we are negotiating for additional
channels and NVOD programming on a pan-European basis.
Digital Distribution Platform
We are seeking partners to construct a satellite-based pan-European digital
distribution platform, UPC's EuroHits, that will enable digital distribution of
our new channels and other television signals to our upgraded networks. If this
planned digital distribution platform is constructed, we would convert our
impulse pay-per-view services into an NVOD service that would be able to
provide up to 75 channels of programming. We are 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, we intend to use remote content servers located in the
cable operator's headend to store the library for playout at the appropriate
time. We also have 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 of our television signals, to be made possible by our
network upgrade to full two-way capability, will provide our Western European
systems with substantially more channel capacity. This increased channel
capacity would enable subscribers to customize their subscriptions for our
products and services to suit their lifestyles and personal interests. If the
planned digital distribution platform is completed, we also intend to provide
our 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 we will be able to complete the
construction of the digital distribution platform on the planned schedule. See
"Risk Factors -- Failure to Raise Necessary Capital Could Restrict Our Growth"
and "Technology -- Planned Digital Distribution Platform".
UPC Telephone Services: Priority Telecom
Overview
We believe that our existing customer base and upgraded network give us a
unique opportunity to provide telephone service in Europe. We plan to offer
local telephone services, called Priority Telecom (Nedpoint in the A2000
systems), in our Austrian, Dutch, French and Norwegian systems. We also plan to
develop national and international long distance voice and data services. Our
operating companies are licensed to provide telephone services in Austria,
France, Hungary, The Netherlands and Norway. We believe that our fiber and
broadband, coaxial cable and cable-based subscriber relationships provide ready
access to potential residential telephone subscribers. We believe our networks
and facilities also provide the opportunity for cost-effective access to
potential business telephone customers on a pan-European basis.
A2000 began offering cable telephone 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, we launched Priority Telecom's cable telephone service on a
trial basis in Vienna.
We are negotiating to connect our local fiber networks, primarily through
interconnections and capacity leases with other new telecommunications service
providers, to provide
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<PAGE>
long-distance telephone services across several European markets. This strategy
will allow us to keep a greater number of calls on our own network, thereby
reducing the amount of interconnect fees we must pay to other telecommunication
operators.
Market Opportunity
We believe there are significant growth opportunities in the European
telecommunications market as a result of the January 1, 1998 liberalization of
the telephone industry in most EU member countries and Norway. This
liberalization allows new providers to offer telephone and other
telecommunications services. The telephone market is large in our Western
European markets as evidenced by the revenues of the respective incumbent
national telecommunications operators, which substantially dominate these
markets. The current local telephone 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 Telephone Revenue
Operator 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 public switched telephone network
(PSTN) residential charges, 1996. A PSTN is a switched network available to
the public for making telephone calls and, in this table, refers to
incumbent national telecommunications operators' networks. 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 telephone-capable fiber optic cable
already deployed in its Western European systems, we believe that Priority
Telecom has an advantage over other new entrants in the telephone services
market. Currently, Priority Telecom has broadband, coaxial cable access to
approximately 2.9 million homes and, through us, long standing cable
television-based relationships with approximately 2.2 million residential
subscribers in its planned telephone markets. We believe that our international
telephone backbone capacity needs, especially when combined with our branded
Internet/data services business, chello broadband, 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, telephone services. In addition, we will depend on interconnect
arrangements provided by incumbent telecommunications operators. We believe,
however, that our strategy for Priority Telecom will allow us to compete
effectively with incumbent telecommunications operators and any other local
loop providers who subsequently enter the market. See "Risk Factors -- The
Competitiveness of the Telephone Industry Poses Risks for New Entrants".
Priority Telecom Growth Strategy
Our 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 our
telephone penetration strategy are:
. pricing at a discount to the incumbent telecommunications operators,
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. waiving or substantially discounting installation fees,
. integrating telephone with our video and Internet/data services, and
. providing an equal or superior quality of service than that of other
providers.
We also plan to use short-term promotions, special calling plans and non-
cash incentives to support the marketing of our telephone services. We intend
to concentrate on building brand awareness for Priority Telecom as a pan-
European telecommunications brand, which may be co-branded with our existing
local video services brands. We also plan to integrate Priority Telecom's
residential and Small Office/Home Office ("SOHO") telephone products with our
video services and chello broadband's Internet access services, thus enabling
us 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 telephone service to businesses as an alternative to the
incumbent telecommunications operators.
We believe 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 our 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.).
We plan 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 telephone 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 telephone 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 averaged over 350 installations per
week during the three months ended September 30, 1998. Current churn rates are
approximately 4.8% on an annualized basis, although we expect 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 operating
areas 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
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<PAGE>
revenue per telephone subscriber was approximately NLG76.36. This compares with
approximately NLG64.50 for KPN subscribers during 1997, although this amount
may decrease as a result of KPN rate cuts in January 1999. A2000 believes that
interconnect rates with KPN may decline, thereby reducing its costs. See
"Regulation -- The Netherlands".
Cost of Implementation
Traditional telephone service is carried over twisted copper pair in the
local loop. Cable phone technology allows telephone traffic to be carried over
our 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
customer's 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 telephone 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. We have cable phone equipment supply agreements with Tellabs and
Nortel. We will also need to undertake a substantial upgrade of our customer
care and billing system for each operating system providing telephone services.
See "Risk Factors -- Our New Telephone and Internet/Data Services Involve
System, Marketing, Competition and Timing Risks" 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 telephone
service. Similarly, Telekabel Wien (Austria) has completed an interconnect
arrangement with PTA covering all of Telekabel Wien's homes and businesses
passed, Janco Multicom (Norway) has completed an interconnect agreement with
TeleNor covering all of Janco Multicom's homes and businesses passed and
Mediareseaux has completed an interconnect agreement with France Telecom
covering all of Mediareseaux's homes and businesses passed. Interconnect
agreements are in advanced stages of negotiations for our systems in The
Netherlands (UTH) 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 us to offer profitable
telephone services. See "Regulation".
Roll-Out and Implementation Schedule
Cable telephone 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. We plan 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 our other services, we have
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dedicated significant resources to the development of our 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 we
intend to offer. See "Risk Factors -- Our New Telephone and Internet/Data
Services Involve System, Marketing, Competition and Timing Risks" and "-- The
Scalability, Speed and Technology of the Network is Unproven".
Pan-European Backbone
We intend to develop a pan-European backbone and telecommunications resale
business. This backbone is designed to link our major cable and telephone
networks through a combination of leased capacity arrangements to allow us to
capture more traffic between our operating areas. In October 1998, we 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 for international telephone traffic by late-1999. See "Technology".
Traditional Telephone System
In addition to our cable telephone operations, our recently acquired Monor
system has offered traditional telephone services since December 1994 and as of
September 30, 1998, had approximately 66,900 traditional telephone lines.
Regulation
Regulation significantly affects our telephone business, including its
profitability and the timing of its introduction. See "Regulation".
UPC Internet/Data Services: High Speed Access and chello broadband
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, we have created
chello broadband, our portal Internet and data service division.
chello broadband is launching a European portal with broadband content
enabled by its pan-European AORTA-branded broadband Internet protocol (IP)
backbone to service our operating companies, as well as third-party cable
operators across Europe.
We believe we can gain more residential and business Internet customers by
using our existing cable network and customer base and by continuing to improve
our network. We have launched a cable modem-based, high speed Internet access
service in Austria, Belgium, The Netherlands and Norway. The launch of chello
broadband in our upgraded Western European markets is scheduled to begin during
the first quarter of 1999. As of September 30, 1998, we had more than 12,125
residential and 600 business cable modem Internet access subscribers.
Market Opportunity
We believe 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.
With approximately 3,225 kilometers of high-capacity two-way active fiber
plant deployed throughout our Western Europe systems, we believe that chello
broadband has a competitive advantage over traditional ISPs that rely on dial-
up access. chello broadband also has broadband, coaxial cable access to
approximately 3.0 million homes, and is able to leverage our long standing
cable television-based relationships with approximately 2.3 million residential
subscribers in chello broadband's planned Internet markets. As
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<PAGE>
an Internet portal, chello broadband also plans to associate with other cable
television operators to provide service to their subscribers.
Current Internet Access Technologies
We believe 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, we believe that cable
modem access technology is superior to all other current technologies because:
(1) 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, (2) a global standard has been created and accepted,
and (3) customers are served by a shared infrastructure, which allows for lower
cost service offerings.
Cable modem service, such as that employed by chello broadband, 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 broadband intends to store the most popular
Internet sites locally, thus making them available at the high speeds made
possible by our network. The existence of the AORTA pan-European backbone will
enable chello broadband to aggregate the volume of data stored for availability
at high speeds to its customers. Although chello broadband will price its
service at a subscription level that is above that of dial-up services, cable
modem users do 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. We also
intend to target chello broadband's service to SOHO and medium-sized business
customers who may view the services as a lower cost alternative to leased
lines.
We will also enable our 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
broadband network and the Internet. See "Technology".
Competition
The Internet services business in Europe is highly competitive. We believe,
however, that our strategy for chello broadband, which encompasses competitive
pricing and superior service combined with high speed access and compelling
content, will mitigate the effects of competition from other internet service
providers (ISPs) in its markets. We currently compete with traditional dial-up
ISPs and ISDN providers (including many incumbent telecommunications service
providers) and expect that chello broadband 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, we expect competition from
providers using other broadband technologies.
chello broadband Growth Strategy
We are creating chello broadband as part of a pan-European strategy
designed to capture value by developing economies of scale and market share by
leveraging our existing cable television and telephone subscriber base. To
accomplish this goal, chello broadband intends to provide, over the AORTA-
branded 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.
We intend to market chello broadband to the residential/SOHO and medium
business segments. We believe that local partners, in addition to our operating
systems, will be crucial for chello broadband's success. chello broadband
intends to enter into partnerships with non-UPC local cable operators in order
to share responsibilities in creating the service and
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revenues generated by the service. We may offer equity securities of chello
broadband to its partners or other investors to fund further development or to
encourage third-party cable operators to become chello broadband affiliates,
as we plan to do with Microsoft. See "Relationship with Microsoft". In these
partnering arrangements, we expect that chello broadband will provide
connection to the AORTA-branded 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 broadband Content Strategy
chello broadband intends to develop an Internet portal business by
partnering with providers of local, regional, national and international
content, rather than attempting to create the majority of its own content. We
believe that high bandwidth and compelling content are necessary from the
outset to provide users with a rewarding broadband experience that is superior
to our competitors' offerings. chello broadband 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 broadband
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 our 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. We also plan to offer our 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
broadband'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. We are currently
negotiating with the cable modem suppliers, however, and expect that prices
for cable modems will decrease to approximately NLG400 by 2000. We have
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 --
Failure to Raise Necessary Capital Could Restrict Our Growth".
Internet Access Experience To Date
We have launched a residential and business cable modem-based, high-speed
Internet access service in Austria, Belgium, The Netherlands and Norway. We
have marketed our current Internet service as a high speed Internet access
product excluding many of the value added services that chello broadband
expects to provide. Marketing efforts for our Internet access service have
been limited to date but we intend to implement a more substantial brand
marketing program from the launch of chello broadband's service.
Roll-Out and Implementation Schedule
The launch of chello broadband in our upgraded Western European markets is
scheduled to begin during the first quarter of 1999. The back office support
plan described under "-- UPC Telephone Services: Priority Telecom -- Roll-Out
and Implementation Schedule" is similar to the back office support plan that
chello broadband intends to implement.
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<PAGE>
Pan-European Backbone
chello broadband intends to develop its AORTA-branded pan-European
backbone. This backbone is designed to link our major cable networks through a
combination of leased capacity arrangements to allow us to capture more traffic
between our operating areas. The pan-European backbone will also enable chello
broadband 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, we 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 for international Internet traffic
by early to mid-1999. See "Technology".
Regulation
Our 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 our
Internet business. See "Regulation".
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 Dutch GAAP 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
Net operating income
(loss)................. (AS) 148,300 144,595 138,724 (12,985) NLG (2,080)
Adjusted EBITDA......... (AS) 468,200 512,356 507,022 391,631 NLG 62,735
Adjusted 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............... 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(1)....... (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) 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. We own 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
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<PAGE>
clusters of cable systems in the world in terms of subscriber numbers served
from a single headend.
We are 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 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, in
Vienna, the approval of the municipality. 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 broadband service in early 1999. In addition, Telekabel
Group launched Priority Telecom's cable telephone 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 -- Telephone 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% complete 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 our consolidated revenues for the same
period, and Adjusted 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 our consolidated
revenues for the year, and Adjusted EBITDA of approximately NLG81.1 million.
Telekabel Group's Adjusted 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 telephone and Internet/data services. These costs
were approximately NLG6.5 million for the first nine months of 1998. The
Adjusted EBITDA margin for Telekabel Group's video services business on a
stand-alone basis was
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<PAGE>
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 NLG86.3 million and NLG208.0 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 telephone switch and implement a subscriber
management system. Telekabel Group expects to fund these expenditures through
available cash flow and support from us.
Telekabel Group incurred through September 30, 1998 capital expenditures of
approximately NLG9.2 million since December 1997 for the development of its
telephone business and approximately NLG22.4 million since the end of 1996 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 we
estimate that DTH penetration is approximately 8%. Competition in the
Internet/data business in Austria is intensifying. PTA, the national incumbent
telephone 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 telephone 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 telephone 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 our new business lines. See
"Regulation -- European Union" and "-- Austria".
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<PAGE>
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 Dutch GAAP 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
Net operating income
(loss)................. (BEF) 21,183 (39,540) (34,716) (161,596) NLG (8,828)
Adjusted EBITDA......... (BEF) 255,000 268,232 267,815 179,803 NLG 9,807
Adjusted 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 December 31,
------------------------- At September 30,
1995 1996 1997 1998
------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Other Data:
Homes passed............ 133,000 133,000 133,000 133,000
Basic video
subscribers............ 127,843 127,815 127,529 127,574
Basic video
penetration............ 96.1% 96.1% 95.9% 95.9%
Avg. mo. service rev.
per video
subscriber(1).......... (NLG) 18.92 19.20 19.58 19.76
Two-way homes passed.... -- -- 27,600 85,939
Internet subscribers:
Residential............ -- -- 214 926
Business............... -- -- 42 204
</TABLE>
--------
(1) 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, our 100% owned subsidiary, provides cable
television and communications services in selected areas of Brussels and nearby
Leuven in Belgium. We estimate that there are currently approximately 133,000
homes under license in TVD's franchise areas.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 broadband 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. We are
exploring the possibility of providing cable telephone 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 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
65
<PAGE>
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 our consolidated revenues for the same period, and Adjusted 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 our consolidated revenues for the year, and Adjusted
EBITDA of approximately NLG14.6 million. TVD's Adjusted 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
Adjusted 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 of our affiliates and
third parties. This resulted in a slight decrease in revenue in 1998; however,
Adjusted EBITDA was not effected.
Budgeted Capital Expenditures and Capital Resources. TVD has budgeted
approximately NLG20.2 million and NLG25.7 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. TVD expects to fund these
expenditures through available cash flow.
Since June 1997, TVD incurred through September 30, 1998 capital
expenditures of approximately 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. 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 our new business lines. See
"Regulation -- European Union" and "-- Belgium".
The Netherlands: United Telekabel Holding (UTH)
Our Dutch operations are held through UTH, an unconsolidated subsidiary, of
which we hold 51% and NUON holds 49%. We will acquire the remaining 49% of UTH
at the closing of this offering. UTH holds three principal operating companies:
CNBH (which holds the combined KTE and Combivisie systems), 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, our first investment in The
Netherlands was a 3.8% ownership interest in KTE, which operates in Eindhoven.
KTE was contributed by Philips upon our formation. Shortly after formation, we
acquired 50% of A2000, the Amsterdam and surrounding areas system, and the
remaining 96.2% of the KTE system. Effective January 1, 1998, we acquired the
Combivisie cable system, which we subsequently combined with KTE to form CNBH.
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<PAGE>
In August 1998, we formed UTH with NUON. We contributed 100% of CNBH and
our 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 telephone
service with approximately 16,000 subscribers.
67
<PAGE>
The following selected financial data have been derived from the
financial statements of Kabeltelevisie Eindhoven ("KTE"), Stichting
Combivisie Regio ("Combivisie") and NV TeleKabel Beheer ("Telekabel
Beheer"), which are now wholly owned by UTH. We combined the assets of KTE
and Combivisie in January 1998 to form CNBH. In August 1998, we contributed
CNBH and 50% of A2000 and NUON contributed Telekabel Beheer to form UTH.
These financial statements have been prepared in accordance with Dutch GAAP
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
Net operating income
(loss)................. (NLG) 5,152 1,650 2,156 10,547 11,958 12,864 (1,628) 22,846 26,608
Adjusted EBITDA......... (NLG) 9,948 11,298 12,719 17,948 19,816 21,032 (188) 45,041 58,813
Adjusted 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(1)
------- ------- --------- ------- ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Other Data:
Homes passed............ 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(2).......... (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(3)
------------------
Nine Months
Ended
September 30, 1998
------------------
(in thousands)
<S> <C> <C>
Selected Financial Data:
Revenues............................................ (NLG) 156,690
Net operating income................................ (NLG) 10,571
Adjusted EBITDA..................................... (NLG) 79,034
Adjusted EBITDA margin.................................... 50.4%
Total capital expenditures.......................... (NLG) 117,814
<CAPTION>
At September 30,
1998
------------------
<S> <C> <C>
Other Data:
Homes passed.............................................. 907,078
Basic video subscribers................................... 855,277
Basic video penetration................................... 94.3%
Average mo. service rev. per video subscriber(2).... (NLG) 17.95
Two way homes passed...................................... 422,902
</TABLE>
--------
(1) In July 1997, we 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) Service revenue excludes installation revenue.
(3) Because UTH began operations in August 1998, the financial information
presented for the nine-month period includes results of CNBH, Telekabel
Beheer and Uniport for the first seven months of 1998 and results of
UTH from formation to September 30, 1998.
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<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 broadband's Internet/data services in the CNBH
systems in early 1999. In addition, UTH plans to introduce the initial phase of
cable telephone 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 private
branch exchange (PBX)-based business telephone service, including leased line
management, on-site services and telephone equipment, to its former 100%
shareholder, NUON, and several other companies. As part of the purchase
agreement with NUON for the remaining 49% of UTH, UTH and NUON have agreed to
enter into a preferred supplier arrangement through December 31, 2007, whereby
UTH will be the preferred supplier for NUON and its subsidiaries for
telecommunications and Internet services and NUON will be the preferred
supplier to UTH for energy and energy-related services.
In August, 1998, UTH acquired from Nutsbedrijf Regio Eindhoven, a 16,700
subscriber cable television system in the Eindhoven region. This acquisition
enabled us to increase its cluster of operations in and around the Eindhoven
area. See "Corporate Ownership Structure -- The Netherlands -- UTH".
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 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 -- We May Not Be Able to Obtain
the Necessary Programming".
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 our consolidated revenues for the same period if we
consolidated the results of UTH and A2000, and Adjusted 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 our
consolidated revenues for the year, and Adjusted EBITDA of approximately
NLG12.7 million. During the same period, Combivisie had revenues and Adjusted
EBITDA of NLG29.0 million and NLG21.0 million, respectively and Telekabel
Beheer had revenues and Adjusted EBITDA of NLG137.2 and NLG58.8, respectively.
Budgeted Capital Expenditures and Capital Resources. UTH has budgeted
approximately NLG191.9 million and NLG187.5 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 telephone 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. After we have purchased the remaining 49% of UTH from NUON, we will
have full responsibility for UTH's projected capital expenditures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources --Current Debt Facilities" and
"-- Consolidated Capital Expenditures".
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<PAGE>
UTH incurred through September 30, 1998 capital expenditures of
approximately NLG5.0 million since May 1998 for the development of its
telephone 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 (received with an antenna) television signals, DTH and
local SMATV systems has been limited. 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 telephone 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 our 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 Dutch GAAP with the Dutch
guilder as the functional currency. Since August 6, 1998, through UTH, we
have a net 25.5% interest in A2000. When we purchase the remaining 49% of
UTH from NUON, our interest in A2000 will increase to 50%.
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months
------------------------- Ended
1995(1) 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
Net operating income
(loss) ................ (NLG) (2,715) (2,960) (17,083) (27,542)
Adjusted EBITDA......... (NLG) 17,115 40,829 33,763 21,620
Adjusted 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............ 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(2).......... (NLG) 12.96 12.96 13.29 14.25
Two way homes passed.... -- -- 125,180 329,101
Telephone subscribers... -- -- 3,255 13,849
Internet subscribers.... -- -- 450 5,456
</TABLE>
--------
(1) Because A2000 was formed in July 1995, these figures represents the six
months ended December 31, 1995 only.
(2) Service revenues excluding installation revenue.
Overview/Growth Strategy. A2000, a 50/50 joint venture between UTH and
MediaOne, 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, telephone and Internet/data
services.
A2000 launched a nine channel expanded basic tier in October 1996, impulse
pay-per-view services in April 1997, cable telephone service on a trial basis
in July 1997 and an Internet/data access service in October 1997. A2000
launched its Nedpoint-branded cable telephone service in August 1998. See "--
UPC Telephone Services:
70
<PAGE>
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 telephone 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 telephone and expanded basic tier services and
approximately 30% of the subscribers who subscribe to its telephone services
also subscribe to one or both of the other services. We plan to use the
information gathered from our telephone experience in A2000 as we launch cable
telephone services in our other primary markets. See "-- UPC Telephone
Services: Priority Telecom".
See "Corporate Ownership Structure -- The Netherlands -- A2000".
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+. Canal+ has recently commenced litigation against A2000 demanding direct
access to A2000's network in order to introduce its own digital decoder. We do
not believe A2000 will be obliged to provide the access demanded by Canal+ and
even if it were, we do not believe providing such access would have a material
effect on A2000's business.
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. For the same period, A2000
had Adjusted EBITDA of approximately NLG21.6 million. For the year ended
December 31, 1997, A2000 had total revenues of approximately NLG101.5 million
and Adjusted EBITDA of approximately NLG33.8 million. A2000's Adjusted 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 telephone services. The costs associated with these services were
approximately NLG13.8 million for the nine months ended September 30, 1998. The
Adjusted 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.
71
<PAGE>
Budgeted Capital Expenditures and Capital Resources. A2000 has budgeted
approximately NLG146.4 million and NLG135.4 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 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
telephone 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, A2000's 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 a high speed Internet access
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 telephone 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 our 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".
72
<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 Norwegian GAAP with the
Norwegian kroner as the functional currency. Because Janco Multicom's
financial statements are consolidated with our financial statements, the
1997 and September 30, 1998 financial statements have been prepared in
accordance with Dutch GAAP with the Norwegian kroner as the functional
currency. There is no material difference between Dutch and Norwegian GAAP
for the purposes of the financial information provided below. 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
Net operating income
(loss)................. (NKr) (1,749) 9,114 17,418 17,329
Adjusted EBITDA......... (NKr) 67,939 68,446 37,837 39,619
Adjusted 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............ 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(1).......... (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>
Selected Financial Data:
Revenues................ (NKr) 332,192 258,663 NLG 69,035
Net operating income
(loss)................. (NKr) (101,216) (98,216) NLG (26,213)
Adjusted EBITDA......... (NKr) 134,660 96,482 NLG 25,750
Adjusted 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>
Other Data:
Homes passed............ 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(1).......... (NLG) 20.13 21.14
Two way homes passed.... 5,171 10,942
Internet subscribers.... 153 471
</TABLE>
--------
(1) 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.
73
<PAGE>
Overview/Growth Strategy. Since our acquisition of control, our strategy
for our Norwegian systems has been to integrate more fully these operating
subsidiaries to take advantage of economies of scale in implementing our
technical, operational and marketing expertise. In an effort to increase our
position in the Norwegian cable television market, we 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, we merged Norkabel into Janco forming Janco Multicom. Following the
merger, we retained 87.3% of Janco Multicom. We 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.
Our goals for our 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. We believe 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 expanded 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 broadband service in the first quarter of 1999. We also
plan to introduce Priority Telecom's cable telephone service in 1999 in the
upgraded portions of Janco Multicom's network. See "-- UPC Internet/Data
Services: High Speed Access and chello broadband ", and "-- UPC Telephone
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 us to replace more of the network than in
our 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: (1) basic, including "must carry" (a limited number
of broadcast channels required by the government to be carried); (2) an
expanded basic tier; (3) a "mini-tier" of certain selected channels; and (4)
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 our consolidated revenues for the same period, and
Adjusted 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 Adjusted EBITDA of approximately NLG37.1 million. Janco Multicom's
Adjusted EBITDA margin declined from 40.5% for the year ended December 31, 1997
to 37.3% for
74
<PAGE>
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 telephone service scheduled for launch in
1999. For that period, the Adjusted 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 NLG56.2 million and NLG86.9 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 telephone switch and implement a subscriber management
system. Janco Multicom expects to fund these expenditures through available
cash flow and support from us.
Since December 1997, Janco Multicom has incurred capital expenditures
through September
30, 1998 of approximately NLG6.6 million for the development of its telephone
business and, since January 1997, capital expenditures of approximately 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, a
subsidiary of NetCom Systems, which operates a dial-up Internet access service
and has recently launched a high speed wireless Internet access service. Upon
the launch of telephone 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 our new business lines. See
"Regulation -- European Union" and "-- Norway".
75
<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
Israeli GAAP 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(2) 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
Net operating income
(loss)................. (NIS) 59,859 83,487 97,590 89,345 49,445
Adjusted EBITDA......... (NIS) 155,561 185,288 204,251 219,251 NLG121,338
Adjusted 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 (2)
------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Other Data:
Homes passed............ 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(1).......... (NLG) 60.88 62.54 64.20 67.68
Two-way homes passed.... 318,721 334,426 350,392 359,050
</TABLE>
--------
(1) 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.
(2) 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). We currently own 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 395,675 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 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 telephone and Internet/data services. See "Regulation --
Israel".
76
<PAGE>
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 telephone
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 has applied to extend its license to provide pay-
per-view services in all of its franchise areas. Tevel has also applied for a
license to provide pay-per-view services in Gvanim's franchise areas. The grant
of such licenses may be conditional upon Tevel and Gvanim obtaining their
programming from independent third parties. As explained below, their
programming is currently provided by an affiliate.
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 Adjusted 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 Adjusted
EBITDA of approximately NLG112.8 million. Tevel's Adjusted 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 Adjusted EBITDA by approximately NIS2.5
million (NLG1.4 million).
Budgeted Capital Expenditures and Capital Resources. Tevel has budgeted
approximately NLG50.6 million and NLG42.6 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 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. See
"Regulation -- Israel".
77
<PAGE>
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 our new business lines. See
"Regulation -- Israel".
France: Mediareseaux Marne, S.A.
Overview/Growth Strategy. We have 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 telephone license for an area
that includes 1.5 million homes in the eastern suburbs of Paris and in
September 1998, Mediareseaux began installing a telephone switch. Mediareseaux
plans to begin offering telephone services by mid-1999 within its cable
television franchise area and has obtained frequencies for a trial offering of
local wireless services. Mediareseaux also plans to offer chello broadband'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 telephone
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 then
in its franchise areas. Since September 1998, we have increased the number of
our franchises and we expect the network to pass all 114,000 homes in our
current franchise areas by the end of 1999.
Programming. Mediareseaux's current programming offers: (1) a basic eight-
channel package containing off-air, local and promotional programs; (2) four
extended basic tiers (News & Current Events, Youth & Discovery, International
channels, Sports & Leisure) containing five to ten channels each; (3) three
premium tiers containing three children's channels, three sports channels and
four movie channels; and (4) 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 our consolidated revenues for the same date,
and Adjusted EBITDA of approximately negative 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 our consolidated
revenues for the year, and Adjusted EBITDA of approximately negative NLG4.5
million.
Budgeted Capital Expenditures and Capital Resources. Mediareseaux has
budgeted approximately NLG56.7 million and NLG64.0 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 telephone switch and implement a subscriber
management system. Mediareseaux expects to fund these expenditures through
drawings under the Mediareseaux Facility and equity contributions from us 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
78
<PAGE>
French incumbent telecommunications provider and Cegetel when it launches its
cable telephone 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 licenses, valid until 2026 and 2022 respectively, granted by
the Conseil Superieur de l'Audiovisuel 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 and with 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 telephone 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 has entered
into an interconnect agreement with France Telecom. Mediareseaux expects,
however, that it will seek to renegotiate some provisions of the interconnect
agreement during 1999.
Malta: Melita Cable TV P.L.C.
Overview/Growth Strategy. Melita Cable TV P.L.C. ("Melita") operates an
exclusive franchise network in Malta. Currently, we 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 a 42.3%
penetration rate. 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 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:
. reception (local and foreign off-air channels),
. basic (reception service plus nine additional satellite services), and
. 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, Melita 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 Adjusted
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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 Adjusted EBITDA of approximately NLG9.7 million.
Budgeted Capital Expenditure and Capital Resources. Melita has budgeted
approximately NLG15.4 million and NLG24.4 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 our 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>
Nine Months
Year Ended December 31, 1997 Ended September 30, 1998
-------------------------------------------- --------------------------------------------
Net Total Net Total
Operating Adjusted Capital Operating Adjusted Capital
Income Adjusted EBITDA Expendi- Income Adjusted EBITDA Expendi-
Revenue (Loss) EBITDA Margin tures Revenue (Loss) EBITDA Margin tures
------- --------- -------- -------- -------- ------- --------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hungary(1)
Kabelkom........... (NLG) 32,717 11,660 14,857 45.4% 11,213 -- -- -- -- --
Kabeltel........... (NLG) 9,555 (283) 778 8.1% 6,759 -- -- -- -- --
Telekabel Hungary.. (NLG) -- -- -- -- -- 39,225 9,919 14,416 36.8% 16,141
Czech Republic...... (NLG) 7,492 (13,116) (6,730) n/a 4,217 6,618 (6,816) (1,818) n/a 831
Romania(2).......... (NLG) 2,192 1,051 1,359 63.4% 857 2,857 1,041 1,382 48.3% 616
Slovak Republic..... (NLG) 1,547 (1,826) (1,011) n/a 2,799 1,163 (750) (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(3) 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% (4)
Slovak Republic......... 26,966 14,636 54.2% NLG 8.20 75.0-100.0% (5)
</TABLE>
--------
(1) Kabelkom and Kabeltel were contributed to Telekabel Hungary on June 30,
1998 and since then their results have been consolidated at Telekabel
Hungary. The financial information presented for the nine months ended
September 30, 1998 comprises:
. Kabelkom's results for the first six months of 1998 (revenues of
approximately NLG18.6 million, Adjusted EBITDA of approximately NLG8.6
million, Adjusted EBITDA Margin of 46.2%, net operating income of
approximately NLG6.7 million and capital expenditures of approximately
NLG3.2 million),
. Kabeltel's results for the first six months of 1998 (revenues of
approximately NLG6.8 million, Adjusted EBITDA of approximately NLG1.1
million, Adjusted EBITDA Margin of 16.2%, net operating income of
approximately NLG0.5 million and capital expenditures of approximately
NLG8.7 million), and
. Telekabel Hungary's results for the three months ended September 30, 1998
(revenues of approximately NLG13.8 million, Adjusted EBITDA of
approximately NLG4.7 million, Adjusted EBITDA Margin of 34.1%, net
operating income of approximately NLG2.7 million and capital expenditures
of approximately NLG4.2 million).
(2) Because Eurosat was acquired in May 1998, only four months of its
results have been included in the financial results for the Romanian
Systems.
(3) 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.
(4) We own 100% of each of Control Cable Ventures and Multicanal Holdings
systems and 51% of Eurosat.
(5) We own 75% of the 11,507-subscriber Trnavatel system and 100% of the
3,129-subscriber Kabeltel (Slovak) system.
Hungary: Telekabel Hungary
Overview/Growth Strategy. In June 1998, we increased our 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 we retain a 79.25% interest. As of September 30, 1998,
Telekabel Hungary had approximately
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413,100 subscribers. There are no current plans to launch telephone or
Internet/data services in Telekabel Hungary's systems.
When Kabelkom was formed in 1991, its systems 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 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. We are 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 approximately 64,000 HFC homes.
Programming. Telekabel Hungary offers subscribers four tiers of programming
comprising approximately 35 channels:
. basic tier which includes lifeline (a limited number of broadcast and
satellite channels required by the government to be carried),
. an expanded basic tier, and
. 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, combined revenues and
Adjusted 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 million and Adjusted
EBITDA of approximately NLG14.9 million. For the year ended December 31, 1997,
Kabeltel had total revenues of approximately NLG9.6 million and Adjusted 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 NLG39.0 million and NLG57.1 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 Telekabel Hungary Facility
and support from us. 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. We understand,
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, our Hungarian operating company in which we own a 46.3% economic
interest, has offered traditional telephone services since December 1994. Monor
has 85,000 homes in its franchise area, with approximately 84,000 traditional
telephone homes passed and approximately 67,350 cable television homes passed.
It served approximately 66,900 traditional telephone 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
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approximately NLG26.6 million and EBITDA of approximately NLG16.8 million for
the nine months then ended. Monor had approximately $46.0 million of
outstanding bank debt as of September 30, 1998.
Czech Republic
Overview/Growth Strategy. We own 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 subscribers in
Prague. KabelNet's penetration rate was 35.1% as of September 30, 1998. There
are no current plans to launch telephone or Internet/data services in
KabelNet's systems.
Network. KabelNet's systems currently offer programming over an MMDS
network and an HFC cable network. KabelNet owns the complete cable system
infrastructure for each of its systems from the headend to the home. KabelNet
has no plans to introduce two-way services to its network at this time.
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 Adjusted EBITDA
of approximately negative NLG1.8 million. For the year ended December 31, 1997,
KabelNet had total revenues of approximately NLG7.5 million and Adjusted EBITDA
of approximately negative NLG6.7 million.
Budgeted Capital Expenditures and Capital Resources. KabelNet has budgeted
approximately NLG1.1 million and NLG2.5 million 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
us. KabelNet has no bank debt.
Competition. KabelNet faces competition in its service area. Currently,
parts of its service areas have been overbuilt (i.e., a cable network has been
installed where one already exists) 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. We are currently involved in the development of
three cable companies in Romania: our 100%-owned Control Cable Ventures, with
operations in Ploiesti and Slobozia, and Multicanal Holdings, located in
Bucharest, Romania's capital, of which we own 100% interest, and our 51%-owned
Eurosat in Bacau. Since 1993, when we first entered the Romanian market, we
have widened our customer base through acquisition and marketing activities in
conjunction with build out. As of September 30, 1998, our combined Romania
operations passed approximately 95,675 homes and served approximately 58,900
subscribers, representing a penetration rate of 61.6%. There are no current
plans to launch telephone or Internet/data services in the Romanian systems.
Network. In 1994, we initiated an intensive upgrade of our 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. The Romanian
systems have no plans to introduce two-way services at this time.
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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. We 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 Adjusted EBITDA of approximately NLG1.4 million. For the year
ended December 31, 1997, our combined Romanian operations had total revenues of
approximately NLG2.2 million and Adjusted EBITDA of approximately NLG1.4
million.
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.
Competition. Because there are no exclusive franchises awarded in Romania,
we face competition in all four franchise areas in which we operate. While
there is little overbuild within the cities, the homes are divided among a
variety of competitors in each city. Including our systems, there are three
operators in Ploiesti, four operators in Bacau, two operators in Slobozia and
eight major operators in Bucharest.
Regulation. Exclusive franchises are not awarded in Romania. We have
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. We entered the Slovakian market in 1995 and
currently have over 68,000 homes in our franchise areas. Together with a local
partner, we are developing projects in the cities of Trnava ("Trnavatel"),
Zvolen, Nove Zamky and Levice (all three operated as "KabelTel"). We own 75% of
Trnavatel and 100% of KabelTel. 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,
our Slovakian operations passed approximately 27,000 homes and served
approximately 14,625 subscribers, representing a penetration rate of 54.2%.
There are no current plans to launch telephone or Internet/data services in the
Slovakian systems.
Network. The Slovakian systems own the HFC cable network from the headend
to the home. There are no plans to introduce two-way services to the Slovakian
systems' network at this time.
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 Adjusted EBITDA of approximately negative NLG0.1 million. For
the year ended December 31, 1997, the Slovakian operations had total revenues
of approximately NLG1.5 million and Adjusted EBITDA of approximately negative
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 us. The Slovakian systems have no third-
party debt.
Competition. In the KabelTel cities of Levice and Nove Zamky, there are no
competitors to our systems. In Zvolen there are two competitors. One is an
unencrypted MMDS service operated by Cable Plus, a subsidiary of US WEST, and
the
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other is a small private SMATV operator. Trnavatel faces no direct competition.
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, we, together with our consolidated subsidiaries,
had approximately 1,360 employees. We believe that our relations with our
employees are generally good.
At December 31, 1995, 1996 and 1997 we, together with our consolidated
subsidiaries, had approximately 407, 704 and 815 employees, respectively.
Certain of our operating subsidiaries, including our Austrian, Dutch and
Norwegian systems, are parties to collective bargaining agreements with some of
their respective employees.
Legal Proceedings
We and our operating companies are not parties to any material legal
proceedings. From time to time, we and our operating companies may become
involved in litigation relating to claims arising out of its operations in the
normal course of business. See also "Business--Operating Companies--The
Netherlands--A2000--Programming".
Properties
We lease our corporate offices in Amsterdam and London. Our operating
companies and subsidiaries generally lease their offices as well. We own small
parcels of property in various countries that we use for our network equipment.
In other countries, we have been able to obtain easements for this equipment.
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TECHNOLOGY
The following is a general discussion of the technology we employ. 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 our operating companies, see the
"Network" sections of each operating company in "Business --Operating
Companies". In order to explain some of the technical terms in this section, we
have included a glossary following this section.
Our Network
We typically own the complete cable television infrastructure for each of
our systems from the headend to the home. Since 1994, we have been rebuilding
and upgrading the existing one-way video distribution infrastructure in the
majority of our 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. Our 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 us with
increased channel capacity and permits the introduction of digital services,
such as enhanced video, telephone and Internet/data services.
Our network upgrade to fiber optic cable enables us to offer analog video,
digital video, and digital telephone and Internet/data services that are not
possible with our non-upgraded network. In addition, our fiber optic network
supports higher penetration rates for these services and provides a higher
level of quality and reliability than the network that is being upgraded. As a
result of the upgrade, our customers are able to receive new competitive
services that they could not receive before, including:
. better voice quality from our digital telephone services than the
incumbent telecommunications operator provides,
. a much faster Internet service than dial-up services and without local
telephone connection charges, and
. digital television signals that are superior to the current analog
signals.
The network upgrade consists of two phases: (1) the basic network upgrade
and (2) the enhanced upgrade that includes the incremental investments
necessary to introduce digital video, telephone 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. Our typical non-upgraded network
architecture (from the headend to the subscriber) is depicted in the diagram
below:
[FLOW CHART APPEARS HERE]
Our 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 our systems acquired from Philips did not
use set-top converters to terminate the signals at the television sets. Our
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:
[FLOW CHART APPEARS HERE]
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 telephone and Internet equipment installed during the enhanced
services upgrade. See "-- Upgrade for Enhanced Services". For telephone 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
Our 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 optical signals back to radio frequencies. Eight to
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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, telephone and Internet/data services. Typically, these
older generation amplifiers are not capable of operating without distorting the
extra channels or digital signals required for telephone 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 telephone 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 our system in Vienna, Austria. This architecture is
typical of our 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 telephone 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.
[MAP APPEARS HERE]
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Concurrent Broadband Bandwidth
Our upgraded network architecture will provide cost-effective methods to
distribute the greatest amount of concurrent broadband bandwidth into
subscribers' homes. We have 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, we have constructed an architecture to support
frequencies from 5-65 MHz. We place non-critical upstream transmissions from
subscriber set-top terminals in the 5-15 MHz portion of the bandwidth.
Typically, our 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 telephone 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 APPEARS HERE]
Upstream Scalability. We are currently deploying impulse pay-per-view
(IPPV) set-top boxes, Internet cable modems and telephone cable phone 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.
We have 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.
Our current suppliers of cable phone 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, we
deploy 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. Our
deployment of this concentration technology is designed to allow the customer
at least 99% accessability to the network, the standard for most public
networks.
We then allocate 1.5 MHz channels in the upstream direction to allow for
telephone 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, our current
technology would support simultaneously in excess of two set-top boxes per home
passed, 600 cable modems and 600 telephone lines.
Improvements in Upstream Transmission Technologies. We intend 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, we expect 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, we have the
flexibility to allocate the combination of analog and digital channels. The
diagram below depicts a model where we would allocate a maximum of 65 analog
television channels and 240 MHz of bandwidth for digital services:
[DIAGRAM APPEARS HERE]
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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 telephone capacity (eight 2.048 Mbps
channels). In this example, we would bring 65 analog television channels and
approximately 900 Mbps of concurrent digital capacity into each home. We have
the flexibility, however, to define the ratio of analog to digital channels
allocated in each market.
Upgrade for Enhanced Services
The second phase of our network upgrade is the incremental investment
necessary to introduce digital video, telephone 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, telephone 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 telephone service, this includes the central
office switch, the voice mail platform, SDH transmission and other telephone-
related equipment. For Internet/data service, this includes servers and
equipment for connection to the Internet.
Cable Telephone Network and Infrastructure
Traditional telephone signals are carried over twisted copper pairs in the
local loop. Cable phone technology allows telephone signals 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. Cables run from the CIU to other
parts of the home where services are required. 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.
We plan 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 telephone
configuration for MDUs and medium and large businesses:
[DIAGRAM OF TELEPHONE ARCHITECTURE APPEARS HERE]
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Our upgraded network has been designed to support up to 600 telephone lines
per fiber node. Assuming 1,000 homes passed per fiber node and 35% of telephone
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). Our network architecture has been designed to
allow for future fiber node subdivision without having to spend incremental
capital on fiber optic construction. We also have the extra fiber capacity at
each fiber node to connect directly businesses that require more capacity than
cable phone installations.
Most of our 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 our 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, we are 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,
we provide 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 CIUs would likely not
remain functional. See "Risk Factors -- The Scalability, Speed and Technology
of the Network is Unproven".
Internet Access Technologies
We believe 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, we
believe that cable modem access technology is superior to all other current
technologies because: (1) 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; (2) a global standard has been created
and accepted (MCNS/DOCSIS); and (3) customers are served by a shared
infrastructure, which allows for lower cost service offerings.
Cable modem technologies were launched in our Austrian, Belgian, Dutch and
Norwegian networks on a trial basis in 1997. Our 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
broadband, 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
We intend to develop a pan-European backbone. The backbone is designed to
link our major cable networks through a combination of leased capacity
arrangements between Vienna,
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Amsterdam, Brussels and Oslo. Our pan-European backbone will also be capable
of being linked to the United States through two leased fiber routes. In
October 1998, we entered into a contract with Hermes Europe Railtel for the
purchase of transmission capacity. This agreement allows chello broadband 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 broadband'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
broadband plan to offer solutions for international carrier traffic
distribution and other voice and data services.
The following diagram depicts this architecture:
[MAP APPEARS HERE]
In the above diagram, chello broadband's pan-European backbone, branded
AORTA, will interconnect the 155 Mbps ring to three major Internet exchange
points -- Amsterdam (AIX), Stockholm (GIX) and Vienna (E-Bone). Each of these
major European Internet exchange points will provide chello broadband with
Tier 1 Internet connectivity, which is the highest level of interconnection
performance on the Internet backbone, when chello broadband expands to
strategic Internet exchanges. Tier 1 Internet peering offers transit network
rights to and from the large Internet providers throughout Europe. chello
broadband 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, we intend to implement a satellite Internet network.
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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 broadband 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. We have 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 broadband servers.
Digital Distribution Platform
We are 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 us and other companies to buy
services. We would carry programming versioned for multiple languages in one
data stream and use remote storage and playout to deliver NVOD services.
Our planned digital distribution platform would accomodate video
compression, playout and overall conditional access control for us and non-
affiliates. We have 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. Our 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.
We believe 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 our 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 capacity, in terms of volume and speed, of cable to
transmit information. This is measured in Hertz (cycles per second) or bits per
second (bps).
Bitstream - A stream of data produced by compressing analog video or audio
information into digital signals.
Cable Modem Termination System (CMTS) - Equipment located in the
Distribution Hub that converts optical Internet/data signals into radio
frequency 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 platform.
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 the wire pair used in traditional telephone networks.
Compression - A method that reduces the bandwidth or bits necessary to
transmit or store information.
Conditional Access - The part of the digital distribution platform that is
used to control access to what a subscriber may view and how the digital set-
top box will function. Coupled with data encryption, conditional access
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 radio frequency
signal to compensate for signal loss.
Distribution Hub - 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 for more efficient travel, thus reducing overhead and bandwidth
requirements.
Fiber Node - 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 connection. The amplifier feeds the subscriber multi-port tap.
Gbps - Giga bits per second. One billion bits of information transmitted in
one second.
Headend - The equipment at a cable system that receives the program
signals, whether by satellite, broadcast or tape, processes them and
retransmits them to subscribers through the network.
Host Digital Terminal (HDT) - Equipment located in the Distribution Hub
that converts
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optical telephone signals into radio frequency channels.
Hybrid Fiber Coax (HFC) - A technology designed to receive multiple
broadcast and/or non-broadcast signals and to distribute them through 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) - Pay-per-view service that enables the
subscriber to purchase programming by using the subscriber's set-top box and
remote control (i.e. on impulse) rather than calling the cable operator in
advance of transmission.
Integrated Services Digital Network (ISDN) - A set of standards for the
transmission of simultaneous voice, data and video information over fewer
channels than would otherwise be needed.
Internet Protocol (IP) - A standard used in routing, transmitting and
delivering packets of data between Internet hosts.
Kbps - Kilo bits per second. One thousand bits of information transmitted
in one second.
Local Area Network (LAN) - A network that covers 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 of 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 of information 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 device that interconnects one or more customers to the
coaxial network. The device provides isolation between each individual
subscriber's connection and the network.
Near Video-On-Demand (NVOD) - An advanced form of impulse pay-per-view that
offers more "purchase opportunities" to the consumer by showing programs more
frequently than IPPV. NVOD operations require a greater number of channels on a
system than traditional IPPV.
Neighborhood Substation Combiner - A device that combines radio frequencies
from the network so the combined output is in the frequency range of 54-860
MHz.
Radio Frequency - The medium that carries information. A typical broadband
network uses radio frequencies between 80 and 860 MHz to carry signals from the
Master Telecom Center to the subscriber.
Receiver (Rx) - A device used to receive radio frequency 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 in the digital
distribution platform that is used for NVOD services. The RCS is located in the
Master Telecom Center of a broadband network. All NVOD programs are stored on
this server for playout to the digital set-top box. See "-- Central Content
Server ".
Subscriber Management System - Refers to the system used by a network
operator to manage its subscribers. Typical functions can include billing,
marketing, workforce management and scheduling.
Synchronous Digital Hierarchy (SDH) -The European version of the
synchronous optical network (SONET) transmission standard designed for "self-
healing" broadband optical networks. These can detect a break in the fiber and
reroute the signal.
Transmitter (Tx) - A device that typically uses radio frequencies to
transmit information to one or more locations where the information is
recovered by a receiver. See "-- Receiver (Rx)".
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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 increases 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
We own 100% of our operating systems in Norway, Belgium and the Czech
Republic. Below is a description of those operating systems in which we hold
less than 100%.
Austria
Telekabel Group consists of five Austrian corporations, each of which owns
a cable television operating system. We own 95% of, and manage, 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 supervisory board (or two members if four to six members have been
appointed by shareholder resolution). 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 telephone services), the enlargement of the current
cable-network, pricing arrangements and integration of different services.
Although we believe 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 us (the "Vienna
Agreements"). We have 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 our 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 our interests in Telekabel Wien, if certain
threshold values are met. See "Certain Transactions and Relationships--
Relationship with Philips".
Philips, KTV and ourselves have agreed that the Vienna Agreements will run
until December 31, 2022 with an option to extend them.
The articles of association of the companies in the Telekabel Group
restrict their shareholders from divesting their interests for periods ranging
from the end of 2009 to (in the case of Telekabel Wien) 2022. In addition, a
sale of shares requires notice of two years and is subject to a right of first
refusal of the other shareholders.
The City of Vienna's approval is required for any change of control over
us, 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 us. See "Certain Transactions and Relationships".
We may provide Priority Telecom's services to Telekabel Group's subscribers
through a wholly-owned subsidiary, even though the services will continue to be
marketed by Telekabel Group.
The Netherlands
UTH
We and NUON own 51% and 49%, respectively, of the ordinary share capital of
UTH. We will purchase NUON's 49% of UTH at the closing of this offering. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- History of UPC".
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UTH has pledged its interest in Telekabel Beheer and its subsidiaries to
secure the UTH Facility, which it has received commitments from its banks to
replace. If NUON is not repaid, it will have the right to sell the relevant
companies 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".
A2000
UTH and MediaOne International ("MediaOne"), an international developer and
manager of cable television, telephone 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. 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 and KT Hilversum
consist of an even number of directors: one half are appointed upon binding
nomination from MediaOne and one half are appointed upon binding nomination
from UTH. Certain major decisions require approval by at least 75% of the
shareholders. KT Amsterdam's supervisory board consists of three directors, one
appointed by each of MediaOne, UTH and the municipality. The 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 MediaOne, as well as other members appointed by both. The A2000
management board consists of an even number of directors, currently two, one
appointed by UTH and one appointed by MediaOne. Certain major 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.
A2000 is a 50/50 joint venture that requires the agreement of both owners
for certain management decisions. From time to time, there has been
disagreement between its owners as to some of the operations of A2000. We do
not believe, however, that A2000's operations or prospects have been materially
affected by these disagreements.
France
We own 99.6% of Mediareseaux, our 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, we have only a 95% economic interest in Mediareseaux.
Pursuant to an agreement dated June 16, 1998, we 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
We currently own indirectly 46.6% of Tevel, our Israel operating system. We
acquired 23.3% of this interest in November 1998. 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. We have the right to designate
one of Tevel's five
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directors for each 17% of Tevel that we own. Currently, two Tevel directors are
our 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 shares 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 shares 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. If a third
party has not agreed to purchase the Tevel shares at the appraised value within
six months of the date the appraisal is delivered to Tevel and the
shareholders, the right to exercise the forced buyout option lapses, and any
shareholder that thereafter desires to exercise the forced buyout option must
first offer to sell its shares to the other shareholder at fair market value
based on a new appraisal. No shareholder may exercise this forced buyout option
more than once in any 12-month period. Neither party has exercised the forced
buyout option. We and the Discount Group have agreed not to exercise this
forced buy out option while the DIC Loan is outstanding. Pursuant to this
option, the Discount Group may purchase ordinary shares in connection with this
offering for an aggregate purchase price of approximately NLG and a per
share price of equal to 90% of the initial public offering price. 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 the
Discount Group and us. Pursuant to these agreements, Tevel is required to pay
to each of us 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 us 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, we and the Discount Group
have rejected these claims and the parties are attempting to settle such
disagreement.
Malta
We currently own indirectly 50% of the ordinary share capital of Melita. We
acquired 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 we appointed four, MCHL appointed
four and we and MCHL jointly appointed the president. Certain major actions
require our approval and the approval of a majority of the directors of MCHL.
Neither we, MCHL nor our affiliates may compete with Melita with respect to
providing video signals to homes in Malta. Each of us now may offer our
interest in Melita to the other. If either of us elects not to purchase the
other's interest, we both must cooperate to sell all of Melita. If either of us
sells our interest in Melita to a third party, the one which is selling must
give the other an opportunity to sell to that third party.
We provide management services and second personnel to Melita pursuant to a
management agreement that expires
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December 31, 2004, for which we are paid a fee equal to 5% of the gross
revenues of Melita and are reimbursed for expenses, including costs of our
personnel, who provide substantially full-time service to Melita.
Hungary
Telekabel Hungary
We 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 96.88% in
one and 100% in seven of the eight Kabelkom systems contributed by us and 100%
in five and 99.96% in one of the Kabeltel systems contributed by FHF. Our
shares of Telekabel Hungary are pledged in favor of Telekabel Hungary's DEM65.6
million bridge finance lenders. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources --Current Debt Facilities -- Telekabel Hungary Facility".
One of our wholly-owned subsidiaries 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 us 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 we 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, we and FHF can dispose of our 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 under the U.S. Securities Act of 1933
or 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 for a six-month period after
the non-selling shareholder so declines.
Monor
Monor Telefon Tarsasag Rt ("Monor") has the exclusive, local-loop telephone
concession for the region of Monor, Hungary. We and our partner, PenneCom B.V.,
each own about a 44.75% economic interest and about a 37.5% voting interest in
Monor. The remaining economic and voting interests are owned by several
Hungarians.
Romania
We have 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
We operate in the Slovak Republic through two Slovak limited liability
companies: KabelTel S.R.O. ("KabelTel"), and Trnavatel S.R.O. ("Trnavatel"). We
have a 100% indirect interest in 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
We own 80% 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.
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IPS
IPS is a group of three related entities, one corporation and two
partnerships, focusing on the Spanish and Portuguese markets. Following our
acquisition of UIH's interest, we 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.
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REGULATION
The provision of video, telephone and Internet/data services in the
countries in which we operate is regulated. See "Risk Factors -- Video Services
Are Regulated in Most of Our Markets" and "-- Regulation May Affect Our Plans
to Introduce Our New Telephone and Internet/Data Services". The scope of
regulation varies from country to country, although in some significant
respects regulation in our Western European markets is harmonized under the
regulatory structure of the European Union (the "EU"). Below is a summary of
the regulatory environment in the European Union and the European Economic Area
member countries in which we operate and of the regulatory environment in
Israel. See "Business -- Operating Companies" for a discussion of certain
regulations in other of our operating markets.
European Union
Austria, The Netherlands, Belgium and France are all member states of the
EU. As such, these countries are required to enact national legislation which
implements directives 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 public voice telephone and other 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 EU member states. As
a result, most of the markets in which we operate 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.
Telephone 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, as amended, 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 communications 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 telephone. 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 telephone operators by January
1, 1998. The construction of telecommunications networks was also liberalized
under this directive. As a result of this directive, our Western European
operating companies may provide all telecommunications services, including
public voice telephone 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
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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
both cable television and other telecommunications services under national law
irrespective of the above-mentioned requirements. Should any of our operating
companies in the EU 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 us, 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, our 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. There can be no assurance, however, that we will be able to
obtain from incumbent telecommunications operators interconnection on terms and
conditions or at prices satisfactory to us without protracted negotiations or
involvement in time-consuming regulatory proceedings. See "Risk Factors --
Regulation May Affect Our Plans to Introduce Our New Telephone and
Internet/Data Services" and "-- Implementing Our New Telephone and Internet
Services Involves Many Risks".
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 telephone 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. We do not expect such regulations to materially adversely
affect our Internet business plans.
Video Services
Video Services through Telecommunications Networks. Most of our operating
companies are the only cable television operators in their
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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. Our operating companies may face
competition in the long term in their franchise 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 our 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.
We plan to enter into joint venture agreements with programming providers
in order to launch eight new channels in late 1999, which we intend to
broadcast to our operating companies and other cable television operators for
distribution through their networks. We understand 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 us to broadcast such channels to cable operators
throughout the EU. Where the joint-venture partner is already a licensed
broadcaster within the EU, we believe the joint venture activities may fall
within the scope of our partner's broadcast license, and that the joint venture
could operate under the terms and conditions of that license. We also plan to
apply for a broadcasting license in an EU country to accommodate joint ventures
with those partners that do not have a broadcast license in a member state of
the EU or channels created without a partner. We are currently in discussions
with the regulatory authorities in The Netherlands and plan 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 the agreement between Telekabel Wien and the City of
Vienna, 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. In Vienna, the municipality's appointee is
currently in charge of the Vienna system's programming. The municipality's
appointee has a veto right over the introduction and provision of new cable
television and other services (including the provision of tiered channels, pay-
per-view, Internet/data services and telephone services), the enlargement of
the current cable-network, pricing arrangements and integration of different
services. While the municipality has not used its veto power in the past, there
can be no assurance that the municipality will not use its veto power in the
future and hinder the implementation of our strategies for our video, telephone
or Internet/data services. The agreements between the other Telekabel Group
members and their municipalities require each member to consult with its
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municipality prior to making similar business decisions.
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 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.
Telephone 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 -- Telephone 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 telephone services and for
the public offer of leased lines. Telekabel Wien has received a license to
provide public voice telephone 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 Telephone Services: Priority Telecom -- Interconnect
Agreements".
Price Regulation. Although there are no voice-telephone 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
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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 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 we have
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.
Telephone and Internet/Data Services
Regulatory Framework. The provision of cable telephone 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 -- Telephone 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 telephone 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 has submitted an application for a
license to offer voice telephone services and expects to receive a license
during the first half of 1999.
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 (the "Dutch
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Telecommunications Act"), took effect, with the exception of a few provisions,
on December 15, 1998 and further liberalizes 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
telephone and Internet/data services. The provision of video services through
the cable television network, and more specifically content, is regulated
primarily 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 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 cable network.
Existing network operators need only register with OPTA within six months after
December 15, 1998. The registration of a network does not give an operator any
exclusive right. Any person may install, maintain and operate a new network
alongside an existing one. The new Dutch Telecommunications Act gives cable
network operators and providers of other public telecommunication networks
rights of way to install and maintain cable, which are identical to those
currently enjoyed by KPN, our principal competitor in The Netherlands.
Programming. Pursuant to the Dutch Telecommunications Act and Media Laws,
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.
Our 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 Media Laws.
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. Under several of the agreements with the municipalities
described above, for a number of years the respective municipality's consent is
required for increases of the price of the basic tier service which exceed
certain agreed levels. Such consent is not required for price increases
resulting from 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. -- Programming".
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.
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Telephone 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 telephone service is not currently subject
to price regulation, the prices of its competitor, KPN, are. OPTA has recently
indicated that KPN should reduce its end-user tariffs and substantially reduce
its interconnection prices to reflect costs.
Internet/Data Services. Under the Dutch Telecommunications Act,
Internet/data services are regulated as telecommunications services. As such,
our 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. Because 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.
Telephone and Internet/Data Services
Regulatory Framework. Since January 1, 1998, alternative networks in Norway
have been permitted to offer voice telephone services in accordance with the
terms of the applicable EU directives. See "-- European Union -- Telephone and
Internet/Data Services".
Registration. For telephone operators and service providers without
significant market power, as is currently the case with Janco Multicom, no
license is required to offer voice telephone 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
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Multicom has entered into an interconnection agreement with TeleNor.
Pricing. Providers of public telephone 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 Communications Ministry, the telecommunications and cable television
market in Israel is expected to undergo significant reforms in 1999. We expect
that these reforms will include opening the multi-channel television business
to competition by granting licenses to DTH operators and opening the local
telephone 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 therefore
challenged the legal basis of the Ministry of Communications policy of
introducing DTH before that date. In November 1998, the Israeli High Court of
Justice decided that DTH service could be introduced before 2003. The cable
television operators are seeking compensation for the loss of exclusivity prior
to 2003. This could come 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 we understand 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 telephone 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.
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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.
Since its establishment, Tevel has offered its subscribers the "super-basic
package" (currently comprised of 45 channels of programming). In light of
expected future competition by the DTH providers, including the fact that the
DTH providers will be entitled to provide "tiering" of their video services,
Tevel and other cable television providers have applied to the Ministry of
Communications for approval of "tiering" of their respective services upon
opening the multi-channel television business to competition. The Ministry has
not yet responded to this request. It appears that the Ministry intends to
delay introduction of "tiering" by the cable television operators to ease the
entering of the DTH providers into the market. Tevel and the other cable
television operators have filed an appeal to the High Court of Justice
challenging the Ministry's intention. The Court has decided that it will
commence the appeal hearing if the parties do not reach an arrangement by the
end of February 1999.
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.
Telephone 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
telephone services in their franchise areas.
Other
EU directives and national consumer protection and competition laws in our
Western European markets impose limitations on the pricing and marketing of
integrated packages of services, such as video, telephone and Internet/data
services. These limitations are common in developed market economies and are
designed to protect consumers and ensure a fair competitive market. While we
may offer our services in integrated packages in our Western European markets,
we are generally not permitted to make subscription to one service (for
example, cable television) conditional upon subscription to another service
(for example, telephone) that a subscriber might not otherwise take. In
addition, we must not abuse or enhance a dominant market position through
unfair anti-competitive behavior. For example, cross-subsidization between our
business lines that would have this effect would be prohibited. We have to be
careful, therefore, in accounting for discounts in services provided in
integrated packages. We believe we can implement our strategy of offering
integrated packages of services without infringing any of these consumer
protection and anti-competition laws. We do not, therefore, expect any of these
limitations to significantly affect our operating strategy.
Our 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 63% of our
outstanding ordinary shares and all of our priority shares. Because we are a
strategic holding of UIH, UIH will continue to control us for the foreseeable
future. Currently two members of our three-member Supervisory Board are also
directors or officers of UIH and upon completion of the offering, five members
of our seven-member Supervisory Board will be directors, officers or employees
of UIH.
Supervisory Board
Our general affairs and business and the board that manages us (the "Board
of Management") are supervised by a board appointed by the general meeting of
shareholders (the "Supervisory Board") upon proposal of UIH as the holder of
our priority shares. The Supervisory Board also provides advice to the Board of
Management and certain decisions of the Board of Management specified in our
articles of association require the Supervisory Board's prior approval. The
Supervisory Board may also decide that certain other resolutions of the Board
of Management are subject to its approval. In fulfilling their duties, all
members of the Supervisory Board must serve our best interests.
Our articles of association provide for at least three directors
("Supervisory Directors") to serve on the Supervisory Board. Under Dutch law,
Supervisory Directors cannot serve as members of our Board of Management
("Managing Directors"), 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.
Other than the Supervisory Director that Philips may appoint directly, the
Supervisory Directors are appointed at the general meeting of shareholders from
a list proposed by UIH as the holder of the priority shares. The proposal 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. See
"Summary of Certain Provisions of the Articles of Association and Other
Matters" and "Certain Transactions and Relationships --Relationship with
Philips".
If the Discount Group, our partner in our Israeli system, exercises an
option we have granted it to purchase some of our ordinary shares, UIH will
give the Discount Group the right to nominate a Supervisory Director. See
"Certain Transactions and Relationships -- The Discount Group's Option".
Decisions of the Supervisory Board generally require the approval of a
majority of the votes cast at a meeting where a majority of the Supervisory
Directors are present and represented.
Other than the Supervisory Director Philips appoints, which only Philips
may remove, the general meeting may remove any Supervisory Director by two-
thirds of the votes cast representing more than one-half of the issued nominal
capital. If UIH as the holder of the priority shares proposes the removal, the
Supervisory Director may be removed by a majority of the votes cast at a
general meeting. The general meeting also decides the remuneration of the
Supervisory Directors.
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Our Supervisory Board currently consists of three members. Five additional
persons will become Supervisory Board members and 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....................... 50 Supervisory Director Nominee
Tina Wildes............................. 38 Supervisory Director Nominee
</TABLE>
--------
(1) Mr. Gene Schneider will resign from and 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 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 member of the Supervisory Board since April
1996. Since October 1998, Mr. De Lange has been Chairman of the Dutch Philips
organization (Philips Nederland B.V. and Nederlandse Philips Bedrijven 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
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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 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 Tele-
Communications, Inc. from 1987 to 1991 and as Acquisitions Counsel at Tele-
Communications, 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 our Board of Management and our Chief Executive Officer, are sister and
brother. Gene W. Schneider is their father. No other family relationships exist
between any other members of our Supervisory Board or Board of Management.
Board of Management and Other Key Employees
Management and policy making for us and our subsidiaries is entrusted to
the Board of Management under the supervision of the Supervisory Board. The
Board of Management must have at least one member and, if there are two or more
members, the Supervisory Board may designate one member as our Chief Executive
Officer and one member as our President, although one person could have both
designations. Members of the Board of Management are appointed by the general
meeting of shareholders from a list proposed by UIH as the holder of the
priority shares. The proposal may be set aside by two-thirds of the votes cast
at the general meeting representing more than one-half of the issued nominal
capital.
The general legal authority to represent the company is vested in the Board
of Management and two Board of Management members acting jointly are authorized
to represent the company. Certain decisions by the Board of Management set
forth in the articles of association or otherwise determined from time to time
by the Supervisory Board require the approval of the Supervisory Board.
Moreover, UIH may, after consultation with the Supervisory Board, determine
that certain decisions by the Board of Management require UIH's approval as the
holder of our priority shares.
The general meeting may remove any member of the Board of Management by
two-thirds of the votes cast representing more than one-half of the issued
nominal capital. If UIH as the holder of the priority shares proposes the
removal, the member of the Board of Management may be removed by a majority of
the votes cast at a general meeting. 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 member of the
Board of Management are determined by the Supervisory Board.
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The members of the Board of Management and our other key employees are:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Board of Management
Mark L. Schneider................ 43 Chairman of Board of Management and Chief
Executive Officer
John F. Riordan.................. 55 Vice Chairman of Board of Management and
President, Advanced Communications
J. Timothy Bryan................. 37 Board of Management Member, President and
Chief Financial Officer
Anton H.E. v. Voskuijlen......... 41 Board of Management Member, Senior Vice
President, Legal and General Counsel
Nimrod J. Kovacs................. 49 Board of Management Member and Managing
Director, Eastern Europe
Other Key Employees
Scott Bachman.................... 43 Managing Director, Technology and
Purchasing
Steven D. Butler................. 39 Managing Director, UPC Capital and
Treasurer
Timothy Morel.................... 37 Managing Director, Internet/Data Services
and Chief Executive Officer, chello
broadband
Simon Oakes...................... 40 Managing Director, Programming
Ray D. Samuelson................. 45 Managing Director, Finance and Accounting
Joseph Webster................... 36 Managing Director, Telephony Services and
Chief Executive Officer, Priority Telecom
</TABLE>
Mark L. Schneider has been our Chief Executive Officer and Chairman of our
Board of Management 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 our Executive Vice President in March 1998,
and a member of our Board of Management in September 1998. In September 1998,
Mr. Riordan also was appointed Vice Chairman and President of our Advanced
Communications division, overseeing implementation of our Internet/data
services and digital distribution platform. From April 1997 until March 1998,
he was a member of our 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 we 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 our President and Chief Financial Officer and a
member of our Board of Management since September 1998. Prior to that, he
served as a member of our 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, Mr. Bryan served as
Treasurer of Jones Financial Group, Inc., an affiliate of Jones
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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 our Senior Vice President and
Managing Director, Legal and General Counsel since April 1997, where he is
responsible for all of our legal affairs, and a member of our Board of
Management since September 1998. From July 1996 until April 1997, Mr. van
Voskuijlen served as our Vice President and General Counsel. From March 1994
until joining us, 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 our Managing Director of Eastern Europe in
March 1998 and a member of our Board of Management 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 our Managing Director of Technology and
Purchasing since February 1998. From March 1996 until February 1998, Mr.
Bachman was our Vice President of Engineering and the Chief Technology Officer.
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 our
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 our Vice President and
Treasurer. Prior to that, Mr. Butler served as Director of Finance at UIH since
May 1991.
Timothy Morel was appointed our Managing Director of Internet/Data Services
in January 1998. In that role, Mr. Morel is responsible for chello broadband
and all of our related Internet and data activities. Prior to joining us, 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 our Managing Director of Programming in March
1998, responsible for our programming operations and development activities.
From 1994 until joining us, 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 our Managing Director of Finance and
Accounting in February 1998, responsible for all of our accounting, reporting,
budgeting, management information systems and administrative activities. From
our 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 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 our Managing Director of Telephony Services
since February 1998 and is also the Chief Executive Officer of Priority
Telecom. From February 1997 until his appointment with us, Mr. Webster served
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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.
Our managing director of video entertainment recently resigned for personal
reasons. We are seeking to fill this position with a qualified person from one
of our operating companies, from another UIH system or from outside.
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 by UIH are directors or employees of UIH.
None of these members receive additional compensation for serving on the
Supervisory Board. We have not yet determined the amount of compensation for
the additional independent director.
Compensation of Management Board Members
The aggregate 1999 salary compensation for the entire Board of Management
is approximately NLG3,111,000. In addition, we provide our executive officers
automobile allowances and other benefits. Expatriates also receive housing
allowances, foreign tax equalization payments and other compensation relating
to their foreign assignments.
Compensation Committee Interlocks and Insider Participation
We and UIH have concluded a secondment arrangement, pursuant to which
certain U.S. citizens employed by UIH are seconded to us. See "Relationship
with UIH and Related Transactions". To date, compensation for all members of
our management who are employees of UIH has been set by the compensation
committee of UIH and compensation for all of our other employees has been
determined by the Supervisory Board. Our Supervisory Board intends to establish
a compensation committee following the completion of the offering composed of
members of the Supervisory Board. The members of our 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 our Supervisory Board has served as a director or member of a
compensation committee of another company that had any executive officer that
was also one of our Supervisory Directors or a member of the compensation
committee of UIH.
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Executive Compensation
The following table sets forth the 1997 compensation for our 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
Lars Andersen(5)................ 287,826 75,428 31,829 --
Managing Director, Norway
Scott Bachman(6)................ 356,810 -- 31,673 306,862
Managing Director, Technology
and Purchasing
Michael Simmons(7).............. 379,339 -- 28,783 195,417
Former Managing Director,
Portugal
David D'Ottavio(8).............. 589,202 -- 30,120 130,042
Former Co-Chief Executive
Officer
Robert Gardner(9)............... 295,114 10,000 33,860 101,540
Former Managing Director, Czech
Republic
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, Mr. D'Ottavio and Mr. Gardner were converted
from U.S. dollars 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) Our executive officers who are United States citizens are employed by UIH
and seconded to us. UIH compensates all United States citizens working for
us outside the United States for certain expenses and adjustments related
to non-U.S. assignments and we reimburse 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 our Chief Executive Officer in April 1997.
The salary amount shown consisted of salary paid to Mr. Schneider by UIH
for his duties to us and UIH.
(5) Mr. Andersen received a performance-based bonus for 1997. Other annual
compensation consisted of NLG31,829 for Mr. Andersen's automobile
allowance.
(6) 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.
(7) We sold our interest in its Portuguese system in February 1998. Mr.
Simmons no longer is our employee. 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.
(8) Mr. D'Ottavio served as our Co-Chief Executive Officer 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.
(9) Mr. Gardner received a performance-based bonus for 1997. Other annual
compensation consisted of NLG43,200 for Mr. Gardner's automobile allowance
and NLG7,954 for health and life insurance payments. Other compensation
consisted of NLG33,860 related to Mr. Gardner's non-U.S. assignment and
NLG67,680 of hypo tax payments.
(10) Mr. Hackenberg served as our Co-Chief Executive Officer 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 the only Named
Executive Officers holding unexercised options as of December 31, 1997. No
Named Executive Officers exercised any options during 1997. 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>
Jacques Hackenberg........ 362,500 87,500 NLG16,569,875 NLG3,999,625
</TABLE>
- --------
(1) Represents the difference between the price of the ordinary shares at the
offering (based on an assumed initial public offering price of NLG56.20,
the midpoint of the offering price range) and the exercise price of the
options (NLG10.49 for all options set forth above).
Agreements with Executive Officers
We do not have employment agreements with any Named Executive Officers. Mr.
Gardner and Mr. Simmons had employment agreements with UIH that have been
terminated. Mr. Schneider has a consulting agreement with UIH. Upon his
appointment as president, Mr. Bryan entered into an employment agreement with
UIH. Mr. Bachman's employment agreement with UIH recently expired. He and UIH
are currently negotiating a new agreement and he will continue to be seconded
to us. We and UIH are parties to a Secondment Agreement, pursuant to which Mr.
Schneider and Mr. Bryan, together with all of our other U.S. citizen employees,
are seconded to us. See "Relationship with UIH and Related Transactions".
Pursuant to the Secondment Agreement, we reimburse UIH for all expenses
incurred by UIH in connection with the seconded employees. Mr. Andersen has an
employment agreement directly with Janco Multicom.
Mr. Schneider's consulting 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 was 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 three year employment agreement with UIH expired February 6,
1999. He and UIH are currently negotiating a new agreement. Mr. Bachman's
employment agreement provided for an initial base salary of NLG344,080, which
was increased to NLG371,606 in February 1998. In addition to his base salary,
Mr. Bachman also was entitled to tax equalization payments and other amounts
related to his non-U.S. assignment.
Mr. Gardner and UIH entered into an employment agreement on October 2,
1995, pursuant to which Mr. Gardner was seconded to us as Managing Director of
KabelNet, our Czech Republic operating company. Mr. Gardner's employment
agreement was for an initial term of three years at a base salary of
NLG293,480. Mr. Gardner's employment agreement was terminated on March 5, 1998.
Mr. Simmons and UIH entered into an employment agreement on July 24, 1995,
pursuant to which Mr. Simmons was seconded to us as Managing Director of UPC
Portugal, our former Portuguese operating company. Mr. Simmons' employment
agreement was for an initial term of three years at an initial base salary
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of NLG364,320, which was increased to NLG380,714 on July 1, 1996 and NLG403,563
on July 1, 1997. We recently sold our 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 us.
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 (NLG303,587) effective April 1, 1997. Mr. Andersen is
also eligible for an annual performance-based bonus of up to 25% of his base
salary, based on Janco Multicom achieving certain financial and operational
milestones, and Mr. Andersen's general management performance. Mr. Andersen
also receives 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 of our other
employees for one year after termination.
Stock Option Plans
Equity Stock Option Plan.
Under our Stock Option Plan (the "Plan"), the Supervisory Board may grant
incentive stock options to our employees. There are 6,000,000 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 convertable into ordinary shares. UIH 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 contains limited anti-dilution protection in the case of stock
splits, stock dividends and the like. The Plan also provides that, in the case
of change of control, the acquiring company has the right to require us to
acquire all of the options outstanding at the per share value determined in the
transaction giving rise to the change of control.
In 1996, we loaned the following officers the amounts indicated to enable
such officers either to exercise stock options to acquire our shares, 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); 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 Anton H.E.
van Voskuijlen (tax only, NLG106,245). In 1998, we loaned Mr. van Voskuijlen
NLG40,500 (tax only) in relation to an additional grant. These recourse loans
(except for Mr. van Voskuijlen's)
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bear interest at the Dutch statutory rate. For 1998, this rate was 6% per
annum. All loans made in 1996 are due 18 months after the date of the offering.
Mr. van Voskuijlen's loans are due upon exercise of his options and do not bear
interest.
Through September 30, 1998, options to acquire a total of 6,333,000 shares
have been granted under the Plan. Of these, options representing 375,000 shares
have been exercised and resold to the Foundation and, therefore, are available
for future option grants. Options representing 82,500 shares have been
cancelled. The exercise prices for the options are NLG10.49 (3,990,000 shares),
NLG12.00 (2,195,250 shares) and NLG13.57 (147,750 shares). In March 1998, we
granted Mark Schneider options for 975,000 shares at an exercise price of
NLG12.00, the price at which shares were sold in the UPC Acquisition in
December 1997.
Phantom Stock Option Plan
Under our Phantom Stock Option Plan (the "Phantom Plan"), the Supervisory
Board has granted certain 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 2,057,250 phantom shares remained
outstanding. The grant prices for the Phantom Options are NLG12.00 (1,232,250
options) and NLG13.57 (802,500 options). The Phantom Options have a four-year
vesting period and vest 1/48th each month. The phantom options may be exercised
during the period specified in the option certificate, but in no event, later
than ten years following the date of grant. 356,265 of the outstanding Phantom
Options were fully vested on September 30, 1998. The Phantom Plan contains
limited anti-dilution protection in the case of stock splits, stock dividends
and the like. The Phantom Plan also 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 we may
issue such number of shares equal to the value of the cash difference in lieu
of paying the cash.
Limitation of Liability and Indemnification Matters
Pursuant to Dutch law, each member of the Supervisory Board and Board of
Management is responsible to us for the proper performance of his or her
assigned duties. Our articles of association provide that the adoption by the
general meeting of shareholders of the annual accounts shall discharge the
Supervisory Board and Board of Management 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 Board of
Management 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 Board of Management 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.
Our articles of association also provide that we must indemnify any person
who (1) is or was a member of the Supervisory Board or the Board of Management,
(2) suffers any loss as a result of their position as a member of such boards,
and (3) acted in good faith in carrying out their duties. This indemnification
does not apply if the person seeking indemnification is found to have acted
with gross negligence or wilful misconduct in the performance of their duty to
us unless the court in which the action is brought determines that
indemnification is appropriate. A majority of the members of the Supervisory
Board must approve any indemnification unless the entire Supervisory Board is
named in the lawsuit, in which case the indemnification may be approved by
independent legal counsel in a written opinion or by the general meeting of
shareholders. The Supervisory Board may extend the indemnification provisions
of our articles of association to any of our officers, employees or agents.
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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 January 25, 1999, by (1) each shareholder
who is known by us to own beneficially more than 5% of the outstanding ordinary
shares at such date; (2) each of our Supervisory Directors and persons
nominated to become Supervisory Directors; (3) each of our executive officers;
and (4) all of our directors, director nominees and executive officers as a
group. This information reflects the 4,955,264 ordinary shares that UIH will
receive from us in exchange for its interest in IPS.
<TABLE>
<CAPTION>
Ordinary Shares
-----------------------------
Percentage
------------------
Prior to Following
Beneficial Owner Number offering offering
---------------- ---------- -------- ---------
<S> <C> <C> <C>
United International Holdings, Inc.(1).......... 83,087,469 100.0% 67.5%
Gene W. Schneider(2)............................ 83,087,469 100.0 67.5
Michael T. Fries................................ -- -- --
Richard De Lange................................ -- -- --
John P. Cole, Jr.(3)............................ 83,087,469 100.0 67.5
Antony P. Ressler(4)............................ 83,087,469 100.0 67.5
Ellen P. Spangler............................... -- -- --
Tina Wildes..................................... -- -- --
Mark L. Schneider(5)............................ 83,087,469 100.0 67.5
J. Timothy Bryan................................ --
John F. Riordan(6).............................. 83,087,469 100.0 67.5
Anton H.E. v. Voskuijlen(7)..................... 300,000 * *
All directors, director nominees and executive
officers as a group (11 persons)(1)............ 83,087,469 100.0 67.5
</TABLE>
- --------
* Less than 1%.
(1) Includes 6,000,000 ordinary shares held by the Foundation, the board
members of which are appointed by UIH. 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 our shares held by UIH. The directors of UIH disclaim any beneficial
ownership of these shares. UIH owns all of the issued and outstanding
priority shares. The address of United International Holdings, Inc. is
4643 South Ulster Street, Suite 1300, Denver, Colorado 80237 U.S.A.
(2) Represents 83,087,469 ordinary shares beneficially owned by UIH. Mr. G.
Schneider is Chairman of the Board of UIH. He disclaims any beneficial
ownership of UIH's UPC shares.
(3) Represents 83,087,469 ordinary shares beneficially owned by UIH. Mr. Cole
is a Director of UIH. He disclaims any beneficial ownership of UIH's UPC
shares.
(4) Represents 83,087,469 ordinary shares beneficially owned by UIH. Mr.
Ressler is a Director of UIH. He disclaims any beneficial ownership of
UIH's UPC shares.
(5) Includes 83,087,469 ordinary shares beneficially owned by UIH. Of the
6,000,000 ordinary shares held by the Foundation, Mr. M. Schneider holds
currently exercisable options for 975,000 ordinary shares of which options
for 548,438 ordinary shares are subject to our 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 83,087,469 ordinary shares beneficially owned by UIH. Of the
6,000,000 ordinary shares held by the Foundation, Mr. Riordan holds
currently exercisable options for 525,000 ordinary shares of which options
for 295,313 ordinary shares are subject to our repurchase right, which
expires April 1, 2001.
(7) Represents currently exercisable options for 300,000 ordinary shares of
which options for 56,250 ordinary shares are subject to our repurchase
right, which expires January 1, 2002. These shares are registered in the
name of the Foundation.
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CERTAIN TRANSACTIONS AND RELATIONSHIPS
Relationship with Philips
We began operations as a joint venture between UIH and Philips in July
1995. Both shareholders contributed various assets to us.
In December 1997, we and UIH acquired all of Philips' interest in us. As
part of this transaction, we purchased from Philips (1) 3.17 million shares of
UIH Class A Common Stock for NLG66.8 million, the then current market value of
such shares, (2) a portion of the PIK Notes at their fully accreted value for
NLG170.4 million, and (3) 16.252 million ordinary shares for NLG292.6 million.
We also converted the remaining PIK Notes purchased by UIH into 10.12 million
ordinary shares. 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 our Articles of Association in connection with the UPC
Acquisition. Under the Articles of Association, Philips may appoint and remove
one of our Supervisory Directors, 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. We have agreed to indemnify Philips against such
liability. We and UIH have agreed to use our reasonable best efforts to obtain
the release of Philips by the City of Vienna from such liability. Philips'
representative on the Supervisory Board must approve (1) 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 (2) our merger
or consolidation into any other entity that is not wholly owned by UIH.
Loans to Executive Officers
In 1996, we loaned Mr. van Voskuijlen NLG106,245 and in 1998, we loaned him
NLG40,500 to enable him to pay the tax on the stock options received in those
years. These recourse loans bear no interest. The loans are due upon exercise
of his options. We 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, we 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 Board of Management, (i) a 5% interest in Tara and (ii) a 5% interest in
our Irish operating system. The price for these interests was 384,531 shares of
UIH Class A Common Stock that we acquired as part of the UPC Acquisition. We
subsequently sold our newly-acquired 5% interest in the Irish operating system,
together with our existing 20% interest in this system, to TINTA. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- History of UPC".
The Discount Group's Option
In connection with the DIC Loan, we granted an option to the Discount
Group, our partner in our Israeli system, to acquire ordinary shares at a price
per share equal to the price in this offering, discounted by a factor of 10%.
The aggregate purchase price for the shares is equal to the sum of $90 million,
plus interest thereon at the rate of 8% per annum from November 9, 1998 through
the closing of the exercise of the option. Assuming an initial public offering
price per share of NLG56.20, the midpoint of the estimated offering price
range, if the Discount Group exercises its option, it will own about 2.7% of
our outstanding ordinary shares.
The option will expire if not exercised on or before January 29, 1999
unless the final price per share in this offering is less than NLG35.33, in
which case the Discount Group will be given approximately one additional
business day from the date it receives notice of such final offering price to
exercise the option. The Discount Group's exercise of the option is irrevocable
unless the final price per share in the offering is greater than NLG48.67, in
which case the Discount Group will be given approximately one additional
business day from the date it receives notice of such final offering price to
revoke its exercise of the option.
If the option is exercised, the Discount Group will receive certain
registration rights with respect to the shares it acquires. In addition, we
will enter into a shareholders' agreement with the Discount Group and UIH.
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Under the shareholders' agreement, the Discount Group will receive the
right to appoint members of our supervisory board commensurate with the
Discount Group's aggregate shareholdings in us, including at least one
supervisory board member for as long as the Discount Group (together with
affiliates) retains at least 50% of the number of ordinary shares originally
acquired upon the exercise of the option. In addition, the Discount Group will
receive the right to participate on equal terms in connection with sales of
ordinary shares by UIH, including the right to sell the Discount Group's entire
interest in us in connection with a sale by UIH of a controlling interest in
us. The Discount Group will also receive the right to negotiate with UIH prior
to certain sales of ordinary shares by UIH. UIH will receive a right of first
refusal with respect to a sale of ordinary shares by the Discount Group and the
right to require that the Discount Group agree to a merger or sale of all of
our shares proposed by UIH. In addition, there are certain limited
restricitions on the entities or persons to whom the Discount Group may
transfer its ordinary shares.
Previously-Issued Shares
9,198,135 of the ordinary shares to be sold in this offering were
previously held by one of our wholly-owned subsidiaries. These shares will be
transferred to us prior to the closing of this offering and we will receive the
proceeds from their sale.
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RELATIONSHIP WITH UIH AND RELATED TRANSACTIONS
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: (1) Europe, consisting of UIH's interest in us; (2)
Asia/Pacific, including investments in operating systems and development
projects in Australia, New Zealand, the Philippines, Tahiti and China; and (3)
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.................................. 12,069,286 7,437,097
Homes passed........................................... 9,674,663 6,043,266
Basic video subscribers................................ 4,351,491 2,513,027
Telephone lines........................................ 100,520 40,283
Internet/data subscribers.............................. 12,736 8,278
</TABLE>
Control by UIH
Immediately prior to the offering, UIH held effectively all of the voting
control over us and held all of our 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 our 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 63% of our outstanding ordinary shares and all of our
outstanding priority shares. Because we are a strategic holding of UIH, UIH
will continue to control us for the foreseeable future. See "Risk Factors -- We
Will Continue to be Controlled by UIH and Governed by the Terms of its Debt
Securities". Currently two members of our three-member Supervisory Board are
also directors or officers of UIH and upon completion of the offering, five
members of our seven-member Supervisory Board will be directors, officers or
employees of UIH.
Transactions with UIH
Since the UPC Acquisition, UIH has loaned us approximately $79.0 million,
excluding interest, 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. UIH also loaned us an additional $7.5 million in
December 1998, which we have repaid. We plan to repay the UIH Loan with
proceeds from the offering. See "Use of Proceeds".
As part of the UPC Acquisition, we acquired approximately 3.17 million
shares of UIH's Class A Common Stock. We subsequently sold 384,531 of these
shares for certain interests in the Irish system and Tara. We currently hold
approximately 2.8 million shares, which currently represents approximately 7%
of UIH's outstanding common stock. We have 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 sold to us, in exchange for 6,330,341 of our ordinary shares, UIH's
50% voting and 46.3% economic interest in Monor and its interest in the Tara
programming joint venture. UIH has agreed to sell to us its interest in the IPS
programming joint venture in exchange for 4,955,264 ordinary shares. This
transaction is expected to close in February 1999.
Agreements with UIH
Subject to certain limitations, beginning one year after the date of this
offering, UIH may require us 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 we are required to use our best efforts to effect such
registration, subject to certain conditions and limitations. We are not
obligated to effect more than three of these demand registrations using forms
other than Form S-3 or
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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
we are 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 we propose 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. We have 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 we
previously have taken action to permit the public sale of our securities.
UIH incurs certain overhead and other expenses at the corporate level on
behalf of us 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 companies. We and UIH
are parties to a management service agreement, with an initial term through
2009, pursuant to which UIH will continue to perform these services for us.
Under the management service agreement, we will pay UIH a fixed amount each
month (initially $300,000) as its portion of such unallocated expenses. After
the first year of the management 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 us, taking into account the relative
size of the operating companies and their estimated use of UIH resources. In
addition, we will continue to reimburse UIH for costs incurred by UIH that are
directly attributable to us.
We and UIH are also parties to a secondment agreement that specifies the
basis upon which UIH may second certain of its employees to us. UIH's
secondment of employees to us helps us attract and retain U.S. citizens and
other employees who want U.S. benefit plans, without creating a separate U.S.
employment
subsidiary. We generally are 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. During the year ended December
31, 1997, we incurred approximately NLG11.9 million, for costs associated with
the seconded employees, reimburseable to UIH.
We have agreed with UIH that so long as UIH holds 50% or more of our
outstanding ordinary shares, (1) UIH will not pursue any video services,
telephone 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 us and we have elected not to pursue such business opportunity,
and (2) we will not pursue any video services, telephone or Internet access
business in markets outside of Europe and the Middle East in which UIH then
operates unless we have first presented such business opportunity to UIH and
UIH has elected not to pursue such business opportunity.
We have agreed to sell to UIH, upon request, all or any portion of the UIH
Class A Common Stock held by us at a price based upon the trading price of such
stock during a specified period prior to sale. UIH and we have also agreed that
we 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 we
will not change our accounting principles without UIH's prior consent. We have
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. We have also agreed to indemnify
UIH against all liabilities UIH may incur in connection with UIH's
indemnification obligations under the underwriting agreement.
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UIH Indenture
We, as a subsidiary of UIH, are 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 us, to:
. incur indebtedness and issue certain preferred stock in amounts exceeding
that permitted based upon financial ratio and other tests,
. repurchase equity interests from third parties other than UIH,
. make investments in non-controlled entitie,
. enter into agreements that would restrict the ability to make
distributions, loans or other payments to equity holders,
. create certain liens,
. 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
. 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". We will continue to be controlled by UIH and
governed by the terms of its debt securities. We have agreed with UIH that, for
as long as we are 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, we will not take any
action that will result in a breach of the UIH Indenture.
UIH's senior secured discount notes were issued pursuant to the UIH
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 a 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 UIH
Indenture has been incorporated as an exhibit to the registration statement
filed with the United States Securities and Exchange Commission of which this
prospectus forms a part.
RELATIONSHIP WITH MICROSOFT
We have signed a non-binding letter of intent with Microsoft Corporation to
establish a technical services relationship and, as part of this, have agreed
to set up a series of joint projects to deliver Internet, non-traditional
telephone and other interactive video and general services to digital cable
set-top devices, personal computers and other devices within and beyond our
service areas. The particular terms of each joint project will be negotiated by
us and Microsoft. As part of this relationship, we plan to establish a
technology board to review technology issues and develop technology
specifications and directions. This board would be chaired by Scott Bachman,
our Managing Director of Technology, and would include representatives from
Microsoft and us. In addition, we and Microsoft would be preferred suppliers to
one another, with Microsoft having the first opportunity to license
technologies to us. We would be given the opportunity to present and offer our
products to Microsoft offices in Europe. We and Microsoft would also cooperate
to advocate mutually-agreed standards and regulations to the bodies in our
service territories who set technical standards.
As part of this technology relationship, we have agreed that, on the
earlier of three months from the date of the letter of intent and the signing
of the first binding agreement with Microsoft, we will grant Microsoft warrants
to purchase up to 3,800,000 ordinary ADSs (or shares, at Microsoft's option),
which would represent approximately 3.0% of our outstanding share capital
following this offering. These warrants can be exercised at a strike price of
the lesser of $28.00 and the per share price in this offering. These warrants
will not be exercisable until at least one year after the date of the closing
of this offering and will expire three years after they become exercisable. In
addition, half of the warrants will not vest until certain performance
standards are met. We have agreed to grant Microsoft certain registration
rights to be negotiated with respect to the ADSs or shares to be issued upon
exercise of these warrants. In addition, we will grant Microsoft a preemptive
right to purchase up to an aggregate of 10% of chello broadband in any public
or private equity offering at such offering's price and the right of first
negotiation in any private equity
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offering (other than to our or other cable operators in exchange for carriage
of chello broadband).
Microsoft has agreed that, if it purchases any ordinary shares or ADSs in
this offering, it will agree not to dispose of such shares or ADSs for six
months following this offering (which, if we enter into binding agreements, as
expected, will be extended to one year) nor will it acquire more than 15% of
our total share capital without the prior written approval of our Supervisory
Board. See "Underwriting" and "Shares Eligible for Future Sale".
DESCRIPTION OF SHARE CAPITAL
Pursuant to the articles of association, our authorized share capital is
^135,000,000, and includes 200,000,000 ordinary shares, each with a nominal
value of ^0.30; 100 priority shares, each with a nominal value of ^0.30,
49,999,900 class A preference shares, each with a nominal value of ^0.30 and
200,000,000 class B preference shares, each with a nominal value of ^0.30. Upon
completion of the offering, 123,087,469 ordinary shares and 100 priority shares
will be issued and fully paid. No preference shares will be outstanding. The
following description of our share capital 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. We have 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, which we 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 our shareholders
register and share certificates will not be issued. At the request of the
registered shareholder, we will, without fee, issue a non-negotiable extract
from the shareholders register in the name of the holder. A deed of transfer,
together with our acknowledgment in writing, 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 Board of Management upon approval of both the Supervisory Board
and UIH as holder of the priority shares. The authority of the Board of
Management to issue ordinary shares will end five years after the amendment to
our articles of association being completed prior to this offering unless
extended by the articles of association or by 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 in addition to approval of the Supervisory
Board and UIH. A resolution of the general meeting of shareholders to extend
the authority of the Board of Management to issue shares requires the approval
of both the Supervisory Board and UIH.
Except for issues of ordinary shares in return for non-cash consideration
and shares issued to our employees or employees of any of our subsidiaries as
defined under Dutch law (each, a "Group Company"), holders of ordinary shares
will have preemptive rights to subscribe for their pro-rata amount of all our
new ordinary share issuances. These rights may be restricted or excluded,
however, by a resolution of the Board of Management upon approval of both the
Supervisory Board and UIH.
Each ordinary share represents the right to cast one vote at a general
meeting of shareholders.
Priority Shares
All of the priority shares are held by UIH. Except for the transfer of
priority shares to us, priority shares can only be transferred with the
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approval of the Board of Management and the Supervisory Board. In addition to
holding a controlling majority of ordinary shares, UIH, as the holder of the
priority shares, has some specific rights and powers over us including (1) the
right to approve the sale by us of our shares; (2) the right to approve our
exclusion or restriction of the preemptive rights of existing shareholders; (3)
the right to nominate members for appointment to the Management and Supervisory
Boards, which nominations may only be set aside by a resolution of the general
meeting of shareholders adopted by two-thirds of the votes cast representing
more than one-half of the issued nominal capital; (4) the right to approve
certain decisions of our Board of Management; and (5) the exclusive right to
propose amendments to the articles of association and to propose our merger,
split up or dissolution. 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 a nominal annual dividend of
5% of their nominal value, to the extent of distributable profits.
At such time as UIH holds less than 15% of the issued and outstanding
ordinary shares, UIH will transfer all of the priority shares to a foundation,
the trustees of which will be our Supervisory Directors.
Preference Shares
The Articles of Association provide for the issuance of class A and class B
preference shares.
Class A preference shares may be issued exclusively for financing purposes.
Holders of class A preference shares do not share in our reserves and such
shares are not listed. The class A preference shares will be registered shares
and shares certificates will not be issued. Class A preference shares can be
issued in the same way as ordinary shares, but carry no preemptive rights. Each
class A preference share will represent the right to cast one vote at a general
meeting of shareholders. Class A preference shares will be paid an annual
dividend, the amount of which will be determined at the time of issuance by the
Board of Management, to the extent of distributable profits.
Class B preference shares are designed as a preventive measure against
unfriendly takeover bids. The minimum amount required to be paid on the class B
preference shares upon issuance is 25% of the nominal amount issued. In the
event of a hostile takeover bid, class B preference shares may be issued to a
legal entity charged with caring for our interests and preventing influences
that may threaten our continuity, independence or identity. Holders of class B
preference shares do not share in our reserves and such shares are not listed.
The class B preference shares will be registered shares and share certificates
will not be issued. Class B preference shares can be issued in the same way as
ordinary shares, but carry no preemptive rights. Each class B preference share
will represent the right to cast one vote at a general meeting of shareholders.
Class B preference shares will be paid a cumulative annual dividend calculated
by applying the advance interest rate of the De Nederlandsche Bank N.V. to the
paid up part of their nominal value, to the extent of distributable profits.
Class B preference shares may be issued by the Board of Management upon
approval of both the Supervisory Board and UIH, as the holder of the priority
shares, if such power has been granted to the Board of Management by the
general meeting of shareholders or by the articles of association.
Notwithstanding, if class B preference shares are proposed to be issued and
such shares would exceed 100% of all of our other outstanding shares, such
issuance will require the approval of the general meeting of shareholders. In
all instances where class B preference shares are issued, we 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 class B preference
shares, a general shareholders meeting must be held to vote on whether the
class B 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 class B
preference shares are outstanding.
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SUMMARY OF ADDITIONAL MATERIAL PROVISIONS
OF THE ARTICLES OF ASSOCIATION AND OTHER MATTERS
General
We were incorporated under Dutch law on December 21, 1990 as a private
limited liability company ("besloten vennootschap met beperkte
aansprakelijkheid"), and were converted in connection with the UPC Acquisition
on December 11, 1997 into a public limited liability company ("naamloze
vennootschap"). We have our corporate seat in Amsterdam, The Netherlands and
are registered in the Amsterdam Commercial Register under number 33-274-976.
We are not subject to the rules for large companies
("structuurvennootschappen").
Set forth below is a summary of certain additional material provisions of
the articles of association (as the same will be amended for the offering) and
Dutch corporate law. 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 our most
recent annual accounts and annual report may be obtained in both Dutch and
English upon written request to us at our principal office.
Corporate Purpose
Article 3 of our articles of association provides that our 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 of Our Own Shares
We may acquire our own shares subject to certain provisions of Dutch law.
We may only acquire our 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) we and our subsidiaries would thereafter not hold
or hold in pledge shares with an aggregate nominal value exceeding one-tenth
of our issued share capital. Shares held by us in our own capital may not be
voted or counted for quorum purposes at shareholders' meetings.
Acquisitions by us of our own shares may be effected by our Board of
Management, subject to the approval of the Supervisory Board and UIH as the
holder of our priority shares, only if the general meeting of shareholders has
authorized the Board of Management to effect such acquisitions. It is expected
that such a resolution of the general meeting will be adopted prior to the
completion of the offering. Such resolutions expire within 18 months and must
be renewed. Acquisitions by us of our own shares that are listed on a stock
exchange do not require the above-mentioned authorization of the general
meeting if made for the purpose of transferring such shares to our employees
or employees of a company in our group.
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 our issued capital or voting
control at the time the ordinary shares are listed on the Amsterdam Stock
Exchange must notify both us 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 us 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
We are required to hold a shareholders' meeting annually, as well as if
convened by the Supervisory Board, the Board of Management or UIH, as the
holder of our priority shares. Unless otherwise required by law or our articles
of association, all decisions of the general meeting of shareholders may be
adopted by a majority of the votes cast.
Adoption of Annual Accounts and Discharge
Within five months following the end of each fiscal year, the Board of
Management 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 Board
of Management 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 us on profits as
shown in our annual financial statements. We 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". If preference shares are
issued, they would have preferential dividend rights also. Thereafter, the
Board of Management upon approval of the Supervisory Board, shall determine how
much of the remaining profit shall be allocated to our reserves before
dividends are paid on the ordinary shares. To date, we have not paid dividends
on our ordinary shares and do not intend to do so for the foreseeable future.
See "Dividend Policy" and "Risk Factors -- We Do Not Intend to Pay Dividends
for the Foreseeable Future". The Board of Management 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 our shares rather than in cash. The
Board of Management may, with the prior approval of the Supervisory Board and
subject to certain statutory provisions, distribute one or more interim
dividends. Any dividends paid but not claimed by the recipient within five
years revert to us.
Capital Reduction
Upon the proposal of our Board of Management 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 our 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
Only UIH, as the holder of our priority shares, may propose amendments to
our articles of association as well as to effect our legal merger, split-up or
dissolution. The general meeting of shareholders cannot effect our merger,
split-up or dissolution or amend our articles of association if the proposal is
made by any one other than UIH as the holder of our priority shares.
Liquidation Rights
In the event that we are dissolved or liquidated, the assets remaining
after payment of all debts are to be distributed to holders of our share
capital as follows: first, to any issued and outstanding class B preference
shares in an amount equal to any previously declared but unpaid dividend and
the paid-up amount of such class B preference shares; second, to any issued and
outstanding class A preference shares in an amount equal to any previously
declared but
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unpaid dividend and the paid-up amount of such class A preference shares;
third, to the holders of priority shares in an amount equal to their nominal
value; and, fourth any remaining assets shall be distributed to the holders of
ordinary shares in proportion to the nominal value of their holdings.
DESCRIPTION OF AMERICAN DEPOSITARY SHARES
We have summarized below the material terms of the ADSs and of material
provisions of the deposit agreement among us, Citibank, N.A., as the depositary
and all holders and beneficial owners from time to time of the ADSs evidenced
by American Depositary Receipts ("ADRs") issued under the deposit agreement.
Because it is a summary, this description does not contain all of the
information that may be important to you relating to the ADSs and the deposit
agreement. For complete information, you should read the entire deposit
agreement and the ADR. Terms used in this description that are capitalized but
not defined have the meanings given to such terms in the deposit agreement. A
copy of the deposit agreement is available for review at the principal office
of the depositary, currently located at 111 Wall Street, New York, New York
10043, U.S.A.
American Depositary Shares
The depositary will issue ADSs only pursuant to the deposit agreement. ADSs
represent an ownership interest in us much like a share of common stock
represents an ownership interest in a corporation. An ADR is a certificate
issued by the depositary that represents the ADSs issued pursuant to the
deposit agreement. Each ADR represents the whole number of ADSs indicated on
the ADR. Each ADS represents, as of the date of the issuance of the ADSs, one
of our ordinary shares or rights to such share (such ordinary shares or rights
to such share, together with all other securities, cash or property held in
respect or in lieu of such ordinary shares or rights under the deposit
agreement, are referred to in this summary as the deposited securities).
Ordinary shares will be deposited into accounts maintained by Citibank
N. A., Amsterdam as the custodian and agent of the depositary with Nederlandse
Centraal Instituut voor Giraal Effectenverkeer B.V. ("NECIGEF"), the Dutch
central securities depositary. Only persons in whose names ADSs are registered
will be treated by us 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 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 have the custodian execute and deliver ADRs evidencing ADSs to
or upon the order of the person(s) named in the notice. Ownership of beneficial
interest in the deposited ordinary shares will be shown on, and transfers of
the ownership will be effected through, the records maintained by institutions
with accounts at NECIGEF.
Requirements for Deposit
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 discussed below) may be deposited by any person
(including the depositary in its individual capacity but subject, however, in
our case or any of our affiliates, to the limitations set forth in the deposit
agreement and applicable law) by delivery of the ordinary shares to the
custodian along with the following:
. appropriate instrument(s) of transfer or endorsement, in a form
satisfactory to the custodian,
. such certifications and payments (including, without limitation, the
transaction fees and related charges) and evidence of such payments
(including, without limitation, stamping or otherwise ordinary shares as
may be required by the depositary or the custodian in accordance with the
provisions of the deposit agreement),
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. a written order directing the depositary to execute and deliver an ADR or
ADRs evidencing the number of ADSs representing the ordinary shares so
deposited,
. evidence satisfactory to the depositary that all necessary Dutch
governmental approvals have been granted, or there has been compliance
with the applicable Dutch rules and regulations, and
. any agreement, instrument or proxy that may be required by the depositary
or the custodian for the ordinary shares until they are registered in the
name of the depositary, the custodian or any nominee.
Subject to the terms of the deposit agreement, the depositary will instruct
the custodian not to, and the depositary itself will not knowingly, accept for
deposit (1) any ordinary shares, ADRs or ADSs that are restricted securities as
that term is defined in Rule 144(a)(3) of the Securities Act of 1933 as amended
(the "Securities Act"), or (2) any fractional ordinary shares or fractional
deposited securities or a number of ordinary shares or deposited securities
that would require the issuance of fractional ADSs. No ordinary shares will be
accepted for deposit unless:
. the shares are accompanied by evidence (if required) satisfactory to the
depositary or the custodian that all conditions to such deposit under
Dutch laws and regulations have been satisfied and
. all necessary approvals have been granted by any Dutch governmental body,
which regulates currency exchange.
Pre-Release Transactions
The depositary may issue ADRs against rights to receive ordinary shares
from us, any agent of ours, or any custodian, registrar, transfer agent,
clearing agency or other entity involved in the ownership or transaction
records in respect of the ordinary shares. Generally, neither the depositary
nor the custodian, in their capacity as such, may lend deposited securities or
ADSs. The depositary however, reserves the right to issue ADSs prior to the
receipt of ordinary shares ("Pre-Release") and to deliver ordinary shares prior
to the receipt and cancellation of ADSs, subject to the conditions specified in
the deposit agreement. Persons to whom ADRs or ordinary shares are so issued or
delivered to, among other things, must enter into a written agreement with, and
provide collateral to, the depositary. Such collateral, but not earnings
thereon, will 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
You may surrender at the principal office of the depositary your ADSs in
order to withdraw the deposited securities represented by the ADSs. Upon
payment by you of the charges, fees and expenses of the depositary provided in
the deposit agreement and any applicable taxes or governmental charges and
subject to the terms and conditions of the deposit agreement, our articles of
association and other applicable laws, you or a person you designate will be
entitled to delivery of the deposited securities represented by the ADSs so
surrendered. ADSs may be surrendered in order to withdraw deposited securities
by delivery of the 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 must be (if required by the depositary) properly endorsed in blank or
accompanied by proper instruments of transfer in blank. The holder of the ADR
will be required to execute and deliver to the depositary a written order
containing delivery instructions. Such endorsements, instruments and
instructions must in all cases, meet the requirements set forth in the deposit
agreement.
Upon receipt of satisfactory documentation and subject to the terms and
conditions of the deposit agreement, our articles of association, and the
provisions of or governing the deposited securities and other applicable laws,
the custodian will deliver as promptly as practicable by means of book entry
transfer recorded on the books of NECIGEF to you or a person you designate, the
deposited securities represented by such ADSs. The custodian will also deliver
evidence of the
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electronic transfer thereof (if available) by means of book entry transfer on
the records of NECIGEF or a NECIGEF Participant, as the case may be, to or for
the account of such person. The depositary may make delivery to such person at
its principal office of any dividends or cash distributions with respect to 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 will issue and deliver to such person surrendering the ADR cash
proceeds from the sale by the depositary of any fractional share.
At the request, risk and expense of any holder surrendering an ADR, and for
the account of such holder, the depositary will 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 its principal office, and for further delivery to such holder. A
holder must give such direction 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. Subject to certain limitations described below, the
depositary has agreed to pay you cash dividends, other cash distributions or
proceeds from the sale of any ordinary shares and related rights and securities
upon confirmation from the custodian of its receipt of such dividends,
distributions or proceeds.
The depositary will convert any cash dividend, other cash distribution or
proceeds into U.S. dollars if at the time the depositary receives such amounts
in a foreign currency in the depositary's reasonable judgment it can do so on a
practicable basis and can transfer the U.S. dollars to the United States. The
depositary will distribute such amounts as promptly as practicable (net of
applicable fees, charges, and the depositary's expenses and taxes, duties or
other governmental charges required to be withheld) to the holders entitled to
receive such amounts as of the record date in proportion to the number of ADSs
held by the holder as of the record date. The depositary will 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 will be held by the
depositary (without liability for interest thereon) and will be added to and
become part of the next amount received by the depositary for distribution to
holders outstanding at the time of the next distribution.
If the depositary reasonably determines that any foreign currency received
by the depositary or the custodian cannot be converted on a reasonable basis
into U.S. dollars and transferred to the United States or if any required
approval or license of any government or agency is denied or in the opinion of
the depositary is not obtainable at reasonable cost or within a reasonable
time, the depositary may (1) convert such foreign currency and make a
distribution in U.S. dollars to the holders for whom such conversion, transfer
and distribution is lawful and practical, (2) distribute such foreign currency
to holders for whom it is lawful and practicable, or (3) hold such foreign
currency uninvested and without liability for interest thereon for the
respective accounts of the holders entitled to receive it.
Share Dividend. Upon receipt of confirmation of the deposit of a dividend
in, or free distribution of, ordinary shares from the custodian, the depositary
will establish a record date and, subject to the terms of the deposit
agreement, either
. 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 the total number of ordinary shares received as such dividend,
or free distribution, subject to the other terms of the deposit agreement
(including, without limitation, the payment of any applicable fees and
charges of, and expenses incurred by, the depositary and taxes), or
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. if additional ADSs are not distributed, each ADS issued and outstanding
after the record date will, to the extent permissible by law, then also
represent rights and interests in the additional ordinary shares
distributed upon the deposited securities represented thereby (net of the
applicable fees and charges of, and expenses incurred by, the depositary
and taxes).
Instead of delivering fractional ADSs, the depositary will 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.
If 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 we have furnished to the depositary
a legal opinion determining that ordinary shares must be registered under the
Securities Act, or other laws in order to be distributed to holders (and we
have informed the depositary that no such registration statement has been
declared effective), the depositary may dispose of all or a portion of such
property in such amounts and in such manner, including by public or private
sale, as the depositary deems necessary and practicable. The depositary will
distribute the net proceeds of any such sale (after deduction of such (1) taxes
and (2) fees and charges and the depositary's expenses) to holders entitled to
the proceeds upon the terms described in the deposit agreement. The depositary
will 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 we wish to distribute a
dividend payable at the election of the holders of deposited securities in cash
or in additional ordinary shares, and we wish such elective distribution to be
made available to holders and beneficial owners of ADSs, the depositary, upon
consultation with us, 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 (1) the depositary has determined that
such distribution is reasonably practicable and (2) the depositary has received
satisfactory documentation within the terms of the deposit agreement.
If the above conditions are not satisfied, the depositary will, 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 will fix a
record date and establish procedures to enable holders to elect the receipt of
the proposed dividend in cash or in additional ADSs upon the terms described in
the deposit agreement.
The depositary is not obligated to make available to holders a method to
receive the elective dividend in ordinary shares (rather than ADSs). We can not
assure you 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 we intend to
make rights available to holders of deposited securities, to make such rights
available to any holder only if
. we have requested that such rights be made available to holders,
. the depositary has received satisfactory legal documentation from us
within the terms of the deposit agreement, and
. the depositary has determined that such distribution of rights is
reasonably practicable.
In the event any of the conditions listed above are not satisfied, the
depositary will proceed with the sale of the rights as described below. In the
event all conditions listed above are satisfied, the depositary will fix a
record date and establish procedures to distribute such rights and
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to enable the holders to exercise the rights upon payment of the applicable
fees and charges of, and expenses incurred by, the depositary and taxes. We
will assist the depositary to the extent necessary in establishing such
procedures. The depositary is not obligated to make available to the holders a
method to exercise such rights to subscribe for ordinary shares rather than
ADSs.
If (1) we do not request the depositary to make the rights available to
holders or request that the rights not be made available to holders, (2) the
depositary does not receive satisfactory legal documentation from us or
determines it is not reasonably practicable to make the rights available to
holders, or (3) any rights made available are not exercised and appear to be
about to lapse, the depositary will 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 will, upon such sale, convert and distribute
proceeds of the sale (net of applicable fees and charges, the depositary's
expenses and 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 will allow such rights to lapse. The depositary will
not be responsible for
. 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,
. any foreign exchange exposure or loss incurred in connection with such
sale, or exercise, or
. the content of any materials forwarded to the holders on our behalf of us
in connection with the rights distribution.
If we have furnished an opinion of U.S. counsel that 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 us to offer the rights or
the 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 holders will 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.
We cannot assure you 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.
We are not obligated 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 will not make a distribution of property other than cash,
ordinary shares or rights to purchase additional ordinary shares, unless such
distribution is permissible under Dutch law and (1) we will have requested the
depositary to make such distribution to holders, (2) the depositary has
received satisfactory legal documentation within the terms of the deposit
agreement, and (3) the depositary has determined that such distribution is
reasonably practicable.
Upon satisfaction of the requirements listed above, the depositary will
distribute the property so received to the holders of record as of the record
date, in proportion to the respective number of ADSs held by them and in such
manner as the depositary reasonably deems practicable in accomplishing such
distribution (upon receipt of payment or net of applicable fees,
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charges and the depositary's expenses and taxes). 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 (1) we do not request the depositary to make such distribution to
holders or request it not to make such distribution to holders, (2) the
depositary does not receive satisfactory legal documentation within the terms
of the deposit agreement or (3) the depositary determines that all or a portion
of such distribution is not reasonably practicable or feasible, the depositary
will 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. The depositary
will (1) cause the proceeds of such sale, if any, to be converted into U.S.
dollars and (2) distribute the proceeds of such conversion received by the
depositary (net of applicable fees and charges and the depositary's expenses
and taxes) to the holders as of the record date in the same manner of cash
distributions set forth in the deposit agreement. If the depositary is unable
to sell the property, the depositary may dispose of the 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,
. any recapitalization, reorganization, merger or consolidation or sale of
assets affecting us or to which we are a 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 will, subject to the terms of the deposit agreement, be
treated as newly deposited securities under the deposit agreement. In this
event, the ADSs will from that point on, subject to the terms of the deposit
agreement and in compliance with applicable laws (including any registration
requirements under the Securities Act), represent the new deposited securities
received in exchange or conversion.The depositary may, however, with our
approval, and will, if we request, subject to the provisions of the deposit
agreement and receipt of an opinion of our counsel 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.
Fixing Record Dates
Whenever:
. the depositary receives notice from us of the fixing of a record date for
the determination of holders of deposited securities entitled to receive
any distribution,
. for any reason the depositary causes a change in the number of ordinary
shares that are represented by each ADS,
. the depositary receives notice of any meeting of holders of ordinary
shares or other deposited securities, or
. for any other reason the depositary deems necessary and convenient in
connection with the giving of notice, solicitation of any consent or any
other matter,
the depositary will fix, after consultation with us, a record date (which will
be as close as practicable to the applicable record date for the ordinary
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 the record date will be entitled to receive such
distribution, to give such voting instructions, to receive such notice or
solicitation, or otherwise take action.
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Voting of the Shares
You may instruct the depositary to vote the deposited securities underlying
your ADSs as described below.
As soon as practicable after receipt of notice of any meeting of holders of
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 will
fix a record date applicable to holders of ADSs and, if we so request, mail to
holders:
. such information as is contained in such notice of meeting or
solicitation of consent or proxy,
. a statement in English, in a form provided by us, that the holders at the
close of business on the record date will be entitled 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, subject to the terms of the deposit
agreement, any applicable law, our articles of association and the
provisions of or governing the deposited securities (which provisions, if
any, we will summarize in pertinent part), and
. a brief statement as to the manner in which such instructions may be
given.
The depositary will not, and will 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 will not be voted. The depositary, the custodian
and each of their respective nominees (if any) may not exercise any voting
discretion over any ordinary shares or other deposited securities.
We can not assure you that holders generally or 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 we give 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, we 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.
We will also furnish to the custodian and the depositary an English language
copy of a summary of any applicable provisions or proposed provisions of our
articles of association 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 us to the registered holders of ordinary shares or other
deposited securities. The depositary will arrange for the mailing of copies
thereof to all registered holders or make such notices, reports and other
communications available to all registered holders on a basis similar to that
for holders of ordinary shares or other deposited securities or on such other
basis as we 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 us in connection therewith available for inspection by
the registered holders of the ADRs 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.
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Disclosure of Beneficial Ownership
We 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 us 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 ours and provide
for blocking transfer and voting or other rights to enforce such disclosure or
limit such ownership, the depositary will use its reasonable efforts to comply
with our instructions as to ADRs in respect of any such enforcement or
limitation and holders and beneficial owners must comply with all such
disclosure requirements and ownership limitations and must cooperate with the
depositary's compliance with our instructions. See also "Summary of Additional
Material Provisions of the Articles of Association and Other Matters--
Obligations to Disclose Holdings".
Upon request by us or any Dutch governmental authority, the depositary will
as promptly as practicable furnish to us a list, as of 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 principal office for the registration
and transfer of ADRs, which at all reasonable times will be open for inspection
by holders and us, provided that such inspection will not to the depositary's
knowledge be for the purpose of communicating with holders in the interest of a
business or object other than our business or a matter related to the deposit
agreement or the ADSs.
Amendment of the Deposit Agreement
We may agree with the depositary to amend the deposit agreement and the
form of ADR without your consent for any reason and at any time in a way that
we deem necessary and desirable. Any amendment or supplement that imposes or
increases any fees or charges (other than charges in connection with foreign
exchange control regulations, and taxes and other governmental charges,
delivery and related expenses), or that otherwise materially prejudices any
substantial existing right of holders or beneficial owners, will not, however,
become effective as to outstanding ADRs until the expiration of 30 days after
the depositary gives notice of the amendment or supplement to the holders of
outstanding ADRs. An amendment or supplement will be deemed not to materially
prejudice any substantial rights of holders or beneficial owners if it:
. is reasonably necessary in order for the ADSs to be registered under the
Securities Act or for ADSs or ordinary shares to be traded solely in
electronic book-entry form and
. does not impose or increase any fees or charges to be borne by holders.
Every holder and beneficial owner at the time any amendment or supplement
so becomes effective will 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 will any
amendment or supplement impair the right of the holder to surrender such ADR
and receive 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, we 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
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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.
Termination of the Deposit Agreement
The depositary must terminate the deposit agreement at any time at our
written request, by mailing notice of such termination to the holders of all
ADRs then outstanding at least 30 days prior to the date fixed in such notice
for such termination. If 60 days have expired after (1) the depositary has
delivered to us a written notice of its election to resign, or (2) we have
delivered to the depositary a written notice of the removal of the depositary,
and in either case a successor depositary has not 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 30 days prior to the date fixed
for such termination.
On and after the date the deposit agreement terminates and 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, you will be entitled to delivery, to
you or a person you designated, of the amount of deposited securities
represented by such ADR. If any ADRs remain outstanding after the date the
deposit agreement terminates, the registrar thereafter will discontinue the
registration of transfers of ADRs, and the depositary will suspend the
distribution of dividends to the holders thereof, and will not give any further
notices or perform any further acts under the deposit agreement, except that
the depositary
. will continue to collect dividends and other distributions pertaining to
deposited securities,
. will sell rights as provided in the deposit agreement, and
. will 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 (net of applicable fees,
charges and the depositary's expenses and taxes).
At any time after the expiration of six months from the date of the deposit
agreement terminates, the depositary may sell the deposited securities and 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 previously surrendered. Thereafter, the depositary will 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 (net of applicable fees, charges of and expenses
incurred by, the depositary and taxes). Upon the termination of the deposit
agreement, we will 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 will 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 we reserve the right to modify, reduce or
increase any fees or charges for services performed.
The depositary will charge any party to whom ADRs are issued (including,
without limitation, deposit or issuance pursuant to a stock dividend or stock
split declared by us 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 the following fees:
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ADR holders must pay: For:
$5.00 (or less) per 100 ADRs
. Each issuance of an ADR
. Each cancellation of an ADR, including if the
agreement terminates
. Any cash distribution (excluding cash and
share dividends to registered holders but
including the sale of rights and other
distributions)
$2.00 (or less) per 100 ADRs
. Any distribution of ADSs pursuant to other
free share distributions or the exercise of
rights
$5.00 (or less) per 100 ADRs
The depositary will provide, without charge, a copy of its latest fee
schedule you 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.
Holders, beneficial owners, persons depositing ordinary shares and persons
surrendering ADRs in order to withdraw deposited securities will pay:
. taxes (including applicable interest and penalties) and other
governmental charges,
. any registration fees as may from time to time be in effect for the
registration of ordinary shares or other deposited securities on our share
register and applicable to the transfer of ordinary shares, and
. such air courier, cable, telex and facsimile 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.
Liability for Taxes
Holders will pay any Dutch or other tax, assessment or other governmental
charge or expense payable by the depositary or the custodian or either of their
respective nominees as the holder of any deposited securities represented by
ADSs evidenced by an ADR 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 the depositary receives full payment of such tax, charge,
penalty or interest. Every holder and beneficial owner agrees to indemnify the
depositary, us, 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.
Prior 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 an amount 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,
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. 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
. 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 we
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 depositary, a share registrar or NECIGEF are
closed or if any such action is deemed necessary or advisable by the depositary
or us, 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 our shareholders 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
. temporary delays caused by closing transfer books of ours, the
depositary, a share registrar or a registrar or the deposit of ordinary
shares in connection with voting at the shareholders; meeting, or the
payment of dividends,
. the payment of fees, taxes and similar charges, and
. compliance with any U.S. or foreign laws or governmental regulations
relating to the ADRs or to the withdrawal of the deposited securities.
Limitation on Liability
Neither we, the depositary, nor any of our or their 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 our articles of association or
of the deposited securities. Neither we nor the depositary nor any of our or
their respective directors, employees, agents or Affiliates will be liable to
any holder or beneficial owner or other person by reason of any exercise of, or
failure to exercise, any discretion provided for under the deposit agreement.
Neither we nor the depositary will be liable in the case that any holders of
deposited securities benefit from any distribution, offering, right or other
benefit which is not, under the terms of the deposit agreement, made available
to any or all holder(s) or beneficial owners of ADSs issued thereunder. Our
obligation and the obligations of the depositary under the deposit agreement
are expressly limited to performing their respective duties specified therein
in good faith and without negligence. We 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 discussion is the opinion of Holme Roberts & Owen LLP on the
material U.S. federal income tax consequences and of Arthur Andersen on the
material Dutch tax consequences, under current law, regarding the acquisition,
ownership and disposition of the ordinary shares or ADSs. This opinion 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 opinion 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 opinion assumes
that the deposit agreement and any related agreement will be performed in
accordance with its terms and that we are organized and our business conducted
in the manner outlined in this prospectus. Changes in our organizational
structure or the manner in which we conduct our business may invalidate this
opinion. The laws upon which this opinion is based are subject to change,
perhaps with retroactive effect. A change to such laws may invalidate this
opinion which will not be updated to reflect changes in laws. PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THEIR PARTICULAR PERSONAL
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 the opinion of Arthur Andersen regarding the material
Dutch tax consequences of investing in the ordinary shares and ADSs. This
opinion 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, either via shares or options, directly or
indirectly, five percent or more of any class of, or five percent or more of
the total issued share capital of a company resident in The Netherlands (a
"Substantial Interest") is subject to special rules. 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 us.
Dutch Tax Consequences for Residents or Deemed Residents of the Netherlands
Dutch Dividend Withholding Tax
Dividends we distribute are subject to withholding tax at a rate of 25%,
unless:
(1) the participation exemption applies and the ordinary shares or ADSs are
attributable to the business carried out in The Netherlands,
(2) or dividends are distributed to a qualifying EU corporate shareholder
satisfying the conditions of the EU directive, or
(3) the rate is reduced by treaty.
Dividends may include:
. distributions of cash,
. distributions of property in kind,
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. 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
our recognized paid-in share premium), and
. and the repayment of paid-in capital not recognized as capital.
The term recognized paid-in capital or share premium relates to our paid-in
capital or share premium 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 we pay 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 our 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 our 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;
(1) attributable to a trade or business carried on by the shareholder, or
(2) 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:
(1) the ordinary shares or ADSs were not acquired directly or indirectly by
us or our subsidiaries,
(2) the shareholder did not have a Substantial Interest in our share
capital at the time of the sale or exchange, and
(3) 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
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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.
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
primarily 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 we distribute are subject to withholding tax at a rate of 25%,
unless:
(1) the participation exemption applies and the ordinary shares or ADSs are
attributable to the business carried out in The Netherlands, or
(2) dividends are distributed to a qualifying EU corporate shareholder
satisfying the conditions of the EU directive, or
(3) 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
our 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 our paid-in
capital or share premium 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:
(1) the recipient shareholder does not have a permanent establishment in
The Netherlands to which the ordinary shares and ADSs are attributable,
and
(2) 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 we pay 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 our voting power. The Treaty exempts from withholding tax, dividends
received by exempt pension trusts and exempt organizations, under conditions
as defined in the Treaty. Except in the case of exempt organizations,
dividends paid may benefit from the
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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:
(1) it is a "resident" of the United States, as that term is defined in the
Treaty, and
(2) 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 as long as:
(1) the Dutch participation exemption applies, and
(2) the ordinary shares or ADSs form a part of the permanent
establishment's business assets.
To qualify for the participation exemption, this entity should hold at least
five percent of our 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 us provided such shareholder does not or has not:
(1) 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,
(2) held a Substantial Interest in our share capital or, in the event the
non-resident shareholder, has held a Substantial Interest in us, such
interest was a business asset in the hands of the shareholder,
(3) 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
(4) 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:
(1) 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,
(2) held a Substantial Interest in our share capital or, in the event the
non-resident shareholder has held a Substantial Interest in us, such
interest was a business asset in the hands of the shareholder,
(3) 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
(4) 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
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establishment in The Netherlands, are not subject to Dutch corporation tax
provided:
(1) the Dutch participation exemption would apply, and
(2) 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 our 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:
(1) 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
(2) 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:
(1) 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, the non-resident shareholder was not a Dutch national at the
time of gift or death,
(2) 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,
(3) 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
(4) 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 the opinion of Holme Roberts & Owens LLP regarding the
material U.S. federal income tax consequences to U.S. Shareholders of an
investment in the ordinary shares or ADSs. 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 opinion of Arthur Andersen.
For purposes of this opinion a "U.S. Shareholder" is a holder of 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. The dividend will be included in
the gross income of the U.S. Shareholder as ordinary income to the extent of
our current and accumulated earnings and profits (as determined
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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 out of
income from sources within the United States.
A distribution in excess of our 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.
Dutch withholding tax may not be creditable against the U.S. Shareholder's
federal income tax liability however, to the extent we are 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 us. We will endeavor to provide to U.S. Shareholders the information they
will need to calculate their foreign tax credit.
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 or loss generally would be treated
as U.S. source.
Passive Foreign Investment Company
We have determined that we are 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 we 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. In addition,
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", which are defined generally as distributions exceeding
125% of the average annual distributions made by us over the shorter of the
holder's holding period or the three preceding years. We will evaluate our PFIC
status on an annual basis and will inform U.S. Shareholders in the event that
we determine that we are 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 we were a PFIC. If a QEF
election is made, a U.S. Shareholder would include in income its pro rata share
of our ordinary income
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and net capital gain for years in which we are a PFIC (regardless of whether
amounts are distributed to an electing U.S. shareholder.) In the event that we
become a PFIC, we will provide the information necessary for our U.S.
Shareholders to make a QEF election.
A U.S. Shareholder who owns ordinary shares or ADSs during any year that we
are a PFIC must file Internal Revenue Service Form 8621.
Foreign Personal Holding Company Classification
We could be classified as a foreign personal holding company ("FPHC") if in
any taxable year:
(1) 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 our stock entitled
to vote or the total value of our stock, and
(2) at least 60% (50% in certain cases) of our gross income consists of
"foreign personal holding company income", which generally includes
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 our
undistributed foreign personal holding company income.
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 our gross income for
the current year does not at this time consist of passive income. Thus, we do
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
we are 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:
(1) such U.S. Shareholder is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or
(2) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with
applicable backup withholding rules.
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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 our future ability to raise capital through an
offering of its equity securities.
Upon consummation of this offering, we will have outstanding 123,087,469
ordinary shares and 100 priority shares. The ordinary shares and ADSs sold in
this offering will be freely tradable in the United States by persons other
than us or our "affiliates" as that term is defined in SEC Rule 144 (discussed
below). The Discount Group, our partner in our Israeli system, may exercise an
option to purchase some of our ordinary shares. See "Certain Transactions and
Relationships -- The Discount Group's Option". All of the issued and
outstanding priority shares and ordinary shares held by UIH and, if it
exercises its option, 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.
We and UIH have agreed with the underwriters that, without the prior
written consent of the underwriters, we will not (and in our case, we will not
permit any of our subsidiaries to) directly or indirectly offer, other than in
the offering, sell, contract to sell, announce our 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. Certain of our
employees have made a similar agreement with the underwriters for a period of
180 days. If the Discount Group exercises its option, it has agreed to similar
restrictions, but only for 90 days. Microsoft has agreed that, if it purchases
any shares or ADSs in this offering, it will agree to abide by similar resale
restrictions for at least a six-month period. See "Relationship with
Microsoft" and "Underwriting".
Because we do not have a history of net profits, Amsterdam Stock Exchange
regulations prohibit members of our Supervisory Board and Board of Management
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 Board
of Management 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 our
outstanding share capital 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 we
report a profit, in which case these shareholders collectively are entitled to
dispose of a maximum of (1) 50% of the shares issued prior to the offering if
a profit was made during one year or (2) 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, any of our affiliates, or
a 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 1,231,000 shares immediately
after the offering); or (ii) the average weekly trading volume of the ADSs on
the Nasdaq National Market during the four calendar weeks immediately
preceding. Sales under Rule 144 are also subject
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to requirements relating to manner of sale, notice and availability of current
public information about us. Under Rule 144(k), a person (or persons whose
shares are aggregated) who has not been one of our affiliates 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 of our employees, consultants or advisors who purchases
shares from us 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.
EXPERTS
Our consolidated financial statements for the six months ended December 31,
1995 and as of and for the years ended December 31, 1996 and 1997 and the nine
months ended September 30, 1998 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 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.
LEGAL MATTERS
Certain legal matters in connection with the offering will be passed upon
for us by Holme Roberts & Owen LLP, Denver, Colorado U.S.A. The validity of the
ordinary shares offered hereby will be passed upon for us 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.
ENFORCEMENT OF CIVIL LIABILITIES
We are organized under the laws of The Netherlands and certain members of
our supervisory board, our 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 our 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 us or such
persons, or to enforce against us or such persons in courts in the United
States judgments of such courts predicated upon the civil liability provisions
of United States securities laws. We have 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 given effect by a Dutch court (1) if
the final judgment results from proceedings compatible with Dutch concepts of
due process and (2) if the final judgment does not contravene public policy of
The Netherlands. If the final judgment is given effect by a Dutch court, that
court generally will grant the same judgment without relitigation on the
merits. In addition, Dutch law does not recognize a shareholder's right to
bring a derivative action on behalf of a corporation.
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AVAILABLE INFORMATION
We have filed with the U.S. Securities and Exchange Commission (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 us 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, we 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., 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. Copies of these
documents will also be filed with the Amsterdam Stock Exchange.
We will furnish to the depositary copies of our annual reports in English,
which will include a review of our operations and annual audited consolidated
financial statements presented in conformity with U.S. GAAP. We will also
furnish the depositary with our consolidated unaudited quarterly condensed
balance sheets and statements of income 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 we make generally available to our shareholders. The depositary will, at
our request 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".
We will also comply with our 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.
AMSTERDAM STOCK EXCHANGE LISTING
On February , 1999, the Board of Management after obtaining the approval
of the General Meeting of Shareholders and the Supervisory Board, resolved to
file an application for admission to listing of the ordinary shares on the
Official Market of the Amsterdam Stock Exchange. On February , 1999, the Board
of Management authorized thereto by the General Meeting of Shareholders by a
written resolution dated February , 1999 and having obtained the approval of
the Supervisory Board, resolved to issue ordinary shares to a nominal amount of
approximately ^0.30 per share and to exclude the pre-emptive rights in this
respect.
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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 (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
(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 (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 (Post-Acquisition).............. F-6
Notes to Consolidated Financial Statements........................... F-8
N.V. TELEKABEL BEHEER
Report of Independent Accountants.................................... F-38
Consolidated Balance Sheets as of December 31, 1996 and 1997......... F-39
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-40
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-41
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-42
Notes to Consolidated Financial Statements........................... F-43
Condensed Consolidated Balance Sheet as of June 30, 1998
(Unaudited)......................................................... F-53
Condensed Consolidated Statements of Operations for the Six Months
Ended June 30, 1997 and 1998 (Unaudited)............................ F-54
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1998 (Unaudited)............................ F-55
Notes to Condensed Consolidated Financial Statements................. F-56
</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), December
31, 1997 and September 30,1998 (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, the years ended December 31,
1996 and 1997 (pre-acquisition -- see Note 1) and September 30, 1998 (post-
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), December 31, 1997 and September 30,1998 (post-acquisition -- see Note 1),
and the results of its operations and its cash flows for the six months ended
December 31, 1995, the years ended December 31, 1996 and December 31, 1997
(pre-acquisition -- see Note 1) and the nine months ended September 30, 1998
(post-acquisition -- Note 1) in conformity with accounting principles generally
accepted in the United States of America.
ARTHUR ANDERSEN
Amstelveen, The Netherlands,
January 14, 1999
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)
<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 (As adjusted for the 3:2 stock split. Note 10)
Common stock, 0.667 par value, 150,000,000 shares authorized, 81,000,000 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, 9,198,135 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)
<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(1)............... (0.51) (0.94) (2.06) (1.60) (2.39)
========== ========== ========== ========== ==========
Weighted-average number
of common shares
outstanding(1)......... 81,000,000 81,000,000 80,488,992 81,000,000 71,801,865
========== ========== ========== ========== ==========
</TABLE>
- --------
(1)As adjusted for the 3:2 stock split (Note 10).
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(2)
(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... 81,000,000 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........... 81,000,000 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........... 81,000,000 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)... 81,000,000 54,000 315,570 -- -- -- (274,187) 5,265
Buyout of
shareholder's
interest....... -- -- -- -- (24,378,396) (292,561) -- -- --
Reissuance of
shares upon
conversion of
PIK Notes...... -- -- -- -- 15,180,261 169,899 -- -- --
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)... 81,000,000 54,000 621,164 -- (9,198,135) (122,662) (146,237) 5,265
Deferred
compensation
related to
stock options.. -- -- 10,159 (10,159) -- -- -- -- --
Amortization of
deferred
compensation... -- -- -- 4,333 -- -- -- -- --
Unrealized loss
on investment.. -- -- -- -- -- -- -- (8,784) (8,784)
Change in
cumulative
translation
adjustments.... -- -- -- -- -- -- -- (13,880) (13,880)
Net loss........ -- -- -- -- -- -- (171,852) -- (171,852)
--------
Total
comprehensive
income (loss).. -- -- -- -- -- -- -- -- (194,516)
---------- ------ -------- ------- ----------- -------- -------- ------- ========
Balances,
September 30,
1998 (Post-
Acquisition)... 81,000,000 54,000 631,323 (5,826) (9,198,135) (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.. --
Amortization of
deferred
compensation... 4,333
Unrealized loss
on investment.. (8,784)
Change in
cumulative
translation
adjustments.... (13,880)
Net loss........ (171,852)
Total
comprehensive
income (loss).. --
---------
Balances,
September 30,
1998 (Post-
Acquisition)... 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.
(2) As adjusted for the 3:2 stock split (Note 10).
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)
<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)
<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
15,180,261 shares of UPC, (iii) UPC repaid to Philips the remaining 170,371
accreted amount of the PIK Notes (339,800), (iv) UIH purchased 13,121,604
shares of UPC directly from Philips, and (v) UPC repurchased Philips' remaining
equity interest in UPC (24,378,396 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 consideration paid to
Philips for their 50% interest in UPC, the resulting amount paid in excess of
Philips' proportionate share of UPC's net assets at that date plus UIH's
existing basis in excess of their proportionate share of UPC's net assets is
summarized below. In addition, the table below presents how such total excess
was allocated to UPC's underlying assets as of December 11, 1998.
<TABLE>
<S> <C>
Cash paid to Philips for their 50% interest in UPC (37,500,000
shares acquired NLG12 per share).................................. 450,000
Philips' proportionate share of UPC's net assets................... (50,324)
-------
Basis adjustment related to buyout of Philips' proportionate
interest in UPC................................................... 399,676
UIH's existing basis difference related to their original interest
in UPC dating back to the July 1995 formation of UPC (as adjusted
through December 11, 1997)........................................ 43,012
-------
Total purchase accounting adjustment............................... 442,688
=======
The total purchase accounting adjustments were allocated to UPC's
underlying assets as follows:
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.......... (0.94) (1.64) (2.06) (2.76)
========== ========== ========== ==========
Weighted-average number of
common shares
outstanding............... 81,000,000 71,801,865 80,488,992 71,801,865
========== ========== ========== ==========
</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 Notes 3 and 16).
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 January 1, 2000.
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 a controlling financial interest through the ownership of a majority
voting 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.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is based upon specific identification
of overdue accounts receivable. An allowance for a percentage of the account is
established once the receivable is overdue. Upon disconnection of the
subscriber, the account is fully reserved. The allowance is maintained on the
books until receipt of payment or for a maximum of three years.
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,
installation costs and major improvements are capitalized, and costs for normal
repair and maintenance of property, plant and equipment are charged to expense
as incurred. 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. The economic lives of property, plant and equipment at
acquisition are as follows:
<TABLE>
<S> <C>
Cable distribution networks................................... 7-20 years
Subscriber installation costs 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 the date a new license was acquired. The
license value is amortized on a straight-line basis over the initial 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, which are expensed. To the extent installation fees
exceed direct selling costs, the excess fees are deferred and amortized over
the average contract period. All installation fees and related costs with
respect to reconnections and disconnections are recognized in the period in
which the reconnection or disconnection occurs.
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)
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting For the Costs of
Computer Software Developed or Obtained for Internal Use", which provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. SOP 98-1 identifies the characteristics of internal-use
software and provides examples to assist in determining when computer software
is for internal use. SOP 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998, for projects in progress and
prospectively, with earlier application encouraged. Management believes that
the adoption of SOP 98-1 will not have a material effect on the financial
statements.
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.......... (0.51) (0.73) (0.94) (1.34)
========== ========== ========== ==========
Weighted-average number of
common shares
outstanding............... 81,000,000 81,000,000 81,000,000 81,000,000
========== ========== ========== ==========
</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........ (0.94) (1.11)
========== ==========
Weighted-average number of common shares
outstanding....................................... 81,000,000 81,000,000
========== ==========
</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.......... (0.94) (0.96) (2.06) (2.08)
========== ========== ========== ==========
Weighted-average number of
common shares
outstanding............... 81,000,000 81,000,000 80,488,992 80,488,992
========== ========== ========== ==========
</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"), which was
accounted for as the formation of a joint venture with NUON's and UPC's net
assets recorded at their historical carrying values. 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. The UTH shareholder agreement provides for essentially joint
governance by NUON and UPC on almost all significant participating and
protective type rights until either the call or put option is exercised.
Although UPC retains a majority economic and voting interest in UTH, because of
joint governance on most significant operating decisions, UPC accounts for its
investment in UTH using the equity method of accounting. See Note 16.
A2000
In July 1995, Philips Media and US WEST as equal partners acquired A2000
for a total purchase price of approximately NLG680 million. Upon UPC's
formation, Philips Media assigned its ownership interest in A2000 to UPC. The
acquisition was financed with a bridge loan from a bank to both UPC and US
WEST. Additionally, UPC and US WEST contributed approximately NLG45 million
each to a subsidiary of A2000. During January 1996, A2000 obtained long-term
financing of NLG320 million and on behalf of UPC and US WEST reduced the bridge
loan. UPC and US WEST repaid the remaining portion of the bridge loan (totaling
NLG360 million) through equal contributions of NLG180 million. UPC accounted
for its 50% ownership interest in A2000 (until it was contributed into UTH) as
an equity method investment. Approximately NLG180 million of the purchase price
was allocated to license rights with the remainder allocated to its investment
in A2000.
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.................. (1.60) (1.51) (2.39) (2.31)
========== ========== ========== ==========
Weighted-average number of
common shares outstanding..... 81,000,000 81,000,000 71,801,865 71,801,865
========== ========== ========== ==========
</TABLE>
Other
The assets of Intercabo, Portugal were sold in January 1998 for 4,000.
During 1997, the Company made a strategic decision to sell its interest in
Intercabo due to competitive factors which had recently emerged in Portugal.
After several offers to purchase Intercabo were received by the Company during
1997, it became apparent that the Company's investment in Intercabo had become
permanently impaired based on its decision to sell its investment. Accordingly,
an impairment loss of 18,888 was recognized during 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
-----------------------------------------------------------------------
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
---------- ------------ ---------- --------------- ------------ -------------
<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
-------------
<S> <C>
Liquid assets................................................. 2,562
Other current assets.......................................... 83,337
Investments in and advances to affiliated companies accounted
for under the equity method, net............................. 185,521
Tangible fixed assets......................................... 779,629
Intangible fixed assets....................................... 403,629
---------
Total assets................................................ 1,454,678
=========
Current liabilities........................................... 711,775
Provisions.................................................... 35,211
Long-term debt................................................ 224,092
Shareholders' value........................................... 483,600
---------
Total liabilities and shareholders' value................... 1,454,678
=========
</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
-------------
<S> <C>
Revenue....................................................... 36,498
Costs......................................................... (21,180)
Depreciation and amortization................................. (14,730)
-------
Net operating income........................................ 588
Interest income and expense, including interest expense from
related parties, and foreign exchange results................ (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. See Note 16.
Summary financial information for A2000 is as follows:
<TABLE>
<CAPTION>
As of
As of July
December 31, 31,
--------------- -------
1996 1997 1998(1)
------- ------- -------
<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)
------------ ------- ------- ------------
<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
------- ------- -------------
<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
------- ------- -------------
<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
------ --------- -------------
<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
0.75% to 2.0%. 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
---------- ------------
<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
The Company's shareholders have approved an amendment and restatement of
the Company's Articles of Association to effect a 3 for 2 stock split and an
increase in the number of authorized shares to 150 million, which will be
legally effected before the Company's planned initial public offering.
Therefore, all share and per share amounts in the accompanying consolidated
financial statements and notes thereto have been retroactively restated to
reflect this event.
The Company's shareholders have also approved the issuance of 100 priority
shares, which have special approval and other rights, to UIH.
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.
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 6,000,000 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
F-27
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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
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
---------- -------------- --------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- -- 2,300,417 10.49 2,241,552 10.49
Granted during period... 3,990,000 10.49 -- -- 2,343,000 12.10
Cancelled during
period................. (9,584) 10.49 (58,865) 10.49 (14,052) 10.49
Exercised during
period................. (1,680,000) -- -- -- (375,000) 10.49
---------- ----- --------- ----- -------------- ----------
Outstanding at end of
period................. 2,300,417 10.49 2,241,552 10.49 4,195,500 11.39
========== ===== ========= ===== ============== ==========
Vested at end of
period(1).............. 1,786,898 10.49 3,197,331 10.49 4,128,548 10.75
========== ===== ========= ===== ============== ==========
Exercisable at end of
period(1).............. 2,300,417 10.49 2,241,552 10.49 4,195,500 11.39
========== ===== ========= ===== ============== ==========
</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
--------- ----- -------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Exercise price equal to
market price........... 3,990,000 10.49 10.49 2,343,000 12.10 12.10
</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
-------------- ----------- ---------------- ---------- -----------
<S> <C> <C> <C> <C>
10.49.................... 1,852,500 2.72 3,443,126 1,852,500
12.00.................... 2,195,250 4.88 681,344 2,195,250
13.57.................... 147,750 4.96 4,079 147,750
--------- ---- --------- ---------
4,195,500 3.93 4,128,548 4,195,500
========= ==== ========= =========
</TABLE>
F-28
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Plan is accounted for as a variable plan because, based on the Plan's
provisions, the rights conveyed to employees are the substantive equivalents to
stock appreciation type rights. Accordingly, compensation expense and deferred
compensation expense is recognized at each financial statement date based on
the difference between the grant price and the estimated fair value of the
Company's common stock. 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. The Company's estimate of the fair value of its common
stock as of September 30, 1998 utilized in recording compensation expense and
deferred compensation expense under the Plan was NLG17.57. Because the Company
will account for the Plan as a variable plan up until the consummation date of
its planned initial public offering (the "Offering"), and thereafter as a fixed
plan due to modifications to the Plan which will occur on that date, additional
compensation expense and deferred compensation expense will be recognized
subsequent to September 30, 1998 through the Offering date to the extent the
ultimate Offering price is greater than NLG17.57. For each NLG3.33 per share
increase in the Offering price over the NLG17.57 utilized by the Company to
record compensation expense as of September 30, 1998, additional compensation
expense totaling approximately NLG16,600 would have been recognized in the
Company's statement of operations and deferred compensation expense would have
increased by approximately NLG3,000 as of that date.
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 2,400,000 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 1,232,250 and 825,000 phantom
stock rights at base prices of 12.00 and 13.57, 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
-------------- ----------------
<S> <C> <C>
Outstanding at beginning of period............... -- --
Granted during period............................ 2,057,250 12.63
Cancelled during period.......................... -- --
Exercised during period.......................... -- --
-------------- ----------
Outstanding at end of period..................... 2,057,250 12.63
============== ==========
Vested and exercisable at end of period.......... 356,265 12.03
============== ==========
</TABLE>
F-29
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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
--------- ----- --------
<S> <C> <C> <C>
Exercise price equal to market price................... 2,057,250 12.63 12.63
</TABLE>
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
- --------------------------------------- ----------- ---------------- -----------
<S> <C> <C> <C>
12.00.................................. 1,232,250 8.79 348,453
13.57.................................. 825,000 9.95 7,812
--------- ---- -------
2,057,250 9.25 356,265
========= ==== =======
</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.
The Company's estimate of the fair value of its common stock as of September
30, 1998 utilized in recording compensation expense and deferred compensation
expense under the Phantom Plan was NLG17.57. Because the Company will account
for the Phantom Plan as a variable plan at least until the consummation date
the Offering, additional compensation expense will be recognized subsequent to
September 30, 1998 through the Offering date to the extent the ultimate
Offering price is greater than NLG17.57. For each NLG3.33 per share increase in
the Offering price over the NLG17.57 utilized by the Company to record
compensation expense as of September 30, 1998, additional compensation expense
totaling approximately NLG2,600 would have been recognized in the Company's
statement of operations and deferred compensation expense would have increased
by approximately NLG4,200 as of that date.
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.
F-30
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
A summary of stock option activity for the chello broadband Plan is as
follows:
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, 1998
------------------------------
Number Weighted-
of Average
Shares Exercise Price
------------- ----------------
<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-31
<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:
<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-32
<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
------- -------- -------------
<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-33
<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-34
<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
--------- --------- -------------------
<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 12.00 per share (March 1998) and 13.57 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 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-35
<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 $5.55 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 15,180,261 common shares of UPC at a conversion rate of 11.19 per share
(see Note 1).
Cost allocations from UIH
Historically, UPC has been self sufficient from a corporate operations
perspective and required nominal assistance from its shareholders, Philips and
UIH, and solely from UIH subsequent to December 11, 1997. UIH and Philips did
not allocate any indirect overhead type costs to the Company from inception
through December 11, 1997 and UIH did not allocate any such costs subsequent
to December 11, 1997 through September 30, 1998. The only costs historically
charged to UPC were direct costs incurred by Philips and UIH on UPC's behalf.
Such costs were charged at cost. In connection with the Company's planned
Offering, UIH and the Company have executed a management services agreement
which will provide for a fixed allocation in addition to direct out-of-pocket
reimbursements.
16. Subsequent Events
Purchase of Certain Telephony and Programming Assets from UIH
In March 1998, in exchange for 11,285,604 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;
. 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 ("IPS"), a
group of programming companies focusing on the Spanish and Portuguese-
speaking markets.
In December 1998, UPC closed the Monor and Tara transactions. IPS is
expected to close in February 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.
F-36
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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.
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 November 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. UPC will allocate the $90 million in
loan proceeds between the debt instrument and the equity option element on the
basis of relative fair values. Accordingly, the effective interest rate on the
debt instrument will exceed the stated rate as set forth above.
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 January 11, 1999, UPC had funded $5,000 of its commitment.
Time Warner Note
In December 1998, Time Warner extended the maturity date of its note for a
period of 90 days.
UTH
On January 19, 1999, UPC agreed to purchase NUON's 49% ownership interest
in UTH for approximately 488.0 million plus interest of 5.5% from January 1,
1998, until the closing date. In addition, UPC will repay NUON and assume from
NUON a 33.0 million subordinated loan owed by UTH to NUON plus interest of 5.5%
from December 23, 1998, until the closing date. The transaction will close
concurrent with the completion of an IPO, or failing such IPO, on or before
November 30, 1999. In the event of an IPO, NLG445.2 million of the purchase
price will be payable in cash (assuming IPO proceeds of more than
F-37
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NLG1.4 billion) and, six months after UPC's shares are listed on a stock
exchange, the remaining NLG106 million of the purchase price will be payable in
UPC's shares or, at UPC's option, in cash. Failing such IPO, the purchase
agreement provides for payment to NUON on December 31, 2000 in the form of an
18 month note for 50% of the total purchase price (together with interest) with
the remaining purchase price due in cash upon closing. If UPC is unable to
consummate the purchase of NUON's 49% ownership interest in UTH by November 30,
1999, NUON has the right to cause the sale of UTH. In such case, NUON will
first receive an amount of the sales proceeds equal to the agreed upon purchase
price and UPC would receive the balance.
Refinancing UTH
In January 1999, N.V. Telekabel Beheer received commitments for a revolving
facility of NLG650,000, which will bear interest at Euro interbank offered rate
("EURIBOR") plus a margin between 0.75% and 2.25%. In addition, in January
1999, UTH received commitments for a NLG225,000 secured debt facility, which
will bear interest at LIBOR plus a margin ranging from 4.75% to 8.5%.
In January 1999, NUON agreed to extend the exercise of the pledges relating
to the NLG630,000 debt facility (see Note 4) until March 15, 1999, with an
extension period of 14 days.
F-38
<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-39
<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>
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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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 (15 years). 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-50
<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-51
<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.
On January 19, 1999, UPC agreed to purchase NUON's 49% ownership interest
in UTH, increasing its ownership in UTH to 100%. The transaction will close
concurrent with the completion of an IPO, or failing such IPO, on or before
November 30, 1999.
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-52
<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-53
<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-54
<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-55
<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-56
<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.
On January 19, 1999, UPC agreed to purchase NUON'S 49% ownership interest
in UTH, increasing its ownership in UTH to 100%. The transaction will close
concurrent with the completion of an IPO, or failing such IPO, on or before
November 30, 1999.
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-57
<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-58
<PAGE>
UNDERWRITING
UPC, UIH 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 ordinary shares indicated in the following table.
Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated and Donaldson, Lufkin &
Jenrette Securities Corporation are the representatives of the U.S.
Underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. ..................................
Morgan Stanley & Co. Incorporated......................
Donaldson, Lufkin & Jenrette Securities Corporation....
----
Total................................................
====
</TABLE>
----------------
The U.S. Underwriters may choose to take some or all of their ordinary
shares in the form of ADSs.
If the U.S. Underwriters sell more ordinary shares than the total number
set forth in the table above, the U.S. Underwriters have an option to buy up to
an additional ordinary shares from UPC to cover such sales. They may
exercise the option for 30 days after the date of this prospectus. If any
ordinary shares are purchased pursuant to the option, the U.S. Underwriters
will severally purchase ordinary 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 ordinary 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 UPC. Such amounts are
shown assuming both no exercise and full exercise of the U.S. Underwriters'
option to purchase additional shares.
Paid by UPC
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share... (Euro) (Euro)
Total....... (Euro) (Euro)
</TABLE>
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(Euro) (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 (Euro) (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.
UPC and UIH have entered into an underwriting agreement with the
underwriters for the sale by UPC of ordinary 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"). UPC has granted
the International Underwriters an option to purchase up to an aggregate of an
additional ordinary 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.
UPC and UIH have each agreed with the underwriters not to dispose of or
hedge any of
U-1
<PAGE>
their shares or securities convertible into or 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. Certain of UPC's employees have
made a similar agreement with the underwriters for a period of 180 days. If the
Discount Group exercises its option, it has agreed to similar restrictions, but
only for 90 days. 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 ordinary shares (including ordinary 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 will be negotiated among UPC
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 UPC's historical performance, estimates of UPC's business
potential and earnings prospects, an assessment of UPC'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 and
paying 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.
UPC and UIH have agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
UPC has 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.
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 euros in
immediately available funds.
Goldman Sachs Credit Partners L.P., MeesPierson and Paribas have agreed to
become lenders to UTH, UPC's Dutch holding company, under the Junior UTH
Facility. MeesPierson N.V., Paribas, Deutsche Bank AG London and certain other
banks have agreed to become lenders to a
U-2
<PAGE>
subsidiary of UTH pursuant to the Senior UTH Facility. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources". Each of the lenders named above is an
underwriter or an affiliate of an underwriter.
At UPC's request, the underwriters have reserved ordinary shares worth $300
million (representing 10,157,750 shares at the midpoint of the offering price
range, assuming the underwriters do not purchase additional shares) out of the
shares being offered in the United States for sale at the initial public
offering price to Microsoft Corporation, which may be sold to Microsoft in the
form of shares or ADSs. If Microsoft purchases all of the reserved shares, it
will own approximately 8.3% of UPC after this offering. The number of shares
available for sale to the general public will be reduced to the extent any of
these reserved shares are purchased by Microsoft. Microsoft has agreed that, if
it does purchase any of such reserved shares, it will enter into an agreement
subjecting such shares to resale restrictions, similar to those to which UPC
and UIH have agreed, for a period of at least six months after the date of this
prospectus. In addition, Microsoft has agreed that, if it does purchase any of
such reserved shares, it will enter into an agreement that it will not acquire
more than 15% in the aggregate of UPC's outstanding share capital without the
prior approval of the Supervisory Board of UPC. See "Relationship with
Microsoft".
U-3
<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>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 10
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Exchange Rate Data....................................................... 17
Dilution................................................................. 18
Capitalization........................................................... 19
Selected Consolidated Financial Data..................................... 20
Pro Forma Selected Consolidated Financial Data........................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 51
Technology............................................................... 86
Glossary of Technical Terms.............................................. 98
Corporate Ownership Structure............................................ 101
Regulation............................................................... 106
Management............................................................... 115
Security Ownership of Certain Beneficial Owners and Management........... 125
Certain Transactions and Relationships................................... 126
Relationship with UIH and Related Transactions........................... 128
Relationship with Microsoft.............................................. 130
Description of Share Capital............................................. 131
Summary of Additional Material Provisions of the Articles of Association
and Other Matters....................................................... 133
Description of American Depositary Shares................................ 135
Taxation................................................................. 146
Shares Eligible for Future Sale.......................................... 153
Experts.................................................................. 154
Legal Matters............................................................ 154
Enforcement of Civil Liabilities......................................... 154
Available Information.................................................... 155
Amsterdam Stock Exchange Listing......................................... 155
Index to Financial Statements............................................ F-1
Parent Only Financial Statements ........................................ S-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
Shares 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
United Pan-Europe Communications N.V.
Ordinary Shares
in the form of
American Depositary Shares
or Ordinary Shares
--------------
[LOGO OF UNITED PAN-EUROPE COMMUNICATIONS N.V. APPEARS HERE]
--------------
Goldman, Sachs & Co.
Morgan Stanley Dean Witter
Donaldson, Lufkin & Jenrette
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........... $ 386,965
NASD and blue sky fees........................................ 30,500
Legal fees and expenses....................................... 1,600,000
Accounting fees............................................... 1,000,000
Printing and engraving expenses............................... 1,900,000
Miscellaneous................................................. 332,535
-----------
Total......................................................... $ 5,250,000
===========
</TABLE>
The above expenses will be borne by UPC.
Item 14. Indemnification of Directors and Officers
Article 28 of UPC's Articles of Association provides that UPC shall
indemnify any person who is or was a Supervisory Director or member of the
Board of Management and who was or is a party or is threatened to be made a
party to any threatened, pending or completed action by reason of the fact that
he is or was a Supervisory Director, member of the Board of Management,
officer, employee or agent of UPC, or is or was serving at the request of UPC.
To be eligible for indemnification, the person must have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of UPC. Indemnification is not available for any person that is
adjudged liable for gross negligence or wilful misconduct in performance of his
duty to the Company unless the court in which such action was brought
determines that such person is entitled to indemnification. A majority of the
members of the Supervisory Board must approve any indemnification unless the
entire Supervisory Board is named in the lawsuit, in which case the
indemnification may be approved by independent legal counsel in a written
opinion or by the general meeting of shareholders. The Supervisory Board may
extend the indemnification provisions of our articles of association to any of
UPC's officers, employees or agents.
In addition, no person shall be personally liable to UPC or its
shareholders for monetary damages for breach of fiduciary duty as a Supervisory
Director or member of the Board of Management unless such person (1) breached
his duty of loyalty to UPC or its shareholders, (2) acted in bad faith or with
intentional misconduct or a knowing violation of the law, or (3) received an
improper personal benefit or (4) is subject to personal liability under Dutch
law.
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 Deposit Agreement
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
4.2 The Articles of Association of UPC are 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)
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.(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 Loan Agreement 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 UPC, DIC and PEC*
10.13 Form of Registration Rights Agreement among UPC, DIC and PEC*
10.14 Form of Shareholders Agreement among UPC, DIC and PEC*
10.15 Sales Agreement dated December 17, 1997, between Stichting
Combivisie Regio,
Setelco B.V. and UPC
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.16 Purchase Agreement dated November 6, 1998, between Binan
Investments B.V., UA-UII, Inc. and UA-UII Management Inc.*
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 Syndicate 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.*
10.19A Articles of Association of Telekabel Wien Gesellschaft m.b.H.*
10.19B Agreement dated November 30, 1993, between Kabel-TV Wien
Gesellschaft m.b.H and Telekabel Wien Gesellschaft m.b.H.*
10.19C Rules of Procedure of Telekabel Wien Gesellschaft m.b.H., as
amended on April 10, 1995*
10.20 Tax Liability Agreement dated October 7, 1997, between UPC, 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 UPC and NUON to UTH
10.21A Shareholders Agreement dated August 6, 1998, between the Company,
NUON and UTH
10.22 Joint Venture Agreement dated February 13, 1996, regarding A2000
Holding N.V.
between US West International B.V. and UPC
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 UPC and
Stichting
Administratie Kantoor UPC*
10.25 Form of Master Seconded Employee Services Agreement**
10.26 Form of UIH Registration Rights Agreement
10.27 Form of UIH Management Services Agreement**
10.28 Consulting Agreement, dated June 1, 1995, between UIH and Mark L.
Schneider**
10.29 Employment Agreement, dated October 1, 1998, between UIH and J.
Timothy Bryan*
10.30 Form of Agreement between UIH and the Company**
10.31 Promissory Note dated January 25, 1999, with the Company as
borrower, and
UIH Europe, Inc. as holder, in the principal amount of
US$100,000,000
10.32 Promissory Note dated January 25, 1999, with UPC Intermediates B.V.
as borrower, and UIH Europe, Inc. as holder, in the principal
amount of US$20,000,000
10.33 Share Purchase Agreement dated January 19, 1999, by and between the
Company, Belmarken Holding B.V., NUON, N.V. Kraton and UTH, as
amended**
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 UPC's Supervisory Board*
</TABLE>
II-3
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULE I
Condensed Financial Information of Registrant
Independent Auditors' Report on Schedule................................. S-1
Condensed Information as to the Financial Condition of Registrant........ S-2
Condensed Information as to the Operations of Registrant................. S-3
Condensed Information as to the Cash Flows of the Registrant............. S-4
Note to Schedule......................................................... S-5
FINANCIAL STATEMENT SCHEDULE II
Valuation and Qualifying Accounts........................................ S-7
- --------
* Previously filed.
** 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).
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 Amendment No. 4 to Form S-1 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Amsterdam, The Netherlands, on this 25th day of January
1999.
United Pan-Europe Communications N.V. a
Dutch Public limited liability company
By: /s/ J. Timothy Bryan
------------------------------------
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 Supervisory Board January 25, 1999
- ----------------------------------
Gene W. Schneider
/s/ Michael T. Fries Supervisory Board Member and January 25, 1999
- ---------------------------------- Authorized U.S. Representative
Michael T. Fries
Supervisory Board Member January 25, 1999
- ----------------------------------
Richard De Lange
* Chairman of Board of Management January 25, 1999
- ---------------------------------- and Chief Executive Officer
Mark L. Schneider
/s/ J. Timothy Bryan Board of Management Member, January 25, 1999
- ---------------------------------- President and Chief Financial
J. Timothy Bryan Officer
* Board of Management Member and January 25, 1999
- ---------------------------------- Vice Chairman
John F. Riordan
* Board of Management Member, January 25, 1999
- ---------------------------------- Senior Vice President and
Anton H.E. v. Voskuijlen Managing Director
* Board of Management Member and January 25, 1999
- ---------------------------------- Managing Director, Eastern
Nimrod J. Kovacs Europe
* Managing Director, Finance and January 25, 1999
- ---------------------------------- Accounting (Principal Accounting
Ray D. Samuelson Officer)
</TABLE>
/s/ J. Timothy Bryan
*By: ----------------------------------
J. Timothy Bryan
Attorney-in-fact
II-5
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
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 January 14, 1999. Our audit was made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The following schedules are the responsibility of the
Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
consolidated financial statements. These schedules have 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,
January 14, 1999
S-1
<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, AS OF SEPTEMBER 30,
------------------------------------ -------------------
1996 1997 1998
----------------- ------------------ -------------------
(PRE-ACQUISITION) (POST-ACQUISITION) (POST-ACQUISITION)
<S> <C> <C> <C>
ASSETS:
Current assets
Cash and cash
equivalents.......... 20,949 43,306 7,189
Related party
receivables.......... 30,416 36,364 134,144
Other receivables,
net.................. 18,986 18,690 1,946
Other current assets.. 2,054 2,761 3,159
-------- --------- ---------
Total current
assets............. 72,405 101,121 146,438
Investments in, loans
and other advances to
affiliated companies,
accounted for under the
equity method, net..... 772,574 1,119,724 1,168,139
Property, plant and
equipment, net of
accumulated
depreciation of 333, 23
and 351, respectively.. 1,279 1,022 1,042
Deferred financing
costs, net of
accumulated
amortization of 0, 110
and 1,393,
respectively........... -- 16,813 16,200
Non-current restricted
cash and other assets.. 84 48,541 50,158
-------- --------- ---------
Total assets........ 846,342 1,287,221 1,381,977
======== ========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Current liabilities
Related party accounts
payable.............. 17,095 34,402 25,429
Accrued liabilities... 7,408 12,776 13,009
Note payable to
shareholder.......... -- -- 119,070
Short-term debt....... 289,360 -- 34,020
Short-term debt,
related party........ -- 228,097 251,993
-------- --------- ---------
Total current
liabilities........ 313,863 275,275 443,521
Long-term debt ......... -- 528,386 657,634
Long-term notes payable
to shareholder......... 256,335 -- --
Other related party
debt................... 17,578 29,609 26,349
Deferred taxes and
other.................. -- 42,420 33,126
-------- --------- ---------
Total liabilities... 587,776 875,690 1,160,630
-------- --------- ---------
Shareholders' equity
Common stock, 0.667
par value,
150,000,000 shares
authorized,
81,000,000 shares
issued............... 54,000 54,000 54,000
Additional paid-in
capital.............. 315,570 621,164 631,323
Deferred
compensation......... -- -- (5,826)
Other cumulative
comprehensive income
(loss)............... 6,361 5,265 (17,399)
Accumulated deficit... (117,365) (146,237) (318,089)
Treasury stock, at
cost, 9,198,135
shares of common
stock................ -- (122,662) (122,662)
-------- --------- ---------
Total shareholders'
equity............. 258,566 411,530 221,347
-------- --------- ---------
Total liabilities
and shareholders'
equity............. 846,342 1,287,221 1,381,977
======== ========= =========
</TABLE>
S-2
<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, For the Nine
December 31, ----------------------------------- Months Ended
1995 1996 1997 September 30, 1998
----------------- ----------------- ----------------- ------------------
(Pre-Acquisition) (Pre-Acquisition) (Pre-Acquisition) (Post-Acquisition)
<S> <C> <C> <C> <C>
Management fee income
from related parties... 1,242 4,433 3,088 10,221
Corporate general and
administrative
expense................ (3,016) (1,679) (11,605) (49,051)
Depreciation and
amortization........... (621) (335) (736) (328)
---------- ---------- ---------- ----------
Net operating loss.... (2,395) 2,419 (9,253) (39,158)
Interest income......... 6,212 1,898 2,830 1,295
Interest income, related
party.................. 9,169 27,353 44,867 47,656
Interest expense........ (6,929) (8,418) (16,949) (27,727)
Interest expense,
related party.......... (11,068) (27,511) (33,362) (16,681)
Foreign exchange loss,
net.................... (4,192) (20,236) (12,864) (9,702)
---------- ---------- ---------- ----------
Net loss before income
taxes and other
items................ (9,203) (24,495) (24,731) (44,317)
Share in results of
affiliated companies,
net.................... (32,326) (51,341) (142,689) (129,231)
Income taxes............ -- -- 1,454 1,696
---------- ---------- ---------- ----------
Net loss.............. (41,529) (75,836) (165,966) (171,852)
========== ========== ========== ==========
Basic and diluted net
loss per common share.. (0.51) (0.94) (2.06) (2.39)
========== ========== ========== ==========
Weighted-average number
of common shares
outstanding............ 81,000,000 81,000,000 80,488,992 71,801,865
========== ========== ========== ==========
</TABLE>
S-3
<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, For the Nine
December 31, ----------------------------------- Months Ended
1995 1996 1997 September 30, 1998
----------------- ----------------- ----------------- ------------------
(Pre-Acquisition) (Pre-Acquisition) (Pre-Acquisition) (Post-Acquisition)
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss................ (41,529) (75,836) (165,966) (171,852)
Adjustments to reconcile
net loss to net cash
flows from operating
activities:
Depreciation and
amortization.......... 621 335 736 328
Share in results of
affiliated companies,
net................... 29,292 54,375 153,079 129,230
Foreign exchange loss,
net................... 4,192 20,236 12,864 9,702
Compensation expense
related to stock
options............... -- -- 4,818 32,493
Other.................. (1,975) (1,545) (3,638) (1,280)
Changes in assets and
liabilities:
(Increase) decrease in
receivables........... (147,454) 86,309 (6,359) (81,036)
Increase in other non-
current assets........ (57) (27) (1,457) (2,015)
Increase (decrease) in
other current
liabilities........... 20,197 22,022 46,600 (8,740)
Increase (decrease) in
deferred taxes and
other................. -- -- 2,303 (37,454)
-------- -------- -------- --------
Net cash flows from
operating activities... (136,713) 105,869 42,980 (130,624)
-------- -------- -------- --------
Cash flows from
investing activities:
Investments in, loans to
and advances to
affiliated companies,
net.................... (325,087) (44,805) (294,532) (166,289)
Capital expenditures.... (1,054) (2,249) (1,308) (348)
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 (166,637)
-------- -------- -------- --------
Cash flows from
financing activities:
Proceeds from short-term
borrowings............. 433,231 -- 91,415 --
Proceeds from short-term
borrowings, related
party.................. -- -- 228,097 23,896
Proceeds from long-term
borrowings............. 23,865 -- 498,699 130,000
Proceeds from note
payable to
shareholder............ -- -- -- 110,508
Deferred financing
costs.................. -- -- (17,139) --
Repayments long and
short-term borrowings.. -- (150,158) (377,443) (3,260)
Redemption of
convertible loans...... -- -- (170,171) --
Purchase shares from
shareholder............ -- -- (292,561) --
-------- -------- -------- --------
Net cash flows from
financing activities... 457,096 (150,158) (39,103) 261,144
-------- -------- -------- --------
Net (decrease) increase
in cash and cash
equivalents............ (5,758) (91,343) 22,357 (36,117)
Cash and cash
equivalents at
beginning of period.... -- 112,292 20,949 43,306
Cash contributed upon
formation.............. 118,050 -- -- --
-------- -------- -------- --------
Cash and cash
equivalents at end of
period................. 112,292 20,949 43,306 7,189
======== ======== ======== ========
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) 21,580
======== ======== ======== ========
Cash received for
interest.............. 3,949 26,277 25,091 888
======== ======== ======== ========
</TABLE>
S-4
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTE TO PARENT ONLY
SCHEDULE I
AS OF DECEMBER 31, 1996 (Pre-Acquisition), DECEMBER 31, 1997 AND
SEPTEMBER 30, 1998 (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
15,180,261 shares of UPC, (iii) UPC repaid to Philips the remaining 170,371
accreted amount of the PIK Notes (339,800), (iv) UIH purchased 13,121,604
shares of UPC directly from Philips, and (v) UPC repurchased Philips' remaining
equity interest in UPC (24,378,396 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.
S-5
<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 and September 30, 1998 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.
S-6
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
(In thousands of Dutch Guilders)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
-------- --------- -------- ------------ ------------- --------
Additions
---------------------
Balance Balance
at Charged at End
Beginning to of
Description of Period Expense Acquisitions Deductions(1) Period
----------- --------- -------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts receivable:
Nine months ended
September 30, 1998..... 7,153 1,368 1,032 (60) 9,493
===== ===== ===== ====== =====
Year ended December 31,
1997................... 5,835 2,093 543 (1,318) 7,153
===== ===== ===== ====== =====
Year ended December 31,
1996................... 5,342 907 835 (1,249) 5,835
===== ===== ===== ====== =====
Six months ended
December 31, 1995...... -- -- 5,342 -- 5,342
===== ===== ===== ====== =====
Allowance for costs to
be reimbursed:
Nine months ended
September 30, 1998..... 2,209 109 -- (1,650) 668
===== ===== ===== ====== =====
Year ended December 31,
1997................... 4,620 1,221 -- (3,632) 2,209
===== ===== ===== ====== =====
Year ended December 31,
1996................... 5,303 794 -- (1,477) 4,620
===== ===== ===== ====== =====
Six months ended
December 31, 1995...... 4,137 1,166 -- -- 5,303
===== ===== ===== ====== =====
Allowance for
Investments in
Affiliated Companies:
Nine months ended
September 30, 1998..... -- -- -- -- --
===== ===== ===== ====== =====
Year ended December 31,
1997................... 4,186 -- -- (4,186) --
===== ===== ===== ====== =====
Year ended December 31,
1996................... 4,946 -- -- (760) 4,186
===== ===== ===== ====== =====
Six months ended
December 31, 1995...... -- 4,946 -- -- 4,946
===== ===== ===== ====== =====
</TABLE>
- --------
(1) Represents uncollectible balances written off to the allowance account and
the effect of currency translation adjustments.
S-7
<PAGE>
EXHIBIT INDEX
Exhibit
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement**
3.1 Amended and Restated Articles of Association of UPC**
4.1 Form of Deposit Agreement
4.2 The Articles of Association of UPC are 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)
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 "UIH 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 Loan Agreement 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*
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.12 Option Agreement dated November 5, 1998, among UPC, DIC and PEC*
10.13 Form of Registration Rights Agreement among UPC, DIC and PEC*
10.14 Form of Shareholders Agreement among UPC, DIC and PEC*
10.15 Sales Agreement dated December 17, 1997, between Stichting
Combivisie Regio,
Setelco B.V. and UPC
10.16 Purchase Agreement dated November 6, 1998, between Binan
Investments B.V.,
UA-UII, Inc. and UA-UII Management Inc.*
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 Syndicate 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.*
10.19A Articles of Association of Telekabel Wien Gesellschaft m.b.H.*
10.19B Agreement dated November 30, 1993, between Kabel-TV Wien
Gesellschaft m.b.H. and Telekabel Wien Gesellschaft m.b.H.*
10.19C Rules of Procedure of Telekabel Wien Gesellschaft m.b.H., as
amended on April 10, 1995*
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 NUON to UTH
10.21A Shareholders Agreement dated August 6, 1998, between the Company,
NUON and UTH
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 UPC and
Stichting
Administratie Kantoor UPC*
10.25 Form of Master Seconded Employee Services Agreement**
10.26 Form of UIH Registration Rights Agreement
10.27 Form of UIH Management Services Agreement**
10.28 Consulting Agreement, dated June 1, 1995, between UIH and Mark L.
Schneider**
10.29 Employment Agreement, dated October 1, 1998, between UIH and J.
Timothy Bryan*
10.30 Form of Agreement between UIH and the Company**
10.31 Promissory Note dated January 25, 1999, with the Company as
borrower, and UIH Europe, Inc. as holder, in the principal amount
of US$100,000,000
10.32 Promissory Note dated January 25, 1999, with UPC Intermediates B.V.
as borrower, and with UIH Europe, Inc. as holder, in the principal
amount of US$20,000,000
10.33 Share Purchase Agreement dated January 19, 1999, by and between the
Company, Belmarken Holding B.V., NUON, N.V. Kraton and UTH, as
amended**
21.1 Subsidiaries of UPC
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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>
- --------
* Previously filed
** 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).
<PAGE>
EXHIBIT 4.1
DEPOSIT AGREEMENT
DEPOSIT AGREEMENT, dated as of February ___, 1999, by and among (i) UNITED PAN-
EUROPE COMMUNICATIONS N.V., a company incorporated under the laws of The
Netherlands, and its successors (the "Company"), (ii) CITIBANK, N.A., a national
banking association organized under the laws of the United States of America
acting in its capacity as depositary, and any successor depositary hereunder
(the "Depositary"), and (iii) all Holders and Beneficial Owners of American
Depositary Shares evidenced by American Depositary Receipts issued hereunder
(all such capitalized terms as hereinafter defined).
W I T N E S S E T H T H A T:
WHEREAS, the Company has duly authorized and has outstanding Ordinary Shares,
nominal value of NLG ___ each (the "Shares"), which are listed for trading on
the Amsterdam Stock Exchange; and
WHEREAS, the Company desires to establish with the Depositary an ADR facility to
provide for the deposit of the Shares and the creation of American Depositary
Shares representing the Shares so deposited and for the execution and delivery
of American Depositary Receipts evidencing such American Depositary Shares; and
WHEREAS, the Depositary is willing to act as the depositary for such facility
and the Company is willing to engage the Depository upon the terms set forth in
this Deposit Agreement; and
WHEREAS, the American Depositary Receipts evidencing the American Depositary
Shares issued pursuant to the terms of this Deposit Agreement are to be
substantially in the form of Exhibit A attached hereto, with appropriate
insertions, modifications and omissions, as hereinafter provided in this Deposit
Agreement; and
WHEREAS, the American Depositary Shares to be issued pursuant to the terms of
this Deposit Agreement are to be quoted on the NASDAQ National Market System
under the symbol "UPCOY"; and
WHEREAS, the Board of Directors of the Company (or an authorized committee
thereof) has duly approved the establishment of an ADR facility upon the terms
set forth in this Deposit Agreement, the execution and delivery of this Deposit
Agreement on behalf of the Company, and the actions of the Company and the
transactions contemplated herein.
NOW, THEREFORE, in consideration of the premises, the parties hereto agree as
follows:
1
<PAGE>
ARTICLE I
DEFINITIONS
All capitalized terms used, but not otherwise defined, herein shall have the
meanings set forth below, unless otherwise clearly indicated:
SECTION 1.1. "Affiliate" shall have the meaning assigned to such term by the
---------
Commission (as hereinafter defined) under Regulation C promulgated under the
Securities Act (as hereinafter defined).
SECTION 1.2. "American Depositary Share(s)" and "ADS(s)" American Depositary
-----------------------------------------
Shares(s) shall mean with respect to any American Depositary Receipt, the rights
and interests in the Deposited Securities granted to the Holders and Beneficial
Owners pursuant to the terms and conditions of this Deposit Agreement and the
American Depositary Receipts issued hereunder. Each American Depositary Share
shall represent one Share, until there shall occur a distribution upon Deposited
Securities referred to in Section 4.2 or a change in Deposited Securities
referred to in Section 4.11 with respect to which additional American Depositary
Shares are not issued, and thereafter each American Depositary Share shall
represent the Shares or Deposited Securities specified in such Sections.
SECTION 1.3. "ADS Record Date" shall have the meaning given to such term in
---------------
Section 4.9.
SECTION 1.4. "Beneficial Owner" shall mean as to any ADS, any person or entity
----------------
having a beneficial interest deriving from the ownership of such ADS. A
Beneficial Owner may or may not be the Holder of the ADR(s) evidencing such
ADSs. A Beneficial Owner shall be able to exercise any right or receive any
benefit hereunder solely through the person who is the Holder of the ADR(s)
evidencing the ADSs owned by such Beneficial Owner.
SECTION 1.5. "Business Day" shall mean any day on which both the banks in
------------
Amsterdam, The Netherlands and the banks in New York are open for business.
SECTION 1.6. "Commission" shall mean the Securities and Exchange Commission of
----------
the United States or any successor governmental agency in the United States.
SECTION 1.7. "Company" shall mean United Pan-Europe Communications N.V., a
-------
company incorporated and existing under the laws of The Netherlands, and its
successors.
SECTION 1.8. "Custodian" shall mean, as of the date hereof, Citibank N.A.,
---------
Amsterdam, having its principal office at Europlaza, Hoogoordreef 54B, 1101
B.E., Amsterdam Z.O., The Netherlands, as the custodian for the purposes of this
Deposit Agreement, and any other entity that may be appointed by the Depositary
pursuant to the terms of Section 5.5 as successor, substitute or additional
custodian hereunder, as the context shall require. The term "Custodians" shall
mean all custodians, collectively.
2
<PAGE>
SECTION 1.9. "Deliver" and "Delivery" shall mean, when used in respect of
------- --------
American Depositary Shares, Receipts, Deposited Securities and Shares, the
physical delivery of the certificate representing such security, or the
electronic delivery of such security by means of book-entry transfer, if
available.
SECTION 1.10. "Deposit Agreement" shall mean this Deposit Agreement and all
-----------------
exhibits hereto, as the same may from time to time be amended and supplemented
in accordance with the terms hereof.
SECTION 1.11. "Depositary" shall mean Citibank, N.A., a national banking
----------
association organized under the laws of the United States of America, in its
capacity as depositary under the terms of this Deposit Agreement, and any
successor depositary hereunder.
SECTION 1.12. "Deposited Securities" shall mean Shares at any time deposited
--------------------
under this Deposit Agreement and any and all other securities, property and cash
held by the Depositary or the Custodian in respect thereof, subject, in the case
of cash, to the provisions of Section 4.8. The collateral delivered in
connection with Pre-Release Transactions described in Section 5.10 hereof shall
not constitute Deposited Securities.
SECTION 1.13. "Dollars" and "$" shall refer to the lawful currency of the
------- -
United States.
SECTION 1.14. "DTC" shall mean The Depository Trust Company, a national
---
clearinghouse and the central book-entry settlement system for securities traded
in the United States and, as such, the custodian for the securities of DTC
Participants (as hereinafter defined) maintained in DTC, and any successor
thereto.
SECTION 1.15. "DTC Participant" shall mean any financial institution (or any
---------------
nominee of such institution) having one or more participant accounts with DTC
for receiving, holding and delivering the securities and cash held in DTC.
SECTION 1.16. "Exchange Act" shall mean the United States Securities Exchange
------------
Act of 1934, as from time to time amended.
SECTION 1.17. "Foreign Currency" shall mean currency other than Dollars.
----------------
SECTION 1.18. "Guilders" and "NLG" shall refer to the lawful currency of The
------------------
Netherlands.
SECTION 1.19. "Holder" shall mean the person in whose name a Receipt is
------
registered on the books of the Depositary (or the Registrar, if any) maintained
for such purpose. A Holder may or may not be a Beneficial Owner. If a Holder
is not the Beneficial Owner of the ADSs evidenced by the Receipt registered in
its name, such person shall be deemed to have all requisite authority to act on
behalf of the Beneficial Owners of such ADSs.
SECTION 1.20. "NECIGEF" shall mean The Netherlands Central Institute for Giro
-------
Securities (Nederlands Centraal Instituut vor Giraal ffectenverkeer B.V.), which
provides the book-entry settlement system for equity securities in The
Netherlands, or any successor entity thereto.
3
<PAGE>
SECTION 1.21. "Pre-Release Transaction" shall have the meaning set forth in
-----------------------
Section 5.10 hereof.
SECTION 1.22. "Principal Office" when used with respect to the Depositary,
----------------
shall mean the principal office of the Depositary at which at any particular
time its depositary receipts business shall be administered, which, at the date
of this Deposit Agreement, is located at 111 Wall Street, New York, New York
10043, U.S.A.
SECTION 1.23. "Receipt(s)"; "American Depositary Receipt(s)" and "ADR(s)" shall
---------------------------------------------------------
mean the certificate(s) issued by the Depositary in the form attached hereto as
Exhibit A to evidence the American Depositary Shares issued under the terms of
this Deposit Agreement, as such Receipts may be amended from time to time in
accordance with the provisions of this Deposit Agreement. A Receipt may evidence
any number of American Depositary Shares and may, in the case of American
Depositary Shares held through a central depository such as DTC, be in the form
of a "Balance Certificate."
SECTION 1.24. "Registrar" shall mean the Depositary or any bank or trust
---------
company having an office in the Borough of Manhattan, The City of New York,
which shall be appointed by the Depositary to register issuances and transfers
of Receipts as herein provided, and shall include any co-registrar appointed by
the Depositary for such purposes. Registrars (other than the Depositary) may be
removed and substitutes appointed by the Depositary. Each Registrar (other than
the Depositary) appointed pursuant to this Deposit Agreement shall be required
to give notice in writing to the Depositary accepting such appointment and
agreeing to be bound by the applicable terms of this Deposit Agreement.
SECTION 1.25. "Restricted Securities" shall mean Shares, or American Depositary
---------------------
Shares representing such Shares, which (i) have been acquired directly or
indirectly from the Company or any of its Affiliates in a transaction or chain
of transactions not involving any public offering and subject to resale
limitations under the Securities Act or the rules issued thereunder, or (ii) are
held by an officer or director (or persons performing similar functions) or
other Affiliate of the Company, or (iii) are subject to other restrictions on
sale or deposit under the laws of the United States, The Netherlands, or under a
shareholder agreement or the Articles of Association of the Company or under the
regulations of an applicable securities exchange unless, in each case, such
Shares are being sold to persons other than an Affiliate of the Company in a
transaction (i) covered by an effective resale registration statement or (ii)
exempt from the registration requirements of the Securities Act (as hereinafter
defined), and the Shares are not, when held by such person, Restricted
Securities.
SECTION 1.26. "Securities Act" shall mean the United States Securities Act of
--------------
1933, as from time to time amended.
SECTION 1.27. "Share Registrar" shall mean the Company or a depository
---------------
institution organized under the laws of the Netherlands, which carries out the
duties of registrar for the Shares or any successor as Share Registrar for such
Shares appointed by the Company.
4
<PAGE>
SECTION 1.28. "Shares" shall mean the Company's Ordinary Shares, nominal value
------
Euro _____(NLG ____) per share, validly issued and outstanding and fully paid
and may, if the Depositary so agrees after consultation with the Company,
include evidence of the right to receive Shares; provided that in no event shall
Shares include evidence of the right to receive Shares with respect to which the
full purchase price has not been paid or Shares as to which preemptive rights
have theretofore not been validly waived or exercised; provided further,
however, that, if there shall occur any change in nominal value, split-up,
consolidation, reclassification, conversion or any other event described in
Section 4.11 in respect of the Shares of the Company, the term "Shares" shall
thereafter, to the extent permitted by law, represent the successor securities
resulting from such change in nominal value, split-up, consolidation, exchange,
conversion, reclassification or event.
SECTION 1.29. "United States" shall have the meaning assigned to it in
-------------
Regulation S as promulgated by the Commission under the Securities Act.
ARTICLE II
APPOINTMENT OF DEPOSITARY; FORM OF RECEIPTS;
DEPOSIT OF SHARES; EXECUTION
AND DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS
SECTION 2.1. Appointment of Depositary. The Company hereby appoints the
-------------------------
Depositary as depositary for the Deposited Securities and hereby authorizes and
directs the Depositary to act in accordance with the terms set forth in this
Deposit Agreement. Each Holder and each Beneficial Owner, upon acceptance of
any ADSs (or any interest therein) issued in accordance with the terms of this
Deposit Agreement, shall be deemed for all purposes to (a) be a party to and
bound by the terms of this Deposit Agreement and (b) appoint the Depositary its
attorney-in-fact, with full power to delegate, to act on its behalf and to take
any and all actions contemplated in this Deposit Agreement, to adopt any and all
procedures necessary to comply with applicable law and to take such action as
the Depositary in its sole discretion may deem necessary or appropriate to carry
out the purposes of this Deposit Agreement (the taking of such actions to be the
conclusive determinant of the necessity and appropriateness thereof).
SECTION 2.2. Form and Transferability of Receipts.
------------------------------------
(a) Form. American Depositary Shares shall be evidenced by definitive Receipts
----
which shall be engraved, printed, lithographed or produced in such other
manner as may be agreed upon by the Company and the Depositary. The
Receipts shall be substantially in the form set forth in Exhibit A to this
---------
Deposit Agreement, with any appropriate insertions, modifications and
omissions, in each case, as otherwise contemplated in the Deposit
Agreement. Receipts shall be (i) dated, (ii) signed by the manual or
facsimile signature of a duly authorized signatory of the Depositary, (iii)
countersigned by the manual or facsimile signature of a duly authorized
signatory of the Registrar, and (iv) registered in the books maintained by
the Registrar for the registration of the issuance and transfer of
Receipts. No Receipt and no American Depositary Share evidenced thereby
shall be entitled to any benefits under this Deposit Agreement or be
5
<PAGE>
valid or enforceable for any purpose against the Depositary or the Company,
unless such Receipt shall have been so dated, signed, countersigned and
registered. Receipts bearing the facsimile signature of a duly-authorized
signatory of the Depositary or the Registrar, who at the time of signature
was a duly authorized signatory of the Depositary or the Registrar, as the
case may be, shall bind the Depositary, notwithstanding the fact that such
signatory has ceased to be so authorized prior to the delivery of such
Receipt by the Depositary. The Receipts shall bear a CUSIP number that is
different from any CUSIP number that was, is or may be assigned to any
depositary receipts previously or subsequently issued pursuant to any other
arrangement between the Depositary (or any other depositary) and the
Company which are not Receipts issued hereunder.
(b) Legends. The Receipts may be endorsed with or have incorporated in the
-------
text thereof such legends or recitals or changes not inconsistent with the
provisions of this Deposit Agreement (i) as may be necessary to enable the
Depositary to perform its obligations hereunder, (ii) as may be required to
comply with any applicable law or regulations, or with the rules and
regulations of any securities exchange or market upon which American
Depositary Shares may be traded, listed or quoted or to conform with any
usage with respect thereto, (iii) as may be necessary to indicate any
special limitations or restrictions to which any particular Receipts or
ADSs are subject by reason of the date of issuance of the Deposited
Securities or otherwise, or (iv) as may be required by any book-entry
system in which the ADSs are held.
(c) Title. Subject to the limitations contained herein and in the Receipt,
-----
title to a Receipt (and to each ADS evidenced thereby) shall be
transferable by delivery of the Receipt with the same effect as a
certificated security under the laws of the State of New York, provided
that such Receipt has been properly endorsed or is accompanied by proper
instruments of transfer. Notwithstanding any notice to the contrary, the
Depositary may deem and treat the Holder of a Receipt (that is, the person
in whose name a Receipt is registered on the books of the Depositary) as
the absolute owner thereof for all purposes. The Depositary shall have no
obligation nor be subject to any liability under this Deposit Agreement or
any Receipt to any holder of a Receipt or any Beneficial Owner unless such
holder is the Holder of such Receipt registered on the books of the
Depositary or, in the case of a Beneficial Owner, such Beneficial Owner or
the Beneficial Owner's representative is the Holder registered on the books
of the Depositary.
(d) Book-Entry Systems. The Depositary shall make arrangements for the
-------------------
acceptance of the American Depositary Shares into DTC. A single ADR in the
form of a "Balance Certificate" will evidence all ADSs held through DTC and
will be registered in the name of the nominee for DTC (currently "Cede &
Co."). As such, the nominee for DTC will be the only "Holder" of the ADR
evidencing all ADSs held through DTC. Each Beneficial Owner of ADSs held
through DTC must rely upon the procedures of DTC and the DTC Participants
to exercise or be entitled to any rights attributable to such ADSs. The
DTC Participants shall for all purposes be deemed to have all requisite
power and authority to act on behalf of the Beneficial Owners of the ADSs
held in the DTC Participants' respective accounts in DTC and the Depositary
shall for all purposes be authorized to rely upon any instructions and
information given to it by DTC Participants on behalf of Beneficial Owners
of ADSs. So long as ADSs are held through DTC or unless otherwise required
by law, ownership of beneficial interests in the ADR registered in the
6
<PAGE>
name of the nominee for DTC will be shown on, and transfers of such ownership
will be effected only through, records maintained by (i) DTC (or its nominee),
or (ii) DTC Participants (or their nominees).
SECTION 2.3. Deposit with Custodian. Subject to the terms and conditions of
----------------------
this Deposit Agreement and applicable law, Shares or evidence of rights to
receive Shares (other than Restricted Securities) 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 Section 5.7 hereof)
at any time, whether or not the transfer books of the Company or the Share
Registrar, if any, are closed, by Delivery of the Shares to the Custodian, and
(A) (in the case of Shares represented by certificates issued in registered
form) appropriate instruments of transfer or endorsement, in a form satisfactory
to the Custodian or, (in the case of Shares represented by certificates in
bearer form) of the requisite coupons and talons pertaining thereto, (B) such
certifications and payments (including, without limitation, the Depositary's
fees and related charges) and evidence of such payments (including, without
limitation, stamping or otherwise marking such Shares by way of receipt) as may
be required by the Depositary or the Custodian in accordance with the provisions
of this Deposit Agreement and applicable law, (C) if the Depositary so requires,
a written order directing the Depositary to execute and deliver to, or upon the
written order of, the person(s) stated in such order a Receipt or Receipts for
the number of American Depositary Shares representing the Shares so deposited,
(D) evidence satisfactory to the Depositary (which may be an opinion of counsel)
that all necessary approvals have been granted by, or there has been compliance
with the rules and regulations of, any applicable governmental agency in The
Netherlands, and (E) if the Depositary so requires, (i) an agreement, assignment
or instrument satisfactory to the Depositary or the Custodian which provides for
the prompt transfer by any person in whose name the Shares are or have been
recorded to the Custodian of any distribution, or right to subscribe for
additional Shares or to receive other property in respect of any such deposited
Shares or, in lieu thereof, such indemnity or other agreement as shall be
satisfactory to the Depositary or the Custodian and (ii) if the Shares are
registered in the name of the person on whose behalf they are presented for
deposit, a proxy or proxies entitling the Custodian to exercise voting rights in
respect of the Shares for any and all purposes until the Shares so deposited are
registered in the name of the Depositary, the Custodian or any nominee. Without
limiting any other provision of this Deposit Agreement, the Depositary shall
instruct the Custodian not to, and the Depositary shall not knowingly, accept
for deposit (a) any Restricted Securities nor (b) any fractional Shares or
fractional Deposited Securities nor (c) a number of Shares or Deposited
Securities which upon application of the ADS to Shares ratio would give rise to
fractional ADSs. No Share shall be accepted for deposit unless accompanied by
evidence, if any is required by the Depositary, that is reasonably satisfactory
to the Depositary or the Custodian that all conditions to such deposit have been
satisfied by the person depositing such Shares under the laws and regulations of
The Netherlands and any necessary approval has been granted by any governmental
body in The Netherlands, if any, which is then performing the function of the
regulator of currency exchange. The Depositary may issue Receipts against
evidence of rights to receive Shares from the Company, any agent of the Company
or any custodian, registrar, transfer agent, clearing agency or other entity
involved in ownership or transaction records in respect of the Shares. Such
evidence of rights shall consist of written blanket or specific guarantees of
ownership of Shares furnished by the Company or any such
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custodian, registrar, transfer agent, clearing agency or other entity involved
in ownership or transaction records in respect of the Shares.
SECTION 2.4. Registration of Shares. The Depositary shall instruct the
----------------------
Custodian upon each delivery of certificates representing registered Shares
being deposited hereunder with the Custodian (or other Deposited Securities
pursuant to Article IV hereof), together with the other documents above
specified, to present such certificate or certificates, together with the
appropriate instrument or instruments of transfer or endorsement, duly stamped,
to the Share Registrar for transfer and registration of the Shares (as soon as
transfer and registration can be accomplished and at the expense of the person
for whom the deposit is made) in the name of the Depositary, the Custodian or a
nominee of either. Deposited Securities shall be held by the Depositary or by a
Custodian for the account and to the order of the Depositary or a nominee in
each case on behalf of the Holders and Beneficial Owners, at such place or
places as the Depositary or the Custodian shall determine.
Without limitation of the foregoing, the Depositary shall not knowingly accept
for deposit under this Deposit Agreement any Shares or other Deposited
Securities required to be registered under the provisions of the Securities Act,
unless a registration statement is in effect as to such Shares or other
Deposited Securities, or any Shares or Deposited Securities the deposit of which
would violate any provisions of the Articles of Association of the Company.
SECTION 2.5. Execution and Delivery of Receipts. The Depositary has made
----------------------------------
arrangements with the Custodian to confirm to the Depositary (i) that a deposit
of Shares has been made pursuant to Section 2.3 hereof, (ii) that any such
Deposited Securities have been recorded in the name of the Depositary, Custodian
or a nominee of either on the shareholders' register maintained by or on behalf
of the Company if registered Shares have been deposited or if deposit is made by
book-entry transfer, confirmation of such transfer in the books of NECIGEF,
(iii) that all required documents have been received, and (iv) the person or
persons to whom or upon whose order American Depositary Shares are deliverable
in respect thereof and the number of American Depositary Shares to be so
delivered thereby. Such notification may be made by letter, cable, telex, SWIFT
message or, at the risk and expense of the person making the deposit, by
facsimile or other means of electronic transmission. Upon receiving such notice
from the custodian and subject to the terms and conditions of this Deposit
Agreement the Depositary shall issue the American Depositary Shares representing
the Shares so deposited to or upon the order of the person(s) named in the
notice delivered to the Depositary and shall execute and deliver at its
Principal Office Receipt(s) registered in the name or names requested by such
person(s) and evidencing the aggregate number of American Depositary Shares to
which such person(s) are entitled, but only upon payment to the Depositary of
the charges of the Depositary for accepting a deposit, issuing American
Depositary Shares and executing and delivering such Receipt(s) (as set forth in
section 5.9 and Exhibit B hereto) and all taxes and governmental charges and
fees payable in connection with such deposit and the transfer of the Shares and
the issuance of the Receipt(s). The Depositary shall only issue American
Depositary Shares in whole numbers and deliver American Depositary Receipts
evidencing whole numbers of American Depositary Shares. Nothing herein shall
prohibit any Pre-Release Transaction upon the terms set forth in this Deposit
Agreement.
8
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SECTION 2.6. Transfer of Receipts; Combination and Split-up of Receipts.
----------------------------------------------------------
(a) Transfer. Subject to the terms and conditions of the applicable Receipts,
--------
this Deposit Agreement and the U.S. securities laws, the Registrar shall
register as promptly as practicable transfers of Receipts on its books, upon
surrender at the Principal Office of the Depositary of a Receipt by the Holder
thereof in person or by duly authorized attorney, properly endorsed or
accompanied by proper instruments of transfer (including signature guarantees in
accordance with standard industry practice) and duly stamped as may be required
by the laws of the State of New York and of the United States of America.
Subject to the terms and conditions of this Deposit Agreement, including payment
of the applicable fees and charges of the Depositary set forth in Section 5.9
and Exhibit B hereto, the Depositary shall execute and, if the Depositary's
signature is by facsimile, the Registrar shall manually countersign, new
Receipt(s) and deliver the same to or upon the order of the person entitled
thereto evidencing the same aggregate number of American Depositary Shares as
those evidenced by the Receipt(s) surrendered.
(b) Combination & Split Up. Subject to the terms and conditions of the
----------------------
applicable Receipt, this Deposit Agreement and the U.S. securities laws, the
Depositary shall, upon surrender of a Receipt or Receipts for the purpose of
effecting a split-up or combination of such Receipt or Receipts and upon payment
to the Depositary of the applicable fees and charges set forth in Section 5.9
and Exhibit B hereto, (i) execute and, if the Depositary's signature is by
facsimile, the Registrar shall manually countersign, a new Receipt or Receipts
for any number of American Depositary Shares requested, but evidencing the same
aggregate number of American Depositary Shares as the Receipt or Receipts
surrendered, and (ii) deliver the same to or upon the order of the person
entitled thereto as promptly as practicable.
(c) Co-Transfer Agents. The Depositary, after consultation with the Company,
------------------
may appoint one or more co-transfer agents for the purpose of effecting
transfers, combinations and split-ups of Receipts at designated transfer offices
on behalf of the Depositary. In carrying out its functions, a co-transfer agent
may require evidence of authority and compliance with applicable laws and other
requirements by Holders or persons entitled to such Receipts and will be
entitled to protection and indemnity to the same extent as the Depositary. Such
co-transfer agents may be removed and substitutes appointed by the Depositary.
Each co-transfer agent appointed under this Section 2.6 (other than the
Depositary) shall give notice in writing to the Depositary accepting such
appointment and agreeing to be bound by the applicable terms of this Deposit
Agreement.
SECTION 2.7. Surrender of ADSs and 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
(i) the fees and charges of the Depositary for the making of withdrawals of
Deposited Securities and cancellation of Receipts (as set forth in Section 5.9
and Exhibit B hereof) and (ii) all applicable taxes and governmental charges
payable in connection with such surrender and withdrawal, and subject to the
terms and conditions of this Deposit Agreement, the Receipt(s) evidencing such
ADSs, the Company's Articles of Association, Section 7.8 hereof and any other
provisions of or governing the Deposited Securities, other applicable laws now
or hereafter in effect and the rules of NECIGEF,
9
<PAGE>
the Holder of such ADSs shall be entitled to Delivery, to the Holder or upon
such Holder's order, of the Deposited Securities at the time represented by the
ADSs so surrendered and delivery of any other securities, property and cash to
which such Holder is then entitled in respect of such ADSs. ADSs may be
surrendered for the purpose of withdrawing Deposited Securities by delivery of a
Receipt evidencing such ADSs (if held in registered form) or by book-entry
delivery of such ADSs to the Depositary.
A Receipt surrendered for such purposes shall, if so required by the Depositary,
be properly endorsed in blank or accompanied by proper instruments of transfer
in blank. If the Depositary so requires, the Holder of any ADSs surrendered for
the purpose of withdrawing the Deposited Securities represented thereby shall
execute and deliver to the Depositary a written order directing the Depositary
to cause the Deposited Securities being withdrawn to be Delivered to or upon the
written order of a person(s) designated in such order.
Upon receipt by the Depositary of ADSs surrendered for the purpose of withdrawal
of Deposited Securities, the Depositary shall direct the Custodian to Deliver as
promptly as practicable at the designated office of the Custodian, subject to
Sections 2.8, 3.1, 3.2, 5.9, and to the other terms and conditions of this
Deposit Agreement, the Receipt(s) evidencing such ADSs, the Articles of
Association of the Company, and the provisions of or governing the Deposited
Securities, applicable laws and the rules of NECIGEF, now or hereafter in
effect, to or upon the written order of the person(s) designated in the order
delivered to the Depositary for such purpose, the Deposited Securities
represented by such American Depositary Shares 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 at the
Principal Office of the Depositary of any dividends or cash distributions with
respect to the Deposited Securities represented by such American Depositary
Shares, or of any proceeds of sale of any dividends, distributions or rights,
which may at the time be held by the Depositary.
The Depositary shall not accept for surrender ADSs representing less than one
Share. In the case of the surrender of ADSs representing a number other than a
whole number of Shares, the Depositary shall cause ownership of the appropriate
whole number of Shares to be Delivered in accordance with the terms hereof, and
shall, at the discretion of the Depositary, either (i) return to the person
surrendering such ADSs the number of ADSs representing any remaining fractional
Share, or (ii) sell or cause to be sold the fractional Shares represented by the
ADSs surrendered and remit the proceeds of such sale (net of (a) applicable fees
and charges of, and expenses incurred by, the Depositary and (b) taxes withheld)
to the person surrendering the ADSs.
At the request, risk and expense of any Holder so surrendering ADSs, and for the
account of such Holder, the Depositary shall direct the Custodian to forward (to
the extent permitted by law) any cash or other property (other than securities)
held in respect of the Deposited Securities and forward any certificate or other
document of or relating to title to the Deposited Securities represented by such
ADSs to the Depositary for delivery at the Principal Office of the Depositary.
Such direction shall be given by letter or, at the request, risk and expense of
such Holder, by cable, telex or facsimile transmission.
10
<PAGE>
SECTION 2.8. Limitations on Execution and Delivery, Transfer, etc. of Receipts;
------------------------------------------------------------------
Suspension of Delivery, Transfer, etc.
- -------------------------------------
(a) Additional Requirements. As a condition precedent to the execution and
-----------------------
delivery, registration, registration of transfer, split-up, combination or
surrender of any Receipt, the delivery of any distribution thereon or withdrawal
of any Deposited Securities, the Depositary or the Custodian may require (i)
payment from the depositor of Shares or presenter of ADSs or of a Receipt 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 Shares being deposited or withdrawn) and
payment of any applicable fees and charges of the Depositary as provided in
Section 5.9 and Exhibit B hereof, (ii) the production of proof satisfactory to
it as to the identity and genuineness of any signature or any other matter
contemplated by Section 3.1 hereof and (iii) compliance with (A) any laws or
governmental regulations relating to the execution and delivery of Receipts or
American Depositary Shares or to the withdrawal of Deposited Securities and (B)
such reasonable regulations as the Depositary and the Company may establish
consistent with the provisions of this Deposit Agreement and applicable law.
(b) Additional Limitations. The issuance of ADSs against deposits of Shares
----------------------
generally or against deposits of particular Shares may be suspended, or the
issuance of ADSs against the deposit of particular Shares may be withheld, or
the registration of transfer of Receipts in particular instances may be refused,
or the registration of transfers of Receipts 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 ADSs or Shares are
listed, or under any provision of this 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 Section 7.8 hereof.
(c) Regulatory Restrictions. Notwithstanding any provision of this Deposit
-----------------------
Agreement or any Receipt to the contrary, Holders are entitled to surrender
outstanding ADSs to withdraw the Deposited Securities at any time subject only
to (i) temporary delays caused by closing the transfer books of the Depositary
or the Share Registrar or the deposit of Shares in connection with voting at a
shareholders' meeting or the payment of dividends, (ii) the payment of fees,
taxes and similar charges, (iii) compliance with any U.S. or foreign laws or
governmental regulations relating to the Receipts or to the withdrawal of the
Deposited Securities, and (iv) other circumstances specifically contemplated by
Section I.A.(l) of the General Instructions to Form F-6 (as such General
Instructions may be amended from time to time).
SECTION 2.9. Lost Receipts, etc. In case any Receipt shall be mutilated,
------------------
destroyed, lost, or stolen, the Depositary shall execute and deliver a new
Receipt of like tenor at the expense of the Holder (a) in the case of a
mutilated Receipt, in exchange of and substitution for such mutilated Receipt
upon cancellation thereof, or (b) in lieu of and in substitution for such
destroyed, lost, or
11
<PAGE>
stolen Receipt, after the Holder thereof (i) has submitted to the Depositary a
written request for such exchange and substitution before the Depositary has
notice that the Receipt has been acquired by a bona fide purchaser, (ii) has
provided such security or indemnity (including an indemnity bond) as may be
required by the Depositary to save it and any of its agents harmless, and (iii)
has satisfied any other reasonable requirements imposed by the Depositary,
including, without limitation, evidence satisfactory to the Depositary of such
destruction, loss or theft of such Receipt, the authenticity thereof and the
Holder's ownership thereof.
SECTION 2.10. Cancellation and Destruction of Surrendered Receipts; Maintenance
-----------------------------------------------------------------
of Records. All Receipts surrendered to the Depositary shall be canceled by the
- ----------
Depositary. Cancelled Receipts shall not be entitled to any benefits under this
Deposit Agreement or be valid or enforceable against the Depositary for any
purpose. The Depositary is authorized to destroy Receipts so canceled, provided
the Depositary maintains a record of all destroyed Receipts.
SECTION 2.11. Partial Entitlement ADSs. In the event any Shares are deposited
------------------------
which entitle the holders thereof to receive a per-share distribution or other
entitlement in an amount different from the Shares then on deposit (the Shares
then on deposit collectively, "Full Entitlement Shares" and the Shares with
different entitlement, "Partial Entitlement Shares"), the Depositary shall (i)
cause the Custodian to hold Partial Entitlement Shares separate and distinct
from Full Entitlement Shares, and (ii) subject to the terms of this Agreement,
issue ADSs and deliver ADRs representing Partial Entitlement Shares which are
separate and distinct from the ADSs and ADRs representing Full Entitlement
Shares, by means of separate CUSIP numbering and legending (if necessary)
("Partial Entitlement ADSs/ADRs" and "Full Entitlement ADSs/ADRs",
respectively). If and when Partial Entitlement Shares become Full Entitlement
Shares, the Depositary shall (a) give notice thereof to Holders of Partial
Entitlement ADSs and give Holders of Partial Entitlement ADRs the opportunity to
exchange such Partial Entitlement ADRs for Full Entitlement ADRs, (b) cause the
Custodian to transfer the Partial Entitlement Shares into the account of the
Full Entitlement Shares, and (c) take such actions as are necessary to remove
the distinctions between (i) the Partial Entitlement ADRs and ADSs, on the one
hand, and (ii) the Full Entitlement ADRs and ADSs on the other. Holders and
Beneficial Owners of Partial Entitlement ADSs shall only be entitled to the
entitlements of Partial Entitlement Shares. Holders and Beneficial Owners of
Full Entitlement ADSs shall be entitled only to the entitlements of Full
Entitlement Shares. All provisions and conditions of this Agreement shall apply
to Partial Entitlement ADRs and ADSs to the same extent as Full Entitlement ADRs
and ADSs, except as contemplated by this Section 2.11. The Depositary is
authorized to take any and all other actions as may be necessary (including,
without limitation, making the necessary notations on Receipts) to give effect
to the terms of this Section 2.11. The Company agrees to give timely written
notice to the Depositary if any Shares issued or to be issued are Partial
Entitlement Shares and shall assist the Depositary with the establishment of
procedures enabling the identification of Partial Entitlement Shares upon
Delivery to the Custodian.
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<PAGE>
ARTICLE III
CERTAIN OBLIGATIONS OF HOLDERS AND BENEFICIAL OWNERS OF
RECEIPTS
SECTION 3.1. Proofs, Certificates and Other Information. Any person presenting
------------------------------------------
Shares for deposit, any Holder and any Beneficial Owner may be required, and
every Holder and Beneficial Owner agrees, from time to time to provide to the
Depositary and the Custodian such proof of citizenship or residence, taxpayer
status, payment of all applicable taxes or other governmental charges, exchange
control approval, legal or beneficial ownership of ADSs and Deposited
Securities, compliance with applicable laws and the terms of this Deposit
Agreement and the provisions of, or governing, the Deposited Securities, to
execute such certifications and to make such representations and warranties, and
to provide such other information and documentation (or, in the case of Shares
in registered form presented for deposit, such information relating to the
registration on the books of the Company or of the appointed agent of the
Company for the registration and transfer of Shares) as the Depositary or the
Custodian may deem reasonably necessary or proper or as the Company may
reasonably require by written request to the Depositary consistent with its
obligations hereunder. The Depositary and the Registrar, as applicable, may
withhold the execution or delivery or registration of transfer of any Receipt or
the distribution or sale of any dividend or distribution of rights or of the
proceeds thereof or, to the extent not limited by the terms of Section 7.8
hereof, the delivery of any Deposited Securities until such proof or other
information is filed or such certifications are executed, or such
representations are made, or such other documentation or information provided,
in each case to the Depositary's, the Registrar's and the Company's
satisfaction. The Depositary shall provide the Company, in a timely manner, with
copies or originals if necessary and appropriate of (i) any such proofs of
citizenship or residence, taxpayer status, or exchange control approval which it
receives from Holders and Beneficial Owners, and (ii) any other information or
documents which the Company may reasonably request and which the Depositary
shall request and receive from any Holder or Beneficial Owner or any person
presenting Shares for deposit or ADSs for cancellation and withdrawal. Nothing
herein shall obligate the Depositary to (i) obtain any information for the
Company if not provided by the Holders or Beneficial Owners or (ii) verify or
vouch for the accuracy of the information so provided by the Holders or
Beneficial Owners.
SECTION 3.2. Liability for Taxes and Other Charges. If any tax or other
-------------------------------------
governmental charge shall become payable with respect to any ADR or any
Deposited Securities or American Depositary Shares, such tax or other
governmental charge shall be payable by the Holders and Beneficial Owners to the
Depositary. The Company, the Custodian and/or the Depositary may withhold or
deduct from any distributions made in respect of Deposited Securities and may
sell for the account of a Holder and/or Beneficial Owner any or all of the
Deposited Securities and apply such distributions and sale proceeds in payment
of such taxes (including applicable interest and penalties) or charges, the
Holder and the Beneficial Owner remaining liable for any deficiency. The
Custodian may refuse the deposit of Shares and the Depositary may refuse to
issue ADSs, to deliver ADRs, register the transfer, split-up or combination of
ADRs and (subject to Section 7.8) 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
13
<PAGE>
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.
SECTION 3.3. Representations and Warranties on Deposit of Shares. Each person
---------------------------------------------------
depositing Shares under the Deposit Agreement shall be deemed thereby to
represent and warrant that (i) such Shares and the certificates therefor are
duly authorized, validly issued, fully paid, non-assessable and legally obtained
by such person, (ii) all preemptive (and similar) rights, if any, with respect
to such Shares have been validly waived or exercised, (iii) the person making
such deposit is duly authorized so to do and (iv) the Shares presented for
deposit are free and clear of any lien, encumbrance, security interest, charge,
mortgage or adverse claim, and are not, and the American Depositary Shares
issuable upon such deposit will not be, Restricted Securities and the Shares
presented for deposit have not been stripped of any rights or entitlements.
Such representations and warranties shall survive the deposit and withdrawal of
Shares, the issuance and cancellation of American Depositary Shares in respect
thereof and the transfer of such American Depositary Shares. If any such
representations or warranties are false in any way, the Company and the
Depositary shall be authorized, at the cost and expense of the person depositing
Shares, to take any and all actions necessary to correct the consequences
thereof.
SECTION 3.4. Compliance with Information Requests. Notwithstanding any other
------------------------------------
provision of this Deposit Agreement, each Holder and Beneficial Owner agrees to
comply with requests from the Company pursuant to Dutch law (including, without
limitation, the Dutch Act of Disclosure of Holdings 1996), the rules and
requirements of the Amsterdam Stock Exchange, and any other stock exchange or
automated quotation system on which the Shares are, or will be, registered,
traded or listed or the Articles of Association of the Company, which are made
to provide information, inter alia, as to the capacity in which such Holder or
Beneficial Owner owns American Depositary Shares (and Shares as the case may be)
and regarding the identity of any other person(s) interested in such American
Depositary Shares and the nature of such interest and various other matters,
whether or not they are Holders and/or Beneficial Owners at the time of such
request. The Depositary agrees to use its reasonable efforts to forward, upon
the request of the Company, and at the Company's expense, any such request from
the Company to the Holders and to forward to the Company any such responses to
such requests received by the Depositary.
SECTION 3.5. Ownership Restrictions. Notwithstanding any other provision in
----------------------
this Deposit Agreement, the Company may restrict transfers of the Shares where
such transfer might result in ownership of Shares exceeding limits imposed by
applicable law or the Articles of Association of the Company. The Company may
also restrict, in such manner as it deems appropriate, transfers of the American
Depositary Shares where such transfer may result in the total number of Shares
represented by the American Depositary Shares owned by a single Holder or
Beneficial Owner to exceed any such limits. The Company may, in its sole
discretion but subject to applicable law, instruct the Depositary to take action
with respect to the ownership interest of any Holder or Beneficial Owner in
excess of the limits set forth in the preceding sentence, including, but not
limited to, the imposition of restrictions on the transfer of American
Depositary Shares, the
14
<PAGE>
removal or limitation of voting rights, the mandatory sale or disposition on
behalf of a Holder or Beneficial Owner of the Shares represented by the American
Depositary Shares held by such Holder or Beneficial Owner in excess of such
limitations and the cancellation of such American Depositary Shares, in each
case, if and to the extent permitted by applicable law and the Articles of
Association of the Company.
ARTICLE IV
THE DEPOSITED SECURITIES
SECTION 4.1. Cash Distributions. 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 Shares,
rights, securities or other entitlements under the terms hereof, the Depositary
will, if at the time of receipt thereof any amounts received in a Foreign
Currency can in the judgment of the Depositary (pursuant to Section 4.8 hereof)
be converted on a practicable basis into Dollars transferable to the United
States, convert or cause to be converted such cash dividend, distribution or
proceeds into Dollars (on the terms described in Section 4.8) and will
distribute as promptly as practicable 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 ADS Record Date in
proportion to the number of American Depositary Shares held as of the ADS Record
Date. The Depositary shall distribute only such amount, however, as can be
distributed 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 of ADSs outstanding at
the time of the next distribution. If the Company, the Custodian or the
Depositary is required to withhold and does withhold from any cash dividend or
other cash distribution in respect of any Deposited Securities an amount on
account of taxes, duties or other governmental charges, the amount distributed
to Holders on the American Depositary Shares representing such Deposited
Securities shall be reduced accordingly. Such withheld amounts shall be
forwarded by the Company, the Custodian or the Depositary to the relevant
governmental authority. Evidence of payment thereof by the Company shall be
forwarded by the Company to the Depositary upon request.
SECTION 4.2. Distribution in Shares. If any distribution upon any Deposited
----------------------
Securities consists of a dividend in, or free distribution of, Shares, the
Company shall cause such Shares to be deposited with the Custodian and
registered, as the case may be, in the name of the Depositary, the Custodian or
any of their nominees. Upon receipt of confirmation of such deposit from the
Custodian, the Depositary shall establish the ADS Record Date and shall, subject
to Section 5.9 hereof, either (i) distribute to the Holders as of the ADS Record
Date in proportion to the number of American Depositary Shares held as of the
ADS Record Date, additional American Depositary Shares, which represent in the
aggregate the number of Shares received as such dividend, or free distribution,
subject to the other terms of this Deposit Agreement (including, without
limitation, (a) the applicable fees and charges of, and expenses incurred by,
the Depositary and (b) taxes), or (ii) if additional American Depositary Shares
are not so distributed, each American Depositary Share issued and outstanding
after the ADS Record
15
<PAGE>
Date shall, to the extent permissible by law, thenceforth also represent rights
and interests in the additional integral number of 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 American Depositary Shares, the Depositary shall sell the
number of Shares or American Depositary Shares, as the case may be, represented
by the aggregate of such fractions and distribute the net proceeds upon the
terms described in Section 4.1. In the event that the Depositary determines that
any distribution in property (including 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 Section 5.7 hereof, has
furnished an opinion of U.S. counsel determining that Shares must be registered
under the Securities Act or other laws in order to be distributed to Holders
(and no such registration statement has been declared effective) or that no
exemption from registration exists, the Depositary may dispose of all or a
portion of such property (including 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 Section 4.1. The Depositary shall
hold and/or distribute any unsold balance of such property in accordance with
the provisions of this Deposit Agreement.
SECTION 4.3. Elective Distributions in Cash or Shares. Whenever the Company
----------------------------------------
intends to distribute a dividend payable at the election of the holders of
Shares in cash or in additional Shares, the Company shall give notice thereof to
the Depositary at least 60 days prior to the proposed distribution stating
whether or not it wishes such elective distribution to be made available to
Holders of ADSs. Upon receipt of notice indicating that the Company wishes such
elective distribution to be made available to Holders of ADSs, the Depositary
shall consult with the Company to determine, and the Company shall assist the
Depositary in its determination, whether it is lawful and reasonably practicable
to make such elective distribution available to the Holders of ADSs. The
Depositary shall make such elective distribution available to Holders 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 Section 5.7. 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 Shares for which no election is made, either (X) cash
upon the terms described in Section 4.1 or (Y) additional ADSs representing such
additional Shares upon the terms described in Section 4.2. If the above
conditions are satisfied, the Depositary shall establish an ADS Record Date and
establish procedures to enable Holders to elect the receipt of the proposed
dividend in cash or in additional ADSs. The Company shall assist the Depositary
in establishing such procedures to the extent necessary. If a Holder elects to
receive the proposed dividend (X) in cash, the dividend shall be distributed
upon the terms described in Section 4.1, or (Y) in ADSs, the dividend shall be
distributed upon the terms described in Section 4.2. Nothing herein shall
obligate the Depositary to make available to Holders a method to receive the
elective dividend in 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 Shares.
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SECTION 4.4. Distribution of Rights to Purchase Shares.
-----------------------------------------
(a) Distribution to ADS Holders. Whenever the Company intends to distribute to
---------------------------
the holders of the Deposited Securities rights to subscribe for additional
Shares, the Company shall give notice thereof to the Depositary at least 60 days
prior to the proposed distribution stating whether or not it wishes such rights
to be made available to Holders of ADSs. Upon receipt of a notice indicating
that the Company wishes such rights to be made available to Holders of ADSs, the
Depositary shall consult with the Company to determine, and the Company shall
assist the Depositary in its determination, whether it is lawful and reasonably
practicable to make such rights available to the Holders. The Depositary shall
make such rights available to Holders only if (i) the Company shall have
requested that such rights be made available to Holders, (ii) the Depositary
shall have received satisfactory documentation within the terms of Section 5.7,
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 in Section 4.4(b) below. In the event all conditions set forth
above are satisfied, the Depositary shall establish an ADS Record Date and
establish procedures to distribute rights to purchase additional ADSs (by means
of warrants or otherwise) and to enable the Holders to exercise such rights
(upon payment of applicable (a) 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 rights to
subscribe for Shares (rather than ADSs).
(b) Sale of Rights. 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
documentation within the terms of Section 5.7 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
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 or private sale) as it may deem proper. The Company shall
assist the Depositary to the extent necessary to determine such legality and
practicability. The Depositary shall, upon such sale, convert into Dollars and
distribute proceeds of such sale (net of applicable (a) fees and charges of, and
expenses incurred by, the Depositary and (b) taxes) upon the terms set forth in
Section 4.1.
(c) Lapse of Rights. If the Depositary is unable to make any rights available
---------------
to Holders upon the terms described in Section 4.4(a) or to arrange for the sale
of the rights upon the terms described in Section 4.4(b), 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 practicable 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.
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Notwithstanding anything to the contrary in this Section 4.4, 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
(or other applicable law) covering such offering is in effect. In the event
that the Company, the Depositary or the Custodian shall be required to withhold
and does withhold from any distribution of property (including rights) an
amount on account of taxes or other governmental charges, the amount distributed
to the Holders of American Depositary Shares representing such Deposited
Securities shall be reduced accordingly. In the event that the Depositary
determines that any distribution in property (including 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 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 receive or exercise rights on the same terms
and conditions as the holders of Shares or be able to exercise such rights.
Nothing herein shall obligate the Company to file any registration statement in
respect of any rights or Shares or other securities to be acquired upon the
exercise of such rights.
SECTION 4.5. Distributions Other Than Cash, Shares or Rights to Purchase
-----------------------------------------------------------
Shares.
- ------
(a) Whenever the Company intends to distribute to the holders of Deposited
Securities property other than cash, Shares or rights to purchase additional
Shares and such distribution is permissible under Dutch law, the Company shall
give timely notice thereof to the Depositary and shall indicate whether or not
it wishes such distribution to be made to Holders of ADSs. Upon receipt of a
notice indicating that the Company wishes such distribution be made to Holders
of ADSs, the Depositary shall consult with the Company, and the Company shall
assist the Depositary, to determine whether such distribution to Holders is
lawful and reasonably equitable and practicable. The Depositary shall not make
such distribution unless such distribution is permissible under Dutch law and
(i) the Company shall have requested the Depositary to make such distribution to
Holders, (ii) the Depositary shall have received satisfactory documentation
within the terms of Section 5.7, and (iii) the Depositary shall have determined
that such distribution is reasonably practicable.
(b) Upon receipt of satisfactory documentation and the request of the Company
to distribute property to Holders of ADSs and after making the requisite
determinations set forth in (a) above, the Depositary shall distribute the
property so received to the Holders of record, as of the ADS 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, and (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
18
<PAGE>
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.
(c) 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 documentation within the terms
of Section 5.7, or (iii) the Depositary determines that all or a portion of such
distribution is not reasonably practicable, 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 sale, if any, to be converted into Dollars and (ii) distribute the proceeds
of such conversion received by the Depositary (net of applicable (a) fees and
charges of, and expenses incurred by, the Depositary and (b) taxes) to the
Holders as of the ADS Record Date upon the terms of Section 4.1. 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.
SECTION 4.6. Distributions with Respect to Deposited Securities in Bearer Form.
-----------------------------------------------------------------
Subject to the terms of this Article IV, distributions in respect of Deposited
Securities that are held by the Depositary in bearer form shall be made to the
Depositary for the account of the respective Holders of Receipts with respect to
which any such distribution is made upon due presentation by the Depositary or
the Custodian to the Company of any relevant coupons, talons, or certificates.
The Company shall promptly notify the Depositary of such distributions. The
Depositary or the Custodian shall promptly present such coupons, talons or
certificates, as the case may be, in connection with any such distribution.
SECTION 4.7. Redemption. If the Company intends to exercise any right of
----------
redemption in respect of any of the Deposited Securities, the Company shall give
notice thereof to the Depositary at least 60 days prior to the intended date of
redemption which notice shall set forth the particulars of the proposed
redemption. Upon receipt of such notice and satisfactory documentation given by
the Company to the Depositary within the terms of Section 5.7, and only if the
Depositary shall have determined that such proposed redemption is reasonably
practicable, after consultation with the Company, the Depositary shall mail to
each Holder a notice setting forth the intended exercise by the Company of the
redemption rights and any other particulars set forth in the Company's notice to
the Depositary. The Depositary shall instruct the Custodian to present to the
Company the Deposited Securities in respect of which redemption rights are being
exercised against payment of the applicable redemption price. Upon receipt of
confirmation from the Custodian that the redemption has taken place and that
funds representing the redemption price have been received, the Depositary shall
convert, transfer, and distribute the proceeds (net of applicable (a) fees and
charges of, and the expenses incurred by, the Depositary, and (b) taxes), retire
ADSs and cancel ADRs upon delivery of such ADSs by Holders thereof and the terms
set forth in Sections 4.1 and 6.2 hereof. If less than all outstanding
Deposited Securities are redeemed, the ADSs to be retired will be selected by
lot or on a pro rata basis, as may be determined by the Depositary. The
redemption price per ADS shall be the per share amount received by the
Depositary upon the redemption of the Deposited Securities represented by
American Depositary Shares (subject to the terms of Section 4.8 hereof and the
applicable
19
<PAGE>
fees and charges of, and expenses incurred by, the Depositary, and taxes)
multiplied by the number of Deposited Securities represented by each ADS
redeemed.
SECTION 4.8. Conversion of Foreign Currency. Whenever the Depositary or the
------------------------------
Custodian shall receive Foreign Currency, by way of dividends or other
distributions or the net proceeds from the sale of securities, property or
rights, which in the reasonable judgment of the Depositary can at such time be
converted on a practicable basis, by sale or in any other manner that it may
determine in accordance with applicable law, into Dollars transferable to the
United States and distributable to the Holders entitled thereto, the Depositary
shall convert or cause to be converted, by sale or in any other manner that it
may determine, such Foreign Currency into Dollars, and shall distribute as
promptly as practicable such Dollars (net of any applicable fees, any reasonable
and customary expenses incurred in such conversion and any expenses incurred on
behalf of the Holders in complying with currency exchange control or other
governmental requirements) in accordance with the terms of the applicable
sections of this Deposit Agreement. If the Depositary shall have distributed
warrants or other instruments that entitle the holders thereof to such Dollars,
the Depositary shall distribute such Dollars to the holders of such warrants
and/or instruments upon surrender thereof for cancellation, in either case
without liability for interest thereon. Such distribution may be made upon an
averaged or other practicable basis without regard to any distinctions among
Holders on account of any application of exchange restrictions or otherwise.
If such conversion or distribution generally or with regard to a particular
Holder can be effected only with the approval or license of any government or
agency thereof, the Depositary shall have authority to file such application for
approval or license, if any, as it may deem desirable. In no event, however,
shall the Depositary be obligated to make such a filing.
If at any time the Depositary shall determine that in its judgment the
conversion of any Foreign Currency and the transfer and distribution of proceeds
of such conversion received by the Depositary is not practical or lawful, or if
any approval or license of any governmental authority or agency thereof that is
required for such conversion, transfer and distribution is denied or, in the
opinion of the Depositary, not obtainable at a reasonable cost or within a
reasonable period, the Depositary may, in its discretion, (i) make such
conversion and distribution in Dollars to the Holders for whom such conversion,
transfer and distribution is lawful and practicable, (ii) distribute the Foreign
Currency (or an appropriate document evidencing the right to receive such
Foreign Currency) to Holders for whom this is lawful and practicable or (iii)
hold (or cause the Custodian to hold) such Foreign Currency (without liability
for interest thereon) for the respective accounts of the Holders entitled to
receive the same.
SECTION 4.9. Fixing of ADS Record Date. Whenever the Depositary shall receive
-------------------------
notice of the fixing of a record date by the Company 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 Shares that are represented by each
American Depositary Share, or whenever the Depositary shall receive notice of
any meeting of, or solicitation of consents or of proxies, of holders of Shares
or other Deposited Securities, or whenever the Depositary shall find it
necessary or convenient in
20
<PAGE>
connection with the giving of any notice, solicitation of any consent or any
other matter, the Depositary shall fix a record date (the "ADS Record Date") for
the determination of the Holders of Receipts who shall be entitled to receive
such distribution, to give instructions for the exercise of voting rights at any
such meeting, to give or withhold such consent, to receive such notice or
solicitation or to otherwise take action, or to exercise the rights of Holders
with respect to such changed number of Shares represented by each American
Depositary Share. The Depositary shall make reasonable efforts to establish the
ADS Record Date as closely as possible to the applicable record date for the
Deposited Securities (if any). Subject to applicable law and the provisions of
Section 4.1 through 4.8 and to the other terms and conditions of this Deposit
Agreement, only the Holders of Receipts at the close of business in New York on
such ADS Record Date shall be entitled to receive such distribution, to give
such voting instructions, to receive such notice or solicitation, or otherwise
take action.
SECTION 4.10. Voting of Deposited Securities. As soon as practicable after
------------------------------
receipt of notice of any meeting at which the holders of Shares are entitled to
vote, or of solicitation of consents or proxies from holders of Shares or other
Deposited Securities, the Depositary shall fix the ADS Record Date in respect of
such meeting or solicitation of consent or proxy. The Depositary shall, if
requested by the Company in writing in a timely manner (the Depositary having no
obligation to take any further action if the request shall not have been
received by the Depositary at least 30 days prior to the date of such vote or
meeting) mail to registered Holders: (a) such notice of meeting or solicitation
of consent or proxy, (b) a statement that the Holders at the close of business
on the ADS Record Date will be entitled, subject to any applicable law, the
Articles of Association of the Company 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 rights, if any, pertaining to the Shares or other Deposited Securities
represented by such Holder's American Depositary Shares, and (c) a brief
statement as to the manner in which such instructions may be given. Voting
instructions may be given only in respect of a number of American Depositary
Shares representing a whole number of Shares or other Deposited Securities.
Upon the timely receipt of written instructions of a Holder of American
Depositary Shares on the ADS Record Date, the Depositary shall endeavor, insofar
as practicable and permitted under applicable law and the provisions of the
Articles of Association of the Company and the provisions of the Deposited
Securities, to vote or cause the Custodian to vote the Shares and/or other
Deposited Securities (in person or by proxy) represented by such Holder's
American Depositary Shares in accordance with such instructions.
Neither the Depositary, the Custodian nor their respective nominees, if any,
shall, under any circumstances, exercise any discretion as to voting and neither
the Depositary nor the Custodian shall vote, attempt to exercise the right to
vote, or in any way make use of the Shares or other Deposited Securities
represented by American Depositary Shares except pursuant to and in accordance
with such written instructions from Holders. If voting instructions are
received by the Depositary from any Holder on or before the date established by
the Depositary for the receipt of such instructions, which are signed but
without further indication as to specific instructions, the Depositary will deem
such Holder to have instructed the Depositary to vote in favor of the items set
forth in such instructions. Shares or other Deposited Securities represented
21
<PAGE>
by American Depositary Shares for which no specific voting instructions are
received by the Depositary from the Holder shall not be voted.
There can be no assurance that Holders generally or 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.
SECTION 4.11. Changes Affecting Deposited Securities. Upon any change in
--------------------------------------
nominal or par value, split-up, cancellation, 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 a party, any securities which shall be received by the
Depositary or the Custodian in exchange for, or in conversion of or replacement
of or otherwise in respect of, such Deposited Securities shall, to the extent
permitted by law, be treated as new Deposited Securities under this Deposit
Agreement, and the Receipts shall, subject to the provisions of this Deposit
Agreement and applicable law, evidence American Depositary Shares representing
the right to receive such new securities. The Depositary may, with the
Company's approval, and shall, if the Company shall so request, subject to the
terms 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 additional
Receipts as in the case of a stock dividend on the Shares, or call for the
surrender of outstanding Receipts to be exchanged for new Receipts, in either
case, as well as in the event of newly deposited Shares, with necessary
modifications to the form of Receipt contained in Exhibit A hereto, specifically
describing such new Deposited Securities or corporate change. The Company agrees
to, jointly with the Depositary, amend the Registration Statement on Form F-6 as
filed with the Commission to permit the issuance of such new form of Receipts.
Notwithstanding the foregoing, in the event that any security so received may
not be lawfully distributed to some or all Holders, the Depositary may, with the
Company's approval, and shall, if the Company requests, subject to receipt of an
opinion of Company's counsel satisfactory to the Depositary that such action is
not in violation of any applicable laws or regulations, sell such securities at
public or private sale, at such place or places and upon such terms as it may
deem proper and may allocate the net proceeds of such sales (net of (a) fees and
charges of, and expenses incurred by, the Depositary and (b) taxes) for the
account of the Holders otherwise entitled to such securities upon an averaged or
other practicable basis without regard to any distinctions among such Holders
and distribute the net proceeds so allocated to the extent practicable as in the
case of a distribution received in cash pursuant to Section 4.1. The Depositary
shall not be responsible for (i) any failure to determine that it may be lawful
or feasible to make such securities available to Holders in general or to any
Holder in particular, (ii) any foreign exchange exposure or loss incurred in
connection with such sale, or (iii) any liability to the purchaser of such
securities.
SECTION 4.12. Available Information. The Company is subject to the periodic
---------------------
reporting requirements of the Exchange Act and accordingly files certain
information with the Commission. These reports and documents can be inspected
and copied at the public reference facilities maintained by the Commission
located at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and
at the Commission's New York City office located at Seven World Trade Center,
13th Floor, New York, New York 10048.
22
<PAGE>
SECTION 4.13. Reports. The Depositary shall make available for inspection by
-------
Holders at its Principal Office any reports and communications, including any
proxy soliciting materials, received from the Company which are both (a)
received by the Depositary, the Custodian, or the nominee of either of them as
the holder of the Deposited Securities and (b) made generally available to the
holders of such Deposited Securities by the Company. The Depositary shall also
mail to Holders copies of such reports when furnished by the Company pursuant to
Section 5.6.
SECTION 4.14. List of Holders. Promptly upon written request by the Company,
---------------
the Depositary shall furnish to it a list, as of a recent date, of the names,
addresses and holdings of American Depositary Shares of all Holders.
SECTION 4.15. Taxation. The Depositary will, and will instruct the Custodian
--------
to, forward to the Company or its agents such information from its records as
the Company may reasonably request to enable the Company or its agents to file
the necessary tax reports with governmental authorities or agencies. The
Depositary, the Custodian or the Company and its agents may file such reports as
are necessary to reduce or eliminate applicable taxes on dividends and on other
distributions in respect of Deposited Securities under applicable tax treaties
or laws for the Holders and Beneficial Owners. In accordance with instructions
from the Company and to the extent practicable, the Depositary or the Custodian
will take reasonable administrative actions to obtain tax refunds, reduced
withholding of tax at source on dividends and other benefits under applicable
tax treaties or laws with respect to dividends and other distributions on the
Deposited Securities. Holders and Beneficial Owners of American Depositary
Shares may be required from time to time, and in a timely manner, to file such
proof of taxpayer status, residence and beneficial ownership (as applicable), to
execute such certificates and to make such representations and warranties, or to
provide any other information or documents, as the Depositary or the Custodian
may deem necessary or proper to fulfill the Depositary's or the Custodian's
obligations under applicable law. The Holders and Beneficial Owners shall
indemnify the Depositary, the Company, the Custodian and any of their respective
directors, employees, agents and Affiliates against, and hold each of them
harmless from, any claims by any governmental authority with respect to taxes,
additions to tax, penalties or interest arising out of any refund of taxes,
reduced rate of withholding at source or other tax benefit obtained.
If the Company (or any of its agents) withholds from any distribution any amount
on account of taxes or governmental charges, or pays any other tax in respect of
such distribution (i.e. stamp duty tax, capital gains or other similar tax), the
Company shall (and shall cause such agent to) remit as promptly as practicable
to the Depositary information about such taxes or governmental charges withheld
or paid in a form satisfactory to the Depositary and, if so requested, the tax
receipt (or other proof of payment to the applicable governmental authority)
therefor. The Depositary shall, to the extent required by U.S. law, report to
Holders any taxes withheld by it or the Custodian, and, if such information is
provided to it by the Company, any taxes withheld by the Company. The Depositary
and the Custodian shall not be required to provide the Holders with any evidence
of the remittance by the Company (or its agents) of any taxes withheld, or of
the payment of taxes by the Company, except to the extent the evidence is
provided by the Company to the Depositary. Neither the Depositary nor the
Custodian shall be liable for the
23
<PAGE>
failure by any Holder or Beneficial Owner to obtain the benefits of credits on
the basis of non-U.S. tax paid against such Holder's or Beneficial Owner's
income tax liability.
The Depositary is under no obligation to provide the Holders and Beneficial
Owners with any information about the tax status of the Company. The Depositary
shall not incur any liability for any tax consequences that may be incurred by
Holders and Beneficial Owners on account of their ownership of the American
Depositary Shares, including without limitation, tax consequences resulting from
the Company (or any of its subsidiaries) being treated as a "Foreign Personal
Holding Company," or as a "Passive Foreign Investment Company" (in each case as
defined in the U.S. Internal Revenue Code and the regulations issued thereunder)
or otherwise.
ARTICLE V
THE DEPOSITARY, THE CUSTODIAN AND THE COMPANY
SECTION 5.1. Maintenance of Office and Transfer Books by the Registrar. Until
---------------------------------------------------------
termination of this Deposit Agreement in accordance with its terms, the
Registrar shall maintain in the Borough of Manhattan, the City of New York, an
office and facilities for the execution and delivery, registration, registration
of transfers, combination and split-up of Receipts, the surrender of Receipts
for the purpose of withdrawal of Deposited Securities in accordance with the
provisions of this Deposit Agreement.
The Registrar shall keep books for the registration of issuances and transfers
of Receipts which at all reasonable times shall be open for inspection by the
Company and by the Holders of such Receipts, provided that such inspection shall
not be, to the Registrar's knowledge, for the purpose of communicating with
Holders of such Receipts in the interest of a business or object other than the
business of the Company or other than a matter related to this Deposit Agreement
or the Receipts.
The Registrar may close the transfer books with respect to the Receipts, at any
time or from time to time, when deemed necessary or advisable by it in good
faith in connection with the performance of its duties hereunder, or at the
reasonable written request of the Company subject, in all cases, to Section 7.8
hereof.
If any Receipts or the American Depositary Shares evidenced thereby are listed
on one or more stock exchanges or automated quotation systems in the United
States, the Depositary shall act as Registrar or appoint a Registrar or one or
more co-registrars for registration of Receipts and transfers, combinations and
split-ups, and to countersign such Receipts in accordance with any requirements
of such exchanges or systems. Such Registrar or co-registrars may be removed and
a substitute or substitutes appointed by the Depositary.
SECTION 5.2. Exoneration. Neither the Depositary nor the Company shall be
-----------
obligated to do or perform any act which is inconsistent with the provisions of
this Deposit Agreement or incur any liability (i) if the Depositary or the
Company shall be prevented or forbidden from, or delayed in, doing or performing
any act or thing required by the terms of this Deposit
24
<PAGE>
Agreement, by reason of any provision of any present or future law or regulation
of the United States, The Netherlands or any other country, or of any other
governmental authority or regulatory authority or stock exchange, or on account
of the possible criminal or civil penalties or restraint, or by reason of any
provision, present or future of the Articles of Association of the Company or
any provision of or governing any Deposited Securities, or by reason of any act
of God or war or other circumstances beyond its control (including, without
limitation, nationalization, expropriation, currency restrictions, work
stoppage, strikes, civil unrest, revolutions, rebellions, explosions and
computer failure), (ii) by reason of any exercise of, or failure to exercise,
any discretion provided for in this Deposit Agreement or in the Articles of
Association of the Company or provisions of or governing Deposited Securities,
(iii) for any action or inaction in reliance upon the advice of or information
from legal counsel, accountants, any person presenting Shares for deposit, any
Holder, any Beneficial Owner or authorized representative thereof, or any other
person believed by it in good faith to be competent to give such advice or
information, (iv) for the inability by a Holder or Beneficial Owner to benefit
from any distribution, offering, right or other benefit which is made available
to holders of Deposited Securities but is not, under the terms of this Deposit
Agreement, made available to Holders of American Depositary Shares or (v) for
any consequential or punitive damages for any breach of the terms of this
Deposit Agreement.
The Depositary, its controlling persons, its agents, any Custodian and the
Company, its controlling persons and its agents may rely and shall be protected
in acting upon any written notice, request or other document believed by it to
be genuine and to have been signed or presented by the proper party or parties.
No disclaimer of liability under the Securities Act is intended by any provision
of this Deposit Agreement.
SECTION 5.3. Standard of Care. The Company and its agents assume no obligation
----------------
and shall not be subject to any liability under this Deposit Agreement or the
Receipts to Holders or Beneficial Owners or other persons, except that the
Company and its agents agree to perform their obligations specifically set forth
in this Deposit Agreement without negligence or bad faith.
The Depositary and its agents assume no obligation and shall not be subject to
any liability under this Deposit Agreement or the Receipts to Holders or
Beneficial Owners or other persons, except that the Depositary and its agents
agree to perform their obligations specifically set forth in this Deposit
Agreement without negligence or bad faith.
Without limitation of the foregoing, neither the Depositary, nor the Company,
nor any of their respective controlling persons, or agents, shall be under any
obligation to appear in, prosecute or defend any action, suit or other
proceeding in respect of any Deposited Securities or in respect of the Receipts,
which in its opinion may involve it in expense or liability, unless indemnity
satisfactory to it against all expense (including fees and disbursements of
counsel) and liability be furnished as often as may be required (and no
Custodian shall be under any obligation whatsoever with respect to such
proceedings, the responsibility of the Custodian being solely to the
Depositary).
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The Depositary and its agents shall not be liable for any failure to carry out
any instructions to vote any of the Deposited Securities, or for the manner in
which any vote is cast or the effect of any vote, provided that any such action
or omission is in good faith and in accordance with the terms of this Deposit
Agreement. The Depositary shall not incur any liability for any failure to
determine that any distribution or action may be lawful or reasonably
practicable, for the content of any information submitted to it by the Company
for distribution to the Holders or for any inaccuracy of any translation
thereof, for any investment risk associated with acquiring an interest in the
Deposited Securities, for the validity or worth of the Deposited Securities or
for any tax consequences that may result from the ownership of ADSs, Shares or
Deposited Securities, for the credit-worthiness of any third party, for allowing
any rights to lapse upon the terms of this Deposit Agreement or for the failure
or timeliness of any notice from the Company.
SECTION 5.4. Resignation and Removal of the Depositary; Appointment of
---------------------------------------------------------
Successor Depositary. The Depositary may at any time resign as Depositary
- --------------------
hereunder by written notice of resignation delivered to the Company, such
resignation to be effective on the earlier of (i) the 60th day after delivery
thereof to the Company (whereupon the Depositary shall be entitled to take the
actions contemplated in Section 6.2 hereof), or (ii) upon the appointment by the
Company of a successor depositary and its acceptance of such appointment as
hereinafter provided.
The Depositary may at any time be removed by the Company by written notice of
such removal, which removal shall be effective on the earlier of (i) the 60th
day after delivery thereof to the Depositary (whereupon the Depositary shall be
entitled to take the actions contemplated in Section 6.2 hereof), or (ii) upon
the appointment by the Company of a successor depositary and its acceptance of
such appointment as hereinafter provided.
In case at any time the Depositary acting hereunder shall resign or be removed,
the Company shall use its best efforts to appoint a successor depositary, which
shall be a bank or trust company having an office in the Borough of Manhattan,
the City of New York. Every successor depositary shall be required by the
Company to execute and deliver to its predecessor and to the Company an
instrument in writing accepting its appointment hereunder, and thereupon such
successor depositary, without any further act or deed (except as required by
applicable law), shall become fully vested with all the rights, powers, duties
and obligations of its predecessor. The predecessor depositary, upon payment of
all sums due it and on the written request of the Company shall, (i) execute and
deliver an instrument transferring to such successor all rights and powers of
such predecessor hereunder (other than as contemplated in Sections 5.08 and
5.09), (ii) duly assign, transfer and deliver all right, title and interest to
the Deposited Securities to such successor, and (iii) deliver to such successor
a list of the Holders of all outstanding Receipts and such other information
relating to Receipts and Holders thereof as the successor may reasonably
request. Any such successor depositary shall promptly mail notice of its
appointment to such Holders.
Any corporation into or with which the Depositary may be merged or consolidated
shall be the successor of the Depositary without the execution or filing of any
document or any further act.
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SECTION 5.5. The Custodian. The Depositary has initially appointed Citibank
-------------
N.A., Amsterdam as Custodian for the purpose of this Deposit Agreement. The
Custodian or its successors in acting hereunder shall be subject at all times
and in all respects to the direction of the Depositary for the Deposited
Securities for which the Custodian acts as custodian and shall be responsible
solely to it. If any Custodian resigns or is discharged from its duties
hereunder with respect to any Deposited Securities and no other Custodian has
previously been appointed hereunder, the Depositary shall promptly appoint a
substitute custodian that is organized under the laws of The Netherlands. The
Depositary shall require such resigning or discharged Custodian to deliver the
Deposited Securities held by it, together with all such records maintained by it
as Custodian with respect to such Deposited Securities as the Depositary may
request, to the Custodian designated by the Depositary. Whenever the Depositary
determines, in its discretion, that it is appropriate to do so, it may appoint
an additional custodian with respect to any Deposited Securities, or discharge
the Custodian with respect to any Deposited Securities and appoint a substitute
custodian, which shall thereafter be Custodian hereunder with respect to the
Deposited Securities. Immediately upon any such change, the Depositary shall
give notice thereof in writing to all Holders of Receipts, each other Custodian
and the Company.
Upon the appointment of any successor depositary, any Custodian then acting
hereunder shall, unless otherwise instructed by the Depositary, continue to be
the Custodian of the Deposited Securities without any further act or writing,
and shall be subject to the direction of the successor depositary. The successor
depositary so appointed shall, nevertheless, on the written request of any
Custodian, execute and deliver to such Custodian all such instruments as may be
proper to give to such Custodian full and complete power and authority to act on
the direction of such successor depositary.
SECTION 5.6. Notices and Reports. On or before the first date on which the
-------------------
Company gives notice, by publication or otherwise, of any meeting of holders of
Shares or other Deposited Securities, or of any adjourned meeting of such
holders, 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 Securities, the Company shall
transmit to the Depositary and the Custodian a copy of the notice thereof in the
English language but otherwise in the form given or to be given to holders of
Shares or other Deposited Securities. The Company shall also furnish to the
Custodian and the Depositary a summary, in English, of any applicable provisions
or proposed provisions of the Articles of Association of the Company that may be
relevant or pertain to such notice of meeting or be the subject of a vote
thereat.
The Company will also transmit to the Depositary (a) an English language version
of the other notices, reports and communications which are made generally
available by the Company to holders of its Shares or other Deposited Securities
and (b) the English language versions of the Company's annual and semi-annual
reports prepared in accordance with the applicable requirements of the
Commission. The Depositary shall arrange, at the request of the Company, for
the mailing of copies thereof to all registered Holders or make such notices,
reports and other communications available to all registered Holders on a basis
similar to that for holders of Shares or other Deposited Securities or on such
other basis as the Company may advise the Depositary
27
<PAGE>
or as may be required by any applicable law, regulation or stock exchange
requirement. The Company has delivered to the Depositary and the Custodian a
copy of the Company's Articles of Association along with the provisions of or
governing the Shares and any other Deposited Securities issued by the Company or
any Affiliate of the Company in connection with such Shares, and promptly upon
any amendment thereto or change therein, the Company shall deliver to the
Depositary and the Custodian a copy of such amendment thereto or change therein.
The Depositary may rely upon such copy for all purposes of this Deposit
Agreement.
The Depositary will make available a copy of any such notices, reports or
communications issued by the Company and delivered to the Depositary for
inspection by the registered Holders of the Receipts evidencing the American
Depositary Shares representing such Shares governed by such provisions at the
Depositary's Principal Office, at the office of the Custodian and at any other
designated transfer office.
SECTION 5.7. Issuance of Additional Shares, ADSs etc. The Company agrees that
---------------------------------------
in the event it or any of its Affiliates proposes (i) an issuance, sale or
distribution of additional Shares, (ii) an offering of rights to subscribe for
Shares or other Deposited Securities, (iii) an issuance of securities
convertible into or exchangeable for Shares, (iv) an issuance of rights to
subscribe for securities convertible into or exchangeable for Shares, (v) an
elective dividend of cash or Shares, (vi) a redemption of Deposited Securities,
(vii) a meeting of holders of Deposited Securities, or solicitation of consents
or proxies, relating to any reclassification of securities, merger or
consolidation or transfer of assets, or (viii) any reclassification,
recapitalization, reorganization, merger, consolidation or sale of assets which
affects the Deposited Securities, it will obtain U.S. legal advice and take all
steps necessary to ensure that the application of the proposed transaction to
Holders and Beneficial Owners does not violate the registration provisions of
the Securities Act, or any other applicable laws (including, without limitation,
the Investment Company Act of 1940, as amended, the Exchange Act or the
securities laws of the states of the United States). In support of the
foregoing, the Company will furnish to the Depositary (a) a written opinion of
U.S. counsel (reasonably satisfactory to the Depositary) stating whether or not
application of such transaction to Holders and Beneficial Owners (1) requires a
registration statement under the Securities Act to be in effect or (2) is exempt
from the registration requirements of the Securities Act and (b) an opinion of
Dutch counsel stating that (1) making the transaction available to Holders and
Beneficial Owners does not violate the laws or regulations of The Netherlands
and (2) all requisite regulatory consents and approvals have been obtained in
The Netherlands. If the filing of a registration statement is required, the
Depositary shall not have any obligation to proceed with the transaction unless
it shall have received evidence reasonably satisfactory to it that such
registration statement has been declared effective. If, being advised by
counsel, the Company determines that a transaction is required to be registered
under the Securities Act, the Company will either (i) register such transaction
to the extent necessary, (ii) alter the terms of the transaction to avoid the
registration requirements of the Securities Act or (iii) direct the Depositary
to take specific measures, in each case as contemplated in this Deposit
Agreement, to prevent such transaction from violating the registration
requirements of the Securities Act.
The Company agrees with the Depositary that neither the Company nor any of its
Affiliates will at any time (i) deposit any Shares or other Deposited
Securities, either upon original issuance or
28
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upon a sale of Shares or other Deposited Securities previously issued and
reacquired by the Company or by any such Affiliate, or (ii) issue additional
Shares, rights to subscribe for such Shares, securities convertible into or
exchangeable for Shares or rights to subscribe for such securities, unless such
transaction and the securities issuable in such transaction are exempt from
registration under the Securities Act or have been registered under the
Securities Act (and such registration statement has been declared effective).
Notwithstanding anything else contained in this Deposit Agreement, nothing in
this Deposit Agreement shall be deemed to obligate the Company to file any
registration statement in respect of any proposed transaction.
SECTION 5.8. Indemnification. The Depositary agrees to indemnify the Company
---------------
and its directors, officers, employees, agents and Affiliates against, and hold
each of them harmless from, any direct loss, liability, tax, charge or expense
of any kind whatsoever (including, but not limited to, the reasonable fees and
expenses of counsel) which may arise out of acts performed or omitted by the
Depositary under the terms hereof due to the negligence or bad faith of the
Depositary.
The Company agrees to indemnify the Depositary, the Custodian and any of their
respective directors, officers, employees, agents and Affiliates against, and
hold each of them harmless from, any direct loss, liability, tax, charge or
expense of any kind whatsoever (including, but not limited to, the reasonable
fees and expenses of counsel) that may arise (a) out of or in connection with
any offer, issuance, sale, resale, transfer, deposit or withdrawal of Receipts,
American Depositary Shares, the Shares, or other Deposited Securities, as the
case may be, (b) out of or as a result of any offering documents in respect
thereof or (c) out of acts performed or omitted, including, but not limited to,
any delivery by the Depositary on behalf of the Company of information regarding
the Company in connection with this Deposit Agreement, the Receipts, the
American Depositary Shares, the Shares, or any Deposited Securities, in any such
case (i) by the Depositary, the Custodian or any of their respective directors,
officers, employees, agents and Affiliates, except to the extent such loss,
liability, tax, charge or expense is due to the negligence or bad faith of any
of them, or (ii) by the Company or any of its directors, officers, employees,
agents and Affiliates.
The obligations set forth in this Section shall survive the termination of this
Deposit Agreement and the succession or substitution of any party hereto.
Any person seeking indemnification hereunder (an "indemnified person") shall
notify the person from whom it is seeking indemnification (the "indemnifying
person") of the commencement of any indemnifiable action or claim promptly after
such indemnified person becomes aware of such commencement (provided that the
failure to make such notification shall not affect such indemnified person's
rights to indemnification hereunder except to the extent the indemnifying person
is materially prejudiced by such failure) and shall consult in good faith with
the indemnifying person as to the conduct of the defense of such action or claim
that may give rise to an indemnity hereunder, which defense shall be reasonable
in the circumstances. No indemnified person shall compromise or settle any
action or claim that may give rise to an indemnity
29
<PAGE>
hereunder without the consent of the indemnifying person, which consent shall
not be unreasonably withheld.
SECTION 5.9. Fees and Charges of Depositary. The Company, the Holders, the
------------------------------
Beneficial Owners, and persons depositing Shares or surrendering ADSs for
cancellation and withdrawal of Deposited Securities shall be required to pay to
the Depositary the Depositary's fees and related charges identified as payable
by them respectively in the Fee Schedule attached hereto as Exhibit B. All fees
and charges so payable may, at any time and from time to time, be changed by
agreement between the Depositary and the Company, but, in the case of fees and
charges payable by Holders and Beneficial Owners, only in the manner
contemplated in Section 6.1. The Depositary shall provide, without charge, a
copy of its latest fee schedule to anyone upon request.
The Company agrees to pay to the Depositary as promptly as practicable such
other fees and charges and to reimburse the Depositary for such out-of-pocket
expenses as the Depositary and the Company may agree to in writing from time to
time. Responsibility for payment of such charges may at any time and from time
to time be changed by agreement between the Company and the Depositary. Unless
otherwise agreed, the Depositary shall present its statement for such expenses
and fees or charges to the Company once every three months. The charges and
expenses of the Custodian are for the sole account of the Depositary.
The right of the Depositary to receive payment of fees, charges and expenses as
provided above shall survive the termination of this Deposit Agreement. As to
any Depositary, upon the resignation or removal of such Depositary as described
in Section 5.4 hereof, such right shall extend for those fees, charges and
expenses incurred prior to the effectiveness of such resignation or removal.
SECTION 5.10. Pre-Release. Subject to the further terms and provisions of
-----------
this Section 5.10, the Depositary, its Affiliates and their agents, on their own
behalf, may own and deal in any class of securities of the Company and its
Affiliates and in ADSs. In its capacity as Depositary, the Depositary shall not
lend Shares or ADSs; provided, however, that the Depositary may (i) issue ADSs
prior to the receipt of Shares pursuant to Section 2.3 and (ii) deliver Shares
prior to the receipt of ADSs for withdrawal of Deposited Securities pursuant to
Section 2.7, including ADSs which were issued under (i) above but for which
Shares may not have been received (each such transaction a "Pre-Release
Transaction"). The Depositary may receive ADSs in lieu of Shares under (i) above
and receive Shares in lieu of ADSs under (ii) above. Each such Pre-Release
Transaction will be (a) subject to a written agreement whereby the person or
entity (the "Applicant") to whom ADSs or Shares are to be delivered (w)
represents that at the time of the Pre-Release Transaction the Applicant or its
customer owns the Shares or ADSs that are to be delivered by the Applicant under
such Pre-Release Transaction, (x) agrees to indicate the Depositary as owner of
such Shares or ADSs in its records and to hold such Shares or ADSs in trust for
the Depositary until such Shares or ADSs are delivered to the Depositary or the
Custodian, (y) unconditionally guarantees to deliver to the Depositary or the
Custodian, as applicable, such Shares or ADSs, and (z) agrees to any additional
restrictions or requirements that the Depositary deems reasonably appropriate,
(b) at all times fully collateralized with cash,
30
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United States government securities or such other collateral as the Depositary
deems appropriate, (c) terminable by the Depositary on not more than five (5)
business days' notice and (d) subject to such further indemnities and credit
regulations as the Depositary deems appropriate. The Depositary will normally
limit the number of ADSs and Shares involved in such Pre-Release Transactions at
any one time to thirty percent (30%) of the ADSs outstanding (without giving
effect to ADSs outstanding under (i) above), provided, however, that the
Depositary reserves the right to change or disregard such limit from time to
time as it deems appropriate. The Depositary may also set limits with respect to
the number of ADSs and Shares involved in Pre-Release Transactions with any one
person on a case by case basis as it deems reasonably appropriate.
The Depositary may retain for its own account any compensation received by it in
conjunction with the foregoing. Collateral provided pursuant to (b) above, but
not the earnings thereon, shall be held for the benefit of the Holders (other
than the Applicant).
ARTICLE VI
AMENDMENT AND TERMINATION
SECTION 6.1. Amendment/Supplement. The Receipts outstanding at any time, the
--------------------
provisions of this Deposit Agreement and the form of Receipt attached thereto
and to be issued under the terms thereof 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 which they may deem necessary or desirable without the
prior written consent of the Holders or Beneficial Owners. Any amendment or
supplement which 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 which shall
otherwise materially prejudice any substantial existing right of Holders or
Beneficial Owners, shall not, however, become effective as to outstanding
Receipts until the expiration of 30 days after notice of such amendment or
supplement shall have been given to the Holders of outstanding Receipts. The
parties hereto agree that any amendments or supplements which (i) are reasonably
necessary (as agreed by the Company and the Depositary) in order for (a) the
American Depositary Shares to be registered on Form F-6 under the Securities Act
or (b) the American Depositary Share(s) 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 American Depositary Share(s), 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 Receipt 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 Receipt at any time in accordance with such changed laws,
rules or regulations. Such amendment or supplement to the Deposit
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<PAGE>
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.
SECTION 6.2. Termination. The Depositary shall, at any time at the written
-----------
direction of the Company, terminate this Deposit Agreement by mailing notice of
such termination to the Holders of all Receipts then outstanding at least 30
days prior to the date fixed in such notice for such termination. This Deposit
Agreement shall also terminate at any time upon the mandatory conversion,
exchange or redemption of Deposited Securities for which this Deposit Agreement
is not amended by agreement between the Company and the Depositary (the date of
termination in such case being the effective date of such conversion, exchange
or redemption), in which case the Depositary shall provide written notice
thereof to the Holders as soon as reasonably practicable. 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 in Section 5.4, the Depositary may terminate this
Deposit Agreement by mailing notice of such termination to the Holders of all
Receipts then outstanding at least 30 days prior to the date fixed for such
termination. On and after the date of termination of this Deposit Agreement, the
Holder will, upon surrender of such Receipt at the Principal Office of the
Depositary, upon the payment of the charges of the Depositary for the surrender
of Receipts referred to in Section 2.7 and subject to the conditions and
restrictions therein set forth, and upon payment of any applicable taxes or
governmental charges, be entitled to delivery, to such Holder or such Holder's
order, of the amount of Deposited Securities represented by such Receipt. If any
Receipts shall remain outstanding after the date of termination of this Deposit
Agreement, the Registrar thereafter shall discontinue the registration of
transfers of Receipts, 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 this Deposit Agreement, except that the
Depositary shall continue to collect dividends and other distributions
pertaining to Deposited Securities, shall sell rights as provided in this
Deposit Agreement, and shall continue to deliver Deposited Securities, subject
to the conditions and restrictions set forth in Section 2.7, 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 Receipts
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 this Deposit Agreement and any applicable taxes or governmental
charges or assessments). At any time after the expiration of six months from the
date of termination of this Deposit Agreement, the Depositary may sell the
Deposited Securities then held hereunder and may thereafter hold uninvested the
net proceeds of any such sale, together with any other cash then held by it
hereunder, in an unsegregated account, without liability for interest for the
pro rata benefit of the Holders of Receipts whose Receipts have not theretofore
been surrendered. After making such sale, the Depositary shall be discharged
from all obligations under this Deposit Agreement with respect to the Receipts,
the Deposited Securities and the American Depositary Shares, 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 a
Receipt, any expenses for the
32
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account of the Holder in accordance with the terms and conditions of this
Deposit Agreement and any applicable taxes or governmental charges or
assessments). Upon the termination of this Deposit Agreement, the Company shall
be discharged from all obligations under this Deposit Agreement except for its
obligations to the Depositary under Sections 5.8, 5.9 and 7.6 hereof.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Counterparts. This Deposit Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed an original and all of
such counterparts together shall constitute one and the same agreement. Copies
of this Deposit Agreement shall be maintained with the Depositary and shall be
open to inspection by any Holder during business hours.
SECTION 7.2. No Third-Party Beneficiaries. This Deposit Agreement is for the
----------------------------
exclusive benefit of the parties hereto (and their successors) and shall not be
deemed to give any legal or equitable right, remedy or claim whatsoever to any
other person, except to the extent specifically set forth in this Deposit
Agreement. Nothing in this Deposit Agreement shall be deemed to give rise to a
partnership or joint venture among the parties nor establish a fiduciary or
similar relationship among the parties. The parties hereto acknowledge and
agree that (i) the Depositary and its Affiliates may at any time have multiple
banking relationships with the Company and its Affiliates, (ii) the Depositary
and its Affiliates may be engaged at any time in transactions in which parties
adverse to the Company or the Holders or Beneficial Owners may have interests
and (iii) nothing contained in this Agreement shall (a) preclude the Depositary
or any of its Affiliates from engaging in such transactions or establishing or
maintaining such relationships, (b) obligate the Depositary or any of its
Affiliates to disclose such transactions or relationships or to account for any
profit made or payment received in such transactions or relationships.
SECTION 7.3. Severability. In case any one or more of the provisions contained
------------
in this Deposit Agreement or in the Receipts should be or become invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein or therein shall in
no way be affected, prejudiced or disturbed thereby.
SECTION 7.4. Holders and Beneficial Owners as Parties; Binding Effect. The
--------------------------------------------------------
Holders and Beneficial Owners from time to time of American Depositary Shares
shall be parties to the Deposit Agreement and shall be deemed to have knowledge
of and be bound by all of the terms and conditions thereof and of any Receipt by
acceptance thereof or any beneficial interest therein.
SECTION 7.5. Notices. Any and all notices to be given to the Company shall be
-------
deemed to have been duly given if personally delivered or sent by mail, air
courier or cable, telex or facsimile transmission, confirmed by letter,
addressed to Fred. Roeskestraat 123, P.O. Box 74763, 1070 B.T., Amsterdam, The
Netherlands, Attention: General Counsel, with a copy to Holme, Roberts & Owen
LLP, 1700 Lincoln Street, Suite 4100, Denver, CO 80203-4541,
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Attention: W. Dean Salter, Esq. or to any other address which the Company may
specify in writing to the Depositary.
Any and all notices to be given to the Depositary shall be deemed to have been
duly given if personally delivered or sent by mail, air courier or cable, telex
or facsimile transmission, confirmed by letter, addressed to Citibank, N.A., 111
Wall Street, New York, New York 10043, U.S.A. Attention: ADR Department, or to
any other address which the Depositary may specify in writing to the Company.
Any and all notices to be given to the Custodian shall be deemed to have been
duly given if personally delivered or sent by mail, air courier or cable, telex
or facsimile transmission, confirmed by letter, addressed to Europlaza,
Hoogoordeef 54B, 1101 B.E., Amsterdam, The Netherlands or to any other address
which the Custodian may specify in writing to the Company.
Any and all notices to be given to any Holder shall be deemed to have been duly
given if personally delivered or sent by mail or cable, telex or facsimile
transmission, confirmed by letter, addressed to such Holder at the address of
such Holder as it appears on the transfer books for Receipts of the Depositary,
or, if such Holder shall have filed with the Depositary a written request that
notices intended for such Holder be mailed to some other address, at the address
specified in such request. Notice to Holders shall be deemed to be notice to
Beneficial Owners for all purposes of this Deposit Agreement.
Delivery of a notice sent by mail, air courier or cable, telex or facsimile
transmission shall be deemed to be effective at the time when a duly addressed
letter containing the same (or a confirmation thereof in the case of a cable,
telex or facsimile transmission) is deposited, postage prepaid, in a post-office
letter box or delivered to an air courier service. The Depositary or the Company
may, however, act upon any cable, telex or facsimile transmission received by it
from the other or from any Holder, notwithstanding that such cable, telex or
facsimile transmission shall not subsequently be confirmed by letter as
aforesaid.
SECTION 7.6. Governing Law and Jurisdiction. This Deposit Agreement and the
------------------------------
Receipts shall be interpreted in accordance with, and all rights hereunder and
thereunder and provisions hereof and thereof shall be governed by, the laws of
the State of New York without reference to the principles of choice of law
thereof. Notwithstanding anything contained in this Deposit Agreement, any
Receipt or any present or future provisions of the laws of the State of New
York, the rights of holders of Shares and of any other Deposited Securities and
the obligations and duties of the Company in respect of the holders of Shares
and other Deposited Securities, as such, shall be governed by the laws of The
Netherlands (or, if applicable, such other laws as may govern the Deposited
Securities). Except as set forth in the following paragraph of this Section
7.6, the Company and the Depositary agree that the federal or state courts in
the City of New York shall have jurisdiction to hear and determine any suit,
action or proceeding and to settle any dispute between them that may arise out
of or in connection with this Deposit Agreement and, for such purposes, each
irrevocably submits to the non-exclusive jurisdiction of such courts. The
Company hereby irrevocably designates, appoints and empowers Michael T. Fries,
Supervisory Board Member of United International Holdings, Inc. (the "Agent")
now at 4643 South Ulster
34
<PAGE>
Street, Suite 1300, Denver, Colorado, 80237 as its authorized agent to receive
and accept for and on its behalf, and on behalf of its properties, assets and
revenues, service by mail of any and all legal process, summons, notices and
documents that may be served in any suit, action or proceeding brought against
the Company in any federal or state court as described in the preceding sentence
or in the next paragraph of this Section 7.6. If for any reason the Agent shall
cease to be available to act as such, the Company agrees to designate a new
agent in New York or Colorado on the terms and for the purposes of this Section
7.6 reasonably satisfactory to the Depositary. The Company further hereby
irrevocably consents and agrees to the service of any and all legal process,
summons, notices and documents in any suit, action or proceeding against the
Company, by service by registered or certified airmail, postage prepaid a copy
thereof upon the Agent (whether or not the appointment of such Agent shall for
any reason prove to be ineffective or such Agent shall fail to accept or
acknowledge such service), with a copy mailed to the Company by registered or
certified air mail, postage prepaid, to its address provided in Section 7.5
hereof. The Company agrees that the failure of the Agent to give any notice of
such service to it shall not impair or affect in any way the validity of such
service or any judgment rendered in any action or proceeding based thereon.
Notwithstanding the foregoing, the Depositary and the Company unconditionally
agree that in the event that a Holder or Beneficial Owner brings a suit, action
or proceeding against (a) the Company, (b) the Depositary in its capacity as
Depositary under this Deposit Agreement or (c) against both the Company and the
Depositary, in any such case, in any state or federal court of the United
States, and the Depositary or the Company have any claim, for indemnification or
otherwise, against each other arising out of the subject matter of such suit,
action or proceeding, then the Company and the Depositary may pursue such claim
against each other in the state or federal court in the United States in which
such suit, action, or proceeding is pending and, for such purposes, the Company
and the Depositary irrevocably submit to the non-exclusive jurisdiction of such
courts. The Company agrees that service of process upon the Agent in the manner
set forth in the preceding paragraph shall be effective service upon it for any
suit, action or proceeding brought against it as described in this paragraph.
The Company irrevocably and unconditionally waives, to the fullest extent
permitted by law, any objection that it may now or hereafter have to the laying
of venue of any actions, suits or proceedings brought in any court as provided
in this Section 7.6, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
No disclaimer of liability under the Securities Act is intended by any provision
of the Deposit Agreement.
The provisions of this Section 7.6 shall survive any termination of this Deposit
Agreement, in whole or in part.
SECTION 7.7. Assignment. Subject to the provisions of Section 5.4 hereof, this
----------
Deposit Agreement may not be assigned by either the Company or the Depositary
without the prior written consent of the non-assigning party.
35
<PAGE>
SECTION 7.8. Compliance with U.S. Securities Laws. Notwithstanding anything in
------------------------------------
this Deposit Agreement to the contrary, the withdrawal or delivery of Deposited
Securities will not be suspended by the Company or the Depositary except as
would be permitted by Instruction I.A.(1) of the General Instructions to Form F-
6 Registration Statement, as amended from time to time, under the Securities
Act.
SECTION 7.9. Titles. All references in this Deposit Agreement to exhibits,
------
articles, sections, subsections, and other subdivisions refer to the exhibits,
articles, sections, subsections and other subdivisions of this Deposit Agreement
unless expressly provided otherwise. The words "this Deposit Agreement",
"herein", "hereof", "hereby", "hereunder", and words of similar import refer to
the Deposit Agreement as a whole as in effect between the Company, the
Depositary and the Holders and Beneficial Owners of ADSs and not to any
particular subdivision unless expressly so limited. Pronouns in masculine,
feminine and neuter gender shall be construed to include any other gender, and
words in the singular form shall be construed to include the plural and vice
versa unless the context otherwise requires. Titles to sections of this Deposit
Agreement are included for convenience only and shall be disregarded in
construing the language contained in this Deposit Agreement.
IN WITNESS WHEREOF, UNITED PAN-EUROPE COMMUNICATIONS N.V. and CITIBANK, N.A.
have duly executed this Deposit Agreement as of the day and year first above set
forth and all Holders and Beneficial Owners shall become parties hereto upon
acceptance by them of American Depositary Shares evidenced by Receipts issued in
accordance with the terms hereof, or upon acquisition of any beneficial interest
therein.
UNITED PAN-EUROPE COMMUNICATIONS N.V
By: _______________________________
Name:
Title:
CITIBANK, N.A.
By: _______________________________
Name:
Title:
36
<PAGE>
Number __________ CUSIP
American Depositary
Shares (Each American
Depositary Share representing
one fully paid ordinary share,
each nominal value Euro ____(NLG ___)
EXHIBIT A
[FORM OF FACE OF RECEIPT]
AMERICAN DEPOSITARY RECEIPT
FOR
AMERICAN DEPOSITARY SHARES
representing
DEPOSITED ORDINARY SHARES
of
UNITED PAN-EUROPE COMMUNICATIONS N.V.
(Incorporated under the laws of The Netherlands)
CITIBANK, N.A., a national banking association organized and existing under the
laws of the United States of America, as depositary (herein called the
"Depositary"), hereby certifies that _____________is the owner of ______________
American Depositary Shares (hereinafter "ADS"), representing deposited ordinary
shares, each of nominal value Euro ____(NLG ___), including evidence of rights
to receive such ordinary shares (the "Shares") of United Pan-Europe
Communications N.V, a corporation incorporated under the laws of The Netherlands
(the "Company"). As of the date of the Deposit Agreement (as hereinafter
defined), each ADS represents one Share deposited under the Deposit Agreement
with the Custodian which at the date of execution of the Deposit Agreement is
Citibank N.A., Amsterdam (the "Custodian"). The ratio of American Depositary
Shares to shares of stock is subject to subsequent amendment as provided in
Article IV of the Deposit Agreement. The Depositary's Principal Office is
located at 111 Wall Street, New York, New York 10043, U.S.A.
(1) The Deposit Agreement. This American Depositary Receipt is one of an issue
---------------------
of American Depositary Receipts ("Receipts"), all issued and to be issued upon
the terms and conditions set forth in the Deposit Agreement, dated as of
February __, 1999 (as amended from time to time, the "Deposit Agreement"), by
and among the Company, the Depositary, and all Holders and Beneficial Owners
from time to time of American Depositary Shares ("ADSs") evidenced by Receipts
issued thereunder, each of whom by accepting an ADS (or an interest therein)
agrees to become a party thereto and will be deemed to have knowledge thereof
and becomes bound by all the terms and conditions thereof. The Deposit Agreement
sets forth the rights and obligations of Holders and Beneficial Owners of
Receipts and the rights and duties of the Depositary in respect of the Shares
deposited thereunder and any and all other securities, property and cash from
time to time, received in respect of such Shares and held thereunder (such
A-1
<PAGE>
Shares, securities, property and cash are herein called "Deposited Securities").
Copies of the Deposit Agreement are on file at the Principal Office of the
Depositary and the Custodian.
The statements made on the face and reverse of this Receipt are summaries of
certain provisions of the Deposit Agreement and the Articles of Association of
the Company (as in effect on the date of the Deposit Agreement) and are
qualified by and subject to the detailed provisions of the Deposit Agreement, to
which reference is hereby made. All capitalized terms used herein which are not
otherwise defined herein shall have the meanings ascribed thereto in the Deposit
Agreement. The Depositary makes no representation or warranty as to the validity
or worth of the Deposited Securities. The Depositary has made arrangements for
the acceptance of the American Depositary Shares into DTC. Each Beneficial
Owner of American Depositary Shares held through DTC must rely on the procedures
of DTC and the DTC Participants to exercise and be entitled to any rights
attributable to such American Depositary Shares.
(2) Surrender of Receipts and Withdrawal of Deposited Securities. Upon
------------------------------------------------------------
surrender, at the Principal Office of the Depositary, of ADS evidenced by this
Receipt for the purpose of withdrawal of the Deposited Securities represented
thereby, and upon payment of (i) the charges of the Depositary for the making of
withdrawals and cancellation of Receipts (as set forth in Article (10) hereof
and in Section 5.9 and Exhibit B of the Deposit Agreement) and (ii) all fees,
taxes and governmental charges payable in connection with such surrender and
withdrawal, and, subject to the terms and conditions of this Receipt, the
Deposit Agreement, the Company's Articles of Association, and the provisions of
or governing the Deposited Securities and other applicable laws, the Holder of
the American Depositary Shares evidenced hereby is entitled to Delivery, to the
Holder or upon such Holder's order, of the Deposited Securities represented by
the ADS so surrendered and delivery of any other securities, property and cash
to which such Holder is then entitled in respect to such ADS.
A Receipt surrendered for such purposes shall, if so required by the Depositary,
be properly endorsed in blank or accompanied by proper instruments of transfer
in blank. If the Depositary so requires, the Holder hereof shall execute and
deliver to the Depositary a written order directing the Depositary to cause the
Deposited Securities being withdrawn to be Delivered to or upon the written
order of the person(s) designated in such order. Thereupon, the Depositary shall
direct the Custodian to Deliver (as promptly as practicable) at the designated
office of the Custodian, subject to the terms and conditions of the Receipts,
the Deposit Agreement, the Articles of Association of the Company, and the
provisions of or governing the Deposited Securities, applicable laws and the
rules of The Netherlands Central Institute for Giro Securities (Nederlands
Centraal Institut vor Giraal Effectenverkeer B.V.), 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 for 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
distributions with respect to the Deposited Securities represented by the ADSs
evidenced by this Receipt, or of any proceeds of sale of any dividends,
distributions or rights, which may at the time be held by the Depositary.
A-2
<PAGE>
The Depositary shall not accept for surrender a Receipt evidencing ADSs
representing less than one Share. In the case of surrender of a Receipt
evidencing a number of ADS representing other than a whole number of Shares, the
Depositary shall cause ownership of the appropriate whole number of Shares to be
Delivered in accordance with the terms hereof, and shall, at the discretion of
the Depositary, either (i) return to the person surrendering such ADSs the
number of ADSs representing any remaining fractional Share, or (ii) sell or
cause to be sold the fractional Shares represented by the ADSs so surrendered
and remit the proceeds thereof (net of (a) applicable fees and charges of, and
expenses incurred by, the Depositary and (b) taxes withheld) to the person
surrendering the ADSs. At the request, risk and expense of any Holder so
surrendering ADSs, and for the account of such Holder, the Depositary shall
direct the Custodian to forward (to the extent permitted by law) any cash or
other property (other than securities) held in respect of the Deposited
Securities represented by such ADSs to the Depositary for delivery at the
Principal Office of the Depositary. Such direction shall be given by letter or,
at the request, risk and expense of such Holder, by cable, telex or facsimile
transmission.
(3) Transfers, Split-Ups and Combinations of Receipts. Subject to the terms
-------------------------------------------------
and conditions of the applicable Receipt(s), the Deposit Agreement and the U.S.
securities laws, the Registrar shall register transfers of Receipts on its book
upon surrender at the Principal Office of the Depositary of a Receipt by the
Holder thereof in person or by duly authorized attorney, properly endorsed or
accompanied by proper instruments of transfer (including signature guarantees in
accordance with standard industry practice) and duly stamped as may be required
by the laws of the State of New York and of the United States of America.
Subject to the terms and conditions of the Deposit Agreement including payment
of the applicable fees and charges of the Depositary, the Depositary shall
execute and deliver a new Receipt(s) (and if necessary cause the Registrar to
countersign such Receipt(s)) and deliver the same to or upon the order of the
person entitled thereto evidencing the same aggregate number of ADSs as those
evidenced by the Receipt(s) surrendered. Upon surrender of a Receipt or Receipts
for the purpose of effecting a split-up or combination of such Receipt or
Receipts and upon payment of the applicable fees and charges of the Depositary
and subject to the terms and conditions of the applicable Receipt(s), the
Deposit Agreement and the U.S. securities laws, the Depositary shall execute and
deliver new Receipt(s) evidencing the same aggregate number of ADSs as the
Receipt(s) surrendered.
(4) Pre-Conditions to Registration, Transfer, Etc. As a condition precedent to
---------------------------------------------
the execution and delivery, registration of transfer, split-up, combination or
surrender of any Receipt or withdrawal of any Deposited Securities, the
Depositary or the Custodian may require (i) payment from the depositor of Shares
or presenter of ADSs or of a Receipt 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 Shares
being deposited or withdrawn) and payment of any applicable fees and charges of
the Depositary as provided in the Deposit Agreement and in this Receipt, (ii)
the production of proof satisfactory to it as to the identity and genuineness of
any signature or any other matters and (iii) compliance with (A) any laws or
governmental regulations relating to the execution and delivery of Receipts and
ADSs or to the withdrawal of Deposited Securities and (B) such reasonable
regulations of the Depositary or the Company consistent with the Deposit
Agreement and applicable law.
A-3
<PAGE>
The issuance of ADSs against deposits of Shares generally or against deposits of
particular Shares may be suspended, or the delivery of ADSs against the deposit
of particular Shares may be withheld, or the registration of transfer of
Receipts in particular instances may be refused, or the registration of transfer
of outstanding Receipts generally may be suspended, during any period when the
transfer books of the Company, 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 upon which the Receipts or Share 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 Article (24) hereof.
Notwithstanding any provision of the Deposit Agreement or this Receipt to the
contrary, Holders are entitled to surrender outstanding ADSs to withdraw the
Deposited Securities at any time subject only to (i) temporary delays caused by
closing the transfer books of the Depositary or the Share Registrar or the
deposit of Shares in connection with voting at a shareholders' meeting or the
payment of dividends, (ii) the payment of fees, taxes and similar charges, (iii)
compliance with any U.S. or foreign laws or governmental regulations relating to
the Receipts or to the withdrawal of the Deposited Securities, and (iv) other
circumstances specifically contemplated by Section I.A.(l) of the General
Instructions to Form F-6 (as such General Instructions may be amended from time
to time).
(5) Compliance With Information Requests. Notwithstanding any other provision
------------------------------------
of the Deposit Agreement or this Receipt, each Holder and Beneficial Owner of
the ADSs represented hereby agrees to comply with requests from the Company
pursuant to Dutch law, the rules and requirements of the Amsterdam Stock
Exchange, and of any stock exchange or automated quotation system on which
Shares or ADSs are or will be registered, traded or listed, the Articles of
Association of the Company, which are made to provide information as to the
capacity in which such Holder or Beneficial Owner owns ADSs (and Shares, as the
case may be) and regarding the identity of any other persons then or previously
interested in such ADSs and the nature of such interest and various other
matters, whether or not they are Holders and/or Beneficial Owners at the time of
such request. The Depositary agrees to use reasonable efforts to forward, upon
the request of the Company and at the Company's expense, any such requests to
the Holders and to forward to the Company any such responses to such requests
received by the Depositary.
(6) Ownership Restrictions. The Company may restrict transfers of the Shares
----------------------
where such transfer might result in ownership of Shares exceeding limits under
applicable law or the Articles of Association of the Company. The Company may
also restrict, in such manner as it deems appropriate, transfers of ADSs where
such transfer may result in the total number of Shares represented by the ADSs
owned by a single Holder or Beneficial Owner to exceed any such limits. The
Company may, in its sole discretion but subject to applicable law, instruct the
Depositary to take action with respect to the ownership interest of any Holder
or Beneficial Owner in excess of the limits set forth in the preceding sentence,
including but not limited to the imposition of restrictions on the transfer of
ADSs, the removal or limitation of voting rights or a
A-4
<PAGE>
mandatory sale or disposition on behalf of a Holder or Beneficial Owner of the
Shares represented by the ADSs held by such Holder or Beneficial Owner in excess
of such limitations, if and to the extent such disposition is permitted by
applicable law and the Articles of Association of the Company.
(7) Liability of Holder for Taxes, Duties and Other Charges. If any tax or
-------------------------------------------------------
other governmental charge shall become payable with respect to any Receipt or
any Deposited Securities or ADSs, such tax, or other governmental charge shall
be payable by the Holders and Beneficial Owners to the Depositary. The Company,
the Custodian and/or Depositary may withhold or deduct from any distributions
made in respect of Deposited Securities and may sell for the account of the
Holder and/or Beneficial Owner any or all of the Deposited Securities and apply
such distributions and sale proceeds in payment of such taxes (including
applicable interest and penalties) or charges, the Holder and the Beneficial
Owner hereof remaining liable for any deficiency. The Custodian may refuse the
deposit of Shares and the Depositary may refuse to issue ADSs, to deliver
Receipts, register the transfer, split-up or combination of ADRs and (subject to
Article (24) hereof) 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, employees and Affiliates for, and hold each of then
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.
(8) Representations and Warranties of Depositors. Each person depositing
--------------------------------------------
Shares under the Deposit Agreement shall be deemed thereby to represent and
warrant that (i) such Shares (and the certificates therefor) are duly
authorized, validly issued, fully paid, non-assessable and legally obtained by
such person, (ii) all preemptive (and similar) rights, if any, with respect to
such Shares, have been validly waived or exercised, (iii) the person making such
deposit is duly authorized so to do and (iv) the Shares presented for deposit
are free and clear of any lien, encumbrance, security interest, charge, mortgage
or adverse claim and are not, and the ADSs issuable upon such deposit will not
be, Restricted Securities and the Share presented for deposit have not been
stripped of any rights or entitlements. Such representations and warranties
shall survive the deposit and withdrawal of Shares, the issuance and
cancellation of ADSs in respect thereof and the transfer of such ADSs. If any
such representations or warranties are false in any way, the Company and
Depositary shall be authorized, at the cost and expense of the person depositing
Shares, to take any and all actions necessary to correct the consequences
thereof.
(9) Filing Proofs, Certificates and Other Information. Any person presenting
-------------------------------------------------
Shares for deposit, any Holder and any Beneficial Owner may be required, and
every Holder and Beneficial Owner agrees, from time to time to provide to the
Depositary and the Custodian such proof of citizenship or residence, taxpayer
status, payment of all applicable taxes or other governmental charges, exchange
control approval, legal or beneficial ownership of ADSs and Deposited
Securities, compliance with applicable laws and the terms of the Deposit
Agreement and the provisions of, or governing, the Deposited Securities, to
execute such certifications and to make such representations and warranties and
to provide such other information or documentation (or, in the case of Shares in
registered form presented for deposit, such information relating to the
A-5
<PAGE>
registration of Shares on the books of the Shares Registrar) as the Depositary
or the Custodian may deem necessary or proper or as the Company may reasonably
require by written request to the Depositary consistent with its obligations
under the Deposit Agreement. Subject to Article (24) hereof and the terms of the
Deposit Agreement, the Depositary and the Registrar, as applicable, may withhold
the delivery or registration of transfer of any Receipt or the distribution or
sale of any dividend or other distribution of rights or of the proceeds thereof
or the delivery of any Deposited Securities until such proof or other
information is filed or such certificates are executed, or such representations
and warranties made or such information and documentation are provided, in each
case to the Depositary's, the Registrar's and the Company's satisfaction.
(10) Charges of Depositary. The Depositary shall charge the following fees for
---------------------
the services performed under the terms of the Deposit Agreement:
(i) to any person to whom ADSs are issued upon the deposit of Shares, a
fee not in excess of U.S. $ 5.00 per 100 ADSs (or portion thereof) so
issued under the terms of the Deposit Agreement (excluding issuances
pursuant to paragraph (iii) and (iv) below);
(ii) to any person surrendering ADSs for cancellation and withdrawal of
Deposited Securities, a fee not in excess of U.S. $ 5.00 per 100 ADSs
(or portion thereof) so surrendered;
(iii) to any Holder of ADRs, a fee not in excess of U.S. $ 2.00 per 100
ADSs (or portion thereof) held for the distribution of cash proceeds
(i.e. upon the sale of rights and other entitlements); no fee shall
be payable for the distribution of cash dividends or the distribution
of ADSs pursuant to stock dividends or other free distributions of
shares as long as such fees are prohibited by the exchange upon which
the ADSs are listed.
(iv) to any Holder of ADRs, a fee not in the excess of U.S. $ 5.00 per 100
ADSs (or portion thereof) issued upon the exercise of rights.
In addition, Holders, Beneficial Owners, any person depositing Shares for
deposit and any person surrendering ADSs for cancellation and withdrawal of
Deposited Securities will be required to pay the following charges:
(i) taxes (including applicable interest and penalties) and other
governmental charges;
(ii) such registration fees as may from time to time be in effect for the
registration of Shares or other Deposited Securities on the share
register and applicable to transfers of Shares or other Deposited
Securities to or from the name of the Custodian, the Depositary or
any nominees upon the making of deposits and withdrawals,
respectively;
A-6
<PAGE>
(iii) such cable, telex and facsimile transmission and delivery expenses
as are expressly provided in the Deposit Agreement to be at the
expense of the person depositing or withdrawing Shares or Holders
and Beneficial Owners of ADSs;
(iv) the expenses and charges incurred by the Depositary in the
conversion of foreign currency;
(v) such fees and expenses as are incurred by the Depositary in
connection with compliance with exchange control regulations and
other regulatory requirements applicable to Shares, Deposited
Securities, ADSs and ADRs; and
(vi) the fees and expenses incurred by the Depositary in connection with
the delivery of Deposited Securities.
The Company agrees to pay to the Depositary, as promptly as practicable, such
other charges and expenses of the Depositary as the Depositary and the Company
may agree to from time to time. Fees and charges may, at any time and from time
to time, be changed by agreement between the Depositary and Company but, in the
case of fees and charges payable by Holders or Beneficial Owners, only in the
manner contemplated by Article (22) of this Receipt. The Depositary will
provide, without charge, a copy of its latest fee schedule to anyone upon
request. The charges and expenses of the Custodian are for the sole account of
the Depositary.
(11) Title to Receipts. Subject to the limitations contained herein and in the
-----------------
Deposit Agreement, title to this Receipt (and to each ADS evidenced hereby) is
transferable by delivery of this Receipt with the same effect as a certificated
security under the laws of the State of New York, provided this Receipt has been
properly endorsed or is accompanied by proper instruments of transfer.
Notwithstanding any notice to the contrary, the Depositary may deem and treat
the person in whose name this Receipt is registered on the books of the
Depositary as the absolute owner hereof for all purposes. The Depositary shall
have no obligation nor be subject to any liability hereunder or under the
Deposit Agreement to any holder of a Receipt unless such holder is the Holder of
such Receipt registered on the books of the Depositary, or, in the case of a
Beneficial Owner, such Beneficial Owner or the Beneficial Owner's representative
is the Holder registered on the books of the Depositary.
(12) Validity of Receipt. This Receipt (and the American Depositary Shares
-------------------
represented hereby) shall not be entitled to any benefits under the Deposit
Agreement or be valid or enforceable for any purpose against the Depositary or
the Company unless this Receipt has been (i) dated, (ii) signed by the manual or
facsimile signature of a duly authorized signatory of the Depositary, (iii)
countersigned by the manual or facsimile signature of a duly authorized
signatory of the Registrar, and (iv) registered by the Registrar in the books
maintained by the Registrar for the purpose of registration of the issuance and
transfer of Receipts.
(13) Available Information; Reports; Inspection of Transfer Books. The Company
------------------------------------------------------------
is subject to the periodic reporting requirements of the Exchange Act and
accordingly files certain information with the Commission. These reports and
documents can be inspected and copied at
A-7
<PAGE>
the public reference facilities maintained by the Commission located at
Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and at the
Commission's New York City office located at Seven World Trade Center, 13th
Floor, New York, New York 10048. The Depositary shall make available for
inspection by Holders at its Principal Office any reports and communications,
including any proxy soliciting materials, received from the Company which are
both (a) received by the Depositary, the Custodian, or the nominee of either of
them as the holder of the Deposited Securities and (b) made generally available
to the holders of such Deposited Securities by the Company.
The Registrar shall keep books for the registration of issuances and transfers
of Receipts which at all reasonable times shall be open for inspection by the
Company and by the Holders of such Receipts, provided that such inspection shall
not be, to the Registrar's knowledge, for the purpose of communicating with
Holders of such Receipts in the interest of a business or object other than the
business of the Company or other than a matter related to the Deposit Agreement
or the Receipts.
The Registrar may close the transfer books with respect to the Receipts, at any
time or from time to time, when deemed necessary or advisable by it in good
faith in connection with the performance of its duties hereunder, or at the
reasonable written request of the Company subject, in all cases, to Article (24)
hereof.
Dated: CITIBANK, N.A.,
as Depositary
Countersigned
By:______________________ By:______________________________
Authorized Representative Vice President
The address of the Principal Office of the Depositary is 111 Wall Street, New
York, New York 10043, U.S.A.
A-8
<PAGE>
[FORM OF REVERSE OF RECEIPT]
SUMMARY OF CERTAIN ADDITIONAL PROVISIONS
OF THE DEPOSIT AGREEMENT
(14) Dividends and Distributions in Cash, Shares, etc. 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 Shares, rights securities or other entitlements under the
Deposit Agreement, the Depositary will, if at the time of receipt thereof any
amounts received in a Foreign Currency can, in the judgment of the Depositary
(upon the terms of the Deposit Agreement), be converted on a practicable basis
into Dollars transferable to the United States, convert or cause to be converted
such dividend, distribution or proceeds into Dollars (upon the terms of the
Deposit Agreement) and will distribute as promptly as practicable the amount
thus received (net of (a) applicable fees and charges of, and expenses incurred
by, the Depositary and (b) taxes withheld) to the Holders entitled thereto as of
the ADS Record Date in proportion to the number of ADS held as of the ADS Record
Date. The Depositary shall distribute only such amount, however, as can be
distributed 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 of ADSs then outstanding.
If the Company, the Custodian or the Depositary is required to withhold and does
withhold from any cash dividend or other cash distribution in respect of any
Deposited Securities an amount on account of taxes, duties or other governmental
charges, the amount distributed to Holders on the ADSs representing such
Deposited Securities shall be reduced accordingly. Such withheld amounts shall
be forwarded by the Company to the relevant governmental authority.
If any distribution upon any Deposited Securities consists of a dividend in, or
free distribution of, Shares, the Company shall or cause such Shares to be
deposited with the Custodian and registered, as the case may be, in the name of
the Depositary, the Custodian or their nominees. Upon receipt of confirmation
of such deposit from the Custodian, the Depositary shall, subject to and in
accordance with the Deposit Agreement, establish the ADS Record Date and either
(i) distribute to the Holders as of the ADS Record Date in proportion to the
number of ADSs held as of the ADS Record Date, additional ADSs, which represent
in aggregate the number of Shares received as such dividend, or free
distribution, subject to the terms of the Deposit Agreement (including, without
limitation, (a) the 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 ADS Record Date shall, to
the extent permissible by law, thenceforth also represent rights and interest in
the additional integral number of Shares distributed upon the Deposited
Securities represented thereby (net (a) of the applicable fees and charges of,
and the expenses incurred by, the Depositary, and (b) taxes). In lieu of
delivering fractional ADSs, the Depositary shall sell the number of Shares or
ADSs, as the case may be, represented by the aggregate of such fractions and
distribute the net proceeds upon the terms set forth in the Deposit Agreement.
A-9
<PAGE>
In the event that the Depositary determines that any distribution in property
(including 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 obligations under the Deposit Agreement, has furnished an opinion of U.S.
counsel determining that Shares must be registered under 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 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 (a) taxes and fees and (b)
charges of, and expenses incurred by, the Depositary) to Holders entitled
thereto upon the terms of 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.
Upon timely receipt of a notice indicating that the Company wishes an elective
distribution to be made available to Holders upon the terms described in the
Deposit Agreement, the Company and the Depositary shall determine whether such
distribution is lawful and reasonably practicable. If so, the Depositary shall,
to the extent permitted by law and subject to the terms and conditions of the
Deposit Agreement, distribute either (x) cash as in the case of a cash
distribution or (y) additional ADSs representing such additional Shares as in
the case of a distribution of Shares. In either case, the Depositary shall,
subject to the terms and conditions of the Deposit Agreement, establish and ADS
Record Date and establish procedures to enable the Holder hereof to elect to
receive the proposed distribution in cash or in additional ADSs. If a Holder
elects to receive the distribution in cash, the dividend shall be distributed as
in the case of a distribution in cash. If the Holder hereof elects to receive
the distribution in additional ADSs, the distribution shall be distributed as in
the case of a distribution in Shares. Nothing herein or in the Deposit
Agreement shall obligate the Depositary to make available to the Holder hereof a
method to receive the elective distribution in Shares (rather than ADSs). There
can be no assurance that the Holder hereof will be given the opportunity to
receive elective distributions on the same terms and conditions as the holders
of Shares.
Upon timely receipt by the Depositary of a notice indicating that the Company
wishes rights to subscribe for additional Shares (or any rights of any other
nature) to be made available to Holders of ADSs, the Company and the Depositary
shall determine whether it is lawful and reasonably practicable to make such
rights available to the Holders. The Depositary shall make such rights available
to any Holders only if (i) the Company shall have requested that such rights be
made available to Holders, (ii) the Depositary shall have received the
documentation contemplated in the Deposit Agreement, and (iii) the Depositary
shall have determined that such distribution of rights is reasonably
practicable. If such conditions are not satisfied, the Depositary shall sell
the rights as described below. In the event all conditions set forth above are
satisfied, the Depositary shall establish an ADS Record Date (upon the terms
described in the Deposit Agreement) and establish procedures to distribute
rights to purchase additional ADSs (by means of warrants or otherwise) and to
enable the Holders to exercise the rights (upon payment of applicable (a) fees
and charges of, and expenses incurred by, the Depositary and (b) taxes).
Nothing herein or in the Deposit Agreement shall obligate the Depositary to make
available to the Holders a method to exercise rights to subscribe for Shares
(rather than ADSs).
A-10
<PAGE>
If (i) the Company does not request the Depositary to make the rights available
to Holders or if the Company requests that the rights not be made available to
Holders, (ii) the Depositary fails to receive the documentation required by the
Deposit Agreement 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 shall, upon
consultation with the Company, 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 applicable fees and charges of, and expenses incurred by, the
Depositary and taxes) upon the terms hereof and of 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 above, 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 ADR Holders on behalf of the
Company in connection with the rights distribution.
Notwithstanding anything herein or in the Deposit Agreement to the contrary, 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 (or other applicable law) covering such offering is in effect.
In the event that the Company, the Depositary or the Custodian shall be required
to withhold and does withhold from any distribution of property (including
rights) an amount on account of taxes or other governmental charges, the amount
distributed to the Holders of ADSs representing such Deposited Securities shall
be reduced accordingly. In the event that the Depositary determines that any
distribution in property (including 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 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 Shares 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 Shares or other securities to be acquired
upon the exercise of such rights.
Upon receipt of a notice indicating that the Company wishes property other than
cash, Shares or rights to purchase additional Shares, to be made to Holders of
ADSs, the Depositary and the Company shall determine whether such distribution
to Holders is lawful and reasonably practicable. The Depositary shall not make
such distribution unless such distribution is permission under Dutch law and (i)
the Company shall have requested the Depositary to make such distribution to
Holders, (ii) the Depositary shall have received the documentation
A-11
<PAGE>
contemplated in the Deposit Agreement, and (iii) the Depositary shall have
determined that such distribution is reasonably practicable. Upon satisfaction
of such conditions, the Depositary shall distribute the property so received to
the Holders of record, as of the ADS 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, and (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 the conditions above are not satisfied, 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 sale, if any, to be converted into 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 upon the terms hereof and of 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.
(15) Redemption. Upon timely receipt of notice from the Company that it intends
----------
to exercise its right of redemption in respect of any of the Deposited
Securities, and a satisfactory opinion of counsel, and upon determining that
such proposed redemption is practicable, the Depositary shall (to the extent
practicable) mail to each Holder a notice setting forth the Company's intention
to exercise the redemption rights and any other particulars set forth in the
Company's notice to the Depositary. Upon receipt of confirmation that the
redemption has taken place and that funds representing the redemption price have
been received, the Depositary shall convert, transfer, distribute the proceeds
(net of applicable (a) fees and charges of, and expenses incurred by, the
Depositary, and (b) taxes), retire ADSs and cancel ADRs upon delivery of such
ADSs by Holders thereof upon the terms of the Deposit Agreement. If less than
all outstanding Deposited Securities are redeemed, the ADSs to be retired will
be selected by lot or on a pro rata basis, as may be determined by the
Depositary. The redemption price per ADS shall be the dollar equivalent of per
share amount received by the Depositary upon the redemption of the Deposited
Securities represented by American Depositary Shares (subject to the terms of
the Deposit Agreement and the applicable fees and charges of, and expenses
incurred by, the Depositary, and taxes) multiplied by the number of Units or
Deposited Securities represented by each ADS redeemed.
(16) Fixing of Record Date. Whenever the Depositary shall receive notice of the
---------------------
fixing of a record date by the Company 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 Shares that are represented by each ADS, or
whenever the Depositary shall receive notice of any meeting of, or solicitation
of consents or proxies of, holders of Shares or other Deposited Securities, or
whenever the Depositary shall find it necessary or convenient in connection with
the giving of any notice, or
A-12
<PAGE>
any other matter, the Depositary shall fix a record date ("ADS Record Date") for
the determination of the Holders of Receipts who shall be entitled to receive
such distribution, to give instructions for the exercise of voting rights at any
such meeting, or to give or withhold such consent, or to receive such notice or
solicitation or to otherwise take action, or to exercise the rights of Holders
with respect to such changed number of Shares represented by each ADS. Subject
to applicable law and the terms and conditions of this Receipt and the Deposit
Agreement, only the Holders of Receipts at the close of business in New York on
such ADS Record Date shall be entitled to receive such distributions, to give
such instructions, to receive such notice or solicitation, or otherwise take
action.
(17) Voting of Deposited Securities. As soon as practicable after receipt of
------------------------------
notice of any meeting at which the holders of Shares are entitled to vote, or of
solicitation of consents or proxies from holders of Shares or other Deposited
Securities, the Depositary shall fix the ADS Record Date in respect of such
meeting or solicitation of such consent or proxy. The Depositary shall (if
requested in writing in a timely manner by the Company) mail to Holders: (a)
such notice of meeting or solicitation of consent or proxies, (b) a statement
that the Holders as of the ADS Record Date will be entitled, subject to any
applicable law, the Company's Articles of Association and the provisions of or
governing 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 rights, if any, pertaining to the Shares or other Deposited
Securities represented by such Holder's ADS and (c) a brief statement as to the
manner in which such instructions may be given. Upon the timely receipt of
written instructions of a Holder of ADSs on the ADS Record Date, the Depositary
shall endeavor, insofar as practicable and permitted under applicable law and
the provisions of the Articles of Association of the Company and the provisions
of the Deposited Securities, to vote or cause the Custodian to vote the Shares
and/or other Deposited Securities represented by ADSs held by such Holder in
accordance with such instructions.
Neither the Depositary nor the Custodian nor their respective nominees, if any,
shall under any circumstances exercise any discretion as to voting and neither
the Depositary nor the Custodian shall vote, attempt to exercise the right to
vote, or in any way make use of, for the purposes of establishing a quorum or
otherwise, the Shares or other Deposited Securities represented by ADS except
pursuant to and in accordance with such written instructions from Holders. If
voting instructions are received by the Depositary from any Holder on or before
the date established by the Depositary for the receipt of such instructions,
which are signed but without further indication as to specific instructions, the
Depositary will deem such Holder to have instructed the Depositary to vote in
favor of the items set forth in such instructions. Shares or other Deposited
Securities represented by ADS for which no specific voting instructions are
received by the Depositary from the Holder shall not be voted. There can be no
assurance that Holders generally or 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.
(18) Changes Affecting Deposited Securities. Upon any change in nominal or par
--------------------------------------
value, split-up, cancellation, consolidation or any other reclassification of
Deposited Securities, or upon any recapitalization, reorganization, merger or
consolidation or sale of assets affecting the Company
A-13
<PAGE>
or to which it is a party, any securities which shall be received by the
Depositary or the Custodian in exchange for, or in conversion of or replacement
of or otherwise in respect of, such Deposited Securities shall, to the extent
permitted by law, be treated as new Deposited Securities under the Deposit
Agreement, and the Receipts shall, subject to the provisions of the Deposit
Agreement and applicable law, evidence ADSs representing the right to receive
such new securities. The Depositary may, with the Company's approval, and shall,
if the Company shall so request, subject to the terms of the Deposit Agreement
and receipt of satisfactory documentation contemplated by the Deposit Agreement,
execute and deliver additional Receipts as in the case of a stock dividend on
the Shares, or call for the surrender of outstanding Receipts to be exchanged
for new Receipts, in either case, as well as in the event of newly deposited
Shares, with necessary modifications to the form of Receipt contained in this
Exhibit A to the Deposit Agreement, specifically describing such new Deposited
Securities or corporate change. Notwithstanding the foregoing, in the event that
any security so received may not be lawfully distributed to some or all Holders,
the Depositary may, with the Company's approval, and shall if the Company
requests, subject to receipt of satisfactory legal documentation contemplated in
the Deposit Agreement, sell such securities at public or private sale, at such
place or places and upon such terms as it may deem proper and may allocate the
net proceeds of such sales (net of (a) fees and charges of, and expenses
incurred by, the Depositary and (b) taxes) for the account of the Holders
otherwise entitled to such securities and distribute the net proceeds so
allocated to the extent practicable as in the case of a distribution received in
cash pursuant to the Deposit Agreement. The Depositary shall not be responsible
for (i) any failure to determine that it may be lawful or feasible to make such
securities available to Holders in general or any Holder in particular, (ii) any
foreign exchange exposure or loss incurred in connection with such sale, or
(iii) any liability to the purchaser of such securities.
(19) Exoneration. Neither the Depositary nor the Company shall be obligated to
-----------
do or perform any act which is inconsistent with the provisions of the Deposit
Agreement or incur any liability (i) if the Depositary or the Company shall be
prevented or forbidden from, or subjected to any civil or criminal penalty or
restraint on account of, or delayed in, doing or performing any act or thing
required by the terms of the Deposit Agreement and this Receipt, by reason of
any provision of any present or future law or regulation of the United States,
The Netherlands or any other country, or of any other governmental authority or
regulatory authority or stock exchange, or by reason of any provision, present
or future of the Articles of Association of the Company or any provision of or
governing any Deposited Securities, or by reason of any act of God or war or
other circumstances beyond its control (including, without limitation,
nationalization, expropriation, currency restrictions, work stoppage, strikes,
civil unrest, revolutions, rebellions, explosions and computer failure), (ii) by
reason of any exercise of, or failure to exercise, any discretion provided for
in this Deposit Agreement or in the Articles of Association of the Company or
provisions of or governing Deposited Securities, (iii) for any action or
inaction in reliance upon the advice of or information from legal counsel,
accountants, any person presenting Shares for deposit, any Holder, any
Beneficial Owner or authorized representative thereof, or any other person
believed by it in good faith to be competent to give such advice or information,
(iv) for any inability by a Holder or Beneficial Owner to benefit from any
distribution, offering, right or other benefit which is made available to
holders of Deposited Securities but is not, under the terms of this Deposit
Agreement, made available to Holders of ADS or (v) for any consequential
A-14
<PAGE>
or punitive damages for any breach of the terms of this Deposit Agreement. The
Depositary, its controlling persons, its agents, any Custodian and the Company,
its controlling persons and its agents may rely and shall be protected in acting
upon any written notice, request or other document believed by it to be genuine
and to have been signed or presented by the proper party or parties. No
disclaimer of liability under the Securities Act is intended by any provision of
the Deposit Agreement.
(20) Standard of Care. The Company and its agents assume no obligation and
----------------
shall not be subject to any liability under this Deposit Agreement or the
Receipts to Holders or Beneficial Owners or other persons, except that the
Company and its agents agree to perform their obligations specifically set forth
in this Deposit Agreement without negligence or bad faith. The Depositary and
its agents assume no obligation and shall not be subject to any liability under
this Deposit Agreement or the Receipts to Holders or Beneficial Owners or other
persons, except that the Depositary and its agents agree to perform their
obligations specifically set forth in this Deposit Agreement without negligence
or bad faith. The Depositary and its agents shall not be liable for any failure
to carry out any instructions to vote any of the Deposited Securities, or for
the manner in which any vote is cast or the effect of any vote, provided that
any such action or omission is in good faith and in accordance with the terms of
this Deposit Agreement. The Depositary shall not incur any liability for any
failure to determine that any distribution or action may be lawful or reasonably
practicable, for the content of any information submitted to it by the Company
for distribution to the Holders or for any inaccuracy of any translation
thereof, for any investment risk associated with acquiring an interest in the
Deposited Securities, for the validity or worth of the Deposited Securities or
for any tax consequences that may result from the ownership of ADSs, Shares or
Deposited Securities, for the credit-worthiness of any third party, for allowing
any rights to lapse upon the terms of this Deposit Agreement or for the failure
or timeliness of any notice from the Company.
(21) Resignation and Removal of the Depositary; Appointment of Successor
-------------------------------------------------------------------
Depositary. The Depositary may at any time resign as Depositary under the
- ----------
Deposit Agreement by written notice of resignation delivered to the Company,
such resignation to be effective on the earlier of (i) the 60th day after
delivery thereof to the Company, or (ii) upon the appointment of a successor
depositary by the Company and its acceptance of such appointment as provided in
the Deposit Agreement. The Depositary may at any time be removed by the Company
by written notice of such removal which notice shall be effective on the earlier
of (i) the 60th day after delivery thereof to the Depositary, or (ii) upon the
appointment of a successor depositary by the Company and its acceptance of such
appointment as provided in the Deposit Agreement. In case at any time the
Depositary acting hereunder shall resign or be removed, the Company shall use
its best efforts to appoint a successor depositary which shall be a bank or
trust company having an office in the Borough of Manhattan, the City of New
York. Every successor depositary shall execute and deliver to its predecessor
and to the Company an instrument in writing accepting its appointment hereunder,
and thereupon such successor depositary, without any further act or deed, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor. The predecessor depositary, upon payment of all sums due it and on
the written request of the Company, shall (i) execute and deliver an instrument
transferring to such successor all rights and powers of such predecessor
hereunder (other than as contemplated in the Deposit
A-15
<PAGE>
Agreement), (ii) duly assign, transfer and deliver all right, title and interest
to the Deposited Securities to such successor, and (iii) deliver to such
successor a list of the Holders of all outstanding Receipts and such other
information relating to Receipts and Holders thereof as the successor may
reasonably request. Any such successor depositary shall promptly mail notice of
its appointment to such Holders. Any corporation into or with which the
Depositary may be merged or consolidated shall be the successor of the
Depositary without the execution or filing of any document or any further act.
(22) Amendment/Supplement. This Receipt and any provisions 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 which
they may deem necessary or desirable without the prior written consent of the
Holders or Beneficial Owners. Any amendment or supplement which shall impose or
increase any fees or charges (other than the charges in connection with foreign
exchange control regulations, and taxes and other governmental charges, delivery
and other such expenses), or which shall otherwise prejudice any substantial
existing right of Holders or Beneficial Owners, shall not, however, become
effective as to outstanding Receipts until the expiration of 30 days after
notice of such amendment or supplement shall have been given to the Holders of
outstanding Receipts. The parties hereto agree that any amendments or
supplements which (i) are reasonably necessary (as agreed by the Company and the
Depositary) in order for (a) the ADSs to be registered on Form F-6 under the
Securities Act or (b) the ADSs 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(s), to consent and agree to such amendment or
supplement and to be bound by the Deposit Agreement as amended or supplemented
thereby. In no event shall any amendment or supplement impair the right of the
Holder to surrender such Receipt 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 Receipt 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, or
rules or regulations.
(23) Termination. The Depositary shall, at any time at the written direction of
-----------
the Company, terminate the Deposit Agreement by mailing notice of such
termination to the Holders of all Receipts then outstanding at least 30 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 in herein and in the Deposit Agreement, the
Depositary may terminate the Deposit Agreement by mailing
A-16
<PAGE>
notice of such termination to the Holders of all Receipts then outstanding at
least 30 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
such Holders' Receipt(s) at the Principal Office of the Depositary, upon the
payment of the charges of the Depositary for the surrender of ADSs referred to
in Article (2) hereof and in the Deposit Agreement and subject to the conditions
and restrictions therein set forth, and upon payment of any applicable taxes or
governmental charges, be entitled to delivery, to such Holder or such Holder's
order, of the amount of Deposited Securities represented by such Receipt. If any
Receipts shall remain outstanding after the date of termination of the Deposit
Agreement, the Registrar thereafter shall discontinue the registration of
transfers of Receipts, 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 Receipts 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 six months from the date of
termination of the Deposit Agreement, the Depositary may sell the Deposited
Securities then held hereunder and may thereafter hold uninvested the net
proceeds of any such sale, together with any other cash then held by it
hereunder, in an unsegregated account, without liability for interest for the
pro rata benefit of the Holders of Receipts whose Receipts have not theretofore
been surrendered. After making such sale, the Depositary shall be discharged
from all obligations under the Deposit Agreement with respect to the Receipts
and the Shares, the Deposited Securities and the 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 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). Upon the termination of the Deposit Agreement, the
Company shall be discharged from all obligations under the Deposit Agreement
except as set forth in the Deposit Agreement.
(24) Compliance with U.S. Securities Laws. Notwithstanding any provisions in
------------------------------------
this Receipt or the Deposit Agreement to the contrary, the withdrawal or
delivery of Deposited Securities will not be suspended by the Company or the
Depositary except as would be permitted by Section I.A.(1) of the General
Instructions to the Form F-6 Registration Statement, as amended from time to
time, under the Securities Act of 1933.
(25) Certain Rights of the Depositary; Limitations. Subject to the further
---------------------------------------------
terms and provisions of this Article (25), the Depositary, its Affiliates and
their agents, on their own behalf, may own and deal in any class of securities
of the Company and its Affiliates and in ADSs. The Depositary may issue ADSs
against evidence of rights to receive Shares from the Company, any agent of the
Company or any custodian, registrar, transfer agent, clearing agency or other
entity involved in
A-17
<PAGE>
ownership or transaction records in respect of the Shares. Such evidence of
rights shall consist of written blanket or specific guarantees of ownership of
Shares. In its capacity as Depositary, the Depositary shall not lend Shares or
ADSs; provided, however, that the Depositary may (i) issue ADSs prior to the
receipt of Shares pursuant to Section 2.3 of the Deposit Agreement and (ii)
deliver Shares prior to the receipt of ADSs for withdrawal of Deposited
Securities pursuant to Section 2.7 of the Deposit Agreement, including ADSs
which were issued under (i) above but for which Shares may not have been
received (each such transaction a "Pre-Release Transaction"). The Depositary may
receive ADSs in lieu of Shares under (i) above and receive Shares in lieu of
ADSs under (ii) above. Each such Pre-Release Transaction will be (a) accompanied
by or subject to a written agreement whereby the person or entity (the
"Applicant") to whom ADSs or Shares are to be delivered (w) represents that at
the time of the Pre-Release Transaction the Applicant or its customer owns the
Shares or ADSs that are to be delivered by the Applicant under such Pre-Release
Transaction, (x) agrees to indicate the Depositary as owner of such Shares or
ADSs in its records and to hold such Shares or ADSs in trust for the Depositary
until such Shares or ADSs are delivered to the Depositary or the Custodian, (y)
unconditionally guarantees to deliver to the Depositary or the Custodian, as
applicable, such Shares or ADSs and (z) agrees to any additional restrictions or
requirements that the Depositary deems appropriate, (b) at all times fully
collateralized with cash, U.S. government securities or such other collateral as
the Depositary deems appropriate, (c) terminable by the Depositary on not more
than five (5) business days notice and (d) subject to such further indemnities
and credit regulations as the Depositary deems appropriate. The Depositary will
normally limit the number of ADSs and Shares involved in such Pre-Release
Transactions at any one time to thirty percent (30%) of the ADSs outstanding
(without giving effect to ADSs outstanding under (i) above), provided, however,
that the Depositary reserves the right to change or disregard such limit from
time to time as it deems appropriate. The Depositary may also set limits with
respect to the number of ADSs and Shares involved in Pre-Release Transactions
with any one person on a case by case basis as it deems appropriate. The
Depositary may retain for its own account any compensation received by it in
conjunction with the foregoing. Collateral provided pursuant to (b) above, but
not earnings thereon, shall be held for the benefit of the Holders (other than
the Applicant).
A-18
<PAGE>
(ASSIGNMENT AND TRANSFER SIGNATURE LINES)
FOR VALUE RECEIVED, the undersigned Holder hereby sell(s), assign(s) and
transfer(s) unto ______________________________ whose taxpayer identification
number is _______________________ and whose address including postal zip code is
____________________________, the within Receipt and all rights thereunder,
hereby irrevocably constituting and appointing ________________________
attorney-in-fact to transfer said Receipt on the books of the Depositary with
full power of substitution in the premises.
Dated: Name:________________________________
By:
Title:
NOTICE: The signature of the Holder to this
assignment must correspond with the name as
written upon the face of the within instrument in
every particular, without alteration or
enlargement or any change whatsoever.
If the endorsement be executed by an attorney,
executor, administrator, trustee or guardian, the
person executing the endorsement must give his/her
full title in such capacity and proper evidence of
authority to act in such capacity, if not on file
with the Depositary, must be forwarded with this
Receipt.
All endorsements or assignments of Receipts must
be guaranteed by a member of a Medallion Signature
Program approved by the Securities Transfer
Association, Inc.
SIGNATURE GUARANTEED
____________________________
A-19
<PAGE>
EXHIBIT B
FEE SCHEDULE
DEPOSITARY FEES AND RELATED CHARGES
All capitalized terms used but not otherwise defined herein shall have the
meaning given to such terms in the DEPOSIT AGREEMENT.
I. DEPOSITARY FEES
The Holders, the Beneficial Owners and the persons depositing Shares or
surrendering ADSs for cancellation agree to pay the following fees of the
Depositary:
<TABLE>
<CAPTION>
SERVICE RATE BY WHOM PAID
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
(1) Issuance of ADSs upon Up to $5.00 per 100 ADSs (or Person for whom deposits are
deposit of Shares (excluding fraction thereof) issued made or party receiving ADSs
issuances contemplated by
paragraphs (3)(b) and (5)
below).
- ------------------------------------------------------------------------------------------------
(2) Delivery of Deposited Up to $5.00 per 100 ADSs (or Person surrendering ADSs or
Securities, property and fraction thereof) surrendered. making withdrawal.
cash against surrender of
ADSs.
- ------------------------------------------------------------------------------------------------
(3) Distribution of (a) cash No fee, so long as prohibited Person to whom distribution is
dividend or (b) ADSs by the exchange upon which the made.
pursuant to stock dividends ADSs are listed.
(or other free distribution
of stock).
- ------------------------------------------------------------------------------------------------
(4) Distribution of cash Up to $2.00 per 100 ADSs held. Person to whom distribution is
proceeds (i.e. upon sale of made.
rights and other
entitlements).
- ------------------------------------------------------------------------------------------------
(5) Distribution of ADSs Up to $5.00 per 100 ADSs Person to whom distribution is
pursuant to exercise of issued. made.
rights.
- ------------------------------------------------------------------------------------------------
</TABLE>
II. CHARGES Holders, Beneficial Owners, persons depositing Shares for
-------
deposit and persons surrendering ADSs for cancellation and for the purpose of
withdrawing Deposited Securities shall be responsible for the following charges:
(i) taxes (including applicable interest and penalties) and other governmental
charges;
(ii) such registration fees as may from time to time be in effect for the
registration of Shares or other Deposited Securities on the share register and
applicable to transfers of Shares or other Deposited Securities to or from the
name of the Custodian, the Depositary or any nominees upon the making of
deposits and withdrawals, respectively;
(iii) such cable, telex and facsimile transmission and delivery expenses as are
expressly provided in the Deposit Agreement to be at the expense of the person
depositing Shares or Holders and Beneficial Owners of ADSs;
B-1
<PAGE>
(iv) the expenses and charges incurred by the Depositary in the conversion of
foreign currency;
(v) such fees and expenses as are incurred by the Depositary in connection with
compliance with exchange control regulations and other regulatory requirements
applicable to Shares, Deposited Securities, ADSs and ADRs; and
(vi) the fees and expenses incurred by the Depositary in connection with the
deliver of Deposited Securities.
B-2
<PAGE>
R&W LLP Draft
1/22/99
- --------------------------------------------------------------------------------
DEPOSIT AGREEMENT
by and among
- --------------------------------------------------------------------------------
UNITED PAN-EUROPE COMMUNICATIONS N.V.
AND
CITIBANK, N.A.,
as Depositary,
AND
THE HOLDERS AND BENEFICIAL OWNERS
OF AMERICAN DEPOSITARY SHARES EVIDENCED BY
AMERICAN DEPOSITARY RECEIPTS ISSUED HEREUNDER
- --------------------------------------------------------------------------------
Dated as of February __, 1999
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................................................................. 2
SECTION 1.1 "Affiliate"....................................................................................... 2
SECTION 1.2 "American Depositary Share(s)" and "ADS(s)"....................................................... 2
SECTION 1.3 "ADS Record Date"................................................................................. 2
SECTION 1.4 "Beneficial Owner"................................................................................ 2
SECTION 1.5 "Business Day".................................................................................... 2
SECTION 1.6 "Commission"...................................................................................... 2
SECTION 1.7 "Company"......................................................................................... 2
SECTION 1.8 "Custodian"....................................................................................... 2
SECTION 1.9 "Deliver" and "Delivery".......................................................................... 3
SECTION 1.10 "Deposit Agreement"............................................................................... 3
SECTION 1.11 "Depositary"...................................................................................... 3
SECTION 1.12 "Deposited Securities"............................................................................ 3
SECTION 1.13 "Dollars" and "................................................................................... 3
SECTION 1.14 "DTC"............................................................................................. 3
SECTION 1.15 "DTC Participant"................................................................................. 3
SECTION 1.16 "Exchange Act".................................................................................... 3
SECTION 1.17 "Foreign Currency"................................................................................ 3
SECTION 1.18 "Guilders" and "NLG".............................................................................. 3
SECTION 1.19 "Holder".......................................................................................... 3
SECTION 1.20 "NECIGEF"......................................................................................... 3
SECTION 1.21 "Pre-Release Transaction"......................................................................... 4
SECTION 1.22 "Principal Office"................................................................................ 4
SECTION 1.23 "Receipt(s)"; "American Depositary Receipt(s)" and "ADR(s)" ...................................... 4
SECTION 1.24 "Registrar"....................................................................................... 4
SECTION 1.25 "Restricted Securities"........................................................................... 4
SECTION 1.26 "Securities Act".................................................................................. 4
SECTION 1.27 "Share Registrar"................................................................................. 4
SECTION 1.28 "Shares".......................................................................................... 5
SECTION 1.29 "United States"................................................................................... 5
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
ARTICLE II APPOINTMENT OF DEPOSITARY; FORM OF RECEIPTS; DEPOSIT OF SHARES; EXECUTION AND DELIVERY, TRANSFER
AND SURRENDER OF RECEIPTS................................................................................ 5
<S> <C> <C>
SECTION 2.1 Appointment of Depositary......................................................................... 5
SECTION 2.2 Form and Transferability of Receipts.............................................................. 5
SECTION 2.3 Deposit with Custodian............................................................................ 7
SECTION 2.4 Registration of Shares............................................................................ 8
SECTION 2.5 Execution and Delivery of Receipts................................................................ 8
SECTION 2.6 Transfer of Receipts; Combination and Split-up of Receipts........................................ 9
SECTION 2.7 Surrender of ADSs and Withdrawal of Deposited Securities.......................................... 9
SECTION 2.8 Limitations on Execution and Delivery, Transfer, etc. of Receipts; Suspension of Delivery,
Transfer, etc..................................................................................... 11
SECTION 2.9 Lost Receipts, etc................................................................................ 11
SECTION 2.10 Cancellation and Destruction of Surrendered Receipts; Maintenance of Records...................... 12
SECTION 2.11 Partial Entitlement ADSs.......................................................................... 12
</TABLE>
<TABLE>
<CAPTION>
ARTICLE III CERTAIN OBLIGATIONS OF HOLDERS AND BENEFICIAL OWNERS OF RECEIPTS......................................... 13
<S> <C> <C>
SECTION 3.1 Proofs, Certificates and Other Information........................................................ 13
SECTION 3.2 Liability for Taxes and Other Charges............................................................. 13
SECTION 3.3 Representations and Warranties on Deposit of Shares............................................... 14
SECTION 3.4 Compliance with Information Requests.............................................................. 14
SECTION 3.5 Ownership Restrictions............................................................................ 14
</TABLE>
<TABLE>
<CAPTION>
ARTICLE IV THE DEPOSITED SECURITIES................................................................................. 15
<S> <C> <C>
SECTION 4.1 Cash Distributions................................................................................ 15
SECTION 4.2 Distribution in Shares............................................................................ 15
SECTION 4.3 Elective Distributions in Cash or Shares.......................................................... 16
SECTION 4.4 Distribution of Rights to Purchase Shares......................................................... 17
SECTION 4.5 Distributions Other Than Cash, Shares or Rights to Purchase Shares................................ 18
SECTION 4.6 Distributions with Respect to Deposited Securities in Bearer Form................................. 19
SECTION 4.7 Redemption........................................................................................ 19
SECTION 4.8 Conversion of Foreign Currency.................................................................... 20
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 4.9 Fixing of ADS Record Date......................................................................... 20
SECTION 4.10 Voting of Deposited Securities.................................................................... 21
SECTION 4.11 Changes Affecting Deposited Securities............................................................ 22
SECTION 4.12 Available Information............................................................................. 22
SECTION 4.13 Reports........................................................................................... 23
SECTION 4.14 List of Holders................................................................................... 23
SECTION 4.15 Taxation.......................................................................................... 23
</TABLE>
<TABLE>
<CAPTION>
ARTICLE V THE DEPOSITARY, THE CUSTODIAN AND THE COMPANY........................................................... 24
<S> <C> <C>
SECTION 5.1 Maintenance of Office and Transfer Books by the Registrar......................................... 24
SECTION 5.2 Exoneration....................................................................................... 24
SECTION 5.3 Standard of Care.................................................................................. 25
SECTION 5.4 Resignation and Removal of the Depositary; Appointment of Successor Depositary.................... 26
SECTION 5.5 The Custodian..................................................................................... 27
SECTION 5.6 Notices and Reports............................................................................... 27
SECTION 5.7 Issuance of Additional Shares, ADSs etc........................................................... 28
SECTION 5.8 Indemnification................................................................................... 29
SECTION 5.9 Fees and Charges of Depositary.................................................................... 30
SECTION 5.10 Pre-Release....................................................................................... 30
</TABLE>
<TABLE>
<CAPTION>
ARTICLE VI AMENDMENT AND TERMINATION............................................................................... 31
<S> <C> <C>
SECTION 6.1 Amendment/Supplement.............................................................................. 31
SECTION 6.2 Termination....................................................................................... 32
</TABLE>
<TABLE>
<CAPTION>
ARTICLE VII MISCELLANEOUS........................................................................................... 33
<S> <C> <C>
SECTION 7.1 Counterparts...................................................................................... 33
SECTION 7.2 No Third-Party Beneficiaries...................................................................... 33
SECTION 7.3 Severability...................................................................................... 33
SECTION 7.4 Holders and Beneficial Owners as Parties; Binding Effect.......................................... 33
SECTION 7.5 Notices........................................................................................... 33
SECTION 7.6 Governing Law and Jurisdiction.................................................................... 34
SECTION 7.7 Assignment........................................................................................ 35
SECTION 7.8 Compliance with U.S. Securities Laws.............................................................. 36
SECTION 7.9 Titles............................................................................................ 36
</TABLE>
-iii-
<PAGE>
Form of Receipt ......................................................... A-1
Fees Schedule ............................................................ B-1
-iv-
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF ARTHUR ANDERSEN APPEARS HERE]
Dear Sirs:
We have acted as tax counsel in The Netherlands to UNITED PAN-EUROPE
COMMUNICATIONS NV, a company incorporated under the laws of The Netherlands
(hereafter: "the Company"), having its registered office in Amsterdam, The
Netherlands for the purpose of rendering a tax opinion in connection with the
Public Offering of Shares and ADSs as described in the Prospectus dated January
13, 1999 (hereafter: "the Prospectus").
GENERAL REMARKS
---------------
This opinion only addresses the taxation of the Underwriters and tax
consequences for the Underwriters in relation to the Underwriting Agreement and
the statements in the Prospectus under the captions TAXATION and "Dutch Taxes".
We would like to stress that this opinion is based on the assumption that the
Underwriters are not and have not been for at least five years, a resident nor
deemed to be a resident of The Netherlands for the purposes of The Netherlands
tax legislation.
OPINION
-------
Introduction
- ------------
Capitalised terms used herein without definition shall, unless the content
otherwise requires, have the same meaning as such capitalised terms have in the
Documents (as defined below). Headings in this opinion are for ease of reference
only and shall not affect the information hereof. In connection with this
opinion, we have examined and rely upon the following documents in their English
language version:
1. the Prospectus, dated January 13, 1999 and;
2. the Underwriting Agreement (draft), dated November 9, 1998.
The documents referred to above are hereinafter called the "Documents".
<PAGE>
Assumptions
- -----------
In considering the Documents we have, with your permission assumed that:
(i) All copies, faxed or specimen documents conform to the originals;
(ii) All Documents, where applicable, are or will be executed in the form
submitted to and examined by us and referred to herein;
(iii) All terms and conditions set forth in the Documents will meet the arm's
length principle as laid down in article 9 of the OECD model tax
convention on income and capital 1977/1992-1997, and no Shares will be
transferred by way of gift;
(iv) The Company will not issue any Shares other than as described in the
Prospectus;
(v) United Pan-Europe Communications NV is a resident of The Netherlands for
tax purposes and for application of the relevant treaties;
(vi) The Underwriters shall be none other than Goldman, Sachs & Co., Morgan
Stanley & Co. Incorporated and;
(vii) The Underwriters are corporate entities.
We express no opinion as to any law other than the tax laws of The Netherlands
in force at the date hereof as applied and interpreted according to present case
law of the Netherlands courts, administrative rulings and authoritative tax law
scholars. We have no obligation to update this opinion.
Opinion
- -------
Based upon and subject to the foregoing, we are of the opinion that:
I. Prospectus
On the basis of the above assumptions, the statements in the Prospectus
under the first section of "TAXATION" in combination with the section
"Dutch taxes" insofar as such statements constitute a general summary of
matters of law or documents referenced therein, fairly summarises in all
material respects, the relevant Dutch tax laws, rules and regulations
concerning the matters covered which are relevant to the investors.
II. Taxes on Income and Capital Gains and other taxes or duties.
No stamp or other issuance of transfer taxes or duties and no capital
gains income, withholding or other taxes are payable by or on behalf of
the Underwriters to The Netherlands or to any political subdivision or
taxing authority thereof or therein in connection with (A) the deposit
with the Depositary of Shares by the Company against the issuance of ADRs
evidencing the ADSs (B) the sale and delivery by the Company of the
Shares to or for the respective accounts of the Underwriters or (C) the
sale and
2
<PAGE>
delivery outside The Netherlands by the Underwriters of Shares to the initial
purchasers thereof in the manner contemplated herein and in the Underwriting
Agreement provided that:
(i) The Underwriters are not a resident or deemed to be a resident of The
Netherlands; and
(ii) The Underwriters do not have an enterprise or an interest in an
enterprise which, in whole or in part, is carried on through a permanent
establishment or a permanent representative in The Netherlands and to
which enterprise or part of an enterprise the Shares or the Transaction
are attributable; and
(iii) The Underwriters are not directly entitled (the term directly means, in
this context, not through the beneficial ownership of shares or similar
securities) to all or a share of the profits of an enterprise that is
managed and controlled in The Netherlands whilst the Shares form part of
the assets of, or are otherwise attributable to, such enterprise; and
(iv) The Underwriters do not have a substantial interest or deemed substantial
interest in the Company according to the criteria under Netherlands tax
law currently in force in the event the Underwriters do have such an
interest, this substantial interest qualifies as asset of, or is
otherwise attributable to an enterprise; and
(v) The Underwriters do not carry out and have not carried out employment
activities on the territory of The Netherlands, or as director or board
member of an entity resident in The Netherlands or as a civil servant of
a Netherlands public body with which the holding of the Shares is
connected; and
(vi) Nor the Company, nor any of its subsidiaries is an initial purchaser.
With respect to point (iv) we note for Netherlands income and/or corporate
income tax purposes, a person (individual or corporate entity as defined under
Netherlands tax law) holds amongst others directly or indirectly a substantial
interest; if such person owns or is deemed to own (e.g. directly or indirectly
via call options) an interest of at least 5% in any class of or at least 5% of
the total issued share capital of a company resident in The Netherlands.
<PAGE>
FINAL REMARKS
-------------
This opinion letter is only addressed to and may be relied upon by you and your
legal advisers as of the date hereof and should not be relied upon by any other
person. Without our prior written consent this opinion letter may not be
transmitted to or filed by the addressees with any other person, firm, company
or institution.
Very truly yours,
ARTHUR ANDERSEN
/s/ Frits Barnard /s/ Arthur Goedkoop /s/ Bas Castelijn
Frits Barnard Arthur Goedkoop Bas Castelijn
<PAGE>
EXHIBIT 10.8
B A N K F A C I L I T Y A G R E E M E N T
-------------------------------------------
BETWEEN
KABELTELEVISIE AMSTERDAM B.V.
AND
ABN AMRO BANK N.V.
IN THE PRINCIPAL AMOUNT OF
UP TO NLG 375,000,000
As of January 31, 1996
<PAGE>
TABLE OF CONTENTS
to be added
<PAGE>
EXHIBITS
--------
Exhibit 1 -- Definitions
Exhibit 2 -- Guaranteed Bridge Facility Agreement
Exhibit 3.1 -- US West Guaranty
Exhibit 3.2 -- Philips Guaranty
Exhibit 4 -- Notice of Drawdown (Fixed Rate)
Exhibit 5 -- Notice of Drawdown (Variable Rate)
Exhibit 6 -- Base Case Projections Proforma
Exhibit 7.1 -- Balance Sheet
Exhibit 7.2 -- Flow of Funds Sheet
Exhibit 8 -- MAA Letter Agreement
Exhibit 9 -- Principal Repayment Schedule
Exhibit 10 -- Undertaking
Exhibit 11.1 -- Articles of Association Borrower
Exhibit 11.2 -- Articles of Association Subsidiary
Exhibit 12 -- Form of Budget
Exhibit 13 -- Master Agreement (without exhibits)
Exhibit 14 -- CAI Agreements (without exhibits or other
attachments)
Exhibit 15 -- Municipality Letter Agreements
Exhibit 16 -- Deed of Mortgage
Exhibit 17 -- Deed of Pledge of Accounts
Exhibit 18 -- Deed of Pledge of Movable Assets
Exhibit 19 -- Deed of Pledge of Shares and Related Rights
Exhibit 20 -- Shareholders Agreement
Exhibit 21 -- A2000 Bank Facility Agreement (with Exhibit
1 thereto, but without the other Exhibits)
Exhibit 22 -- A2000 Deed of Pledge
Exhibit 23 -- Debt Equity Ratio Basis Reduction Scheme
Exhibit 24 -- Joint Venture Agreement
(ii)
<PAGE>
The undersigned,
Kabeltelevisie Amsterdam B.V. (the "Borrower"), a private company with limited
liability under the law of The Netherlands, with corporate seat in Amsterdam;
and
ABN AMRO Bank N.V. ("ABN AMRO"), acting for itself in various capacities as
referred to herein (including its capacity as a Bank) and, as the case may be,
in accordance with article 25, as agent (the "Agent") for the Banks (if any, as
may be the case in accordance with article 25) as defined hereafter, a public
company with limited liability incorporated under the law of The Netherlands,
with corporate seat in Amsterdam, The Netherlands;
CONSIDERING THE FOLLOWING:
(A) The objects of the Borrower are to build, maintain and operate a
telecommunications infrastructure (including without limitation, cable
networks originally designed for the distribution of radio and television
programmes ("draadomroepinrichtingen")) and to provide telecommunication
services via such infrastructure, including without limitation the
distribution of radio and television programmes to subscribers, interactive
broadcasting services, multimedia services, data transmission, fax and
voice services;
(B) The following transactions have taken place:
- the sale and transfer by the Municipality of Amsterdam ("MAA") of all
outstanding shares in the Borrower to US West International B.V. ("USW
B.V.") and Philips Media Networks B.V. ("PMN B.V.");
- the contribution by USW B.V. and PMN B.V. of the shares in the Borrower
acquired by each of them into A2000 Holding N.V. ("A2000"); and
- various other transactions related to the foregoing, as referred to in
the Master Agreement (as defined in Exhibit 1);
(C) In connection with the sale and transfer of the shares in the Borrower by
MAA to USW B.V. and PMN B.V. and the other transactions relating thereto as
referred to in recital (B), ABN AMRO has provided a bridge loan facility
pursuant to a guaranteed bridge facility agreement (the "Guaranteed Bridge
Facility Agreement"), dated July 5th, 1995, a photocopy of which is
attached hereto as Exhibit 2, in the principal amount of up to NLG
700,000,000, of which an amount of NLG 679,478,988 has been drawn by USW
B.V. and PMN B.V. on July 6, 1995;
(D) The repayment to ABN AMRO of the principal amount drawn down under the
Guaranteed Bridge Facility Agreement, together with accrued interest and
certain other amounts is guaranteed by US West, Inc. and Philips
Electronics N.V. pursuant to guarantees photocopies of which are attached
hereto as Exhibit 3.1 (the "US West Guaranty") and 3.2 (the "Philips
Guaranty");
(E) It is intended that the principal amount outstanding under the Guaranteed
Bridge Facility Agreement be repaid, together with accrued interest and
other amounts due thereunder, to ABN AMRO and in connection therewith ABN
AMRO has offered a term loan facility
-1-
<PAGE>
in the principal amount of NLG 250,000,000 to be made available hereunder,
subject to the terms and conditions as provided herein;
(F) KTA intends to design, procure, build, install and commission certain
components of its telecommunications infrastructure, defined as the System
in Exhibit 1 (including its cable-telephony network) in Amsterdam and
certain surrounding areas;
(G) the intended activity as referred to in recital (F) requires an estimated
outside capital investment of up to NLG 75,000,000;
(H) ABN AMRO has offered to finance the amount of NLG 75,000,000 referred to in
recital (G) under a construction loan facility in the principal amount of
up to NLG 75,000,000 to be made available hereunder, subject to the terms
and conditions as provided herein;
(I) The Borrower intends to operate and maintain the System, and to provide
telecommunications services via the System, in a commercially viable manner
and as contemplated in the Project Agreements (as defined in Exhibit 1) and
will need working capital from time to time;
(J) ABN AMRO has offered to finance such need for working capital under a
working capital facility in the principal amount of up to NLG 50,000,000,
to be made available hereunder, subject to the terms and conditions as
provided herein;
(K) the intended activity of the Borrower as referred to in recital (F) is
hereafter referred to as the construction and maintenance of the "Project";
(L) The Borrower and ABN AMRO now wish to record their agreement regarding the
financing by ABN AMRO as referred to in recital (E), recital (H) and
recital (J) as follows;
HAVE AGREED AS FOLLOWS:
Article 1 - Definitions and Expressions
- ---------------------------------------
1.1 Capitalized expressions and terms as used in this Agreement shall have the
meanings as set forth in Exhibit 1, unless the context expressly requires
otherwise.
1.2 Agreements mentioned or referred to in Exhibit 1 include agreements,
exhibits, schedules, attachments and other documents which are a part of
the agreement mentioned or referred to, and any reference to such
agreements, exhibits, schedules, attachments and documents herein shall be
construed as a reference to such agreements, exhibits, schedules,
attachments and documents, as these may be amended from time to time.
1.3 The expression to credit an account shall mean to deposit monies in such
account and the expression to debit an account shall mean to withdraw
monies from such account.
Article 2 - Bank Facility
- -------------------------
-2-
<PAGE>
2.1 ABN AMRO makes available to the Borrower, subject to the terms and
conditions of this Agreement, the loan facility as described in article
2.2.1 (the "Term Loan Facility"), the construction loan facility as
described in article 2.3.1 (the "Construction Loan Facility") and the
working capital facility, as described in article 2.4.1 (the "Working
Capital Facility").
2.2.1 Under the Term Loan Facility, the Banks are required to make one advance
(the "Term Loan Advance") to the Borrower, subject to the terms and
conditions of this Agreement (including but not limited to article 7), up
to the aggregate maximum principal amount of NLG 250,000,000 (such maximum
to be referred to as the "Available Term Loan Commitment").
2.2.2 The Term Loan Facility is available from the date of this Agreement until
June 1, 1996 (the "Term Loan Facility Availability Period") and any
obligation of the Banks to make the Term Loan Advance under the Term Loan
Facility shall cease upon expiry of such period. The Borrower shall have
the right to terminate the Available Term Loan Commitment, or part
thereof, at any time prior to June 1, 1996, upon which termination the
Available Term Loan Commitment, or such part thereof, shall have
definitively been terminated.
2.3.1 Under the Construction Loan Facility, the Banks are required to make one
or more advances (the "Construction Loan Advance(s)") to the Borrower,
subject to the terms and conditions of this Agreement (including but not
limited to article 7), up to the aggregate principal amount of NLG
75,000,000, (such maximum to be referred to as the "Available Construction
Loan Commitment"), provided that, subject to article 2.3.2, in each of the
following years the aggregate amount outstanding under the Construction
Loan Facility shall not exceed the maximum indicated below with respect to
the relevant year:
Aggregate maximum
-----------------
Annual increase amount available
-------------------- -----------------
1996 NLG 30,000,000 NLG 30,000,000
1997 NLG 40,000,000 NLG 70,000,000
1998 NLG 5,000,000 NLG 75,000,000
1999 NLG 0 NLG 75,000,000
2.3.2 If the Borrower requires a Construction Loan Advance in any of the years
referred to in article 2.3.1 in excess of the applicable maximum (i) such
Construction Loan Advance can be drawn down, subject to the terms and
conditions of this Agreement (including but not limited to article 7) and
(ii) article 12.4.2 shall apply.
2.3.3 The Construction Loan Facility is available, subject to article 2.3.1 and
2.3.2, from the date of this Agreement until December 31, 1999 (the
"Construction Loan Facility Availability Period") and any obligation of
the Banks to provide a Construction Loan Advance under the Construction
Loan Facility shall cease upon expiry of such period. The Borrower shall
have the right to terminate the Available Construction Loan Commitment, or
part thereof, at any time prior to December 31, 1999, upon which
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<PAGE>
termination the Available Construction Loan Commitment, or such part
thereof, shall have been definitively terminated.
2.4.1 Under the Working Capital Facility, ABN AMRO is required to make funds
available to the Borrower, either by allowing overdrafts (the
"Overdrafts") on the Revenue Account (as defined below) or as an advance
("Working Capital Advance"; Working Capital Advances and Overdrafts
collectively referred to herein as "Working Capital Funds") on a revolving
basis, subject to the terms and conditions of this Agreement (including
but not limited to article 7), up to the aggregate maximum principal
amount of NLG 50,000,000 (such maximum to be referred to as the "Available
Working Capital Commitment").
2.4.2 The Working Capital Facility is available from the date of this Agreement
until the Final Maturity Date (the "Working Capital Facility Availability
Period"), with due observance of article 13.6, and any obligation of ABN
AMRO to provide Working Capital Funds to the Borrower under the Working
Capital Facility shall cease upon the Final Maturity Date. The Borrower
shall have the right to terminate the Working Capital Facility Commitment,
or part thereof, at any time prior to the Final Maturity Date, upon which
termination the Working Capital Facility Commitment, or such part thereof,
shall have been definitively terminated.
Article 3 - Term Loan Advance
- -----------------------------
3.1 With respect to the Term Loan Advance, the following provisions of this
Article 3 and the other provisions of this Agreement, excluding articles 4
and 5, shall apply.
3.2 The Term Loan Advance shall be drawn down by the Borrower, subject to the
conditions as set forth in article 7.1, in the amount of NLG 250,000,000,
as an Advance to which a variable rate of interest applies as from the
relevant Advance Date, ("Variable Rate Advance") or, at the option of the
Borrower, as an Advance to which a fixed rate of interest applies as from
the relevant Advance Date, ("Fixed Rate Advance"), by submission by the
Borrower, not earlier than the 10th Business Day preceding, and not later
than 10.00 a.m. on the 5th Business Day preceding, the intended Advance
Date, of a Notice of Drawdown substantially in the form of Exhibit 4,
specifying:
- that the Advance is a Variable Rate Advance or a Fixed Rate Advance;
- the amount of the Advance to be drawn down, being NLG 250,000,000, or
to remain outstanding (as the case may be as referred to in article
3.3);
- the Variable Rate Interest Period applicable, in the case of a
Variable Rate Advance, or the Fixed Rate Interest Period, in the case
of a Fixed Rate Advance.
3.3 Subject to the provisions of articles 13 and 23, any Variable Rate Advance
is not repayable at the end of the applicable Variable Rate Interest
Period (the end of any such period to be referred to as "Roll Over
Moment"), and any Fixed Rate Advance is not repayable at the end of the
applicable Fixed Rate Interest Period (the end of any such period to be
referred to as "Roll Over Moment"), but remains outstanding:
- as a Variable Rate Advance if the Borrower has notified the Agent in
accordance with the notification procedure described in article 3.2
that the relevant Advance
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<PAGE>
shall remain outstanding as a Variable Rate Advance,
specifying the applicable Variable Rate Interest Period;
- as a Fixed Rate Advance, if the Borrower has notified the Agent in
accordance with the notification procedure described in article 3.2
that the relevant Advance shall remain outstanding as a Fixed Rate
Advance, specifying the applicable Fixed Rate Interest Period.
3.4 Any Variable Rate Interest Period shall be one, three or six months - or
nine or twelve months if matching funding is available in the market for
Variable Rate Loans for nine or twelve months, respectively -, provided
that article 12.3 shall always be observed.
3.5 In the absence of a notification as referred to in article 3.3, a Variable
Rate Advance, or a Fixed Rate Advance, shall remain outstanding as a
Variable Rate Advance after the relevant Variable Rate Interest Period, or
relevant Fixed Rate Interest Period, with a Variable Rate Interest Period
of one month.
3.6.1 The Fixed Rate Interest Period applicable to the Advance shall not be less
than seven years, except if article 3.6.2 applies.
3.6.2 In the event that the period starting on the Roll Over Moment up to and
including July 1, 2005 is less than seven years, the Advance can be a
Fixed Rate Advance with a Fixed Rate Interest Period equal to such period.
3.7 The Agent shall cause any Advance to be transferred to the Revenue Account
of the Borrower, unless otherwise agreed by the Borrower and the Agent.
Article 4 - Construction Loan Advances
- --------------------------------------
4.1 With respect to the Construction Loan Advances, the following provisions
of this Article 4 and the other provisions of this Agreement, excluding
articles 3 and 5, shall apply.
4.2 A Construction Loan Advance shall be drawn down by the Borrower, subject
to the applicable conditions as set forth in article 7.1 and 7.2 as an
Advance to which a variable rate of interest applies as from the relevant
Advance Date ("Variable Rate Advance") or, at the option of the Borrower,
as an Advance to which a fixed rate of interest applies as from the
relevant Advance Date, ("Fixed Rate Advance"), by submission by the
Borrower, not earlier than the 10th Business Day preceding, and not later
than 10.00 a.m. on the 5th Business Day preceding, the intended Advance
Date, of a Notice of Drawdown substantially in the form of Exhibit 5,
specifying:
- that the Advance is a Variable Rate Advance or a Fixed Rate Advance,
under the Construction Loan Facility;
- the amount of the Advance to be drawn down, or to remain outstanding
(as the case may be as referred to in article 4.3);
- the Variable Rate Interest Period applicable, in the case of a
Variable Rate Advance, or the Fixed Rate Interest Period, in the case
of a Fixed Rate Advance.
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<PAGE>
4.3 Subject to the provisions of articles 13 and 23, any Variable Rate Advance
is not repayable at the end of the applicable Variable Rate Interest
Period (the end of any such period to be referred to as "Roll Over
Moment"), and any Fixed Rate Advance is not repayable at the end of the
applicable Fixed Rate Interest Period (the end of any such period to be
referred to as "Roll Over Moment"), but remains outstanding:
- as a Variable Rate Advance if the Borrower has notified the Agent in
accordance with the notification procedure described in article 4.2
that the relevant Advance shall remain outstanding as a Variable Rate
Advance, specifying the applicable Variable Rate Interest Period;
- as a Fixed Rate Advance, if the Borrower has notified the Agent in
accordance with the notification procedure described in article 4.2
that the relevant Advance shall remain outstanding as a Fixed Rate
Advance, specifying the applicable Fixed Rate Interest Period.
4.4 Any Variable Rate Interest Period shall be one, three or six months - or
nine or twelve months if matching funding is available in the market for
Variable Rate Loans for nine or twelve months, respectively -, provided
that article 12.3 shall always be observed.
4.5 In the absence of a notification as referred to in article 4.3, a Variable
Rate Advance, or a Fixed Rate Advance, shall remain outstanding as a
Variable Rate Advance after the relevant Variable Rate Interest Period, or
relevant Fixed Rate Interest Period, with a Variable Rate Interest Period
of one month.
4.6.1 The Fixed Rate Interest Period applicable to an Advance shall not be less
than two years, except if article 4.6.2 applies.
6.4.2 In the event that the period starting on the Roll Over Moment up to and
including July 1, 2005 is less than two years, an Advance can be a Fixed
Rate Advance with a Fixed Rate Interest Period equal to such period.
4.7 Any Advance to be drawn under the Construction Loan Facility shall be
drawn down solely for the purpose of financing the Capital Expenditures.
4.8 The minimum amount of an Advance shall be NLG 6,000,000 and any Advance
shall be a multiple of NLG 2,000,000.
4.9 The Agent shall cause any Advance to be transferred to the Revenue Account
of the Borrower, unless otherwise agreed by the Borrower and the Agent.
Article 5 - Working Capital Facility
- ------------------------------------
5.1 With respect to the Working Capital Advances and Overdrafts, the following
provisions of this article 5 and the other provisions of this Agreement,
excluding articles 3 and 4, shall apply.
5.2 Working Capital Funds will be made available by ABN AMRO under the Working
Capital Facility as an Overdraft or as a Working Capital Advance, subject
to article 7 and the other provisions of this Agreement (excluding
articles 3 and 4).
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<PAGE>
5.3 A Working Capital Advance shall be drawn down by the Borrower, subject to
the conditions as set forth in article 7.1 and 7.2, as an Advance to which
a variable rate of interest applies as from the relevant Advance Date
("Variable Rate Advance"), by submission by the Borrower, not earlier than
the [10th] Business Day preceding, and not later than 10:00 a.m. on the
[5th] Business Day preceding, the intended Advance Date, a Notice of
Drawdown substantially in the form of Exhibit 5, specifying:
- that the Advance is a Variable Rate Advance under the Working Capital
Facility;
- the amount of the Advance to be drawn down, or to be remaining
outstanding (as the case may be as referred to in article 5.4);
- the Variable Rate Interest Period applicable.
5.4 Subject to the provisions of articles 13 and 23, any Variable Rate Advance
is repayable at the end of the applicable Variable Rate Interest Period
(the end of any such period to be referred to as "Roll Over Moment"), but
remains outstanding as a Variable Rate Advance if the Borrower has
notified the Agent in accordance with the notification procedure described
in article 5.3 that the relevant Advance shall remain outstanding as a
Variable Rate Advance, specifying the applicable Variable Rate Interest
Period.
5.5 Any Variable Rate Interest Period shall be one, three or six months - or
nine or twelve months if (i) so requested by the Borrower and (ii)
matching funding is available in the market for variable rate loans for
nine or twelve months, respectively, provided that article 12.3 shall
always be observed.
5.6 In the absence of a notification as referred to in article 5.4, a Variable
Rate Advance is repayable at the end of the applicable Variable Rate
Interest Period.
5.7 Any Advance to be drawn and any Overdraft to be made under the Working
Capital Facility shall be drawn down and made, respectively, solely for
the purpose of paying Operating Costs and Finance Costs (excluding
principal).
5.8 The minimum amount of an Advance shall be NLG 2,500,000 and any Advance
shall be a multiple of NLG 500,000.
5.9 The Agent shall cause any Advance to be transferred to the Revenue Account
of the Borrower, unless otherwise agreed between the Borrower and the
Agent.
5.10 Working Capital Funds through Overdrafts shall be provided by ABN AMRO by
allowing - and ABN AMRO shall allow - the Borrower, subject to the
conditions as set forth in article 7.1 and 7.2, to create a negative
balance on the Borrower's Revenue Account through debiting such Revenue
Account, provided that as a result of such debiting the sum of (i) the
total principal amount of outstanding Overdrafts and (ii) the total
principal amount of outstanding Working Capital Advances, shall not exceed
NLG 50,000.000.
Article 6 - Base Case Projections
- ---------------------------------
6.1 Upon signing of this Agreement, the Borrower and ABN AMRO shall agree upon
the Base Case Projections, substantially in the form of the Base Case
Projections Proforma
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attached as Exhibit 6. The Borrower shall periodically, but not less than
annually (subject to article 6.2) and with due observance of article 19,
revise the Base Case Projections after consultation with the Agent so as
to reflect changes in projected costs and expenses to be incurred in
connection with the construction and maintenance of the Project and
projected costs, expenses and revenues in connection with the maintenance,
operation and exploitation of the System and the providing of
telecommunications services over the System. Such revised and agreed Base
Case Projections shall replace and supersede the Base Case Projections
Proforma and be attached to this Agreement as a revised Exhibit 6.
6.2 If the semi-annual unaudited financial statements of the Borrower deviate
from the Base Case Projections (updated and revised in accordance with
article 6.1) Base Case Projections shall be revised by the Borrower after
consultation with the Agent semi-annually.
Article 7 - Conditions to Drawdown of First Advance(s) and to Making of First
- -----------------------------------------------------------------------------
Overdraft
- ---------
7.1 The Borrower shall be permitted to draw the Term Loan Advance under the
Term Loan Facility and the Borrower shall be permitted to draw a first
Advance under the Construction Loan Facility and the Working Capital
Facility, or be allowed a first Overdraft under the Working Capital
Facility, and the Banks shall make such Advance(s) and allow such
Overdraft, in accordance with articles 3, 4 and 5 (to the extent
applicable), if and provided that, as per the contemplated Advance Date as
specified in the relevant Notice of Drawdown, or as per the intended date
of Overdraft, each of the following conditions shall have been fulfilled:
(a) the Project Agreements have been duly executed and delivered by the
respective parties thereto and the Finance Documents are to the
satisfaction of the Agent and have been duly executed and delivered
by the respective parties thereto and the Agent has received
photocopies of the original executed and delivered Project
Agreements and the Finance Documents, certified by the Borrower to
be photocopies of such originals;
(b) the Security Rights contemplated to be created pursuant to article
21 have been validly created and are validly in existence as per the
relevant Advance Date;
(c) no event has occurred and no circumstance exists which would
constitute an Event of Default;
(d) no event has occurred and no circumstance exists which, solely with
the giving of notice and/or the lapse of time, would constitute an
Event of Default;
(e) all licenses, permits, approvals, registrations and exemptions, and
the exclusive contractual rights to use the licenses and permits
held by the respective Municipalities, necessary as from January 1,
1996 for the construction and maintenance of the Project and the
System, the continued operation of the System and the providing of
telecommunications services via the System in accordance with and as
contemplated in article 20.4, to the extent currently required by
and available under law, have been obtained or made or are held by
the Borrower, it being understood that the Borrower does not have
infrastructure licenses (the "Infrastructure Licenses") as provided
to be granted in the draft Act on the Fixed Telecommunications
Installations ("Vergunningenwet kabelgebonden telecommunicatie-
infrastructuur");
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<PAGE>
(f) the Consortium Members are jointly the holders, directly or
indirectly, of Control over the Borrower, subject to the priority
share in the Borrower issued to MAA;
(g) the Borrower and the Agent shall have agreed on the manner in which
the amounts due under the Guaranteed Bridge Facility Agreement will
be paid to ABN AMRO, as such agreement will be substantially
reflected in Exhibit 7.2;
(h) the Borrower shall have submitted to the Agent an interim balance
sheet pro forma, reflecting the financial position of A2000 and of
the Borrower, respectively, substantially in the form of Exhibit 7.1
and certified to be true and correct by Mr. John Pierce Broach, a
managing director of the Borrower, drawn up in accordance with
accounting principles generally accepted in The Netherlands
consistently applied to fairly present, in all material respects,
the financial position of A2000 and of the Borrower, consolidated
and not consolidated, respectively, as per the Advance Date or the
date of the Overdraft immediately after drawdown of the relevant
Advance(s) or the making of the Overdraft;
(i) the Borrower shall have submitted to the Agent a flow of funds sheet
("Flow of Fund Sheet"), and certified to be true and correct by Mr.
John Pierce Broach, a managing director of the Borrower, reflecting
the application of funds to be drawn by it on the intended Advance
Date or made available to it as Overdraft on the intended date of
Overdraft and the flow of these funds at its level, the A2000 level
and the level of the shareholders in A2000, up to and including the
repayment of the amount of NLG 679,478,988 as referred to in
recitals (C) and (E), substantially in the form of Exhibit 7.2 and
duly declared in writing to be correct by the Borrower;
(j) the Borrower shall have opened the Designated Bank Accounts with ABN
AMRO as contemplated in article 9.1;
(k) MAA has duly executed and delivered to the Borrower and the Agent
the MAA Letter Agreement substantially in the form as attached as
Exhibit 8;
(l) the submission to the Agent of (i) (photo)copies of the articles of
association and shareholders registers of the Borrower, its
Subsidiaries and of A2000, certified by a managing director of the
Borrower to be true (photo)copies of the originals, (ii) recent
extracts from the trade register regarding the Borrower, A2000 and
the Subsidiaries and (iii) photocopies of the corporate resolutions
required for the valid execution and delivery by the Borrower and
the Subsidiaries of this Agreement and the performance of their
respective obligations thereunder and required for the valid
creation of any of the Security Rights;
(m) a principal repayment schedule shall have been agreed with and
submitted to the Agent, to be attached as Exhibit 9, with respect to
the repayment of principal of the relevant Advance, and any
outstanding Advances, (the last of such repayment schedules,
replacing and superseding any earlier repayment schedule, hereafter
to be referred to as the "Principal Repayment Schedule" and to be
attached as definitive Exhibit 9);
(n) all conditions of drawdown as set forth in article 4.1 of the A2000
Bank Facility Agreement shall have been fulfilled; and
(o) the Agent shall have received an opinion from Clifford Chance and an
opinion from De Brauw Blackstone Westbroek in form and substance
reasonably satisfactory to the Agent.
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<PAGE>
7.2 A second and following drawdown(s) of a Construction Loan Advance and/or a
Working Capital Facility Advance and a second and following Overdrafts are
subject to the fulfilment of the conditions as set forth in article 7.1
under (b), (c), (d), (e) and (f).
7.3 The agent may waive any of the conditions as set forth in article 7.1 or
as referred to in article 7.2 with the written consent of the Majority of
Banks, subject to any reasonable conditions to be fulfilled.
Article 8 - Netherlands Guilders; Priority of payments of Finance Costs;
- ------------------------------------------------------------------------
Business Days
- -------------
8.1 Any and all amounts and financial rights and obligations mentioned or
referred to in this Agreement are amounts, rights and obligations in
Netherlands Guilders.
8.2 Any payments to the Agent, ABN AMRO, the Banks, or any of them, pursuant
to this agreement, shall be applied in the following order and priority:
- damages, if any;
- penalty interest;
- breakage costs;
- fees and expenses as referred to in article 14;
- fees as referred to in article 12;
- taxes and increased costs, if any, as referred to in article 15;
- interest as referred to in article 12;
- principal, in order of maturity as determined by the Agent.
8.3 If any payment of Finance Costs due and payable to ABN AMRO, the Agent,
the Banks or any of them under this Agreement is due and payable pursuant
to the other provisions of this Agreement on a day which is not a Business
Day, such payment is due and payable on the immediately succeeding
Business Day, together with the interest accrued up to and including such
Business Day.
Article 9 - Designated Bank Accounts
- ------------------------------------
9.1.1 The Borrower shall open and maintain an account with ABN AMRO (the
"Revenue Account") in its name and shall require from, and shall cause,
each third party which has an obligation to pay any amount to the
Borrower, to transfer such amount, when due and payable to the Borrower,
to the Revenue Account, except as otherwise provided in this Agreement or
permitted with the prior written consent of the Agent, which shall not be
unreasonably withheld.
9.1.2 Except as otherwise provided in this Agreement, any Advance and any other
payment under this Agreement by the Agent, the Banks, or any of them, to
the Borrower shall be credited to the Revenue Account. Any payments made
by the Borrower to the Agent, the Banks, or any of them, or any third
party, shall be debited against the Revenue Account, except as otherwise
provided in this Agreement, or permitted with the prior written consent of
the Agent which shall not be unreasonably withheld.
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<PAGE>
9.2 The Borrower shall not open, and shall cause any of its Subsidiaries not
to open, any bank account with any bank or financial institution other
than ABN AMRO, except as otherwise provided in this Agreement or permitted
with the prior written consent of the Agent, which shall not be
unreasonably withheld (but which may, at the option of ABN AMRO, be
subject to the condition that such bank accounts with such or banks or
financial institutions be pledged to the Agent and the Banks,
substantially in accordance with article 21). It is understood that the
Borrower, or a Subsidiary, is allowed to invest cash balances with other
banks, if such other banks would be prepared to provide the Borrower, or
such Subsidiary, with a higher yield on such Authorized Investments than
ABN AMRO.
9.3 Any bank account with ABN AMRO (including the Revenue Account) opened by
the Borrower, or any of its Subsidiaries, shall be a Designated Bank
Account, unless notified in writing to the Borrower to the contrary by ABN
AMRO.
9.4 The Borrower shall not have the right to withdraw, and shall cause any of
its Subsidiaries not to withdraw, any amount from any of the Designated
Bank Accounts, except (i) in the ordinary course of business, (ii) as
otherwise provided in this Agreement or (iii) as permitted with the prior
written consent of the Agent, which shall not be unreasonably withheld.
9.5.1 ABN AMRO shall apply interest off setting as follows: to each of the
Designated Accounts interest will be credited or debited as if no set off
would take place, in accordance with this Agreement or as otherwise agreed
between ABN AMRO and the Borrower or, if the account holder is a
Subsidiary, the Subsidiary. Once per quarter ABN AMRO shall credit to the
Revenue Account of the Borrower an amount equal to the difference of (i)
the net balance of the interest over the immediately preceding quarter
credited and debited to each of the Designated Accounts separately and
(ii) the net balance of the interest which would have been due and payable
to ABN AMRO if there would have been one bank account with ABN AMRO.
9.5.2 For the avoidance of doubt, it is confirmed that the interest set off
provisions of article 9.5.1 do only apply to any Overdrafts and do not
apply to interest to be paid on or with respect to any Advances.
Article 10 - Interest Payable to the Borrower and Authorized Investments
- ------------------------------------------------------------------------
10.1 ABN AMRO shall pay interest to the Borrower on any cash balance of any
such Borrower's Designated Bank Accounts not invested in Authorized
Investments equal to the interest rate which ABN AMRO applies to
comparable accounts of comparable customers. The interest shall be paid
quarterly and in arrears and credited to the Revenue Account.
10.2 The Borrower shall be allowed to use any cash balance of the Designated
Bank Accounts to make Authorized Investments. Interest received from
Authorized Investments shall be credited to the Revenue Account upon
receipt.
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<PAGE>
10.3 All Authorized Investments will be made for the account of the Borrower.
All documents of title or other documentary evidence of ownership with
respect to Authorized Investments made out of any relevant Designated Bank
Account will be held in the custody of ABN AMRO and, if any such document
or other evidence comes into the possession or control of the Borrower, it
shall cause the same to be delivered forthwith to ABN AMRO. The Borrower
shall, immediately upon request, deliver to the Agent a copy of every
circular, notice, report, set of accounts or other documents received by
it in connection with any investment held for its account in accordance
with this article 10.3.
10.4 The proceeds of realisation or liquidation of any Authorized Investment
shall be credited directly to the relevant Designated Bank Account from
which the investment was made or, upon timely instruction by the Borrower,
invested in another Authorized Investment.
10.5 If any Authorized Investment ceases to be an Authorized Investment, the
Borrower shall as soon as reasonably practicable after becoming aware
thereof (and in no event more than 10 Business Days thereafter) cause such
investment to be replaced by an Authorized Investment or by cash.
10.6 The foregoing provisions of this Article 10 shall apply mutatis mutandis
in respect of any Designated Bank Accounts and Authorized Investments in
the name of any Subsidiary.
Article 11 - Payments out of the Revenue Account and related matters
- --------------------------------------------------------------------
11.1 Any Advance to be drawn by the Borrower as contemplated in this Agreement,
shall be transferred to the Revenue Account and the Borrower shall have
the obligation to apply these funds as contemplated in recital (E), 4.7
and 5.7, respectively.
11.2 Except as otherwise provided in this Agreement or agreed in writing
between the Borrower and the Agent, and provided that no Event of Default
has occurred and is continuing, the following payments are paid by the
Borrower out of the Revenue Account in accordance with the following
provisions of this article 11 and in the following order and priority, to
the extent monies are available in the Revenue Account (which includes any
amount which may be drawn by the Borrower under the Working Capital
Facility in accordance with article 5):
(a) the payment of the Operating Costs and Capital Costs and
Capital Expenditures, to the extent included in the Budget;
(b) provided that all payments required to be made in accordance
with paragraph (a) have been duly made or provided for, the
payment of Finance Costs in accordance with this Agreement;
(c) provided that all payments required to be made in accordance
with paragraphs (a) and (b) have been duly made or provided
for, prepayment of any amount as provided in article 13.3;
(d) provided that all payments required to be made in accordance
with paragraphs (a) up to and including (c) have been duly
made or provided
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for and subject to article 20.18, the payment of any
principal of and interest on Subordinated Debt, if any;
(e) provided that all payments required to be made in accordance
with paragraphs (a) up to and including (d) have been duly
made or provided for and subject to article 20.18, payments
of Equity Distributions.
11.3 Upon the occurrence of an Event of Default, any payments by the Borrower
as permitted under article 11.2 prior to the occurrence of an Event of
Default, and any other payment by the Borrower or Subsidiary out of any of
the Designated Bank Accounts, shall only be made by the Borrower and the
Subsidiary subject to the prior written consent of the Agent, in such
order and priority as reasonably determined by the Agent.
Article 12 - Interest and Fees Payable by the Borrower
- ------------------------------------------------------
12.1 The Borrower shall with respect to an Advance drawn by the Borrower or
with respect to an Overdraft created by the Borrower pay interest at the
rates set forth below:
(a) to the Banks, with respect to and calculated over any unpaid
balance of any Variable Rate Advance: the interest rate
equal to AIBOR, applicable on the Advance Date on which the
relevant Advance was drawn, for the relevant Variable Rate
Interest Period increased by the Margin;
(b) to the Banks, with respect to and calculated over any unpaid
balance of any Fixed Rate Advance: the interest rate per
annum, as agreed between the Borrower and the Agent prior to
the relevant Advance Date with respect to such Advance as per
the Fixing Date specified in the relevant Notice of Drawdown
increased by the Margin;
(c) to ABN AMRO with respect to an Overdraft the interest rate
equal to the "fictief promesse disconto" as published from
time to time in "Het Financieele Dagblad", increased by one
per cent. (1%).
12.2 Any amounts of interest as referred to above in article 12.1 under (a),
(b) and (c) shall be calculated on the basis of a year of 360 days and
actual days elapsed. Any amount of unpaid interest accrued:
- on any Fixed Rate Advance shall be due and payable semi-annually in
arrears on the date which is six months, twelve months, etc. from
the relevant Advance Date;
- on any Variable Rate Advance shall be due and payable (i) at the end
of the relevant Variable Rate Interest Period, if such period is six
months or less, and (ii) after (a) six months and (b) at the end of
the relevant Variable Rate Interest Period, if such period exceeds
six months; and
- on any Overdraft shall be due and payable quarterly in arrears;
with due observance of article 12.3.
12.3 The Term Loan Advance and any Construction Loan Advance shall be drawn on
such Advance Dates, or be rolled over on such Roll Over Moments, with such
Fixed Rate Interest Periods or Variable Rate Interest Periods, that the
number of different Interest Payment Dates at any time applicable to such
Advances shall not exceed five.
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12.4.1 The Borrower shall pay a commitment fee to the Banks, equal to 0.30% per
annum, calculated on the basis of a year of 360 days and actual days
elapsed, over such portion of the Bank Facility which shall not have
been drawn down under the Bank Facility and shall have remained
available for drawdown under the Available Loan Commitment, i.e. for the
following periods:
- Available Term Loan Commitment: from the date of this Agreement
(such date included) up to June 1, 1996;
- Available Construction Loan Commitment: from the date of this
Agreement (such date included) up to and including December 31,
1999, with due observance of the maximum amounts available for
drawdown in the years referred to in article 2.3.1; and
- Available Working Capital Commitment: from the date of this
Agreement (such date included) up to the Final Maturity Date.
12.4.2 In the event of a drawdown as referred to in article 2.3.2, the excess
portion shall be deemed to have been available under the Available
Construction Loan Commitment as from January 1 of the year of such
drawdown and the commitment fee as referred to in article 12.4.1 shall
be increased accordingly.
12.4.3 The fee referred to above in article 12.4.1, increased as the case may
be in accordance with article 12.4.2, shall be due and payable in
arrears and in quarterly installments.
12.5 The Borrower shall, in establishing and conducting its interest rate
management, exercise prudent care. Upon written request by the Agent,
the Borrower and the Agent shall discuss the possibility and
desirability of converting a Variable Rate Advance or Variable Rate
Advances into a Fixed Rate Advance or Fixed Rate Advances, with a view
to limit or exclude variable rate exposure.
Article 13 - Repayment and Prepayment
- -------------------------------------
13.1 The Borrower shall repay the principal amount of any Advance drawn down
by it to the Banks in accordance with the Principal Repayment Schedule
on the relevant Payment Dates as stated therein, which shall reflect
that any outstanding Term Loan Advance and any outstanding Construction
Loan Advance shall in any and all events be repaid on July 1, 2005,
without prejudice to the other provisions of this article 13 and without
prejudice to article 23.
13.2 Without prejudice to the other provisions of this article 13, the
Borrower shall have the right to prepay to the Banks on any Payment
Date, wholly or partially, any outstanding Advance(s) (without the right
to redraw any prepaid Term Loan Advance or Construction Loan Advance or
a portion thereof), subject to the obligation to simultaneously pay
accrued interest and the amount of actual breakage costs as provided in
article 13.5, if any, provided that (i) the Agent shall have received
written notice of the Borrower that the Borrower shall exercise the
right as referred to above at least 20 Business Days prior to the date
of intended prepayment as specified in such notice, and (ii) the amount
of such prepayment shall be at least NLG 5,000,000 or a multiple
thereof.
13.3 The Borrower shall have the obligation to prepay to the Banks:
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- upon the occurrence of an Event of Loss and subsequent payment to
the Borrower of insurance proceeds and/or other proceeds to
compensate the Borrower for the loss or damage to any of its
assets (such insurance proceeds, if any, and such other proceeds,
if any, hereafter collectively referred to as "Loss Proceeds"), an
amount equal to the difference of (i) the amount of Loss Proceeds,
and (ii) the Repair Amount, to the extent that the former exceeds
the latter;
- upon the occurrence of an Event of Default, or event or
circumstance which, solely with the giving of notice and/or the
lapse of time, would constitute an Event of Default, and
subsequent payment to the Borrower of Loss Proceeds, an amount
equal to such Loss Proceeds;
- at the reasonable discretion of the Agent upon payment of Loss
Proceeds exceeding the amount of NLG 75,000,000, the amount of
such Loss Proceeds;
- an amount or amounts, equal to the amount or amounts paid by any
of the Municipalities under any of the Purchase Agreements
pursuant to article 2.4 thereof.
13.4 Each amount of principal prepaid in accordance with this article 13
shall be applied in order of maturity as determined by the Agent.
13.5 If any of the following events occurs, the Borrower shall pay to each
Bank an amount equal to the actual documented losses (excluding the loss
of Margin) suffered by such Bank, incurred in liquidating or re-
employing funds as result of:
(i) any prepayment pursuant to article 13.2 or article 23.2 of the
principal amount of any Variable Rate Advance on a date other than
the last date of the Variable Rate Interest Period applicable to
such Advance;
(ii) any prepayment pursuant to article 13.2 or article 23.2 of the
principal amount of any Fixed Rate Advance;
(iii) failure by the Borrower to draw an Advance in accordance with this
Agreement as specified in the relevant Notice of Drawdown
submitted by the Borrower to the Agent;
(iv) failure by the Borrower to prepay the principal amount specified
to be prepaid in a notice as referred to in article 13.2.
13.6 Any Working Capital Advance and any principal amount of Overdraft has to
be definitively repaid before or on the Final Maturity Date,
notwithstanding any other provision of this Agreement.
Article 14 - Agent and Independent Consultants Expenses
- -------------------------------------------------------
The Borrower shall (i) upon the occurrence of an Event of Default, reimburse the
Agent from time to time on demand of the Agent for all reasonable out of pocket
expenses of the Agent actually incurred in connection with, and for all
reasonable fees and disbursements of Independent Consultants or other external
counsel charged in connection with, the preservation and/or enforcement of the
rights of ABN AMRO, the Agent and/or the Banks and/or any of them under this
Agreement or under any of the Finance Documents and the Project Agreements, and
(ii) reimburse the Agent from time to time on demand of the Agent for all
reasonable fees and disbursements of an outside insurance consultant approved by
the Borrower for its services to be rendered to the Agent as contemplated in
article 20.3 including services in connection with
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a change of the Insurance. The Agent shall give notice to the Borrower prior to
appointment or consultation of any such Independent Consultant or such other
external counsel.
Article 15 - Taxes; Increased Costs
- -----------------------------------
15.1 All payments to be made by the Borrower under this Agreement to or for the
account of the Agent, the Banks or any of them, shall be made without any
set-off or counterclaim (except to the extent provided in article 9.5) and
shall be made without and free and clear of any deduction or withholding
for or on account of any Taxes, unless the Borrower is required by law or
any competent court or authority to make any such deduction or withholding
for or on account of Taxes.
15.2 If as a consequence of a Change in Law or Change in Interpretation:
- any deduction or withholding for or on account of Taxes by any
fiscal authorities of The Netherlands is (or, on the making of the
next succeeding payment to be made under this Agreement, would be)
required to be made from or in respect of any payment to be made by
the Borrower under this Agreement to or for the account of the
Agent, the Banks, or any of them; or
- ABN AMRO, the Agent, the Banks, or any of them, are required to
maintain reserves, special deposit, cash ratio, liquidity, solvency
or capital adequacy requirements of De Nederlandsche Bank N.V. (the
Dutch Central Bank) in relation to Advances made or to be made to
the Borrower under this Agreement or otherwise, or such requirement
is changed; or
- any other obligation in connection with this Agreement is imposed on
ABN AMRO, the Agent, the Banks, or any of them;
and as a result thereof ABN AMRO, the Agent, the Banks, or any of them,
incur(s) a cost or an additional cost with respect to the Advances made or
created, or to be made and created, under this Agreement, then, in each
such case:
- the Agent shall, upon becoming aware of the same, promptly notify
the Borrower and shall consult with the Borrower if and to which
extent the adverse consequences of any such Change can be limited;
and
- the Borrower shall indemnify ABN AMRO, the Agent, the Banks, or the
relevant Bank, for any such costs or additional costs (which means,
for the avoidance of doubt, that the Agent, the Banks or the
relevant Bank would, in the event of any deduction or withholding
for or on account of Taxes as referred to, receive a net sum equal
to the aggregate of the sums it/they would have received, and been
entitled to retain under this Agreement, had no such deduction or
withholding been made or required to be made).
Article 16 - Evidence of Accounts
- ---------------------------------
16.1 The entries made in the accounts maintained by ABN AMRO, the agent and any
of the Banks in accordance with usual practice of each of them shall be
conclusive evidence between ABN AMRO, the Agent and any of the Banks, on
the one hand, the Borrower, on the other hand, in relation to the
obligations of the Borrower under this Agreement, in the absence of
manifest error. In the event of a dispute with respect to any sum payable
according to the accounts of ABN AMRO, the Agent, or any of the Banks by
the Borrower under this Agreement, the Borrower shall not be entitled to
refuse or
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suspend payment of such sum to the Agent, the Banks or the relevant Bank,
without prejudice to its right to dispute the obligation to pay such sum
in accordance with the provisions of this Agreement.
16.2 ABN AMRO shall maintain a written survey, reflecting any amounts of
principal, interest and fee owing to ABN AMRO, the Agent, the Banks and
any of them, per any Interest Payment Date. Upon request by the Borrower
ABN AMRO shall submit a photocopy thereof to the Borrower. Any
incorrectness thereof shall not be invoked against ABN AMRO in any way.
Article 17 - No waiver; exercise of rights
- ------------------------------------------
No failure or delay on the part of the Agent, the Banks, or any of them, in
exercising any right under this Agreement shall operate as a waiver thereof.
The rights and remedies under this Agreement are cumulative and not exclusive of
any rights or remedy which the Agent, the Banks or any of them, would otherwise
have.
Article 18 - Representations and Warranties
- -------------------------------------------
18.1 The Borrower represents and warrants that the following statements are
true and correct as of the date hereof and as of each of the Advance
Dates:
(a) the Borrower is and each of the Subsidiaries is a private company
with limited liability ("besloten vennootschap met beperkte
aansprakelijkheid") validly incorporated and existing under the law
of The Netherlands with the articles of association as set forth in
Exhibit 11, except to the extent that such articles of association
have been expanded or amended with the prior written consent of the
Agent in accordance with article 20.9;
(b) the Borrower, A2000, and any of the shareholders of A2000 and the
companies of the group to which these respective shareholders belong
(such shareholders and companies hereafter referred to as the "Other
Parties") have the corporate power to enter into this Agreement, the
other Finance Agreements and the Project Agreements (to the extent
it is a party thereto) and to perform their respective obligations
thereunder;
(c) all licenses, permits, approvals, registrations and exemptions, and
the exclusive contractual rights to use the licenses and permits
held by the respective Municipalities, necessary as from January 1,
1996 for the construction and maintenance of the Project and the
System, the continued operation of the System and the providing of
telecommunications services via the System in accordance with and as
contemplated in article 20.4, to the extent currently required by
and available under law, have been obtained or made or are held by
the Borrower, it being understood the Borrower does not have the
Infrastructure Licenses;
(d) the Borrower has obtained licenses or the exclusive right to usea
such licenses under article 21 and/or article 23 of the Act of
Telecommunications ("Wet op de Telecommunicatievoorzieningen") for
all significant portions of each of the Municipalities which are of
material importance to the Borrower to enable it to operate the
System and to provide telecommunication services in the
Municipalities and to the best knowledge of the Borrower, after due
inquiry, the application under article 21 of the Act on the
Telecommunications by third parties
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<PAGE>
other than Sites B.V. relating to areas of any of the Municipalities
do not relate to any areas which are of material importance to the
Borrower and its ability to duly and punctually perform its
obligations under this Agreement;
(e) notwithstanding the text of article 4 paragraph 2 of the CAI
Agreements, the Borrower has permission from the relevant
Municipalities to extend and expand the existing telecommunications
infrastructure;
(f) the execution and delivery by the Borrower of this Agreement and the
execution and delivery by the Borrower, A2000 and the Other Parties
- to the extent it is party thereto - of the other Finance Documents
and the Project Agreements do not materially violate, or result in a
material violation of, or materially conflict with, any agreement to
which the Borrower, A2000 or any of the Other Parties is a party, or
any obligation of the Borrower, A2000 or any of the Other Parties
vis-a-vis any supranational, national, provincial, regional or local
governmental authority;
(g) no litigation or restriction, against or involving, the Borrower or
any Subsidiary is pending or, to the best of the Borrower's
knowledge, threatened which has or may have the result that the
performance (i) by the Borrower of any of its obligations under this
Agreement, the other Finance Documents or the Project Agreements or
(ii) by any of its Subsidiaries of its obligations under article 27,
the other Finance Documents or the Project Agreements, is adversely
affected;
(h) the factual information that has been provided by Philips
Electronics N.V., United International Holdings, Inc., US West, Inc.
and others to the Agent and as set forth in the Information
Documents was true and accurate in any and all material respects as
per the respective dates of such Information Documents and the Agent
has been provided with any material information deviating from, or
updating, the information provided in the Information Documents;
(i) the Consortium Members are the holders, directly or indirectly, of
Control over the Borrower, subject to the priority shares in the
Borrower issued to MAA;
(j) the Borrower is the direct holder of 100% of the outstanding shares
in TV a la Carte B.V.;
(k) the Borrower and the Subsidiaries do not have any pension
obligations vis-a-vis any of its employees, unless fully funded or
fully provided for;
(l) the Borrower has no financial obligations to any of the
Municipalities by virtue of any loan or facility agreement or
arrangement with any of the Municipalities and no such loan or
facility agreement or arrangement with any of the Municipalities
exists.
18.2 Each breach of any representation and warranty shall be considered to be a
breach ("toerekenbare tekortkoming van") by the Borrower under this
Agreement.
Article 19 - Financial and Technical Information; Inspection
- ------------------------------------------------------------
19.1 The Borrower agrees and shall ensure that:
(i) prior to each December 1 of any year during the term of this
Agreement an annual budget is prepared by the Borrower substantially
in the form of Exhibit 12, including (revised) Base Case Projections
substantially in the form of Exhibit 6 and, without limitation, all
projected income and expenses (including, in
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particular and specified as such, the Capital Expenditures)
forecast to be received or incurred in the immediately succeeding
financial year of the Borrower;
(ii) such annual budget is delivered to the Agent by January 1 (save
that the annual budget corresponding to the financial year during
which this Agreement is entered into shall be the Base Case
Projections Proforma attached hereto as Exhibit 6);
(iii) the Borrower and the Agent shall discuss such annual budget prior
to the succeeding January 31;
(iv) the annual budget shall then be determined by the Borrower before
February 15 of the next following year and a copy thereof shall be
sent to the Agent before the following March 1. The budget so
submitted to the Agent shall be the Budget as such term is used in
this Agreement.
19.2.1 The Borrower shall furnish the Agent with (i) the consolidated audited
annual accounts, audited by a recognized firm of independent auditors,
of each of A2000 the Borrower and (non-consolidated) each of tis
Subsidiaries within 120 days following the expiry of the financial year
of each of such entities, respectively, (ii) semi-annual unaudited
financial statements of each of such entities with 60 days following the
expiry of the second financial quarter of each of such entities,
respectively, (iii) to the extent not otherwise required under other
provisions of this Agreement and only upon request by the Agent not more
than once per six months, all written information, documents, plans and
reports which the Borrower shall furnish or shall have furnished to its
supervisory board and its general meeting of shareholders as
contemplated under clause 8 of the Shareholders Agreement and (iv) not
more than once per year, but at any time upon the occurrence of an Event
of Default, such other operational, financial and technical information
as the Agent may reasonably require (which may include a certification
by the Borrower that it has duly observed all obligations of this
Agreement).
19.2.2 The Borrower shall ensure that each set of annual accounts/financial
statements of the Borrower and each of its Subsidiaries delivered
pursuant to Article 19.2.1 shall consist of a balance sheet, profit and
loss account and a cash flow statement and such other accounts and
information as the Agent may reasonably require, shall be prepared in
accordance with accounting principles generally accepted in The
Netherlands and (except as disclosed in the notes thereto) consistently
applied.
19.2.3 The Borrower shall ensure that each set of annual accounts/financial
statements relating to the Borrower and its Subsidiaries as referred to
above in this article 19 shall be certified by a managing director of
the Borrower as having been prepared in good faith and with reasonable
care in giving an accurate reflection of the relevant company's
financial condition as at the end of the period to which those financial
statements relate and to the results of its operation during such
period.
19.3 The Borrower shall provide the Agent with all information, oral or
written, provided to MAA, (a) in its capacity of shareholder of the
Borrower and (b) pursuant to the MAA CAI Agreement.
19.4 The Borrower shall, following the occurrence of an Event of Default,
permit the representatives of the Agent and the Banks, at the expense of
the Agent or the Banks,
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as the case may be, to visit and inspect the premises and offices of the
Borrower, the Project and the System and to make photocopies and
extracts of all books of account, records, reports and other papers of
the Borrower and to discuss its affairs, finances and accounts with
managing directors and employees of the Borrower and its independent
public accountants, all at reasonable times and as often as may be
reasonably requested.
19.5 The Borrower agrees with the Agent that (i) as per each January 1
(starting 1997) and July 1 (starting 1997), the Debt Equity Ratio as per
such date, and (ii) as per each January 1 (starting 2000) and July 1
(starting 2000) the Debt Service Coverage Ratio for the twelve months
immediately preceding such date, will be determined, in consultation
with the Agent, as soon as possible after the relevant July 1 and
January 1 and in any case within 60 days from the relevant January 1 and
July 1, respectively.
Article 20 - Further obligations of the Borrower
- ------------------------------------------------
20.1 The Borrower shall have, as long as any sum is due under this Agreement
by the Borrower to the Agent, the Banks or any of them, the obligations
as set forth in the following paragraphs of this article 20, without
prejudice to any of the other provisions of this Agreement.
20.2 The Borrower shall obtain the prior written approval of the Agent (which
shall not be unreasonably withheld), in any given year, before incurring
any Capital Expenditures, or assuming or entering into obligations to
incur Capital Expenditures, to the extent this would result in an excess
of NLG 15,000,000 or more of the amount of Capital Expenditures as set
forth in the Budget for the relevant year.
20.3.1 The Borrower shall at all times maintain adequate insurance to the
satisfaction of Agent (which shall include but not be limited to
property damage, business interruption and third party liability
insurances with respect to its business, assets and personnel (the
"Insurances")) and will not do anything or omit to take any action which
could render the Insurances void or voidable.
20.3.2 The Borrower shall cause the insurers under the Insurances to send to
the Agent photocopies of all relevant notices to be sent to the Borrower
thereunder and the Borrower shall cause the Agent to be the first loss
payee under the Insurances, provided that any insurance proceeds
received by the Agent shall be paid and directed to the Revenue Account.
20.3.3 The Borrower shall provide the Agent at all times with information
reasonably necessary to enable the Agent to ascertain whether the
Insurances are adequately maintained and whether the Project is
adequately and appropriately insured with first class insurance
companies.
20.3.4 If the Borrower is in default with respect to the payment of any premium
to be paid under the Insurances, the Banks have the right, subject to
prior notification to the Borrower, to pay such premiums for the account
of the Borrower and the Borrower shall, upon written notification
thereof, promptly reimburse the Banks for such premium amounts paid by
them.
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20.3.5 If at any time the Insurances are not maintained as contemplated in
article 20.3.1 of this Agreement, then the Banks have the right, subject
to prior notification to the Borrower, to obtain such Insurances for the
account of the Borrower and article 20.3.4 shall similarly apply.
20.4 The Borrower shall construct and maintain the Project and the System and
exploit the System (including the providing of telecommunications
services via the System) in accordance with the respective terms of
Project Agreements and in particular as contemplated in and in
accordance with article 2 of the CAI Agreements (subject to the
conditions contained in such agreements), with a view to conduct a
commercially viable business.
20.5 The Borrower (i) shall ensure that all rights vis-a-vis MAA and any of
the other Municipalities, licenses, permits, approvals and exemptions
necessary for the construction and maintenance of the Project and the
System and the exploitation of the System (including the providing of
telecommunications services over the System) in accordance with and as
contemplated in article 20.4 are maintained in full force and effect in
all material respects, and (ii) shall further comply, and shall cause
each of its Subsidiaries to comply, in all material respects with any
provision of law, and any rules and regulations thereunder, applicable
to or relating to the Project and the System.
20.6 To the extent that any of the rights vis-a-vis MAA or any of the
Municipalities, and any licenses, permits, approvals and exemptions as
referred to in article 7.1 under (f), article 18.1 under (c) and article
20.5, or any of the conditions and obligations thereunder, need to be
amended, extended or renewed, or if new rights, licenses, permits,
approvals or exemptions have to be applied for, necessary for the
construction and maintenance of the Project and the System, and the
exploitation of the System (including the providing of
telecommunications services over the System), in accordance with and as
contemplated in this Agreement, the other Finance Documents and the
Project Agreements, the Borrower shall use its reasonable efforts and
not omit to do anything reasonably necessary, to obtain such new rights,
licenses, permits, approvals and exemptions, it being understood that
the Borrower shall in any case apply for Infrastructure Licenses
available for the Borrower as soon as possible.
20.7 The Borrower shall maintain, and shall cause each of the Subsidiaries to
maintain, its books and records in accordance with the law of The
Netherlands and its annual accounts shall be in accordance with
generally accepted accounting principles of The Netherlands consistently
applied.
20.8 The Borrower shall not, and shall cause any of the Subsidiaries not to,
enter into or guarantee any obligation, or assume any liability, other
than obligations or liabilities under this Agreement, the Finance
Documents and the Project Agreements, and other than in the normal
course of business, except with the prior written consent of the Agent.
This consent shall not be unreasonably withheld and shall be granted if
the entering into of the obligations or the assumption of the
liabilities by the Borrower or the Subsidiary does not have or is not
likely to have, in the reasonable opinion of the Agent, the result that
the performance (i) by the Borrower of any of its obligations under this
Agreement or under any of the Finance Documents and the Project
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Agreements, or (ii) by any of its Subsidiaries of its obligations under
article 27, the other Finance Documents or the Project Agreements, is
materially adversely affected.
20.9 The Borrower shall maintain, and cause each Subsidiary to maintain, all
Project Agreements in full force and effect, and shall not, and shall
cause each Subsidiary not to, amend, waive, suspend, or terminate any of
(its rights and obligations under), the Project Agreements to which it is
a party, without the prior written consent of the Agent. This consent
shall not be unreasonably withheld and shall be granted by the Agent if
the amendment, the waiver, the suspension, or the termination does not
have or is not likely to have, in the reasonable opinion of the Agent, the
result that the performance (i) by the Borrower of its obligations under
this Agreement or any of the Finance Documents and Project Agreements, or
(ii) by any of its Subsidiaries of its obligations under article 27, the
other Finance Documents or the Project Agreements, is materially adversely
affected.
20.10 The Borrower shall not transfer, and shall cause any of its Subsidiaries
not to transfer, any of its rights under this Agreement, and/or any of its
rights under the Finance Documents and the Project Agreements to which it
is a party, to a third party, without the prior written consent of the
Agent. To such extent the rights of the Borrower under this Agreement,
the Finance Documents and the Project Agreements, are not transferable,
unless the prior written consent referred to has been granted by the
Agent.
20.11 Other than in the ordinary course of business consistent with the business
plan(s) submitted to the Agent from time to time hereunder, the Borrower
shall not sell or transfer, and shall cause each of its Subsidiaries not
to sell or transfer, (i) any single asset ("goed") with a value in excess
of NLG 500,000 or (ii) assets with an aggregate value in excess of NLG
5,000,000, to any third party, without the prior written consent of the
Agent, which consent shall not be unreasonably withheld, except as
otherwise permitted by the Project Agreements.
20.12 The Borrower shall not engage, and shall cause any of its Subsidiaries not
to engage, in any other business than the construction and maintenance of
the Project and the System, and the operation of the System (including the
providing of telecommunications services via the System), except with the
prior written consent of the Agent which shall not be unreasonably
withheld.
20.13 The Borrower shall notify the Agent promptly in writing of:
(i) the occurrence of any Event of Default or any Event of Loss and of
any event of which the Borrower is aware and which would cause an
Event of Default or an Event of Loss but for the passage of time or
the giving of notice;
(ii) the commencement of any litigation or any governmental action,
relating to or involving the Borrower and/or a Subsidiary and
pursuant to which an amount or amounts are claimed or threatened to
be claimed in excess of NLG 5,000,000 in the aggregate;
(iii) any casualty, damage to or loss of or in relation to the Project
and the System, whether insured or not insured, in excess of NLG
5,000,000 in the aggregate;
(iv) the suspension, cancellation or termination of any of the
Insurances;
(v) the initiation of any condemnation proceedings involving the System.
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20.14 The Borrower shall give prior written notice to the Agent of any filing by
it for moratorium of payments ("surseance van betaling") or for
bankruptcy.
20.15 The Borrower shall not change, and shall cause any of its Subsidiaries not
to change, its legal form (which would include, for the avoidance of
doubt, the change into a limited or general partnership agreement with the
Borrower or such Subsidiary, acting as a partner), except with the consent
of the Agent which shall not be unreasonably withheld.
20.16 the Borrower shall pay, and shall cause any of its Subsidiaries to pay,
when due and payable all applicable taxes, assessments, levies and (other)
governmental charges of any kind that may be levied or assessed against
the Borrower and the Subsidiaries or with respect to the Project and the
System, in accordance with law, except to the extent such taxes,
assessments, levies and (other) governmental charges are contested in good
faith and the nonpayment of which will not have the result, in the
reasonable opinion of the Agent, or is not likely to have the result that
the Borrower or any of the Subsidiaries cannot duly and punctually perform
its obligations under this Agreement.
20.17 Without any prejudice to the other provisions of this Agreement, the
Borrower has the obligation to ensure, to the fullest extent possible,
that at any time during the term of this Agreement:
- the Borrower, and each of the Subsidiaries, is a private company with
limited liability validly existing under the law of The Netherlands;
- the Consortium Members are the holders, directly or indirectly, of
Control over the Borrower, subject to the priority share in the
Borrower issued to MAA;
- any claim or right for borrowed money (including finance costs similar
to Finance Costs) against the Borrower or any of its Subsidiaries, of
A2000 or of any of the Other Parties shall be subordinated to any claim
or right for Finance Costs under this Agreement, except that the
foregoing shall not apply to claims or rights pledged or to be pledged
by A2000 to ABN AMRO, the Agent, the Banks, or any of them.
20.18 The Borrower shall not make, and shall cause any of its Subsidiaries not
to make, any Restricted Payments if (i) the Debt Equity Ratio is greater
than 1.75:1 at the Borrower level (with the understanding that Equity, for
the purpose of this article 20.18 only, shall include Subordinated Debt)
or (ii) the Debt Service Coverage Ratio is less than 1.5.
20.19 In the period ending December 31, 1999, the Borrower shall not make, and
shall cause any of its Subsidiaries not to make, any Restricted Payment
without the prior written consent of the Agent, which shall not be
unreasonably withheld.
20.20 The Borrower shall not take any action or omit to take any action, and
shall cause any of its Subsidiaries not to take action or omit to take
action, which is reasonably likely to have a material and adverse effect
or is likely to have the result of a material and adverse effect (upon the
lapse of time or the filing of notice or otherwise) on the Borrower's or
any of the Subsidiaries' ability to duly and punctually perform its
obligations under this Agreement.
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20.21 The Borrower shall not enter, and shall cause any of its Subsidiaries
not to enter, into any agreements regarding the acquisition of another
cable television network without the prior consent of the Agent, which
shall not be unreasonably withheld.
20.22 The Borrower shall not enter into any agreements or transactions or
obligations with or towards A2000 or any Consortium Member or any
group company of any of them or any of the Other Parties, which are
not at arm's length terms or which are unduly adverse to the Borrower.
None of A2000, the Consortium Members and their group companies or any
of the Other Parties will have any exclusive or preferred rights with
respect to the provision of hardware to the Borrower or any exclusive
rights with respect to the provision of programming or other
audiovisual services to the cable networks' subscribers. The Borrower
will not enter into any preferred supplier arrangements regarding
programming or other audiovisual services, unless such arrangements
provide that preference will be granted only if the product or service
offered by the other party is at least equal to the corresponding
offering from the competition, with respect to quality and price.
20.23.1 The Borrower shall use its best efforts to ensure that the following
shall have been accomplished as soon as reasonably possible, without
prejudice to article 21:
(a) the creation by notarial deed of a "building right" ("recht van
opstal") or "qualitative right" ("kwalitatieve verplichting") by
Stichting Montessori Onderwijs Amsterdam in favour of the
Borrower in accordance with article 6.3 of the Amsterdam Share
Purchase Agreement;
(b) the transfer of intercommunal connections and the trunk network
("koppelnet") regarding Amsterdam by PTT Telecom B.V. to the
Borrower and the application for corresponding Article 23
Telecommunications Act licence(s) in accordance with Clause 6.4
of the Amsterdam Share Purchase Agreement;
(c) the creation of a long lease and building right by EZW in favour
of the Borrower regarding the building located at the Vincent van
Goghweg in Zaandam and the signal-receiving equipment and cables
located therein in accordance with Clause 6.2 of the Zaanstad
Share Purchase Agreement;
(d) the transfer of intercommunal connections and the trunk network
("koppelnet") regarding Zaanstad by PTT Telecom B.V. to the
Borrower and the application for corresponding Article 23
Telecommunications Act licence(s) in accordance with Clause 7.3
of the Zaanstad Share Purchase Agreement;
(e) the transfer of intercommunal connections regarding Landsmeer by
PTT Telecom B.V. to the Borrower and the application for
corresponding Article 23 Telecommunications Act licence(s) in
accordance with Clause 7.2 of the Landsmeer Share Purchase
Agreement;
(f) the transfer of intercommunal connections regarding Purmerend by
PTT Telecom B.V. through Purmerend to the Borrower and the
application for corresponding Article 23 Telecommunications Act
licence(s) in accordance with Clause 8.4 of the Purmerend Asset
Purchase Agreement;
(g) the transfer of signal transfer equipment ("signaalovergavepunt")
located near the Tamarindestraat in Duivendrecht and
intercommunal connections regarding Ouder-Amstel by PTT Telecom
B.V. through Ouder-Amstel to the Borrower and
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<PAGE>
the application for Article 23 Telecommunications Act licence(s)
in accordance with Clauses 8.4 and 8.5 of the Ouder-Amstel Asset
Purchase Agreement;
(h) the execution of a notarial deed to create a building right
("opstalrecht") in favour of the Borrower for the constructions
and signal-receiving equipment on top of the sports hall at
Zwanenbloem 12 in Purmerend and to create a long lease
("erfpachtrecht") in favour of the Borrower for the building
containing the signal-receiving equipment and the land on which
it is built next to the above mentioned sports hall and a
building right ("opstalrecht") in favour of the Borrower with
regard to the equipment in said building in accordance with
Clauses 5.2(iii) (d) and (e) and (f) of the Purmerend Asset
Purchase Agreement;
(i) obtaining the agreement of the counterparties to the assignment
of the Assigned Contracts and the permits of
(a) Purmerend; and
(b) Ouder-Amstel
in accordance with Clauses 8.2 and 8.3 of both
Asset Purchase Agreements; and
(j) obtaining the consents and approvals of each of the
Municipalities, to the extent necessary, for (i) the pledge by
A2000 of its shares in the Borrower together with the
(conditional) transfer of voting rights substantially in the form
of Exhibit 19, (ii) the pledge and mortgage by the Borrower of
the CAI (as defined in the CAI Agreements) and (iii) the pledge
by A2000 of its rights under the Purchase Agreements.
20.23.2 If any of the foregoing as set forth under (a) up to and including (i)
shall not have been accomplished on January 1, 1997, or if any of the
foregoing as set forth under (j) shall not have been accomplished on
May 1, 1996, (i) the Borrower shall notify the Agent thereof without
delay and (ii) the Borrower and the Agent shall enter into
consultations with a view to adequately deal with the then existing
situation, without prejudice to article 21.
20.24 The Borrower shall cause each of its Subsidiaries to become jointly
and severally liable for any and all obligations and liabilities of
the Borrower as referred to in article 27 by causing such Subsidiary
to co-sign this Agreement as contemplated at the end hereof.
20.25 The Borrower shall not acquire or cancel, or agree to acquire or
cancel, the priority share in its share capital held by MAA, except
with the prior written consent of the Agent.
Article 21 - Security Rights
- ----------------------------
21.1 The Borrower is obliged for the purpose of securing any and all
financial obligation(s), whether actual or contingent, whether present
or future, whether conditional or unconditional, which the Borrower
has or may have to the Agent, the Banks or any of them, under and in
connection with this Agreement, to create, and where applicable to
cause to create, the following security rights to the satisfaction of
the Agent, to the extent legally possible:
(a) a first ranking mortgage in favour of ABN AMRO, the Agent and
the Banks, substantially in the form of the Deed of Mortgage;
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<PAGE>
(b) a first ranking pledge in favour of ABN AMRO, the Agent and the
Banks as pledgee on all present and future rights and claims of the
Borrower and any of its Subsidiaries (including all present and
future rights of the Borrower under the Insurances) substantially in
the form of the Deeds of Pledge of Accounts;
(c) a first ranking pledge in favour of the Banks as pledgee on all
issued and outstanding shares in the Borrower (except for the
priority share held by MAA) and in any Subsidiary substantially in
the form of the Deeds of Pledge of Shares and Related Rights;
(d) a first ranking pledge in favour of the Banks as pledgee on movable
property ("roerende zaken") of the Borrower and any of its
Subsidiaries substantially in the form of the Deeds of Pledge of
Movable Assets;
(e) first ranking pledges or mortgages, substantially in the form of the
pledges and mortgages referred to above, on any good ("goed") with
respect to which the Borrower, or any of its Subsidiaries, nor or in
the future, has the right to dispose thereof ("beschikkingsbevoegd
is") and on which no security right has been created as contemplated
above under (a) up to and including (d) of this article 21, to the
extent that such good, or goods, has, or have in the aggregate, an
economic value exceeding NLG 500,000.
21.2 The Borrower shall notify the Agent of the acquisition by it or by any of
its Subsidiaries of any "good" or "goods" which have to be pledged or
mortgaged in accordance with article 21.1.
21.3 To the extent the creation of a security right as referred to above in
article 21.1 would not be possible under the law of The Netherlands or
other applicable law, if any, the Borrower shall use its reasonable
efforts to make the creation of such security right possible.
Article 22 - Negative Pledge
- ----------------------------
The Borrower shall not create, and shall cause each of its Subsidiaries not to
create, without the prior written consent of the Agent, which consent shall not
be unreasonably withheld, and except as otherwise provided in and contemplated
under this Agreement, any security right on or security interest in any assets
("goederen") with respect to which the Borrower or any such Subsidiary has the
right to dispose ("beschikkingsbevoegd is"), with the exception of (i) liens by
operation of law, (ii) retention of title by a seller of goods in the ordinary
course of business, and (iii) except as provided in article 19 of the CAI
Agreements.
Article 23 - Events of Default
- ------------------------------
23.1 The occurrence of any of the following events and/or the existence of any
of the following circumstances shall constitute an Event of Default for
the purpose of this Agreement:
a. the Borrower fails to make payment of any principal or any interest
or any fee within ten Business Days after the same shall become due
and payable under this Agreement;
b. the Borrower shall breach any of the covenants set forth above in
article 20.9 and article 20.18;
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<PAGE>
c. the Borrower fails to perform any of its other material obligations
under this Agreement and such failure, if capable of being remedied
in the reasonable opinion of the Agent, shall not have been remedied
to the reasonable satisfaction of the Agent within 30 Business Days
after notification in writing of such opinion by the Agent to the
Borrower;
d. the Borrower breaches any material obligation vis-a-vis any third
party which has not been remedied within 30 Business Days which has
the result or is likely to have the result that the performance by
the Borrower, or of any of its Subsidiaries, of any of its
obligations under this Agreement or under any of the Project
Agreements, is in the reasonable opinion of the Agent materially
adversely affected;
e. any of the Finance Documents or the Project Agreements has been
amended, waived, suspended, or terminated in violation of the
provisions of this Agreement with the result that the performance by
the Borrower, or of any of its Subsidiaries, of any of its
obligations under this Agreement or under any of the Project
Agreements, is in the reasonable opinion of the Agent materially
adversely affected;
f. any of the representations and warranties was incorrect or
incomplete when made or at any Advance Date in any material respect;
g. (i) a default with respect to payment of any amount due and payable
under any Indebtedness (other than under this Agreement) in the
aggregate of NLG 2,500,000 (which has not been waived or cured), or
(ii) a default which entitles parties to accelerate the maturity of
such Indebtedness has occurred and is continuing, unless, in each
case, contested in good faith by appropriate legal action;
h. the Borrower or any of the Subsidiaries has filed for a "moratorium
of payments" ("surseance van betaling"), has ceased to pay its debts
generally as they become due, has filed for bankruptcy or has been
declared bankrupt, or has filed for, or is subject to, any
proceedings comparable with "moratorium of payments" or bankruptcy;
i. a petition for bankruptcy shall have been filed by a thirty party
against the Borrower or a Subsidiary and such petition has not been
lifted within 30 Business Days;
j. any of the assets of the Borrower or any Subsidiary has been
attached by a "conservatoir beslag" or an "executoriaal beslag" or
similar attachment and such attachment has not been lifted within 30
Business Days;
k. a change in law which materially adversely affects or is likely to
materially adversely affect the performance of the Borrower of its
obligations under this Agreement or the development of the Project
or with respect to the System and the resulting situation shall not
have been remedied to the reasonable satisfaction of the Agent
within 120 days after such change in law;
l. the Debt Service Coverage Ratio as per any of the dates referred to
in article 19.5 under (ii) shall be less than 1.3:1;
m. the Debt Equity Ratio as per any of the dates referred to in article
19.5 under (i) shall be 3:1 or higher;
n. the Consortium Members jointly are not the holders of Control in the
Borrower;
o. the loss, withdrawal, termination, cancellation, revocation,
invalidation, expansion or change of any right, licence, permit,
approval or exemption, as
-27-
<PAGE>
referred to in article 7.1 under (e), article 18.1 under (c),
article 20.5 and article 20.6, or any change or expansion of any of
the conditions of any them, or the failure of the Borrower to apply
as soon as possible for, or obtain, any material license, permit,
approval or exemption (which shall in any case include any of the
Infrastructure Licenses), which has or is likely to have, in the
reasonable opinion of the Agent, a material adverse effect on the
Project, the System or on the Borrower or any of the Subsidiaries,
or which has or is likely to have, in the reasonable opinion of the
Agent, the result that the Borrower is unable to perform when due
its obligations under this Agreement and if such loss, withdrawal,
termination, cancellation, revocation, invalidation, expansion,
change or failure, if capable of being remedied, shall not have been
remedied to the reasonable satisfaction of the Agent within 30
Business Days after the occurrence of such an event;
p. an event, occurrence or condition which has the result or is likely
to have the result, in the reasonable opinion of the Agent of a
material adverse effect (solely upon the lapse of time, the filing
of notice or otherwise) on the ability of the Borrower to perform
its obligation under this Agreement or under the Project Agreements,
to the extent that such event, occurrence or condition shall, upon
reasonable consultation with the Agent, not have been remedied to
the reasonable satisfaction of the Agent within 120 days after such
event, which period may upon request by the Borrower be extended,
subject to prior written consent of ABN AMRO which shall not be
unreasonably withheld;
q. litigation is pending against or involving the Borrower or any of
the Subsidiaries which has the result, or is likely to have the
result, in the reasonable opinion of the Agent, that the performance
by the Borrower of any of its obligations under this Agreement or
the Project Agreements or under any of the Finance Documents or its
ability to accomplish the Project is materially adversely affected;
r. the occurrence of an Event of Default as defined in the A2000 Bank
Facility Agreement.
23.2 If an event of Default has occurred, the Agent has the right to send a
notice (the "Notice of Acceleration") to the Borrower, declaring any
unpaid principal of any Advances, any unpaid accrued interest and fees and
any other amount payable by the Borrower under this Agreement immediately
due and payable and thereupon (i) any unpaid principal of any Advance, any
unpaid accrued interest and fees and any other amount due and payable by
the Borrower under this Agreement, shall become immediately due and
payable and (ii) any Available Commitment shall be immediately terminated,
all the foregoing by operation of law ("van rechtswege") and with the
intention and agreement that article 83 paragraph a of Book 6 of the Civil
Code of The Netherlands shall be applicable.
Article 24 - Penalty Interest
- -----------------------------
24.1 If (i) the Borrower fails to duly and punctually pay any amount due and
payable under this Agreement, whether principal, interest, fee or another
amount, to ABN AMRO, the Agent, the Banks or any of them or (ii) an Event
of Default has occurred, the Borrower shall become obliged - without any
obligation of the Agent, the Banks or any of them
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<PAGE>
to request payment of the amount due and payable ("zonder
ingebrekestelling") and with the intention and agreement that article 83
paragraph a of Book 6 of the Civil Code of The Netherlands shall be
applicable - to pay interest over any amount then due and payable, and
over any balance then owing to ABN AMRO, the Agent, the Banks or any of
them, equal to the applicable interest rate plus a penalty of 1.5% (one
and one half per cent.) per annum or, if an interest rate is not
applicable, equal to 6 months AIBOR plus Margin plus a penalty of 1.5%
(one and one half per cent.) per annum, calculated as from the date that
such amount has become due and payable (such date included) up to and
including the date of actual payment of such amount.
24.2 Article 92 of Book 6 of the Civil Code of The Netherlands shall not be
applicable.
Article 25 - Syndication and Agent
- ----------------------------------
25.1 As long as, other than the Borrower, ABN AMRO is the sole other party to
this Agreement, any reference to the Agent, the Banks, the other Banks, or
any of them, shall be a reference to ABN AMRO and this Agreement shall be
construed accordingly.
25.2 ABN AMRO 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 percentage in the Term Loan Facility and/or the
Construction Loan Facility and the Advances (to be) made thereunder,
provided that:
(i) each such other lender shall be approved by the Borrower, such
approval not to be unreasonably withheld;
(ii) ABN AMRO shall remain as Bank a participant in the principal amount
outstanding of each Advance or Overdraft made or to be made under
(a) this Agreement under the Bank Facility and (b) under the A2000
Bank Facility Agreement, for at least 30% of the aggregate of such
Advances and Overdrafts.
25.3 Such other lender shall become a party to this Agreement by execution and
delivery by such party and the Banks of an assignment agreement
("contractsoverneming" or otherwise) specifying the percentage for which
such lender shall participate in the Advances made or to be made under
this Agreement, and written notification thereof to the Borrower,
whereupon such lender shall be a party to this Agreement, with rights and
obligations vis-a-vis the other parties of this Agreement as set forth in
such assignment agreement and, with respect to any Bank as referred to in
this Agreement, in this Agreement where applicable and relevant in
proportion to the percentage of its participation.
25.4 Each of the banks shall participate in each Advance (to be) made under
this Agreement under the Term Loan Facility and the Construction Loan
Facility in the proportion of its percentage of participation and each
(re) payment by any Borrower of principal, interest, fee and of any other
amount due by such Borrower to the Banks under this Agreement shall be in
satisfaction to the obligations of Banks in proportion to such
participations, unless clearly stated otherwise and without prejudice to
article 8.3.
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<PAGE>
25.5 Upon any such lender having become a Bank party to this Agreement, any
reference to the Agent, the Banks, and any of them, shall be a reference
to the Agent, the Banks, and any of them.
25.6 If a future lender or future sub-participant of ABN AMRO requests that
non-material changes be made to this Agreement or to any of the other
Finance Documents, as a condition to be fulfilled upon becoming a Bank-
party to this Agreement (and to another Finance Document, if applicable),
or becoming a sub-participant of ABN AMRO, the Borrower shall, at no
expense to the Borrower except as otherwise agreed, fully cooperate in
causing such changes to be made, with a view to facilitate syndication
and/or subparticipations.
25.7 By becoming a Bank party to this Agreement, each of such Banks irrevocably
appoints the Agent to act as its agent under and in connection with this
Agreement and the Finance Documents and authorizes and directs the agent
to take such action as agent in the name of each of the Banks as specified
in this Agreement, together with all such actions and powers as are
reasonably incidental thereto.
25.8 The Agent shall without delay forward any notice received from the
Borrower under this Agreement in its capacity as Agent to each of the
other Banks and the Agent shall act as directed by and in accordance with
the resolutions adopted by the Majority of Banks.
25.9 As between the Agent and the Banks, the Agent may consult with any of the
Independent Consultants and/or other 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 Independent Expert, or
other expert or counsel, or otherwise taken in good faith in a manner not
inconsistent with such advice.
25.10 As between the Agent and the Banks, 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
Banks or (ii) in the absence of gross negligence of wilfulness conduct of
the Agent. The Banks shall, ratably in accordance with their respective
participations, 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.
25.11 The Agent may resign at any time by given written notice thereof to the
other Banks and to the Borrower. Upon any such resignation, the Majority
of Banks with the consent of the Borrower, which shall not be unreasonably
withheld (i) shall appoint a successor Agent within 30 days of such
resignation and (ii) for so long as such successor Agent has not accepted
its appointment, act as Agent for the purpose of this Agreement. The
resigning Agent or the Majority of Banks, as the case may be, shall cause
such successor Agent to succeed to and become vested with all the rights
and obligations of the resigning Agent and the Banks shall consent to such
successor Agent to so succeed to and become vested with all the rights and
obligations of the resigning
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<PAGE>
Agent. Upon such succession, the resigning Agent shall have no rights and
obligations as Agent hereunder.
Article 26 - No joint liability of Banks; Damages
- -------------------------------------------------
26.1 The rights and obligations of each of the Banks under this Agreement are
several and not jointly and, accordingly, no Bank shall be responsible for
the obligations and liabilities under this Agreement of any other Bank.
26.2 The Borrower undertakes to pay each of the Agent and the Banks any damages
under the law of The Netherlands, together with any VAT thereon, which any
of them may sustain, suffer or incur as a consequence of the occurrence of
any Event of Default or any failure by the Borrower to perform any of its
obligations under this Agreement.
Article 27 - Joint and Several Liabilities of the Borrower and each of its
- --------------------------------------------------------------------------
Subsidiaries
- ------------
The Borrower and each of the Subsidiaries are jointly and severally liable
("hoofdelijk aansprakelijk") for any and all obligations and liabilities which
the Borrower has or may have against the Agent or any of the Banks under or in
connection with this Agreement or any other Finance Document.
Article 28 - No recourse
- ------------------------
The rights and obligations of this Agreement are rights and obligations between
the parties thereto only and ABN AMRO, the Agent, the Banks or any of them shall
under this Agreement have recourse only to the Borrower and, by virtue of
article 27, each of the Subsidiaries, in accordance with the law of The
Netherlands, and not to any other natural or legal person, including but not
limited to any shareholder, director or employee of the Borrower, subject to and
without prejudice to the Deed of Pledge of Shares.
Article 29 - Irrevocable Power of Attorney
- ------------------------------------------
The Borrower grants irrevocable power of attorney to the Agent to perform the
Borrower's payment obligations to the Agent, the Banks, or any of them, under
this Agreement and in accordance with this Agreement, subject to the occurrence
of an Event of Default, which power of attorney shall include but not be limited
to the authority to make any payment to the Agent, the Banks or any of them by
debiting any of the Designated Bank Accounts in fulfilling any of such payment
obligations.
Article 30 - General Conditions
- -------------------------------
The General Conditions of ABN AMRO as filed on December 22, 1995 with the court
register ("griffie") of the district court of Amsterdam shall not be applicable
to the relation between each of ABN AMRO, the Agent and the Banks, on the one
hand, and the Borrower, on the other hand.
Article 31 - Confidentiality
- ----------------------------
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<PAGE>
The Borrower, the Agent and the Banks shall treat the contents of this
Agreement, of the Finance Documents and the Project Agreements with the
strictest confidentiality, unless otherwise required by the due and punctual
performance of each such party of its respective obligations under this
Agreement, the Finance Documents and the Project Agreements.
Article 32 - Notices
- --------------------
Unless otherwise specified herein, all notices, requests and other
communications to any party hereunder shall be in writing (including bankwire,
telex, telefax or similar writing), and shall be given to:
in the case of Borrower
- -----------------------
Kabeltelevisie Amsterdam B.V.
Willem de Zwijgerlaan 350
1055 RD AMSTERDAM
telefax: 020 - 6814953
attention: Chief Financial Officer
in the case of the Agent
- ------------------------
ABN AMRO Bank N.V.
Grootbedrijf Regio Amsterdam (AF 2511)
Herengracht 595
Postbus 90
1000 AB AMSTERDAM
telefax: 020 - 6286100
Article 33 - Applicable Law and Jurisdiction
- --------------------------------------------
33.1 This Agreement shall be governed by and construed in accordance with the
law of The Netherlands.
33.2 All disputes arising in connection with this Agreement, shall be submitted
to the exclusive jurisdiction of the court (district and appellate) in
Amsterdam and, as the case may be, The Hague (Supreme Court).
Dated: as of January 31, 1996
Signed:
Kabeltelevisie Amsterdam B.V., ABN AMRO Bank N.V., acting
represented by its managing in all capacities as referred
director to in this Agreement
- ----------------------------
(managing director)
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<PAGE>
For agreement with articles 11.3 and 27 only:
TV a la Carte B.V.,
represented by its managing director Kabeltelevisie Amsterdam B.V., represented
by its managing director
(managing director)
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Exhibit 1
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EXHIBIT 1
---------
(Article 1.1)
ABN AMRO -- ABN AMRO Bank N.V.;
Advance -- any amount which may be made available
by the banks under the Bank Facility
Agreement other than as Overdraft;
Advance Date -- the date specified in the relevant Notice of
Drawdown to be the date on which the
Advance should become available;
Agent -- ABN AMRO, or such other legal entity as may
have been substituted for ABN AMRO to act as
agent for the Banks in accordance with
article 25;
Agreement -- this Bank Facility Agreement;
AIBOR -- in relation to any Variable Rate Advance,
means:
(i) the Amsterdam Interbank Offered Rate as
fixed daily by De Nederlandsche Bank N.V.
and as appearing on the relevant page of the
Reuters screen on any Business Day or as
published the immediately following day in
Het Financieele Dagblad for the relevant
Variable Rate Interest Period, or
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(ii) if the relevant rates do not appear on the
Reuters screen for the purposes of paragraph
(i) above, the rate (rounded upwards to at
most the nearest 0.01%) per the relevant
Variable Rate Interest Period determined by
the Agent to be equal to the arithmetic mean
of the rates at which each of the relevant
reference banks are offering deposits to
prime banks in the Netherlands interbank
market;
Articles of Association
of the Borrower -- the text of the articles of association of
the Borrower as most recently amended, a
photocopy of which is attached as Exhibit
11.1;
A2000 -- A2000 Holding N.V.;
A2000 Bank Facility
Agreement -- the bank facility agreement in the principal
amount of NLG 90,000,000 between A2000 as
borrower and ABN AMRO as lender,
substantially in the form (without exhibits)
of Exhibit 21;
A2000 Deed of Pledge -- a notarial deed of pledge with A2000 as
pledgor and ABN AMRO as pledgee,
substantially in the form of Exhibit 22;
Authorized Investments --- any Dutch Guilder denominated investments
within The Netherlands consisting of (i)
debt obligations of a credit institution
("krediet -
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<PAGE>
instelling") which credit institution has
(a) a minimum short term rating of A-1 or
better by Standard & Poors Corporation, P-1
or better by Moody's Investors Service,
Inc., or equivalent rating acceptable to the
Agent and (b) a long term rating of A+ or
better by Standard & Poors Corporation, A1
or better by Moody's Investors Service,
Inc., or equivalent rating acceptable to the
Agent, (ii) direct and unconditional
obligations of the State of The Netherlands
or direct and unconditional obligations
guaranteed by the State of The Netherlands,
or (iii) any other investment as agreed upon
beforehand between the Borrower and the
Agent, each such investment as referred to
under (i), (ii) and (iii) having a maturity
which is sufficiently short to allow the
making by or for the account of the Borrower
of payments and disbursements as and when
required or permitted by this Agreement, or
as agreed beforehand by the Borrower and the
Agent;
Available Cash Flow -- the available cash flow of the Borrower in
respect of any period means the net income
before taxation and depreciation and any
non-cash expenses and interest and other
financial charges minus tax paid and Capital
Costs and all non-cash income plus/minus
changes to working capital for the relevant
period;
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Available Loan Commitment -- the commitment consisting of the Available
Term Loan Commitment, the Available
Construction Loan Commitment and the
Available Working Capital Commitment;
Available Construction
Loan Commitment - -- Available Construction Loan Commitment
defined as such in article 2.3.1;
Available Term Loan
Commitment -- Available Term Loan Commitment defined
as such in article 2.2.1;
Available Working
Capital Commitment -- Available Working Capital Commitment
defined as such in article 2.4.1;
Bank Facility -- the Term Loan Facility, the Construction
Loan Facility and the Working Capital
Facility;
Banks -- ABN AMRO and any other lender which may
become a party to this Agreement in
accordance with article 25;
Base Case Projections
Proforma -- the financial projections set forth in and
presented in Exhibit 5;
Billing Agreements -- any and all agreements with any party
(including but not limited to ENW Amsterdam
N.V.) regarding the amounts to be paid by
subscribers (as referred to in the
definition of Customer Agreements) for the
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telecommunication connection and services
provided by the Borrower, or any of its
Subsidiaries, to such party and the on-
payment of such subscription amounts to
the Borrower, or the relevant Subsidiary;
Borrower - Kabeltelevisie Amsterdam B.V.;
Budget - the Budget of the Borrower referred to as
such in article 19;
Business Day - any day on which banks are open for
business in Amsterdam;
CAI Agreements - the agreements photocopies of which are
attached (without exhibits or other
attachments) attached as Exhibit 14
(14.1 up to and including 14.5);
Capital Costs - in respect of any period means all actual
costs of the Borrower of a capital
expenditure nature incurred in order to
maintain the Borrower's assets and
operations, but not of an operating
nature, paid by the Borrower and allowed
under the Agreement;
Capital Expenditures - means with respect to any period the
aggregate of all expenditures (whether
paid in cash or accrued as a liability) of
the Borrower excluding capitalized
interest expense during that period which
according
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<PAGE>
to applicable generally accepted
accounting principles consistently
applied, are or should be included in
"additions to property, plant and
equipment" (including Capital Leases),
minus the net value of property, plant or
equipment as to which the Borrower
receives a trade-in allowance or sell for
salvage in such period;
Capital Lease - any lease of any property (whether
immovable or movable) by the Borrower or
A2000 as lessee which in accordance with
generally accepted accounting principles
consistently applied is or should be
accounted for as a capital lease on the
balance sheet of the Borrower or A2000;
Change in Interpretation - any change in, or any new, further,
increased or different, interpretation or
application, of any law, treaty, order,
regulation, by any court, central bank, or
any tax, fiscal, or other competent
authority (whether or not having the force
of law but, if not having the force of
law, in respect of which compliance by
banks or other financial institutions of
similar nature or being engaged in a
similar business to the relevant party is
customary);
Change in Law - any change of any law, treaty, order,
regulation, directive, concession,
guideline, request or requirement (whether
or not having the force of law but, if not
having the
-40-
<PAGE>
force of law, in respect of which
compliance by banks or other financial
institutions of a similar nature or being
engaged in a similar business to the
relevant party is customary) existing and
in force at the date hereof;
Consortium Members - US West International Holdings Inc.,
United Holdings Inc. and Philips Media
B.V.;
Construction Loan Advance(s) - Construction Loan Advance(s) defined as
such in article 2.3.1;
Construction Loan Facility - Construction Loan Facility defined as such
in article 2.1;
Construction Loan Facility
Availability Period - Construction Loan Facility Availability
Period defined as such in article 2.3.3;
Control - the power and authority which are
conferred by fulfilment of the cumulative
criteria as set forth in article 24a
paragraph 1 of Book 2 of the Dutch Civil
Code;
Customer Agreements - any and all agreements (including
applicable general conditions ("algemene
voorwaarden")) between the Borrower, or
any of its Subsidiaries, on the one hand,
and any subscriber to the
telecommunications connections and
services in the broadest sense of the
Borrower, or the relevant Subsidiary, on
the other hand;
-41-
<PAGE>
Debt Equity Ratio - the ratio of outstanding Indebtedness
(other than Subordinated Debt) of A2000,
the Borrower and its Subsidiaries on a
consolidated basis to the sum of (i) total
consolidated stockholders' equity as it
would appear on the consolidated balance
sheet of A2000 prepared as of the date of
determination in accordance with
applicable generally accepted accounting
principles consistently applied, (ii) the
outstanding Subordinated Debt and (iii)
NLG 350,000,000, as reduced in accordance
with the Debt Equity Ratio Basis Reduction
Scheme, all based on the assumption (for
the purpose of calculation of the Debt
Equity Ratio on a consolidated A2000-KTA
basis only) that A2000 does not perform
any other activity than holding shares in
the Borrower and providing management
services to the Borrower in accordance
with the Management Agreement;
Debt Equity Ratio Basis
Reduction Scheme - the schedule set forth in Exhibit 23;
Debt Service - the aggregate of all (re)payments of
Finance Costs, and any interests and fees
accrued, in respect of the Term Loan
Facility, the Construction Loan Facility
and the Working Capital Facility under
this Agreement and in respect of the Term
Loan Facility as defined in the A2000 Bank
Facility Agreement, all
-42-
<PAGE>
(re)payments by the Borrower and A2000 of
principal and other amounts (including
fees) in respect of all other
Indebtedness, and any interests and fees
accrued, all based on the assumption (for
the purpose of calculation of Debt Service
on a consolidated A2000-KTA basis only)
that A2000 does not perform any other
activity than holding shares in the
Borrower and providing management services
to the Borrower in accordance with the
Management Agreement;
Debt Service Coverage Ratio - the ratio of Available Cash Flow during
the twelve month period immediately
preceding the relevant date of
determination to Debt Service during the
same twelve month period;
Deed of Mortgage - a notarial deed of mortgage, with the
Borrower as mortgagor and ABN AMRO as
mortgagee, substantially in the form of
Exhibit 16;
Deed of Pledge of Accounts - a notarial agreement and deed of pledge,
with the Borrower as pledgor and ABN AMRO
as pledgee, substantially in the form of
Exhibit 17;
Deed of Pledge of Movable Assets a notarial agreement and deed of pledge,
with the Borrower as pledgor, and ABN AMRO
as pledgee, providing for pledges on
movable property and the cable network as
-43-
<PAGE>
referred to therein, substantially in the
form of Exhibit 18;
Deed of Pledge of Shares and
Related Rights - a notarial agreement and deed of pledge,
with A2000 as pledgor and ABN AMRO as
pledgee, substantially in the form of
Exhibit 19;
Designated Bank Accounts - Revenue Account and any other account of
the Borrower and any Subsidiary with ABN
AMRO, unless notified to the contrary in
accordance with article 9.3;
Equity Distributions - (i) any distribution, dividend or other
direct or indirect payment on account of
shares of any class of stock of, or other
equity interest in, the Borrower or any
Subsidiary now or hereafter outstanding,
(ii) any redemption or other acquisition
or re-acquisition by the Borrower or a
Subsidiary thereof of any class of stock
of, or other equity interest in, the
Borrower or a Subsidiary now or hereafter
outstanding;
Event of Loss - an event as a result of which the System
is destroyed, condemned or in the opinion
of the Agent shall irreparably damaged, or
if the System is requisitioned for use by
a governmental entity for an indefinite
period or a stated period longer than one
year;
-44-
<PAGE>
Event of Default - an Event of Default defined as such in
article 23;
Final Maturity Date - July 1, 2005;
Finance Costs - in respect of any period means the
aggregate of all payments falling due
during such period (including for the
avoidance of doubt, upon acceleration)
under the Finance Documents by the
Borrower including without limitation
payments of principal, interest, fees,
damages, penalty interest, costs
(including breakage costs) and expenses;
Finance Documents - Bank Facility Agreement, Deed of Mortgage,
Deed of Pledge of Accounts, Deed of Pledge
of Shares and Related Rights, Deed of
Pledge of Movable Assets, any (other)
document pursuant to which a security
right is created pursuant to article 21,
A2000 Bank Facility Agreement, A2000 Deed
of Pledge and any (other) document
pursuant to which a security right is
created pursuant to article 18 of the
A2000 Bank Facility Agreement;
Fixed Rate Advance - means the Fixed Rate Advance defined as
such in article 3.2;
Fixed Rate Interest
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<PAGE>
Period - a Fixed Rate Interest Period defined as
such in article 3.3;
Fixing Date - the date as per which the interest of an
Advance or Advances is fixed as specified
in a Notice of Drawdown;
Flow of Funds Sheet - the Flow of Funds Sheet as referred to in
article 7.1(i), attached as Exhibit 7.2;
Guaranteed Bridge
Facility Agreement - the guaranteed bridge facility agreement
defined as such in recital (C) of the
Agreement;
Indebtedness - (i) all indebtedness for borrowed monies
or the deferred purchase price of property
or services purchased whether or not
payable currently; (ii) all obligations
under Capital Leases; (iii) indebtedness
of the types referred to under clauses (i)
and (ii) of other persons which the person
in question has directly or indirectly
guaranteed or secured by a lien on the
assets of such person, whether or not such
person has assumed such Indebtedness;
Independent Consultants - the Insurance Consultant and the Legal
Counsel;
Information Documents - all written information that has been
provided to ABN AMRO under the
-46-
<PAGE>
confidentiality agreement between ABN
AMRO and A2000, dated July 19, 1995;
Infrastructure Licenses - the Infrastructure Licenses defined as
such in article 7.1 under (f);
Insurance Consultant - an affiliate of ABN AMRO;
Insurances - shall mean the insurances defined as such
in article 20.3.1;
Interest Payment Date - any date on which interest is due by the
Borrower pursuant to this Agreement, or,
if not a Business Day, the immediately
succeeding Business Day pursuant to
article 12;
Joint Venture Agreement - the joint venture agreement substantially
in the form of Exhibit 24;
KTA Share Purchase
Agreement - the share purchase agreement dated June
23, 1995 among MAA, USW B.V., PMN B.V. and
A2000, as amended;
Legal Counsel - De Brauw Blackstone Westbroek, or such
other legal counsel as designated by the
Agent and notified in writing to the
Borrower by the Agent in lieu of De Brauw
Blackstone Westbroek;
-47-
<PAGE>
Loss Proceeds - the loss proceeds defined as such in
article 13.3;
MAA - the Municipality of Amsterdam;
MAA CAI Agreement - the agreement a photocopy of which is
attached as Exhibit 14.1;
MAA Letter Agreement - the letter agreement the form of which is
attached as Exhibit 8;
Majority of Banks - Banks participating for at least 51% in
the Bank Facility Agreement;
Margin - 0.75%;
Management Agreement - the management agreement between A2000
and the Borrower to be dated as of January
1, 1996, known to the parties hereof;
Master Agreement - the agreement a photocopy of which is
attached (without exhibits or other
attachments) as Exhibit 13;
Municipalities - Amsterdam, Zaanstad, Landsmeer,
Purmerend, Ouder-Amstel, Weesp, Loenen,
Oostzaan, Diemen and Abcoude;
Municipality Letter
Agreements - the letter agreements photocopies of the
form of which are attached hereto as
Exhibit 15;
-48-
<PAGE>
NLG - Dutch Guilders;
Notice of Acceleration - the notice of acceleration defined as such
in article 23.2;
Notice of Drawdown - the Notice of Drawdown defined as such in
articles 3, 4 and 5;
Operating Costs - in respect of any period means an amount
equal to the actual costs and expenses of
an operating nature which the Borrower
incurs in carrying out its business in
accordance with and as contemplated in
this Agreement, including, without
limitation:
(i) property taxes;
(ii) insurance premiums;
(iii) utility expenses;
(iv) landowner payments and royalties;
(v) operation and maintenance expenses;
(vi) management fees;
(vii) such other actual costs and
miscellaneous expenses, or which
the Agent shall reasonably agree to
be Operating Costs;
Opstalrechten - the building rights of the Borrower with
respect to the land on which certain
components of the System are located;
Other Parties - the Other Parties defined as such in
article 18.1 under (b);
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<PAGE>
Overdrafts - means the Overdrafts defined as such in
article 2.4.1;
Payment Dates - January 1, 2000, July 1, 2000, and so
forth, the last Payment Date being July 1,
2005, or, in each case, if not a Business
Day, the immediately succeeding Business
Day;
Payment Period - the period between two successive Payment
Dates;
Philips Guaranty - the guaranty of Philips Electronics N.V. a
photocopy of which is attached to the
agreement as Exhibit 3.2;
PMN B.V. - means Philips Media Networks B.V.;
Principal Repayment
Schedule - the Principal Repayment Schedule defined
as such in article 7.1 under (m) and (to
be) attached hereto as Exhibit 9;
Priority Share - the priority share issued to the MAA in
accordance with the Articles of
Association of the Borrower;
Project - the Project defined as such by reference
in recital (K);
Project
Agreements - Articles of Association of the Borrower,
A2000 and of the Subsidiaries,
Shareholders
-50-
<PAGE>
Agreement, Purchase Agreements, Billing
Agreements, Undertaking, CAI Agreements,
Joint Venture Agreement, Management
Agreement and Customer Agreements;
Purchase Agreements - (i) Share Purchase Agreement between
MAA, USW and PMN and A2000, dated
June 23, 1995 as thereafter
amended together with all related
documentation;
(ii) Share Purchase Agreement between
the Municipality of Zaanstad and
A2000, dated June 23, 1995 as
thereafter amended;
(iii) Share Purchase Agreement
between the Municipality of
Landsmeer and A2000, dated June
23, 1995 as thereafter amended;
(iv) Asset Purchase Agreement between
the Municipality of Purmerend as
seller and A2000 as purchaser as
thereafter amended;
(v) Asset Purchase Agreement between
the Municipality of Ouder-Amstel
and A2000 as thereafter amended;
Repair Amount - the amount applied or committed in a
fiscal year of the Borrower to the repair
or replacement of loss or damage to any of
the assets of the Borrower;
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<PAGE>
Restricted
Payment - (i) any distribution, dividend or other
direct or indirect payment on account of
shares of any class of stock of, or other
equity interest in, the Borrower or any
Subsidiary now or hereafter outstanding,
(ii) any redemption or other acquisition
or re-acquisition by the Borrower or a
Subsidiary thereof of any class of stock
of, or other equity interest in, the
Borrower or a Subsidiary now or hereafter
outstanding and (iii) any payment of
principal of, premium, if any, or interest
on, or any retirement or other payment
with respect to, any Subordinated Debt;
Revenue Account - the Revenue Account defined as such in
article 9.1.1;
Roll Over Moment - with respect to a Variable Rate Interest
Period or a Fixed Rate Interest Period
such point in time as defined in articles
3 and 4;
Security Rights - the Security Rights defined and referred
to as such in article 21;
Shareholders Agreement - the agreement among MAA, A2000 and the
Borrower dated July 6, 1995, a photocopy
of which is attached (without exhibits or
other attachments) hereto as Exhibit 20;
Subordinated Debt - all claims and rights against the Borrower
which are subordinated to the unsecured
and
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<PAGE>
non preferred claims and rights against
the Borrower in form and substance
satisfactory to the Agent, excluding any
claims and rights of A2000 against the
Borrower;
Subsidiaries - TV a la Carte B.V. and any company which
may become a "dochtermaatschappij" of the
Borrower in the sense of article 24a
paragraph 1 of Book 2 of the Dutch Civil
Code;
System - the system of earth stations, microwave
transmitters, headends, antennas, cables,
wires, lines, amplifiers, towers,
waveguides, conductors, converters,
studios, equipment and facilities for the
purpose of producing, receiving,
transmitting, amplifying and distributing
audio, video and other forms of
electronic, optical or electrical signals
to and among subscribers located in the
Municipalities and any other
municipalities in The Netherlands for
which the Borrowers may obtain the rights
to extend their services after the
execution and delivery of this Agreement
by the respective parties thereto;
Taxes - any present or future tax, levy, import,
duty, charge, fee, deduction or
withholding of any nature and whatever
called, whenever imposed, levied,
collected, withheld or assessed and by
whichever supranational, national, state,
province, regional, local,
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<PAGE>
municipal or other governmental or semi-
governmental authority;
Term Loan Advance - the advance defined as a Term Loan
Advance in article 2.2.1;
Term Loan Facility - the Term Loan Facility defined as such in
article 2.1;
Term Loan Facility
Availability Period - means the Term Loan Facility Availability
Period defined as such in article 2.2.2;
Undertaking - the undertaking in the form attached
hereto as Exhibit 10;
UPC - United and Philips Communications B.V.;
USW B.V. - means US West International B.V.;
US West Guaranty - the Guaranty of US West, Inc. a photocopy
of which is attached hereto as Exhibit
3.1;
Variable Rate Advance - any Variable Rate Advance defined as such
in article 3;
Variable Rate
Interest Period - a Variable Rate Interest Period as
referred to in article 3;
Working Capital Advance - means the Working Capital Advance defined
as such in article 2.4.1;
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<PAGE>
Working Capital Facility - the Working Capital Facility defined as
such in article 2.1;
Working Capital Facility
Availability Period - Working Capital Facility Availability
Period defined as such in article 2.4.2;
Working Capital Funds - Working Capital Funds defined as such in
article 2.4.1;
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<PAGE>
EXHIBIT 10.15
SALES AGREEMENT
between
Stichting Combivisie Regio
and
Setelco B.V.
and
United Pan-Europe Communications N.V.
dated 17 December 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Article Heading Page
- ------- ------- ----
1. Definitions 4
2. Purchase and Sale of Assets and Take-Over of Liabilities 6
3. Purchase Price and Payment 7
4. Arrangement of the Closing and Completion 8
5. Transfer of Contracts, Powers of Attorney and Licences 9
6. Accruals and Deferrals 10
7. Operation of the Cable Network until the Closing 12
8. Operation of the Cable Network after the Closing 14
9. Representations and Warranties 15
10. Indemnification 15
11. Environmental Matters 16
12. Employees 16
13. Tax Matters 17
14. Other Provisions 17
15. Applicable Law and Disputes 18
<PAGE>
Appendices
- ----------
Appendix I Administrative Records
Appendix II Contracts
Appendix III Powers of Attorney and Licences
Appendix IV Immovable Property
Appendix V Moveable Property
Appendix VI Employees
Appendix VII Combivisie Representations and Warranties
Appendix VIII UPC Representations and Warranties
Appendix IX Investments
Appendix X 1996 Annual Accounts of Combivisie and Setelco
Appendix XI Municipalities
Appendix XII Claims and Procedures
Appendix XIII Agreements with the Municipalities
Appendix XIV Deed of Transfer of the Cable Network
Appendix XV Management Structure
<PAGE>
SALES AGREEMENT CONCERNING THE ASSETS OF
----------------------------------------
STICHTING COMBIVISIE REGIO
--------------------------
THE UNDERSIGNED:
1. Stichting Combivisie Regio, a foundation having its registered office in
--------------------------
Helmond, the Netherlands, hereinafter to be called `SCR'; and
2. Setelco B.V., a private limited liability company having its registered
------------
office in Helmond, hereinafter to be called `Setelco';
hereinafter jointly to be called `Combivisie';
and
3. United Pan-Europe Communications N.V. (whose name was United and Philips
-------------------------------------
Communications B.V. until 11 December 1997), a public limited liability
company, having its registered office in Eindhoven, the Netherlands,
hereinafter to be called `UPC',
WHEREAS:
a. UPC on 24 May 1996 made an offer, subject to conditions, on the assets of
Combivisie, which offer Combivisie accepted by letter of 22 July 1996;
b. UPC and Combivisie recorded the agreements made in a Declaration of Intent
dated 20 December 1996;
c. UPC and Combivisie now wish to draw up a detailed agreement relating to the
sale by Combivisie to UPC of its assets, all of this subject to the
following conditions and stipulations.
HAVE AGREED AS FOLLOWS:
1. Definitions
- ------------------
1.1 In this Agreement the terms written with a capital letter have the
following meaning, unless the context indicates otherwise:
Connections: Single connections to the Cable Network
Assets: The assets referred to in Article 2.1
<PAGE>
Administrative
Records: The (electronically) processable customers
file listing all of the subscribers, in any
event consisting of the address data and data
on payment behaviour and programme package,
all other administrative files and data
files, (working) drawings, building plans,
technical descriptions, books and records
relating to the Cable Network, as specified
in Appendix I to this Agreement.
Balance Sheet Date: 31 December 1996.
Completion: The date referred to in Article 4.1.
Closing: The closing referred to in Article 4.1.
Consumer Price
Index: The consumer price index figure, series for
all households, calculated by the Dutch
Central Statistics Office (CBS), for the
annual period preceding the calendar year in
which the index is applied.
Contracts: The contracts specified in Appendix II to
this Agreement.
Municipalities: The municipalities affiliated with Combivisie
and referred to in Appendix XI to this
Agreement.
Investments: The investments referred to in Article 7.2.
Annual Accounts: The annual accounts for the 1996 financial
year of SCR and Setelco, attached to this
Agreement as Appendix X.
Cable Network: The cable broadcasting installations
operated by Combivisie pursuant to the powers
of attorney under the Wet op de
telecommunicatievoorzieningen (Dutch
Telecommunications Act) in the
Municipalities, consisting of the following
property and rights:
(i) all cables, cable works,
amplification and other equipment,
other guiding devices and
connections, user connections and
other infrastructure connections,
all of this from the receiving
station up to and including the wall
socket at the subscriber and
including the `connecting networks'
and all conduits and cable ducts, if
any, through which the cables and
cable works referred to here have
been led;
<PAGE>
(ii) maintenance and repair equipment,
parts and stocks, tools and means of
transport;
(iii) work in progress.
Purchase Price: The purchase price referred to in
Article 3.1.
Powers of Attorney: The powers of attorney to install, maintain
and operate the Cable Network pursuant to the
Dutch Telecommunications Act that have been
granted to SCR, all of this as specified in
more detail in Appendix III to this
Agreement.
Immovable Property: The immovable property that Combivisie uses
in the operation of the Cable Network,
including the immovable property specified in
Appendix IV.
Agreement: This sales agreement, including the relevant
Appendices and any other implementation deeds
or agreements.
Liabilities: The liabilities referred to in Article 2.3.
Parties: Combivisie and UPC, unless the context
indicates otherwise.
Programme Council: The programme council referred to in
Article 8.3.
Moveable Property: The moveable property that Combivisie uses in
the operation of the Cable Network, including
the immovable property specified in
Appendix V.
Postponed Payment: The payment referred to in Article 3.3, which
is part of the Purchase Price.
UPC Group Company: Any company affiliated with UPC in a group.
Licences: The regional infrastructure licences granted
to SCR pursuant to the Voorzieningenwet
Kabelgebonden Telecommunicatie Infrastructuur
(Cable Telecommunication Infrastructure
Facilities Act) and specified in
Appendix III.
Employees: The employees referred to in Article 12.
2. Purchase and Sale of Assets and Take-Over of Liabilities
--------------------------------------------------------
2.1 With due observance of the provisions and conditions of this Agreement,
Combivisie, as at the Closing, sells and, in so far as possible, delivers
to UPC, which hereby purchases from Combivisie and, in so far as
possible, accepts the ownership of the following assets (the `Assets'):
<PAGE>
(i) the Cable Network, on the understanding that in so far as any
element or part of the Cable Network is by accession part of any
immovable property belonging to third parties, Combivisie hereby
sells to UPC all rights of use or other rights that Combivisie has
with regard to such elements or parts;
(ii) the Immovable Property;
(iii) the Moveable Property;
(iv) the Administrative Records;
(v) the Powers of Attorney, with due observance of the provisions of
Article 5.2;
(vi) the Licences, with due observance of the provisions of Article 5.2;
(vii) Combivisie's rights under the Contracts, in so far as such rights
relate to the period after the Closing, and with due observance of
the provisions of Article 5.1;
(viii) all other rights that Combivisie may have in connection with the
operation of the Cable Network.
2.2 UPC has the right as at the Closing to substitute a UPC Group Company for
itself under this Agreement, in which case UPC guarantees the fulfilment of
all obligations under this Agreement by such UPC Group Company.
2.3 With due observance of the provisions and conditions of this Agreement, UPC
hereby accepts and takes over from Combivisie the obligations under the
Contracts (jointly referred to as the `Liabilities') as from the Closing,
all of this in so far as the Contracts are transferred to UPC in accordance
with the provisions of Article 5.1. The parties agree that UPC will take
over only the Liabilities relating to the period after the Closing and is
not required under this Agreement to take over any other obligation or debt
of Combivisie or third parties. Combivisie indemnifies UPC against rights
and claims of third parties with regard to the Cable Network or its
operation, the other Assets and the Liabilities, in so far as such rights
and claims relate to the period up to and including the Closing, and
Combivisie will hold UPC harmless from all losses and reasonable costs that
UPC suffers or incurs as a result of such rights and claims.
3. Purchase Price and Payment
--------------------------
3.1 Purchase Price
--------------
The purchase price of the Assets that UPC owes Combivisie amounts to NLG
200,000,000 (two hundred million Dutch guilders), excluding VAT, to be
increased or decreased by the correction that will be made pursuant to the
provisions of Article 3.2, as well as the correction that will be made in
accordance with Article 7.3 (the `Purchase Price').
UPC and Combivisie assume that no VAT is due with regard to the provisions
of this Agreement. If it is nevertheless established at a later date that
VAT is due, the Purchase Price will be increased by the VAT due in that
case.
3.2 Correction of the Purchase Price
--------------------------------
The Purchase Price is based on the Parties' assumption that the Cable
Network as at the Closing will have 140,000 (one hundred and forty
thousand) Connections. In the event
<PAGE>
that as at the Closing the Cable Network has more or fewer Connections, the
Purchase Price will be corrected in accordance with the following formula:
P = (Conn. / 140,000) x NLG 200,000,000
in which P = Purchase Price and
Conn = number of Connection as at the Closing.
The number of Connections as at the Closing must be evidenced by a
statement to be drawn up as at the Closing by an independent chartered
accountant (registeraccountant), which statement will be presented to UPC
by Combivisie.
3.3 Payment
-------
The Purchase Price will be paid by UPC on the date of Completion as
follows:
(a) Upon the Closing, UPC will pay Combivisie 95% (ninety-five percent)
of the Purchase Price into bank account 28.50.24.485 of Combivisie
with BNG in The Hague, the Netherlands, in such a way that this
amount will be at Combivisie's disposal as of the aforesaid date.
(b) Upon the Closing, UPC will pay the remaining 5% (five percent) of
the Purchase Price into a blocked bank account in the name of and to
the credit of Combivisie (the `Postponed Payment'). The Postponed
Payment will be interest-bearing as from the Closing at the deposit
interest rate then applicable and will be made available to
Combivisie by UPC 24 months after the Closing by deblocking of the
bank account and furthermore in the manner indicated above under
(a), on the understanding that the balance of any compensation made
in accordance with Article 10 of this Agreement will be deducted
from the Postponed Payment during this period. The bank account will
be deblocked by means of written approval from UPC and Combivisie
jointly.
4. Arrangement of the Closing and Completion
-----------------------------------------
4.1 Time and Place of the Closing and Completion
--------------------------------------------
The beneficial closing of the transactions to which this Agreement relates
will take place on 1 January 1998 (the `Closing'), which means that the
beneficial ownership of the Assets will be transferred to UPC by Combivisie
as of the Closing. The legal ownership of the Assets will be transferred at
the office of Verhoeven en Brants, civil-law notaries, in Helmond, the
Netherlands, on 5 January 1998 (`Completion'). If, as a result of
circumstances for which UPC is not to blame, the Closing does not take
place by 1 January 1998 at the latest, UPC will have the right to dissolve
this Agreement, without UPC owing any damages, or to reconsider its offer
on the Assets, in which case the parties will consult in good faith on an
amendment of the conditions of this Agreement.
<PAGE>
4.2 Completion Procedure
--------------------
Upon Completion, all of the following actions will be performed:
(i) UPC will pay Combivisie the Purchase Price in the manner
described in Article 3.3 and UPC will prove to Combivisie's
satisfaction that the Purchase Price has been transferred to the
bank accounts referred to in Article 3.3 (a) or 3.3 (b), as the
case may be.
(ii) Combivisie and UPC will sign:
(a) a deed of transfer of the Cable Network in the form of
Appendix XIV to this Agreement;
(b) notarial deeds of purchase and sale of the Immovable
Property and registration of those deeds in the Land
Registry;
(c) a deed of assignment as referred to in Article 7.4 of this
Agreement;
(d) all other documents that are needed to effect the transfer
of Assets and Liabilities involved in this purchase and
sale.
(iii) Combivisie will provide UPC with or transfer to UPC:
(a) in so far as available, written proof of the approval of
the other parties whose Contracts will be transferred to
UPC with due observance of the provisions of Article 5.1;
(b) the signed accountant's statements referred to in
Article 3.2 and 7.3;
(c) written confirmation of the correctness of the
representations and warranties set out in Appendix VII to
this Agreement at the time of the Closing.
(iv) UPC will provide Combivisie with:
(a) written confirmation of the correctness of the
representations and warranties set out in Appendix VIII to
this Agreement at the time of the Closing.
4.3 Actions after Completion
------------------------
If and when UPC so requests after Completion, Combivisie will, in so far
as necessary, with the co-operation of UPC, perform or commission all
further actions that may reasonably be necessary to render this Agreement
fully effective, including but not limited to the signature of further
deeds and other documents.
<PAGE>
5. Transfer of Contracts, Powers of Attorney and Licences
------------------------------------------------------
5.1 Approval of Transfer of Contracts
---------------------------------
Prior to the Closing, Combivisie will make every reasonable effort to
obtain the written approval of the other parties to the Contracts for the
transfer to UPC of the rights and obligations under those Contracts. UPC
undertakes to provide every co-operation reasonably requested by
Combivisie, including the co-operation that is needed to release
Combivisie from its obligations under the Contracts.
5.2 Substitution of UPC as the Holder of Power of Attorney
------------------------------------------------------
Prior to the Closing, Combivisie will make every reasonable effort to
ensure that as at the Closing:
(i) the Powers of Attorney are withdrawn by the issuing institutes,
while at the same time new, equivalent powers of attorney are
granted to UPC; and
(ii) the Licences are transferred to UPC,
as a result of which UPC will as of the Closing have at its disposal the
Powers of Attorney and the Licences that relate to the operation of the
Cable Network.
UPC undertakes to provide every co-operation that Combivisie may
reasonably request.
5.3 Licences or Powers of Attorney Applied for by Combivisie
--------------------------------------------------------
Combivisie will furthermore make every reasonable effort to ensure that
all of the other powers of attorney or licences that are or have been
applied for by Combivisie prior to the Closing in connection with the
operation of the Cable Network will be acquired and transferred to UPC
prior to the Closing in accordance with the provisions of Article 5.2, or
will be issued directly to UPC by the issuing institutes.
5.4 No Approval Obtained
--------------------
If upon the Closing no approval has been obtained from an other Party to
any Contract or from the issuing institute with regard to any Power of
Attorney or Licence, if and in so far as such approval is required, or if
any other licence or power of attorney as referred to in the preceding
paragraph has not been granted to UPC by the Closing at the latest, the
Closing will nevertheless take place, but the Parties will continue their
efforts as referred to in Article 5 after the Closing as well until those
efforts cannot reasonably be expected of them any longer. As long as any
Power of Attorney or Licence has not yet been obtained by UPC pursuant to
this Article 5, Combivisie will fulfil the obligations pursuant to that
Power of Attorney or Licence at the instructions and for the account and
risk of UPC.
<PAGE>
6. Accruals and Deferrals
----------------------
6.1 Income and Expenditure from Assets and Liabilities
--------------------------------------------------
The Parties agree that the income and expenditure that arise from the
Assets and/or Liabilities will be for the account of UPC as from the
Closing in the sense that:
(i) Combivisie will receive all proceeds and bear all costs that
arise from the Assets and/or Liabilities during the period up to
and including the Closing; and
(ii) UPC will receive all proceeds and bear all costs that arise from
the Assets and/or Liabilities after the Closing.
6.2 Amounts Received, Amounts Prepaid, Amounts to be Paid and Amounts to be
-----------------------------------------------------------------------
Collected
---------
The following has been agreed with regard to the amounts that have been
paid or received by Combivisie and amounts that are to be paid or
collected by Combivisie prior to or upon the Closing and that relate to a
period that commences prior to the Closing and ends after the Closing:
(i) All amounts that Combivisie receives with regard to the Assets
and/or Liabilities prior to or upon the Closing, including
subscription fees paid by the users of the Cable Network and
contributions paid by programme providers, will, if and in so far
as they relate to the period after the Closing, be paid to UPC by
Combivisie.
(ii) All amounts that Combivisie pays with regard to the Assets and/or
Liabilities prior to or upon the Closing will, if and in so far
as they relate to the period after the Closing, be reimbursed to
Combivisie by UPC.
(iii) All amounts that are payable by Combivisie with regard to the
Assets and/or Liabilities upon the Closing and that are not
otherwise accepted pursuant to this Agreement will, if and in so
far as they relate to the period after the Closing, be reimbursed
to Combivisie by UPC.
(iv) All amounts that are payable to Combivisie with regard to the
Assets and/or Liabilities upon the Closing and that are not
otherwise transferred pursuant to this Agreement will, if and in
so far as they relate to the period after the Closing, be paid to
UPC by Combivisie.
6.3 Statement and Payment
---------------------
Combivisie (with such co-operation of UPC as Combivisie may reasonably
require) will as soon as possible and in any event not later than 120 days
after the Closing, draw up a statement of all amounts referred to in
Article 6.2 as at the Closing. Without prejudice to the provisions of
Article 6.4, Combivisie or UPC will pay the other Party an amount upon the
Closing or as soon as possible thereafter that is equal to the balance
specified
<PAGE>
in that statement.
6.4 Disputes
--------
If UPC disputes the correctness of the statement drawn up by Combivisie in
accordance with Article 6.3, it shall immediately pay the amount that is
not disputed or Combivisie will pay that amount, as the case may be. If
UPC and Combivisie do not agree on the statement within 60 days after
receipt of the relevant statement, UPC may refer the case to an
independent office of chartered accountants that has been selected by
Combivisie and UPC in consultation or, if they do not agree, that has been
appointed by the president of the NIVRA (Royal Netherlands Institute of
Chartered Accountants) at the request of either Party. The accountants
thus appointed will settle the case by means of binding advice. The
accountants will be instructed to decide on the case as soon as possible
and in any event within 60 days after being so instructed. Combivisie or
UPC will pay the balance fixed within five days after it was fixed. The
costs of the binding advice referred to here will be borne by the parties
in the proportion determined by the accountants.
6.5 Amounts Received or Paid after the Closing
------------------------------------------
If after the Closing:
(i) Combivisie receives or makes payments with regard to the Assets
and/or Liabilities that relate (in part or in full) to a period
that commences upon or after the Closing; or
(ii) UPC receives or makes payments with regards to the Assets and/or
Liabilities that relate (in part or in full) to a period that ends
upon or prior to the Closing,
the provisions of this Article 6 will apply accordingly, on the
understanding that the Party that makes or receives the payment must inform
the other Party accordingly and that payment is in any event due within
seven (7) days after receipt or payment of the relevant amounts by
Combivisie or UPC.
7. Operation of the Cable Network until the Closing
------------------------------------------------
7.1 Continuation of Customary Management
------------------------------------
Until the Closing, Combivisie will continue the operation of the Cable
Network in the customary manner, in accordance with the management
conducted in the past and in accordance with the provisions of Appendix XV
to this Agreement relating to the management structure, and Combivisie will
not make any decisions or enter into any agreements that deviate therefrom,
unless UPC grants its written approval, all of this without prejudice to
the following provisions.
<PAGE>
7.2 Investments; Expansion and Modification of the Cable Network
------------------------------------------------------------
Combivisie is currently replacing the main structure of the Cable
Network with glass fibre cables, replacing the terminal and group
amplifiers and making the Cable Network `interactively suitable'. The
investments referred to in this article (the `Investments') are
described in more detail in Appendix IX to this Agreement. The costs
involved in the Investments are borne by Combivisie with due observance
of the provisions of the following paragraph.
7.3 Implementation of the Investments
---------------------------------
UPC must approve the Investments that are made during the period until
the Closing before such Investments are made. Combivisie has set aside
an amount for the Investments of NLG 45,250,000 (forty-five million two
hundred and fifty thousand Dutch guilders). In so far as the aforesaid
reservation is not spent on the Investments prior to the Closing, the
remaining amount will be set off against the Purchase Price. UPC
declares that it will invest the same amount as the unspent amount
referred to in the preceding sentence for the benefit of the Cable
Network after the Closing, reduced, however, by the savings realised on
the Investments prior to the Closing, which savings are the result of
UPC's efforts. Those savings will be determined by Combivisie and UPC
jointly in close consultation prior to the Closing.
During the period until the Closing, Combivisie will not make any
essential investments other than the Investments referred to in this
Article or incur any expenses (other than in the context of the
customary management as referred to in Article 7.1) without UPC's prior
approval.
All Investments made by Combivisie until the Closing must be evidenced
by a statement to be drawn up as at the Closing by an independent
chartered accountant, which statement will be presented to UPC by
Combivisie.
The amount to be invested in the Cable Network by UPC after the Closing
in accordance with this paragraph must be evidenced by six-monthly
written reports to be presented to Combivisie by UPC, the first of
which will be provided by UPC six months after the Closing.
7.4 Agreements with the Municipalities
----------------------------------
Prior to the Closing, Combivisie will conclude an agreement with each
of the Municipalities in the form of Appendix XIII to this Agreement.
As at the Closing, Combivisie will assign the rights arising from those
agreements to UPC by means of a deed of assignment to be drawn up
between the Parties.
Combivisie declares that it is aware that the conclusion of the
aforesaid agreements by Combivisie with all, and not several, of the
Municipalities is an essential element for UPC in order to proceed with
the Closing under the conditions laid down in this Agreement.
All of the aforesaid agreements must be signed not later than six weeks
prior to the Closing by Combivisie and the Municipalities or, if that
proves to be impossible in
<PAGE>
practice, the signature by the relevant Municipality and Combivisie
must be promised to UPC in writing, absent which signature or promise
UPC will have the right to renegotiate the conditions of the Sales
Agreement with Combivisie.
8. Operation of the Cable Network after the Closing
------------------------------------------------
8.1 Subscription Fee
----------------
The average subscription fee for the basic package will be NLG 18,73
(eighteen Dutch guilders and seventy-three cents), excluding VAT, per
month as at 1 January 1999. That price may be adjusted as of 1 January
1999 to the change in the Consumer Price Index. In so far as UPC owes
third parties a compensation as from 1 January 1999 for passing on
programmes that are part of the basic package (which includes
compensation for copyrights), UPC may then pass on this compensation in
the price of the subscription to the basic package.
8.2 Continuation of the Basic Package
---------------------------------
UPC will maintain the size of the basic packages consisting of uncoded
radio and television programmes that (as evidenced by the channels
card) apply at the moment of the offer by UPC, as referred to in the
recitals (i.e. 24 May 1996) after the Closing in any event until 1
January 2005, unless legal regulations provide otherwise. Any changes
in the programmes offered via the basic package will be presented for
advice to the Programme Council, except in so far as otherwise provided
by law.
8.3 Programme Council
-----------------
The parties will draw up a statute for the appointment of the members
of a programme council (the `Programme Council'). The object of this
statute is to secure the advice of the Programme Council with regard to
the content of the basic package. The statute will also provide for the
possibility of having the Programme Council merge in a regional context
with similar institutes, except in so far as otherwise provided by law.
8.4 Integration with UPC Group Company
----------------------------------
After the Closing (unless it is undesirable from a tax perspective) the
activities of SCL, Setelco and Kabeltelevisie Eindhoven N.V. (an UPC
Group company) will be concentrated into one legal entity, in which
respect the current activities of Setelco will be incorporated into the
marketing and sales division for the benefit of the entire integrated
company.
8.5 Name and Registered Office
--------------------------
1. Without prejudice to the provisions of Article 8.4, the
businesses of Combivisie and Kabeltelevisie Eindhoven N.V.
will as of the Closing be jointly conducted under one new
name.
2. UPC will register the new combined business in the Brandevoort
district, which district is located at roughly 6 kilometres'
distance from the centre of
<PAGE>
Eindhoven and at roughly 4 kilometres' distance from Helmond.
If UPC invokes force majeure on the basis of which registration
in the aforesaid district is not possible, UPC will consult
with Combivisie.
9. Representations and Warranties
- ---------------------------------------
9.1 Combivisie Representations and Warranties
------------------------------------------
Combivisie represents and warrants vis-a-vis UPC the correctness of each
of the statements relating to SCR and Setelco as set out in Appendix VII
at the date of conclusion of this Agreement, as well as (except in so far
as expressly indicated otherwise) at the time of the Closing.
9.2 UPC Representations and Warranties
----------------------------------
UPC represents and warrants vis-a-vis Combivisie the correctness of each
of the statements set out in Appendix VIII at the date of conclusion of
this Agreement, as well as (except in so far as expressly indicated
otherwise) at the time of the Closing.
10. Indemnification
---------------
10.1 Combivisie will indemnify UPC against all claims and rights of third
parties and will compensate UPC for all damage and reasonable costs
related to:
a. the incorrectness of any statement set out in this Agreement,
including the representations and warranties set out in Appendix
VII;
b. the non-fulfilment by Combivisie of any obligation set out in
this Agreement.
Amounts that are payable to UPC by Combivisie pursuant to this
indemnification may be deducted by UPC from the Postponed Payment that
UPC owes Combivisie pursuant to Article 3.3 of this Agreement, without
prejudice to UPC's right to collect any deficit in excess of the amount
of the Postponed Payment from Combivisie, and provided that the
indebtedness of the aforesaid amounts has been established by agreement
or by a court order.
10.2 UPC will indemnify Combivisie against all claims and rights of third
parties and will compensate Combivisie for all damage and reasonable
costs related to:
a. the incorrectness of any statement set out in this Agreement,
including the representations and warranties set out in Appendix
VIII;
b. the non-fulfilment by UPC of any obligation set out in this
Agreement.
11. Environmental Matters
---------------------
11.1 Combivisie declares that it is not in violation of any law or regulation
with regard to the environment that applies to the business or the
Assets, including in particular the Immovable Property of Combivisie.
<PAGE>
11.2 Combivisie will indemnify UPC against all claims and rights of third
parties and will compensate UPC for all damage and reasonable costs
related to the pollution of the ground or ground water belonging to the
Assets that took place prior to the Closing, in so far as the law on
which the claim or right is based entered into force prior to the Closing
and with the exception of claims and rights that relate to pollution of
ground or ground water with regard to Immovable Property of Combivisie
which, as evidenced by a written statement of the competent
(environmental) institutes, has been found to be suitable for use in
accordance with the provisions of the zoning plan that applies at the
time of the Closing.
12. Employees
---------
12.1 Transition of Employees
-----------------------
As from the Closing and under the conditions set out in this Agreement,
UPC will take over from Combivisie all rights and obligations under the
employment agreements of Combivisie's employees listed in Appendix VI (in
so far as such employees are still employed by Combivisie immediately
prior to the Closing), hereinafter to be called the `Employees'.
12.2 Maintaining of Jobs and Employment Conditions
---------------------------------------------
UPC guarantees that the jobs of the Employees will be maintained for a
period of five (5) years after the Closing, unless a shorter, limited
duration has been agreed in the individual employment agreements. UPC
guarantees that for a period of five (5) years after the Closing the
employment conditions of the Employees will be at least equivalent to the
employment conditions that apply at SCR or Setelco on the date of this
Agreement.
12.3 Pension and Early Retirement
----------------------------
UPC will maintain the scheme applicable to the Employees with regard to
early retirement and pension for a period of at least five (5) years
after the Closing.
If and in so far as they have not or not yet fulfilled their obligations
with regard to pensions and early retirement towards the pension insurer
and/or the Employees, Combivisie will transfer an amount to UPC equal to
the premiums yet to be paid or the other liabilities over the period
until the Closing. Combivisie will ensure that all Employees are insured
with the same pension insurer (Aegon) prior to the Closing.
If UPC so requests, Combivisie hereby undertakes that it will make every
effort to have the pension insurer referred to in the preceding sentence
co-operate in the transfer of the accrued pension rights and the relevant
cash value to UPC's pension insurer.
12.4 Expansion of the Workforce
--------------------------
During the period until the Closing the parties will decide in
consultation which management vacancies at Combivisie must be filled.
Combivisie will keep UPC informed of any other vacancies that arise
and/or are filled.
<PAGE>
13. Tax Matters
-----------
Without prejudice to the provisions of Article 3.1 concerning VAT, all
taxes and other charges related to the performance of this Agreement and
the transactions provided for herein will be paid by the Party that is
designated by law as the payer of the relevant tax or charge.
14. Other Provisions
----------------
14.1 Entire Agreement
----------------
This Agreement is the entire agreement between the Parties with regard to
the transactions for which this Agreement provides. This Agreement
replaces all earlier written or oral agreements and arrangements between
the Parties.
14.2 Amendments
----------
Any amendments to this Agreement can be made only by valid procedure and
will enter into force only if they have been agreed in writing and have
been lawfully signed by all of the Parties.
14.3 Invalid Provisions
------------------
If a provision included in this Agreement is deemed to be invalid or
unenforceable, the remaining provisions will be interpreted as if such
invalid or unenforceable provision was not included in this Agreement,
and such an invalid or unenforceable provision will then be deemed to
have been replaced by a valid provision that is as close as possible to
the Parties' intention at the time of the inclusion of the original
provision.
14.4 Costs
-----
Unless this Agreement provides otherwise, each Party will bear its own
costs incurred in connection with the preparation of this Agreement and
the transactions for which it provides. The costs referred to in Article
4.2 will be shared by UPC and Combivisie on a 60 (UPC)/40 (Combivisie)
basis.
14.5 Notifications
-------------
All notifications or announcements related to this Agreement will be
given and made by registered post with acknowledgement of receipt (with a
copy by fax).
14.6 Assignability
-------------
Without prejudice to the provisions of Article 2.1, the Parties may
assign this Agreement and their respective rights and obligations under
this Agreement only with the written approval of the other Party, which
approval will not be refused on unreasonable grounds.
<PAGE>
14.7 Announcements
-------------
The subscribers who are connected to the Cable Network will be informed
by UPC and Combivisie jointly, in time and correctly, about the
provisions of this Agreement, in so far as relevant to them. Any press
releases concerning the provisions of this Agreement will also be drawn
up by the parties in consultation.
15. Applicable Law and Disputes
---------------------------
15.1 Applicable Law
--------------
This Agreement is governed by Dutch law.
15.2 Disputes
--------
All disputes arising from or related to this Agreement and/or any
agreement arising from this Agreement will be submitted to the competent
court in Amsterdam, unless this Agreement provides otherwise.
Agreed and signed in two original copies in Helmond, the Netherlands /on
December 17, 1997.
Stichting Combivisie United Pan-Europe Setelco B.V.
Regio Communications N.V
/s/ J. v.d. Zanden /s/ J.H. Wolfert /s/ W. Zaeyen
by: J. v.d. Zanden by: J.H. Wolfert by: W. Zaeyen
position: Chairman position: Regional President UPC position: Director
<PAGE>
Land purchase agreements yet to be completed:
1. a plot of land on the corner of Lod. Van Deyssellaan/P.C. Ballingslaan in
Bladel measuring 42 m2 (section number not yet known) for the
construction of a Local Centre;
2. a plot of land in Fazantlaan, Bergeijk, measuring 33 m2 (Section A,
number 1417) for the construction of a Local Centre;
3. a plot of land in Boekel for the tower located there (civil-law notaries'
office Otten en Beks in Gemert). This subsoil and tower will be sold on
to Libertel immediately after they are purchased.
<PAGE>
Appendix VII
Representations and Warranties of Combivisie
<PAGE>
Appendix VII - Representations and Warranties of Combivisie
- -----------------------------------------------------------
A Status of SCR and Setelco
-------------------------
A.1 SCR and Setelco have been validly incorporated and registered in the
Trade Register as a foundation and as a limited liability company,
respectively. No resolution has been adopted to dissolve or liquidate
SCR or Setelco. No application has been filed for a suspension of
payments and no petition has been filed in the bankruptcy of SCR or
Setelco, nor has any attachment been levied on their assets or on part
of their assets.
A.2 All approvals and resolutions required for the conclusion and
performance of this Agreement and the other agreements provided for in
this Agreement have been obtained and adopted, respectively. This
Agreement is therefore enforceable and the other aforesaid agreements
will therefore be enforceable vis-a-vis Combivisie after signature, in
accordance with the provisions set out therein.
A.3 The signature and observance of this Agreement by Combivisie is not in
conflict with the law, the provisions of any agreement to which
Combivisie is a party, or the provisions of any judgment of a judicial
body or administrative body to which Combivisie is subject.
B The Assets
----------
B.1 Except in so far as otherwise provided in this Agreement, Combivisie
has the full and unencumbered ownership of all of the Assets and is
entitled to transfer the Assets.
B.2 Combivisie has the exclusive and unlimited right to operate the Assets
and no agreements or arrangements with third parties apply in that
respect, except in so far as otherwise expressly provided in this
Agreement.
B.3 During the period until the Closing, the Investments will be made by
Combivisie in the manner provided for in Article 7 and Combivisie will
keep the Cable Network in good operational condition.
B.4 The Cable Network has at least 105,000 (one hundred and five thousand)
Connections as at the Closing, without prejudice to the provisions of
Article 3.2.
C The Contracts
-------------
C.1 Neither Combivisie nor any of its other parties is in default of
performance of any essential provisions included in the Contracts that
are transferred to UPC under this Agreement, or under any other written
or unwritten agreement, nor has Combivisie or any of the other parties
involved announced that it wishes to terminate the Contracts.
<PAGE>
C.2 Combivisie has not concluded any agreements or undertaken any
commitment to conclude agreements that limit the operation of the Cable
Network or the conduct of Combivisie's business.
C.3 All loans granted to Combivisie by the Municipalities or other
institutions in connection with the installation or operation of the
Cable Network or otherwise have been fully redeemed as at the Closing,
if and in so far as the Assets have been provided in full or in part as
security therefor.
C.4 Combivisie has fulfilled all obligations under operation agreements
concluded with the Municipalities with regard to the Cable Network, or
other agreements relating to the acquisition or maintenance by
Combivisie of the Cable Network, and has no further obligations in this
respect towards the Municipalities or any third party.
D. The Powers of Attorney and the Licences
---------------------------------------
The Powers of Attorney and the Licences are in full effect until the
Closing. None of the issuing institutions involved in the Powers of
Attorney and the Licences has announced any amendment to the
conditions.
E. The Annual Accounts
-------------------
E.1 The Annual Accounts of SCR and Setelco fully and correctly represent
the size and composition of the capital and the results for 1996 and
have been drawn up in accordance with generally accepted accounting
principles in the Netherlands, consistent with the two financial years
preceding 1996.
E.2 Except in so far as indicated in the Annual Accounts:
a. there are no obligations or debts of SCR or Setelco, whether
or not due and payable, other than those undertaken in the
normal and day-to-day conduct of business;
b. no representations and warranties or security rights have been
provided by SCR or Setelco to any third party.
F. No Unfavourable Changes
-----------------------
Since the Balance Sheet Date, Combivisie's business has been exercised
in the usual manner and no essentially unfavourable changes have
occurred in the financial or economic status of the company.
G. Taxes
-----
<PAGE>
G.1 Combivisie has always fulfilled all its obligations to pay taxes and
contributions, or has in any event made suitable provisions to that
effect, as evidenced by the Annual Accounts.
G.2 No events have occurred and no agreements have been concluded by
Combivisie that, to the best of Combivisie's knowledge, lead to a tax
imposition, tax assessment or fine other than taxes that are levied in
the context of normal business.
H. Entire Transaction
------------------
Except in so far as expressly otherwise provided in this Agreement, the
Assets comprise all the property presently used by Combivisie for the
operation of the Cable Network or otherwise for the distribution of
radio and television signals as well as the provision of
telecommunication services to residents of the Municipalities
(including companies and institutions).
I. Claims and Procedures
---------------------
Except as shown in the Annual Accounts of SCR and Setelco and Appendix
XII to this Agreement, SCR and Setelco are not involved as plaintiff or
defendant in any pending legal proceedings. No legal measures or
proceedings are expected against them, nor have any claims been filed
or are any claims expected to be filed against them that may result in
an essentially unfavourable change in the financial or economic status
of SCR or Setelco.
J. Employees
---------
J.1 As a result of the transaction set out in this Agreement, no
obligations will arise for UPC under Articles 7A:1639 et seq. of the
Dutch Civil Code otherwise than with regard to the Employees.
J.2 Appendix VI correctly represents for each of the Employees which
obligations will be taken over by UPC under this Agreement. No
essential commitments have been made and no employment conditions have
been agreed on with regard to the Employees other than those set out in
Appendix VI.
J.3 There are no pending or imminent employment conflicts or legal
proceedings with regard to the Employees.
J.4 Combivisie has always fulfilled all of its obligations concerning the
payment of wage tax and social security premiums with regard to the
Employees.
K. Observance of Statutory Provisions
----------------------------------
K.1 To the best of its knowledge, Combivisie has always in all respects
observed the essential statutory regulations and all judicial orders
that apply to it.
<PAGE>
K.2 SCR has always observed all essential conditions related to the Powers
of Attorney and the Licences.
L. Full Openness of Affairs
------------------------
Combivisie has provided UPC with all information relating to the
condition of the Assets and the operation of the Cable Network with
which it is familiar and of which it knows or should know that such
information is of essential importance to a prospective purchaser of
the Assets. Combivisie declares to have performed the necessary
investigations in this respect, in a manner and with a thoroughness
that are customary for a transaction such as the present one.
<PAGE>
Appendix VIII
Representations and Warranties of UPC
<PAGE>
APPENDIX VIII
- -------------
Representations and Warranties of UPC
- -------------------------------------
A. Status of UPC
-------------
A.1 UPC is a private limited liability company organised under Dutch law,
authorised to perform the legal actions set out and provided for in
this Agreement.
A.2 All approvals and resolutions required for the conclusion and
performance of this Agreement and the other agreements provided for in
this Agreement have been obtained and adopted, respectively, as at the
Closing. This Agreement is therefore enforceable (and the other
aforesaid agreements will be enforceable after signature) vis-a-vis UPC
in accordance with the provisions set out therein.
A.3 The signature and performance of this Agreement by UPC is not in
conflict with the law, the provisions of any agreement to which UPC is
a party, or the provisions of any judgment of a judicial body or
administrative body to which UPC is subject.
<PAGE>
EXHIBIT 10.17
Amsterdam
---------
SHAREHOLDERS AGREEMENT
between
The Municipality of Amsterdam
and
A2000 Holding N.V.
and
Kabeltelevisie Amsterdam B.V.
Dated 6 July 1995
NAUTA DUTILH
Amsterdam
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Clause No. Heading Page
- --------- ------- ----
<S> <C> <C>
1. Interpretation.......................................................6
--------------
2. Purpose and Business of the Company..................................7
-----------------------------------
3. Agreement between the Municipality and the Company regarding the Cable
----------------------------------------------------------------------
Networks within Amsterdam............................................8
-------------------------
4. Articles of Association (Statuten) of the Company....................8
-------------------------------------------------
5. Prior Approval of Resolutions and Actions of the Company.............8
--------------------------------------------------------
6. Supervisory Board....................................................9
-----------------
7. Employment..........................................................11
----------
8. Business Plan, Annual Budget, Reporting and Auditors................11
----------------------------------------------------
9. Books and Records, Information......................................12
------------------------------
10. Agreements between the Company and A2000 and its Group Companies....12
----------------------------------------------------------------
11. Transfer and Encumbrance of Shares. Issuance of New Shares and New
-------------------------------------------------------------------
Shareholders........................................................12
------------
12. Convening of Shareholders' Meetings.................................14
-----------------------------------
13. Term and Expiration of the Agreement................................15
------------------------------------
14. Changes.............................................................15
-------
15. Invalid Provisions..................................................15
------------------
16. Expenses............................................................15
--------
17. Rescission..........................................................15
----------
18. Notices.............................................................15
-------
19. Assignment..........................................................16
----------
20. Confidentiality.....................................................16
---------------
21. Structure Regime....................................................17
----------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
22. Governing law and Disputes..........................................17
--------------------------
23. Head Office of A2000................................................17
--------------------
</TABLE>
ii
<PAGE>
Schedules
- ---------
Schedule 1 Articles of Association of the Company
Schedule 2 Amendments to the Articles of Association requiring Priority
Shareholder Approval
iii
<PAGE>
This Shareholders Agreement is made the 6th day of July 1995, between
(1) the Municipality of Amsterdam, a legal entity under the laws of the
Netherlands (the "Municipality")
and
(2) A 2000 Holding N.V., a company with limited liability organised under the
laws of the Netherlands and having its corporate seat in Eindhoven
("A2000")
and
(3) Kabeltelevisie Amsterdam B.V., a private company with limited liability
organised under the laws of the Netherlands and having its corporate seat
in Amsterdam (the "Company");
WHEREAS:
- -------
(a) On the date hereof the Municipality transferred 100% of the ordinary shares
in the share capital of the Company to US WEST International B.V. and
Philips Media Networks B.V., collectively hereafter referred to as "the
Purchasers", which subsequently transferred such shares to A2000, in each
case as part of the Closing under that certain share purchase agreement
between the Municipality, the Purchasers and A2000 dated 23 June 1995 (the
"Share Purchase Agreement").
(b) As a result of the Closing under the Share Purchase Agreement the
Municipality will hold one priority share representing all of the issued
priority share capital and A2000 holds 500 ordinary shares, representing
100% of the issued ordinary share capital.
(c) The Company operates the cable networks (draadomroepinrichtingen) in the
-----------------------
municipality of Amsterdam and some other neighbouring municipalities as
mentioned in the Share Purchase Agreement.
(d) Cable networks originally were considered to be a public utility service to
deliver a wide and attractive range of radio and TV programmes to all
inhabitants at an affordable price for all, as well as to avoid
uncontrolled growth of aerials and satellite dishes;
(e) The transformation of cable operators to full service operators exceeds the
utility function and requires investment in functions beyond public utility
services which is not a municipal responsibility;
(f) Although such investment is not a municipal responsibility and although it
is therefore considered undesirable by the Seller as a municipality to bear
such commercial risk alone, Seller considers such transformation of the
operator of the cable networks into a full service operator to be in the
public interest of the community;
(g) The Municipality sold its share interest in the Company to the Purchasers
with the objective that the Purchasers and A2000 will be strategic partners
for the Company who
1
<PAGE>
will contribute to its successful transformation into a full-service
operator, thereby ensuring that, subject to any regulatory restrictions,
the Company can take advantage of and become a leading participant in
audio/video services, interactive services, multi media services, data
communication services and telecommunication services within the Amsterdam
region, and the Purchasers purchased and A2000 accepted the transfer of the
share interest of the Municipality with the objective to be such strategic
partner;
(h) The Municipality wishes to stipulate certain contractual rights and certain
shareholders rights in order to enable it to safeguard its interests and
the interests described above;
(i) US WEST International B.V. and US WEST International, Inc., a Colorado
corporation, are each a direct wholly-owned subsidiary of US WEST
International Holdings, Inc., a Delaware corporation, which in turn is a
direct wholly-owned subsidiary of US WEST Inc., a Colorado corporation, and
Philips Media Networks B.V. is a direct wholly-owned subsidiary of Philips
Media B.V., which in turn is a direct wholly-owned subsidiary of Philips
Electronics N.V., a public limited company incorporated in the Netherlands;
US WEST International Holdings, Inc. and Philips Media B.V. are hereinafter
jointly referred to as the "Consortium Members";
(j) The Purchasers each own 50% of the issued share capital of A2000; and
(k) The Parties hereto wish to confirm their agreements as to the
aforementioned shareholdings and their mutual relationship in connection
therewith following the Closing under the Share Purchase Agreement.
NOW IT IS HEREBY AGREED as follows:
- ----------------------------------
1. Interpretation
--------------
1.1 In this Agreement the following expressions have, except where the context
otherwise requires, the following meanings:
"A2000" means A2000 Holding N.V.
"Agreement" means this shareholders' agreement including its Schedules and
the Annexes to such Schedules;
"Annual Budget" has the meaning ascribed to it in Clause 8.2;
"Articles of Association" means the articles of association of the Company;
"Business Plan" has the meaning ascribed to it in Clause 8.1;
"Company" means Kabeltelevisie Amsterdam B.V.;
"Consortium Members" means the US WEST International Holdings, Inc. and
Philips Media B.V.;
2
<PAGE>
"KTA CAI Agreement" means the agreement referred to in clause 3;
"Management Board" means the management board of the Company";
"Municipality" means the Municipality of Amsterdam;
"Parties" means the Municipality, A2000 and the Company, each of which is
hereinafter sometimes referred to as "Party";
"Purchasers" means US WEST International B.V. and Philips Media Networks
B.V.;
"Share Purchase Agreement" means that certain share purchase agreement
dated 23 June 1995 between the Municipality, the Purchasers and A2000
regarding the purchase of shares in the Company;
"Supervisory Board" means the supervisory board of the Company;
1.2 Except to the extent the context requires otherwise, any reference in this
Agreement to:
a "company" means an incorporated limited liability company or other
corporation;
a "group company" in respect of A2000 and the Consortium Members includes
any company that would have been a group company of them if they would have
been one legal entity;
a "person" includes any individual, firm, company, partnership,
institution, government, state or agency of a state or subdivision of a
state or any association or partnership (whether or not having separate
legal personality) of two or more of the foregoing.
1.3 The headings in this Agreement are inserted for convenience only and shall
not be used in any way in construing or interpreting the provisions of this
Agreement.
1.4 Unless the context requires otherwise, terms defined in the plural include
the singular and vice versa.
1.5 References to "Clauses" and "Schedules" are to be construed as references
to the clauses of and schedules to this Agreement.
2. Purpose and Business of the Company
-----------------------------------
The purpose and business of the Company shall be to build, maintain and
operate telecommunications infrastructure (including, without limitation,
cable networks originally designed for the distribution of radio and
television programmes (draadomroepinrichtingen)) and to provide or allow
others to provide all kinds of telecommunications services over such
infrastructure, including, without limitation, the distribution of radio
and television programmes to all or some subscribers, interactive
broadcasting services, multi media services, data transmission, fax and
voice services. A2000 and the Company will use their reasonable endeavours
to ensure that, subject to
3
<PAGE>
any regulatory restrictions, within the Amsterdam region the Company will
become a leading participant in the aforementioned services at a good
quality level.
3. Agreement between the Municipality and the Company regarding the Cable
----------------------------------------------------------------------
Networks within Amsterdam
-------------------------
As part of the Closing under the Share Purchase Agreement the Municipality
and the Company will enter into an agreement regarding the cable networks
within the territory of Amsterdam (the "KTA CAI Agreement"). A2000
undertakes towards the Municipality that A2000 shall cause the Company to
comply with its obligations to the Municipality under the KTA CAI
Agreement.
4. Articles of Association (Statuten) of the Company
-------------------------------------------------
As part of the Closing under the Share Purchase Agreement the Articles of
Association of the Company will be amended to read in accordance with
Schedule 1.
----------
5. Prior Approval of Resolutions and Actions of the Company
--------------------------------------------------------
5.1 The Municipality and A2000 agree with each other that they shall procure
that the following shareholders' resolutions will only be adopted with the
prior approval from the Municipality as holder of the priority share in the
Company:
(a) The issuance of new shares or rights to subscribe for new shares to a
person other than A2000 (without prejudice to Clause 11.2) and the
delegation of powers to issue new shares or rights to subscribe for new
shares to an organ of the Company other than the Shareholders' Meeting.
(b) The amendment of the Articles of Association of the Company, if the
amendment concerns any of the matters set forth in Schedule 2 of this
----------
Agreement.
(c) The legal merger of the Company with other legal entities and/or, once
this is legally possible, the split up of the Company in more than one
legal entity.
(d) The dissolution and/or liquidation of the Company and the approval of
the submission of a request to declare the Company bankrupt or apply
for a moratorium.
(e) The appointment of any legal entity other than a natural person as a
member of the Management Board of the Company.
(f) The granting of any voting rights to a pledgee of shares in the Company
or to a holder of a right of usufruct on shares in the Company.
5.2 The Parties hereto shall procure that the Company will not take any of the
following actions without the prior approval from the Municipality as
holder of the priority share in the Company:
(a) The change of the head office address or address of the principal place
of business of the Company to a location outside Amsterdam.
4
<PAGE>
(b) The granting of any limited rights (beperkte rechten) or any
----------------
qualitative rights (kwalitatieve rechten) encumbering any part of the
--------------------
infrastructure of the cable network in Amsterdam.
(c) The entering into new activities of a nature different from the nature
as described in article 2 of this Agreement.
(d) The transfer to others of any part of the infrastructure of the cable
networks in Amsterdam or the granting to others of any rights to
operate the cable networks in Amsterdam and the closing down - which
shall include transfer of ownership or enjoyment - of the Company's
business or a substantial part thereof, provided that the approval will
not be withheld with regard to the granting to another person of rights
to operate a part of the cable networks in Amsterdam for a limited
period of time, if (i) the granting of such rights does not endanger or
impair the integrity of the cable networks or affect the compliance by
the Company with this Agreement or the KTA CAI Agreement and (ii) the
Company remains fully responsible for and can terminate on reasonable
notice (in any event no longer than one year and immediately after
unremedied breach) such operation without substantial liability.
(e) The filing of a petition in bankruptcy or a petition for a moratorium
on payments.
(f) The taking or approval of any of the decisions or actions listed in
Article 5.1 (a), (c) and (d) or Article 5.2 with regard to a subsidiary
of the Company or to sell, transfer, pledge, or encumber with a right
of usufruct or otherwise the shares in any subsidiary or to issue any
new shares or rights to subscribe for new shares in a subsidiary to a
person other than the Company, in each case if and to the extent that
any such subsidiary owns any material part of the cable infrastructure
used by the Company in Amsterdam.
5.3 The Municipality shall grant its approval pursuant to Clause 5.2(b) if it
is obligated to grant such approval under Article 19 of the KTA CAI
Agreement.
6. Supervisory Board
-----------------
6.1 A2000 and the Municipality agree with each other that they will procure
that there will be a Supervisory Board with at least three members, of
which one will be appointed by the Municipality. The Supervisory Board
will meet at least four times a year.
6.2 A2000 and the Municipality agree with each other that they will procure
that the Articles of Association of the Company will provide that at least
the following decisions of the Management Board of the Company will be
subject to prior approval of the Supervisory Board:
(a) The adoption of the Business Plan and the Annual Budget referred to in
Clause 8 below and any (annual) updates and interim amendments thereof.
5
<PAGE>
(b) The borrowing or lending of monies in excess of NLG 5,000,000 per
transaction or in excess of NLG 25,000,000 per annum for all such
borrowings or all such loans.
(c) The acquisition, transfer, hiring or letting of real property and the
acquisition or the granting in any other way of the use or enjoyment
thereof, if any such transaction involves a total amount per
acquisition or transfer above NLG 1,000,000 or an annual rental or
compensation above NLG 1,000,000.
(d) The conducting of legal or arbitration proceedings and the settlement
of any such proceedings involving an amount above NLG 250,000 or
otherwise material to the business of the Company, which shall not
include, however, proceedings for the collection of trade receivables
and the taking of precautionary measures, such as attachments, summary
proceedings for injunctive relief and labour disputes with individual
employees.
(e) The agreement to or amendment of the terms of employment of members of
the Management Board.
(f) Any investments, divestments, agreements or other transactions or acts,
to the extent that they do not already fall under any of the other
paragraphs of this Clause 6.2 or have been approved as part of the
Annual Budget or Business Plan, exceeding in amount or value insofar as
the Company is concerned the sum of NLG 2,500,000 and the entering into
material commitments whereby the Company is bound for a period in
excess of two years.
(g) The determination of tariffs for subscribers to the basic TV and radio
package (basispakket).
-----------
(h) The application for an additional licence in relation to the cable
networks or the giving up of any licence in relation to the cable
networks.
(i) The determination or amendment of the standard terms and conditions of
connection to the cable networks of the Company (aansluitvoorwaarden)
-------------------
for residential subscribers.
(j) The issuance of new shares in the Company or rights to subscribe for
new shares in the Company if the power to do so were delegated to the
Management Board.
(k) The repurchase by the Company of its own shares and/or the sale by the
Company of shares held by it in its own share capital.
(l) The conclusion or amendment of any material agreement with a
shareholder of the Company or any Consortium member or any group
company thereof.
(m) The granting of any security interest (zekerheidsrecht), such as a
---------------
mortgage or pledge, on assets of the Company or the granting of
personal security
6
<PAGE>
(persoonlijke zekerheid), such as guarantees and joint and several
----------------------
liability, for the debts and obligations of others.
(n) The participation in or acquisition of or the undertaking of the
administration, management or directorship of other enterprises,
companies or legal entities and the termination of such participation,
administration, management or directorship.
(o) The conclusion, termination or amendment or partnership agreements,
joint venture agreements, pool agreements and long term co-operation
agreements.
(p) The termination of the employment of a significant number of employees
simultaneously or within a short period of time.
(q) A substantial change in the circumstances of employment of a
significant number of employees.
(r) Any decision of the Management Board within a category of decisions
which the Supervisory Board decides to submit to its approval.
(s) Any decision of the Management Board to approve any of the decisions or
actions listed above in this Clause 6.2 with regard to a subsidiary.
7. Employment
----------
There will be no dismissal of employees or change adverse to the employees
in the terms and conditions of employment of employees of the Company as a
consequence of the acquisition of the Company by the Purchaser.
8. Business Plan, Annual Budget, Reporting and Auditors
----------------------------------------------------
8.1 A2000 and the Municipality and, to the extent possible, the Company agree
with each other that they shall procure that within six months of the date
hereof the Management Board of the Company will prepare a Business Plan for
the Company and submit such Business Plan for approval to the Supervisory
Board. The Business Plan will initially cover the period up to the end of
2000. Prior to the end of each financial year starting with 1996 the
Management Board will submit an update of the Business Plan covering the
five subsequent financial years of the Company.
8.2 A2000 and the Municipality and, to the extent possible, the Company agree
with each other that they shall procure that at least two months prior to
the end of each financial year, the Management Board shall submit a budget
(the "Annual budget") for the next financial year for approval to the
Supervisory Board.
8.3 A2000 and the Municipality and, to the extent possible, the Company agree
with each other that they shall procure that within one month after the
close of each financial quarter of each financial year of the Company, the
Management Board shall provide the Supervisory Board and each of the
shareholders with an unaudited balance sheet and a profit and loss
statement relating to that preceding financial quarter.
7
<PAGE>
8.4 A2000 and the Municipality and, to the extent possible, the Company agree
with each other that they shall procure that within five months after the
close of each financial year, the Management Board shall cause to be
prepared the audited annual accounts (jaarrekening) and a management report
------------
(jaarverslag) to be submitted for adoption to the shareholders meeting.
-----------
8.5 The first auditors of the Company will be KPMG. A2000 and the Municipality
and, to the extent possible , the Company agree with each other that they
shall procure that such auditors can only be replaced if by another large
reputable international firm of auditors.
8.6 A2000 and the Municipality and, to the extent possible, the Company agree
with each other that they shall procure that the Management Board of the
Company will report to the Supervisory Board with sufficient frequency and
detail in order to permit the Supervisory Board to supervise adequately the
Management Board and to enable the Supervisory Board to be apprised of the
Company's progress in implementing the Business Plan.
8.7 A2000 and the Municipality and, to the extent possible, the Company agree
with each other that they shall procure that the Management Board of the
Company will report regularly to the Supervisory Board regarding any major
action with respect to regulatory initiatives of the Company or in response
to regulatory initiatives of third parties.
9. Books and Records, Information
------------------------------
9.1 The Company shall maintain full and correct books and records of the
Company. All books and records of the Company shall be kept and maintained
at the head office of the Company in Amsterdam.
9.2 The Company and A2000 shall provide the Municipality at its request with
such information as reasonably requested in order to assess whether the
Company and/or A2000 is complying with its obligations under this
Agreement. A2000 shall cause the Company to comply with such request from
the Municipality if directed to the Company.
10. Agreements between the Company and A2000 and its Group Companies
----------------------------------------------------------------
The Company shall not enter into any agreements or transactions or
obligations with or towards A2000 or any Consortium Member or any group
company of any of them, which are not at arm's length terms or which are
unduly adverse to the Company. None of A2000, the Consortium Members and
their group companies will have any exclusive or preferred rights with
respect to the provision of hardware to the Company or any exclusive rights
with respect to the provision of programming or other audiovisual services
to the cable networks' subscribers. The Company will not enter into any
preferred supplier arrangements regarding programming or other audiovisual
services, unless such arrangements provide that preference will be granted
only if the product or service offered by the other party is at least equal
to the corresponding offering from the competition, with respect to quality
and price.
11. Transfer and Encumbrance of Shares. Issuance of New Shares and New
-------------------------------------------------------------------
Shareholders
------------
8
<PAGE>
11.1 The Municipality is not entitled to transfer, pledge or otherwise encumber
its priority share to any person other than the Company or A2000, and to
the Company or A2000 only, if the Company or A2000, as the case may be, so
desires.
11.2 The Municipality shall grant its approval pursuant to Clause 5.1(a) and
under the Articles of Association with respect to a proposed issue of
shares, grant of rights to subscribe for shares or transfer of shares, in
the event that the proposed subscriber or transferee (as the case may be)
is:
(a) a wholly owned subsidiary of A2000 incorporated under the laws of and
having its principal place of business in one of the member countries
of the Organisation for Economic Cooperation and Development ("OECD"),
provided the Consortium Members will undertake towards the Municipality
prior to the proposed issuance, subscription or transfer, as the case
may be, that they will be liable for the performance of the proposed
subscriber or transferee under this Agreement in the same manner as
they are liable for the performance of A2000 under this Agreement;
(b) a company incorporated under the laws of and having its principal place
of business in one of the member countries of the OECD and being
directly or indirectly owned by the Consortium Members in the same
proportions as their ownership of A2000, provided the Consortium
Members will undertake towards the Municipality prior to the proposed
issuance, subscription or transfer, as the case may be, that they will
be liable for the performance of the proposed subscriber or transferee
under this Agreement in the same manner as they are liable for the
performance of A2000 under this Agreement;
(c) a person incorporated under the laws of and having its principal place
of business in one of the member countries of the OECD which is either
a reputable financial institution or engaged within the territory of
the OECD in one or more of the information technology,
telecommunications and media industries, as long as after the proposed
issue or transfer the Company remains controlled (determined on the
basis of the cumulative criteria set forth in Section 2:24a paragraph 1
of the Netherlands Civil Code) by a person which meets, or group of
persons which together meets, the criteria set forth in Section 21
paragraph 5 sub (b) of the Netherlands Telecommunications Act with
respect to a potential operator of cable networks and which will
undertake towards the Municipality the same obligations as the
Consortium Members have towards the Municipality under this Agreement
including the obligations under Clause 11.5 hereof and which has
sufficient technical and financial means at its disposal to ensure and
which will undertake towards the Municipality to ensure the performance
by the proposed subscriber or transferee of its obligations under this
Agreement and its obligations in relation to the KTA CAI Agreement and
the CAI Agreements as referred to in that certain Master Agreement
among various parties, including A2000, the Municipality and the
municipalities of Zaanstad, Purmerend, Landsmeer and Ouder-Amstel and
dated the date of the Share Purchase Agreement;
9
<PAGE>
provide always that the transferee or subscriber, as the case may be, must have
become a party to this Agreement in accordance with Clause 11.3 or Clause 11.4
respectively and provided that any issuance or transfer to a person as described
in paragraphs (a) and (b) above must be effected subject to the conditions
subsequent (ontbindende voorwaarde) that the transferee or subscriber, as the
case may be, shall continue to meet the requirements of paragraph (a) or
paragraph (b), as the case may be, and that after approval of the Municipality
(to be given in accordance with this Clause 11.2) but prior to any action as a
result of which any of those requirements would no longer be met the shares in
such transferee or subscriber, as the case may be, will be transferred to a
person which meets the requirements of Clause 11.2 (a) or (b).
11.3 A2000 may only transfer its shares to a transferee, if prior to or
simultaneously with such transfer such transferee has become a party to
this Agreement with the same rights and obligations as the Purchaser and in
the event the Municipality is obligated to grant its approval to such
transfer it will accept such transferee as a party to this Agreement. This
Clause will prevail over the second sentence of Article 11 paragraph 20 of
the Articles of Association of the Company.
11.4 Without prejudice to Clause 5.1(a) A2000 and the Municipality and, to the
extent possible, the Company agree with each other that they shall procure
that no new shares or rights to subscribe for shares in the Company shall
be issued to any third party, unless prior to or simultaneously with such
issuance such third party shall have become a party or, in the event of any
issuance of subscription rights, undertaken to become a party to this
Agreement with the same rights and obligations as the Purchaser and in the
event the Municipality is obliged to grant its approval to such issuance it
will accept such third party as a party to this Agreement. This Clause
will prevail over the second sentence of Article 11 paragraph 20 of the
Articles of Association of the Company.
11.5 The Consortium Members shall ensure that no transfer or issuance of shares
or rights to subscribe for shares in A2000 or in any company in which
shares are directly or indirectly being held by one or both of the
Consortium Members and which directly or indirectly holds shares in the
Company, A2000 or any company as referred to in Clause 11.2 paragraphs (a)
or (b) above, shall take place without the prior written approval of the
Municipality, unless one of the Consortium Members or the Consortium
Members jointly remain in control (determined on the basis of the
cumulative criteria set forth in Section 2:24a paragraph 1 of the
Netherlands Civil Code) over A2000 or such other company, as the case may
be, following such transfer or issuance. In the event of a transfer or
issuance as referred to in the immediately preceding sentence which
requires the approval of the Municipality, the Municipality shall grant
such approval in the event that the proposed subscriber or transferee, as
the case may be, is a person as referred to in Clause 11.2 paragraph (c).
11.6 A2000 and the Municipality hereby agree that as soon as reasonably possible
after the amendment of the Articles of Association in accordance with
Schedule 1 they will, again, amend the Articles of Association in such
----------
manner that after such amendment the Articles of Association will as
closely as possible meet the wish of A2000 and the Municipality to have
Articles of Association which read the same as Schedule 1 hereto without
----------
the second sentence of Article 11 paragraph 20.
10
<PAGE>
12. Convening of Shareholders' Meetings
-----------------------------------
In accordance with the Articles of Association each holder of a priority
share and each holder of at least ten (10) percent of the ordinary shares
in the Company is entitled to convene a shareholders' meeting of the
Company and each holder of a priority share is entitled to convene a
meeting of the holder(s) of (a) priority share(s).
13. Term and Expiration of the Agreement
------------------------------------
This Agreement will remain in force in respect of any Party hereto other
than the Company for as long as such Party is the holder of any shares in
the Company and the Agreement shall remain in force in respect of the
Company for as long as there are two shareholders a party to this
Agreement.
14. Changes
-------
Changes to this Agreement can only validly be made and shall come into
force only when agreed upon in writing and when duly signed by all Parties.
15. Invalid Provisions
------------------
In the event that any of the provisions contained herein shall be deemed
invalid or unenforceable, then the remaining provisions shall be construed
as if such invalid or unenforceable provisions were not contained herein;
and such invalid and unenforceable provision shall then be deemed to have
been replaced by a provision which as closely as possible meets the
intention of the Parties at the time of inserting the original provision.
16. Expenses
--------
Except as provided herein, each Party will bear its own expenses incurred
in connection with the preparation of this Agreement and the transactions
contemplated hereby.
17. Rescission
----------
The Parties hereto exclude and waive their rights pursuant to Articles
6:265 et seq. of the Netherlands Civil Code to claim rescission
-------
(ontbinding) of this Agreement in whole or in part or to claim annulment
----------
(vernietiging) hereof.
-------------
18. Notices
-------
Any notice or communication required to be delivered to any Party pursuant
to or in connection with this Agreement shall be given by registered mail
with advice of delivery (with copy per telefax) to the addresses set forth
below:
If to the Municipality:
----------------------
College van Burgemeester en Wethouders
van Amsterdam
Amstel 1
1011 PN Amsterdam
Fax number: 020-552 3426
With copy to:
------------
Gemeente Amsterdam
Amstel 1
1011 PN Amsterdam
11
<PAGE>
Attn: Hoofd Afdeling Media, Informaticastimulering en
Telecommunicatie
Fax number: 020-552 2968
If to A2000:
-----------
A2000 Holding N.V.
Groenewoudseweg 1
5621 BA Eindhoven
Attn: C.M. Stice/H. Wolfert
Fax number: 040-734 131
With copy to:
------------
Clifford Chance
P.O. Box 7301
1007 JH Amsterdam
Attn: J. Fleury
Fax number: 020-676 9326
If to the Company:
-----------------
Kabeltelevisie Amsterdam B.V.
Willem de Zwijgerlaan 350
1055 RD Amsterdam
Attn: Managing Director
Fax number: 020-681 4953
19. Assignment
This Agreement and each Party's respective rights and obligations hereunder
may not be assigned by any of the Parties other than any transfer of rights
and obligations of the Municipality to another public authority pursuant to
a public statute (wet).
---
20. Confidentiality
---------------
20.1 The Parties hereby covenant and undertake that they will not at any time
disclose or use for any purpose actually or potentially detrimental to any
of the Parties or the Consortium Members any confidential information
concerning this Agreement, any other document executed pursuant to the
Master Agreement and the Master Agreement itself, or concerning any of the
Parties, the Consortium Members or their respective businesses and affairs,
except:
(a) to the extent required by law or any competent authority after
consultation with the other Parties, provided that any such information
obtained by the Municipality shall be treated as confidential business
information as referred to in Article 10, para. 1 subsection (c) of the
Public Disclosure Act ("Wet Openbaarheid Bestuur") and shall be treated
by the Municipality in accordance with that Act;
(b) to their professional advisers under conditions of confidentiality and
only to the extent necessary for any lawful purpose; or
12
<PAGE>
(c) to the extent that such information is at the date hereof or hereafter
becomes public knowledge otherwise than through improper disclosure by
any person.
20.2 None of the Parties hereto shall issue any press release or issue any
public document or make any public statement relating to or connected with
this Agreement and the bidding process preceding this Agreement without the
prior written approval of the other Parties except to the extent required
by law or any competent authority after consultation with the other
Parties.
21. Structure Regime
----------------
If and when statutory law requires the Articles of Association of the
Company to be amended in order to comply with the provisions of Sections
2:158-164 or 2:268-274 of the Netherlands Civil Code, as the case may be,
the Parties shall cooperate to include such provisions in the Articles of
Association or to agree on such variations to this Agreement as may be
necessary to preserve such powers and interests as are granted to the
shareholders under the Articles of Association and this Agreement with
respect to the Company, in a manner as closely as possible reflecting the
principles of this Agreement, without prejudice to the Company's
obligations under the above-mentioned provisions of the Netherlands Civil
Code.
22. Governing law and Disputes
--------------------------
22.1 This Agreement and any agreement arising out of this Agreement shall be
construed in accordance with and be governed by the laws of the
Netherlands.
22.2 Any dispute arising out of or in connection with this Agreement and/or any
agreement arising out of this Agreement shall be submitted to the competent
court in Amsterdam, provided that this submission to the jurisdiction of
the Amsterdam court shall not limit the right of the Municipality to
institute proceedings against the Purchaser and/or the Company in any court
of competent jurisdiction nor shall the instituting of proceedings by the
Municipality in any one or more jurisdictions preclude the instituting of
proceedings by the Municipality in any other jurisdiction, whether
concurrently or not.
23. Head Office of A2000
--------------------
The head office and principal place of business of A2000 is and will be in
Amsterdam.
<TABLE>
<CAPTION>
Thus agreed and signed in three original copies in Amsterdam on 6 July 1995.
<S> <C> <C>
The Municipality A2000 Holding N.V. Kabeltelevisie
of Amsterdam Amsterdam B.V.
/s/ /s/ /s/
------------------- ------------------- -------------------
By: Nicole van Gelder By: J.H. Wolfert By: J.H. Wolfert
Title: hoofd mij Title: Managing Director Title: Managing Director
</TABLE>
13
<PAGE>
/s/ /s/
-------------------- --------------------
By: Clifford M. Stice By: Clifford M. Stice
Title: Managing Director Title: Managing Director
The Consortium Members hereby agree to and accept their obligations under Clause
11.5 and agree and undertake towards the Municipality (i) that the Consortium
Members will cause A2000 and the Company to perform all of their obligations
under this Shareholders' Agreement (excluding, however, the obligations
regarding the KTA CAI Agreement) and (ii) that Clauses 14, 15, 16, 17, 19 and 22
of this Shareholders Agreement apply accordingly to the agreement between the
Consortium Members and the Municipality set forth in this paragraph.
Furthermore, without prejudice to the following sentences, US West International
Holdings, Inc. and Philips Media B.V. hereby undertake towards the Municipality
that they shall use their control over the Company to cause it to comply with
its obligations under the KTA CAI Agreement and that they shall provide the
Company on arm's length terms with the means needed for such compliance. This
undertaking set forth in the immediately preceding sentence shall not be
construed as an obligation of US WEST International Holdings Inc or Philips
Media B.V. to provide equity or debt financing to the Company at any time other
than equity in the amount of to be provided to the Company pursuant to any
covenant most favourable to lender under bank financing entered into by A2000.
After the prior written approval of the Municipality the undertakings contained
in the first three sentences shall cease if and to the extent that US WEST
International Holdings Inc or Philips Media B.V. (as the case may be) shall
cease to be an (indirect) shareholder of the Company, as a result of a transfer
of shares permitted pursuant to Article 11 of this Shareholders Agreement. The
Municipality shall not withhold its approval if and to the extent the
undertaking referred to in the immediately preceding sentence is assumed towards
the Municipality by another acceptable party (as defined in the immediately
following sentence) to the same extent as such undertaking ceases to apply to US
WEST International Holdings, Inc. or Philips Media B.V., as the case may be. An
acceptable party as referred to in the immediately preceding sentence shall be a
person directly or indirectly holding a proportionate share interest in the
Company and incorporated under the laws of and having its principal place of
business in one of the member countries of the OECD, which is either a reputable
financial institution or engaged within the territory of the OECD in one or more
of the information technology, telecommunications and media industries and which
meets the criteria set forth in Section 21 paragraph 5 sub (b) of the
Netherlands Telecommunications Act with respect to a potential operator of cable
networks and which will undertake towards the Municipality the same obligations
as the Consortium Members have towards the Municipality under this Agreement
including the obligations under Clause 11.5 hereof and which has sufficient
technical and financial means at its disposal to ensure and which will undertake
towards the Municipality to ensure the performance by the proposed subscriber or
transferee of its obligations under this Agreement and its obligations in
relation to the KTA CAI Agreement and the CAI Agreements as referred to in that
certain Master Agreement among various parties, including A2000, the
Municipality and the municipalities of Zaanstad, Purmerend, Landsmeer and Ouder-
Amstel and dated the date of the Share Purchase Agreement. The Municipality as
its own right will have the benefit of the same financial covenants most
favourable to lender as agreed by the Company and A2000 with bank financiers
regarding the Company pursuant to bank financing provided in relation to the
transactions contemplated under the Master Agreement, as such covenants are in
force from time to time.
US WEST International Philips Media B.V.
14
<PAGE>
Holdings, Inc.
/s/ /s/
-------------------------- --------------------------
By: Clifford M. Stice By: J.H. Wolfert
Title: Managing Director Title: B.O. Director
15
<PAGE>
EXHIBIT 10.21
ACQUISITION AGREEMENT
---------------------
The undersigned:
- ----------------
1. United Pan-Europe Communications N.V., with offices at Fred. Roeskestraat
123,1076 EE, Amsterdam ("UPC")
and
2. N.V. NUON Energie-Onderneming voor Gelderland, Friesland en Flevoland, with
offices at Utrechtseweg 68, 6812 AH Arnhem ("NUON"),
hereinafter together referred to as "the Sellers";
and
3. United TeleKabel Holding N.V. i.o., with registered offices at Amsterdam
("the Purchaser"),
hereinafter together referred to as "the Parties", and each "a Party";
Taking into consideration that:
- -------------------------------
a. NUON and UPC own and operate cable and wirebound telecommunications
networks in various regions in the Netherlands;
b. NUON and UPC have concluded on November 13, 1997 a Memorandum of
Understanding ("the MoU"), whereby it has been agreed to merge and
integrate all of their broadband cable television and telecommunication
companies and activities in the Netherlands into the Purchaser, subject to
the fulfilment of certain conditions precedent;
c. the Parties since the conclusion of the MoU have negotiated, and reached
agreement upon, the terms and conditions on which the aforesaid merger will
be consummated;
d. the Parties have agreed to enter into this acquisition agreement which
contains the terms and conditions on which the broadband cable television
and telecommunication companies and activities of the Sellers in the
Netherlands will be contributed by the Sellers to the Purchaser;
Have agreed as follows:
- -----------------------
Article 1 Definitions and interpretations
-------------------------------
Agreement This agreement, including all Schedules and Annexes thereto.
Assets The NUON Assets and the UPC Assets collectively.
<PAGE>
Balance Sheets The NUON Balance Sheet and the UPC Balance Sheet.
Balance Sheet Date December 31, 1997
Business The provision of point-to-(multi) point telecommunication
services in the Netherlands, including but not limited to
hybrid fiber coax (voice) telephony, data transmission,
internet services, video communication, video on demand and
pay-per-view services as conducted by each of the Sellers as
at the date of Closing.
Claim Date The date referred to in article 5.2.
Closing The closing of transactions referred to in article 3.1.
Companies The companies that are comprised in the NUON Assets and the
UPC Assets.
Consideration
Shares The shares referred to in article 2.1.
Correction Payment The payment referred to in article 2.2.
Management Services
Agreements The management services agreements referred to in article
3.2.e.
NUON Assets The assets of NUON listed on Schedule I.A.
NUON Balance Sheet The proforma balance sheet comprising:
- the EnerTel shares and the shares in N.V. TeleKabel
Beheer as shown in the balance Sheet of NUON that forms
part of the NUON 1997 annual accounts approved by an
independent auditor (register accountant), and
- the other NUON Assets as shown in the balance sheet
that form part of the N.V. TeleKabel Beheer 1997 annual
accounts approved by an independent auditor, and
- the consequences of Permitted Transactions, if any, to
be included in a manner consistent with the valuation
principles used in the N.V. TeleKabel Beheer 1997
annual accounts.
Permitted
Transactions Has the meaning ascribed to it in article 6.2.
Representations
and
Warranties The representations and warranties referred to in article
4.1.
Shareholders
Agreement The shareholders agreement referred to in article 3.2.d.
2
<PAGE>
Shares The shares in the Companies.
Tax Warranties The tax warranties referred to in article 5.2.
UPC Assets The assets of UPC listed on Schedule I.B.
UPC Balance Sheet The proforma balance sheet comprising:
- the UPC Assets as shown in the balance sheet of UPC
that form part of the UPC 1997 annual accounts
approved by an independent auditor, and
- the consequences of Permitted Transactions, if any, to
be included in a manner consistent with the valuation
principles used in the UPC 1997 annual accounts.
Article 2 Transfer of the Assets; Correction Payment
------------------------------------------
2.1 Transfer of the Assets
----------------------
Subject to the terms and conditions set out in this Agreement, NUON will
contribute the NUON Assets and UPC will contribute the UPC Assets to the
Purchaser against issuance of shares and the Purchaser will accept the NUON
Assets and the UPC Assets from NUON and UPC respectively as payment in kind on
these issued shares (the "Consideration Shares"). Of the Consideration Shares
49% will be issued to NUON, and 51% of the Consideration Shares will be issued
to UPC. The total par value of the Consideration Shares will be NLG 100,000.--
(one hundred thousand Dutch Guilders).
2.2 Correction Payment
------------------
a. The value of the UPC Assets and the NUON Assets will be determined in
accordance with the methodology contained in Schedule II hereto.
The Correction Payment to be received by NUON from UPC or, if a negative
amount, to be paid by NUON to UPC is equal to: the value of the NUON
Assets less 49% of the value of the NUON Assets and the UPC Assets
combined.
b. The Correction Payment shall be paid at Closing by transferring the amount
thereof to the bank account of the receiving Seller in such a manner that
the funds shall be available to the receiving Seller at Closing.
Article 3 Closing arrangements
--------------------
3.1 Time and place of Closing
-------------------------
3
<PAGE>
The Closing of the transactions envisaged in this Agreement ("Closing") shall be
held at the offices of Houthoff in Amsterdam within 14 days after the fulfilment
or waiver of the conditions precedent set forth in article 7 hereof, unless
agreed otherwise between the Parties.
3.2 Closing procedure
-----------------
At Closing:
a. The Assets shall be contributed by the Sellers to the Purchaser and the
Purchaser shall issue to the Sellers the Consideration Shares through the
signing of a notarial deed of issue and transfer in the form of Schedule
III attached hereto, which will be executed before civil law notary
M.A.J.M. Scholtens of Houthoff, or any civil law notary replacing him, at
Amsterdam.
b. The Correction Payment shall be made in the manner described in article 2.2
above.
c. The Sellers shall submit to each other certificates certifying as to their
respective Representations and Warranties as described in article 4 being
correct at Closing.
d. The Parties shall enter into the Shareholders Agreement in the form of
Schedule IV hereto.
e. The Parties shall enter into the Management Services Agreements in the form
of Schedule V A. and B. hereto.
f. The Seller shall present the signed certificate referred to in article 3.3.
3.3 Pre-Closing
-----------
At least 1 week before Closing the Parties will attend a pre-Closing meeting at
which they will endeavour to reach agreement on the amount of the Correction
Payment and any other remaining issues. At least 1 week before this pre-Closing
meeting the Sellers will exchange the Balance Sheets, their valuation of the
Assets in accordance with Schedule II, their calculation of the Correction
Payment and a list of remaining issues, if any. Agreement on the Correction
Payment and the calculation thereof will be laid down in a certificate to be
signed by the Sellers and to be tendered at Closing.
3.4 Actions after Closing
---------------------
The Parties after Closing shall cooperate and execute and do or procure to be
executed and done all such further documents, forms, assignments, transfers,
assurances and other things as may be reasonably necessary or desirable for
giving full effect to this Agreement.
Article 4 Representations and Warranties
------------------------------
4
<PAGE>
a. With respect to NUON and the NUON Assets NUON represents and warrants, and
with respect to UPC and the UPC Assets UPC represents and warranted that
each of the matters set forth in Schedule VI. A. hereof is true and correct
as of the date hereof.
b. Furthermore, with respect to NUON and the NUON Assets NUON represents and
warrants that each of the matters set forth in Schedule VI. B. hereof is
true and correct as of the date hereof.
c. Furthermore, with respect to UPC and the UPC Assets UPC represents and
warrants that each of the matters set forth in Schedule VI. C. hereof is
true and correct as of the date hereof.
Article 5 Indemnification and survival
----------------------------
5.1 Indemnification by the Sellers
------------------------------
Subject to articles 5.2 through 5.10 hereof, each of the Sellers hereby
covenants and agrees with the other Seller that it will compensate the other
Seller for all damages, losses and cost (including, without limitation,
reasonable legal and accounting fees) sustained by reason of any of its
respective Representations and Warranties not being as represented or warranted
or the non-fulfilment of the other covenants or obligations contained herein.
Damages and losses of a Seller will be calculated on the basis of the effects of
the breach on the Purchaser, including tax consequences.
5.2 Survival of Representations and Warranties
------------------------------------------
Neither of the Sellers shall be entitled to any compensation or indemnification
for any claim hereunder:
a. For all other claims other than under the Tax Warranties (as defined
below): after September 1, 1999 ("the Claim Date");
b. For claims relating to the Representations and Warranties set forth in
article 7 of Schedule VI.A (the "Tax Warranties"): after the expiry of a
period of 4 years from the Claim Date.
5.3 Change of law
-------------
Neither Seller shall be liable for any claim for compensation asserted pursuant
to this article 5 if such claim would not have arisen but for (i) a change in
legislation made after Closing, whether or not such change purports to be
effective retroactively, or (ii) a new interpretation of existing laws by a
court or other public authority in a final and conclusive judgement or decision
published after Closing.
5.4 Warning of claim
----------------
Either Party shall give prompt written warning to the other Parties of any claim
by a third party which is likely to give rise to a claim by a Seller based on
the Representations and Warranties and of any event known to such Party which is
likely to give rise to a claim by a Seller based on
5
<PAGE>
the Representations and Warranties, stating the nature and basis of the event or
of the third party claim and its best estimate of the amount thereof. If a
Seller fails to give such prompt written warning to the other Parties, such
Seller shall not forfeit its claims for indemnity, but such claim shall be
reduced by the amount of any actual or increased liability, cost or expense
caused by the delay in giving warning.
5.5 Threshold
---------
Subject to article 5.8:
a. The Sellers shall not be liable for any claims hereunder unless the amount
of any individual claim or series of related claims resulting from a common
cause for which a Seller would, but for this article 5.5.a., be liable
under this Agreement exceeds NLG 2,500,000.- (two million five hundred
thousand Dutch Guilders).
b. If, in the case of any liability of a Seller under this article 5, the
amount of any provision or reserve contained in the Annual Accounts, as
defined in Schedule VI hereof, is found to be in excess of the matter for
which such provision or reserve was made, the amount of such excess ("the
Excess Amount") shall, provided that each such Excess Amount individually
exceeds NLG 2,500,000.- (two million five hundred thousand Dutch Guilders),
be set off against that Seller's liability under this article 5.
c. On the Claim Date and each full year thereafter, all payment obligations of
each Seller under this article 5 shall be set off against all payment
obligations of the other Seller under this article 5, only the balance
being payable on the anniversary of the Claim Date, subject to article
5.5.d. hereunder.
d. The relevant Seller shall not be liable for any claims hereunder unless the
aggregate amount of all claims, which individually exceed the amount
mentioned under a. above, for which a Seller would, but for this article
5.5.d., be liable under this Agreement, and after set off as provided for
in article 5.5.c., exceeds NLG 10,000,000.- (ten million Dutch Guilders),
in which event the aggregate amount, and not only the excess, shall be due.
5.6 Notice of claims and procedure
------------------------------
a. Notwithstanding the obligations of the Parties to give warning of a claim
under article 5.4, on the Claim Date both Sellers shall exchange with the
other Parties a written notice of any claims by such Seller based on the
Representations and Warranties, stating the nature and basis of each claim
and its best estimate of the amount thereof (the "Notice of Claims");
b. The Notice of Claims shall also contain any Excess Amounts.
c. After exchange of the Notice of Claims, the Parties will jointly
investigate the legal basis of all claims and Excess Amount(s) and shall
resolve any possibly arising disputes as soon as possible. As a result of
this a list of recognised claims and Excess Amount(s)
6
<PAGE>
will be produced, which also states the balance after set off of the
recognised payment obligations of the Sellers against each other (the
"Claim Payment Balance").
d. At any next anniversary of the Claim Date, and for the last time 4 years
after the Claim Date, the Sellers will exchange a written notice of any
claims by each Seller based on the Tax Warranties (the "Notice of Tax
Claims").
e. After each yearly exchange of the Notice of Tax Claims, the Parties will
jointly investigate the legal basis of all claims and shall resolve any
possibly arising disputes as soon as possible. As a result of this a list
of recognised tax claims will be produced, which also states the balance
after set off of the recognised tax payment obligations of the Sellers
against each other and, if any, such Excess Amounts as were not included in
the calculation of the Claim Payment Balance (the "Initial Tax Claim
Payment Balance").
f. To the Initial Tax Claim Payment Balance the following shall apply
annually:
(i) in the event the Seller to be indemnified already became entitled to
a payment under article 5.5, then the full amount of the Initial Tax
Claim Payment Balance shall be paid by the Seller concerned to the
other Seller;
(ii) in the event the Seller to be indemnified not yet became entitled to
a payment under article 5.5, but the amount of the Initial Tax Claim
Payment Balance together with the balance as established in the
preceding year(s) pursuant to article 5.5 exceeds NLG 10,000,000,-
then the full amount shall be paid;
(iii) in the event the Seller to be indemnified not yet became entitled to
a payment under article 5.5, and the amount of the Initial Tax Claim
Payment Balance together with the balance as established in the
preceding year(s) pursuant to article 5.5 does not exceed NLG
10,000,000,- then no payment shall be due;
(iv) in the event the Seller to be indemnified has made a payment under
article 5.5, then the full amount to be indemnified of the Initial
Tax Claim Payment Balance shall be paid;
thus resulting in the Final Tax Claim Payment Balance.
g. Payment of a Claim Payment Balance or a final Tax Claim Payment Balance
shall be made together with interest over such amount calculated from the
day of the anniversary to which such Claim Payment Balance relates until,
but not including the day of payment at the rate of 3 months AIBOR plus 100
basispoints per annum. Interest over the year preceding the Claim Date
shall be added to the principal amount due for the calculation of the
interest over the next anniversary year.
5.7 Warranty cap
------------
In any event, the amount of all awards or damages awarded or agreed against any
Seller under this Agreement after set off as meant in article 5.5 en 5.6 shall
not in the aggregate exceed NLG 75,000,000.- (seventy five million Dutch
Guilders), subject, however, to article 5.8.
7
<PAGE>
5.8 Exceptions
----------
The thresholds of article 5.5 and the warranty cap of article 5.7 do not apply
to claims under the articles 3.1 and 3.2 of Schedule VI. In the event of any
such claim the amount of damages to be paid shall be calculated on the same
basis as used in the calculation of the Correction Payment.
5.9 Payment to Purchaser
--------------------
In the event of any payment obligation under the foregoing provisions of this
article 5, and with the consent of both Sellers, instead of such payment a
substitute payment may be made to the Purchaser if it puts the Seller entitled
to receive such payment in effectively the same position as if it had received
the payment it is entitled to, directly.
5.10 Tax Warranties
--------------
Neither Party shall be entitled to make any claim under this Agreement, and,
specifically, the Tax Warranties, based on any (deferred) tax effects that the
transactions contemplated in this Agreement may have on the Purchaser, and the
Parties hereby waive any rights they may have against each other in this
respect.
Article 6 Covenants until Closing
-----------------------
6.1 Covenants
---------
Except as otherwise contemplated in this Agreement, the Parties agree that
during the period from the date of this Agreement up to Closing, the Sellers
will:
a. continue in all material respects the conduct of Business in the ordinary
course, consistent with past practice;
b. not engage in any material transactions outside the ordinary course of
Business;
c. only upon mutual agreement make any decisions or take any actions or enter
into any agreements that potentially or actually, and materially, affect,
whether positively or negatively, the value, the nature or the structure of
the Business.
6.2 Exception for certain matters
-----------------------------
Notwithstanding article 6.1, NUON or UPC shall not act in breach of this
Agreement if they continue to pursue the transactions set forth in Schedule VII
hereto ("Permitted Transactions"), provided that NUON and UPC shall continuously
and diligently inform each other and the Purchaser on the progress and timing of
the Permitted Transactions.
Article 7 Conditions precedent
--------------------
7.1 Conditions precedent to the Parties' obligations
------------------------------------------------
8
<PAGE>
The obligations of the Parties to proceed with and consummate the Closing shall
be subject to the fulfilment on or prior to Closing of the following conditions,
any one or more of which may be waived by the Parties to whom such condition
does not apply:
a. each of the Parties' obligations set forth in article 3.2.c, d. and e. have
been fulfilled;
b. the certificate envisaged in article 3.3 has been signed by the Sellers;
c. all approvals have been obtained from European and/or national competition
authorities, the NUON works' council and the unions, all to the extent that
such approvals are required;
d. all required third party consents including those listed in Schedule VIII
have been unconditionally obtained, as confirmed by the Sellers to each
other in writing;
e. each of the Supervisory Boards of the Sellers will have approved their
entering into this Agreement.
7.2 Fulfilment of conditions precedent
----------------------------------
The Parties will exercise their best endeavours to effectuate fulfilment of
these conditions precedent before May 1, 1998. If fulfilment cannot be effected
by this date, the Parties will exercise their best endeavours to reach a
mutually acceptable satisfactory solution.
Article 8 Termination
-----------
8.1 Termination
-----------
This Agreement may be terminated and the transactions contemplated hereby may be
abandoned as follows:
a. At any time prior to Closing by mutual written agreement by the Parties.
b. By any Party if any of the conditions set forth in article 7.1 with respect
to any of the other Parties shall not have been fulfilled or waived at
Closing.
c. By any Party if Closing is not consummated by August 1, 1998.
8.2 Effect of termination
---------------------
In the event of termination of this Agreement pursuant to the provisions of this
article, this Agreement and its related agreements shall become void and have no
effect, without any liability on the part of any Party or the directors,
shareholders, assigns or representatives of any Party in respect of this
Agreement other than:
a. the liability on the part of each Party for its own expenses incurred in
connection with the transactions contemplated by this Agreement; and
9
<PAGE>
b. the liability of a Party to any other Party for damages and costs incurred
by such other Party as a result of this Agreement being terminated as a
result of or in connection with the former Party breaching any of its
obligations contemplated by this Agreement.
Article 9 Confidentiality
---------------
9.1 In the event that any Party (the "Receiving Party") receives any
information, in whatever form, that relates to this Agreement or any of the
Parties, including know how and other information developed pursuant to
this agreement or by the Purchaser ("Confidential information"), the
Receiving Party shall: (i) treat the Confidential Information strictly as
such; (ii) use the Confidential Information exclusively for the purposes
described in this Agreement; (iii) treat and protect the Confidential
Information with the same degree of care with which the Receiving Party
protects its own confidential information against publicity, but in any
event with at least reasonable care; (iv) not disclose the Confidential
Information to any third party except those associates, advisors or
representatives of the Receiving Party to whom the Confidential Information
must be disclosed for the proper performance of this Agreement, and
provided that they also shall be bound to the obligations of
confidentiality and limited use contained herein.
9.2 The provisions of article 9.1 do not apply to Confidential Information
which: (i) is already public knowledge at the date of signature of this
Agreement or which has thereafter to become public knowledge other than
through the fault or negligence of the Receiving Party; (ii) which has been
legally obtained by the Receiving Party from a third party, without
breaching any of the provisions of this Agreement and also without acting
unlawfully towards the Party whose information becomes public; (iii) which
information was known to the Receiving Party at the time it received the
information from its co-Party, as must appear from the records of the
Receiving Party at the time of the receipt of the information; (iv) which
was developed or obtained independently by the Receiving Party, without
making use of any confidential information; or (v) which must be made
public on the grounds of a court order or a directive of government.
9.3 No Party may, without the prior written permission of the other Party make
the contents or the existence of this Agreement known to any third party,
except pursuant to a court or government order.
Article 10 Assignment
----------
UPC and NUON will be entitled at Closing to assign this Agreement to, in the
case of UPC, Belmarken Holding B.V., and, in the case of NUON, to Kraton N.V.,
provided that UPC and NUON will guarantee to each other, and will remain liable
for, the performance by the assignees of the obligations under this Agreement.
Article 11 Costs
-----
10
<PAGE>
The costs related to the execution of and performance under this Agreement and
the merger process resulting therefrom will be split between the Sellers on the
basis of their shareholding in the Purchaser as set forth in article 2.1., to be
based on a budget agreed in advance between the Sellers. Any costs incurred by
a Seller not agreed upon in the budget will be borne solely by that Seller.
Article 12 Unenforceability
----------------
If any provision of this Agreement shall be held by any court or arbitrator of
competent jurisdiction or any other competent authority to be illegal, void or
unenforceable, such provision shall be of no force and effect, but the
illegality or unenforceability of such provision shall have no effect upon and
shall not impair the enforceability of any other provision of this Agreement.
Article 13 Governing law; jurisdiction
---------------------------
13.1 Governing law
-------------
This Agreement shall be governed by and construed in accordance with the laws of
the Netherlands.
13.2 Jurisdiction
------------
Any dispute arising out or in connection with this Agreement shall be referred
to the competent court in the Netherlands, unless the Parties mutually decide to
refer the matter to arbitration.
Agreed this 2nd day of April, 1998.
- --------------------- ---------------------- ---------------------
UPC NUON UTH i.o.
List of Schedules:
I A. List of the NUON Assets
B. List of the UPC Assets
II Valuation Methodology
III Form of notarial deed of issue of Consideration Shares and transfer of
Assets
IV Shareholders Agreement
V A. Management Services Agreement NUON - UTH
B. Management Services Agreement UPC - UTH
VI Representations and Warranties
VII Permitted Transactions
VIII Third party consents
11
<PAGE>
SCHEDULE I
- ----------
A. LIST OF THE NUON ASSETS
- -- -----------------------
1. The Shares of the following companies:
a. N.V. TeleKabel Beheer (which company holds the shares of the companies
mentioned below under l.b. and d. and the participation mentioned
below under 3.C.8.).
b. N.V. TeleKabel (which company holds the shares of the companies
mentioned below under 1.c., e., f., g., i., l. and o., and the
participations mentioned below under 3.C.5 and 3.C.7).
c. Algemene Kabelexploitatie Maatschappij B.V. (owns 'telematicanet'
Leeuwarden)
d. Maxinetwerken B.V. (no assets or activities)
e. CAI-Over-Betuwe B.V. (including all shares in the issued share capital
of CAI-Bemmel B.V., CAI-Elst B.V., CAI-Gendt B.V., CAI-Heteren B.V.,
and CAI-Valburg B.V.)
f. CAI-Midden-Betuwe B.V. (which includes the cable networks in the
municipalities Kesteren, Lienden, Echteld and Maurik).
g. CAI-Renkum B.V.
h. CAI-Buren B.V.
i. CAI-Druten B.V.
j. CAI-Geldermalsen B.V.
k. CAI-Lingewaal B.V.
l. CAI-NKM-Nijmegen B.V.
m. CAI-Neerijnen West B.V.
n. CAI-Tiel B.V.
o. CAI-Wageningen B.V.
p. CAI-Dodewaard B.V.
q. CAI-Wijchen B.V.
r. CAI-Almere B.V.
12
<PAGE>
s. CAI-Lelystad B.V.
t. The cable network of Dronten and/ or CAI-Dronten B.V.
The shares listed under e. through s. and the assets and/ or shares
referred to under t. above will be (or have been) acquired by TeleKabel
from Casema pursuant to an agreement dated April 23, 1997 ('Overeenkomst op
Hoofdlijnen').
2. The following intangibles:
a. A commitment from NUON to be a customer to the telecom network
mentioned under 3.B.4 below for at least the next ten years, subject
to reaching a final agreement with the Purchaser which will not
materially deviate from the existing contract.
b. The 'TeleKabel' trademark (parties acknowledge that the Purchaser will
be entitled to change style and logo of the trademark).
c. Potential fees to be collected from subscribers in case of relocation
within a TeleKabel franchise area.
d. Potential entrance fees to be collected from new TeleKabel customers.
3. The following ancillary assets:
A. Real property
-- -------------
1. Office building at Noordvliet, Leeuwarden
2. Office building Morsestraat Ede.
B. Other fixed assets
-- ------------------
3. Remote controlled multitap equipment in end amplifiers (to the extent
installed at year end 1997)
4. A partly SDH telecom network, all related equipment and existing
customer contracts, which network is mainly used for telephony and
datacommunication within NUON but also has some outside customers.
C. Equity participations
-- ---------------------
5. All shares in the issued share capital of a broadcast facilitating
company TeleKabel Omroep Facilitair Bedrijf B.V.
6. 728,215 shares in EnerTel N.V., representing 10,7% of the issued share
capital.
In connection with the contribution of the shares in EnerTel to the
Purchaser NUON will also assign to the Purchaser (the benefit of) the
agreements between NUON and EnerTel that are listed in Schedule VI,
Section B., article 3.1.
7. 1.250 shares (or share certificates thereof) in Interway Holding B.V.,
representing 33,3% of the issued share capital.
8. 30% of the issued share capital in Euronet Internet B.V. (Note: It is
understood between the Parties that in principle these shares will be
transferred at book value. However, in the event that TeleKabel is
able to sell and transfer the shares in Euronet Internet B.V. at the
currently offered price, UPC will have the right to decide that the
Purchaser will acquire the shares at such same offered price, unless
this would contravene contractual arrangements).
13
<PAGE>
B. LIST OF THE UPC ASSETS
- -- ----------------------
1. The Shares of the following Companies:
a. All shares in the issued share capital of Cable Network Brabant
Holding B.V. ("CNBH"). CNBH owns the cable networks in Eindhoven
(formerly owned by KTE) and the Eindhoven area (formerly owned by
Combivisie, and consisting of 18 municipalities).
b. All shares held by UPC in the issued share capital of A2000 Holding
N.V. ("A2000"), which represents 50% of the issued share capital.
A2000 holds all of the shares in Kabel Televisie Amsterdam B.V. and
A2000 Hilversum B.V. and thus directly or indirectly owns the cable
networks in Amsterdam, Hilversum, Zaanstad, Purmerend, Landsmeer and
Ouder-Amstel.
In connection with this contribution of shares to the Purchaser, UPC
will also assign to the Purchaser (the benefit of) the agreements
listed in Schedule VI, section C, articles 1 and 2 ('JVA' and
'Settlement Agreement').
c. All shares in the issued share capital of Kabeltelevisie Son en
Breugel B.V.
d. The cable networks of Nutsbedrijf Regio Eindhoven, to be acquired by
CNBH pursuant to a letter of intent dated September 16, 1993 and UPC's
offer letter dated March 3, 1998.
2. The following intangibles:
a. Development new services (EBT, (I)PPV, Internet, telephony)
b. 'Time to market'
c. Business contracts
d. Carriage fees
e. Signal supply
f. Service agreements
3. The following ancillary assets:
A. Real property
-- -------------
1. Office building W. de Zwijgerlaan, Amsterdam.
2. Office building Kabelweg, Amsterdam
3. Office building Torenweg, Helmond
B. Other fixed assets
-- ------------------
4. New services equipment (central area/ customer premise equipment).
C. Equity participations
-- ---------------------
5. 25% of the shares held in Media Groep West.
14
<PAGE>
- ------------------------------------------------------------------------------
SCHEDULE II
Valuation methodology of the NUON Assets and UPC Assets to be contributed to
United TeleKabel Holding N.V.
- ------------------------------------------------------------------------------
Contribution of Assets to UTH
UPC and NUON will contribute the Assets to UTH in exchange for new shares in
UTH. UPC will hold 51% and NUON 49% of UTH. Any differences in value of the
Assets contributed to UTH and the 51%/49% share ownership will be settled
between UPC and NUON by means of a so called Correction Payment. The merger
will be effective as of 1st January, 1998, meaning that for the valuation of all
the Assets contributed to UTH, the valuation as of 31st December, 1997 will be
used. Any changes to the business or the assets after that date will
effectively be for the account of UTH.
The shares in the cable companies of UPC and NUON will be contributed at their
intrinsic value. The intrinsic value will comprise the following components:
1. the book value of the equity of the Companies contributed; plus
2. goodwill of the cable networks, plus
3. certain ancillary assets (as described below).
The Assets will be contributed to UTH effectively 1st January, 1998, 00:00
hours. Therefore, the year-end 1997 audit will determine the values at which
Assets will be contributed. However, given that UPC and NUON are in the process
of acquiring and divesting cable operations between 1st January, 1998 and
Closing, the accountants will need to prepare pro-forma accounts for year-end
1997. These 1997 pro-forma accounts will need to take into account the
remaining cable networks which form part of the swap between Casema and
TeleKabel, as well as the acquisition of the cable assets of Combivisie and NRE
by UPC.
These 1997 year-end pro-forma accounts will provide the book value of the equity
of the Companies to be contributed, and this book equity value will be the first
component of the valuation. The existing loans in the Companies would be valued
by the accountants in the year-end audited balance sheet and will therefore have
been included in the determination of the book equity value.
The value at which the Shares will be contributed will be calculated by
increasing the book equity value with the goodwill value of the cable networks
and the value of the ancillary assets. These two items are described below in
more detail.
Valuation of the networks
The basis for the valuation of the Companies' cable networks has been an
upgraded Hybrid Fibre-Coax (HFC) cable network. The concept of a standard HFC
subscriber as well as the detailed technical HFC definition has been agreed
between the Parties. The valuation of the Companies' networks is based on the
assumption that each Seller will contribute subscribers, upgraded to the HFC
standard.
1
<PAGE>
The Parties have agreed to value the networks to be contributed at NLG 1,650 for
the number of equity subscriber complying with the HFC standard. For the
valuation, the number of equity subscribers of the Assets to be contributed to
UTH at year-end 1997 will be used; the number of subscribers of Assets which are
not wholly owned (like A2000) will be reduced pro rata to the percentage of
ownership; the number of subscribers will be determined based on the following
formula.
- --------------------------------------------------------------------------------
Total subscribers = Individual subscribers + Recalculated collective subscribers
- --------------------------------------------------------------------------------
The number of individual subscribers is determined by a definition whereby a
subscriber ("abonnee") is any customer who received an invoice for an individual
cable connection. The recalculated collective subscribers are defined as the
total monthly turnover per municipality from collective agreements ("collectieve
overeenkomsten"), divided by the monthly fee for a basic subscription as stated
in the report from DDV, the content of which is known to the Parties.
If part of the network contributed by a Seller is not up to the HFC standard,
the valuation of the cable networks will be reduced by the amount of upgrading
needed at year-end 1997 in order to comply with the HFC standard. The estimated
upgrade amounts at year-end 1997 are calculated by the contributing Seller, and
have been reviewed through a due diligence exercise by the other Seller. At the
date of signing of the Acquisition Agreement ("the Agreement") the Parties are
in agreement on these estimated upgrade amounts, so no adjustments will further
be made until the date of Closing other than auditors' adjustments due to the
year-end 97 realization of the HFC upgrade for NUON/ TeleKabel. If due to scale
economies the actual upgrade costs are lower than those estimated at the date of
the Agreement, the benefits of these scale economies will flow to UTH.
The goodwill value of the cable networks will be calculated by reducing the
market value of the HFC networks (determined by the number of subscribers times
NLG 1,650) by the upgrade costs to comply with the HFC standard and by the book
value of the Assets which are included in the HFC-network standard. All these
variables will be determined as of 31st December, 1997.
Ancillary assets
UPC and NUON will contribute a number of ancillary assets to UTH, which are
outside the HFC upgraded networks as well as outside the other assets and
liabilities which are included in the balance sheets (at book value) of the
Companies to be brought into UTH. These ancillary assets comprise the following
categories:
1. Real estate
The real estate have been valued by independent real estate agents
Zadelhoff. The basis of valuation has been the status of the property
(vacant or occupied) at year-end 1997. Given the fact that all real estate
is already included in the balance sheets of the Companies and the
objective of this new valuation was to find out if there was any ancillary
asset, only a positive difference between the valuation by Zadelhoff and
the book value at year-end 1997 will be taken into account as ancillary
asset.
2
<PAGE>
The valuation reports of the real estate agents have been evaluated by the
parties and have resulted in the values for ancillary assets on the
attached overview of the projected valuation. No further adjustments will
be made until the date of Closing, other than changes in the book values of
the real estate at year-end 1997 due to the audits of the provisional
accounts.
2. Assets held outside the Companies being contributed to UTH
This category includes equity participations in related Companies which are
held by the Sellers (e.g. EnerTel shares). The equity participations will
be valued at the underlying book value at year-end 1997.
All assets to be contributed to UTH other than the ancillary assets and the HFC
network will be valued at book value at year-end 1997.
Correction Payment
In summary, the valuation of the Assets contributed by UPC and NUON to UTH will
be determined as follows:
1. shares in the cable subsidiaries TeleKabel (on a pro forma basis to reflect
finalisation of the swap with Casema), A2000 (50% stake), Cable Network
Brabant Holding (including the assets of NRE) and Son & Breugel at their
book equity value;
2. goodwill of the cable networks;
3. value of ancillary assets.
For the contribution of these Assets, UTH will issue new shares to NUON and UPC.
The total of these Asset values contributed (and therefore the number of shares
issued) is likely to result in a different ownership structure than the proposed
51%/ 49% split between UPC and NUON. Therefore, a Correction Payment will have
to be made between the Parties to account for the difference in the value of the
Assets contributed and the value vested in the proposed shareholding.
Given that the audited 1997 accounts, and the audited numbers of subscribers at
year-end 1997, are not yet available at the time of signing of the Agreement, a
provisional valuation of the Assets contributed to UTH has been prepared by UPC
and NUON and has been attached as an Appendix. This Appendix has not been
prepared or reviewed by UBS. The provisional valuation reflects the current
best estimate of the various value components at year end 1997 by NUON and UPC
respectively based on provisional accounts prior to the date of signing of the
Agreement. The final valuation of the Assets will be calculated at Closing
based on the audited balance sheets at year-end 1997 and audited numbers of
subscribers at year-end 1997 and the Parties intend to correct the provisional
valuation accordingly without any thresholds for these corrections being
applicable.
Financing of UTH
This valuation methodology is not influenced by the ultimate financial structure
of UTH. As part of the contribution of the Shares in the Companies, the Sellers
will also contribute to UTH the
3
<PAGE>
existing loans of the Companies. It is the intention of NUON to have its
existing loans to TeleKabel entirely replaced by external debt financing at the
date of Closing. NUON is however willing to leave its existing debt financing to
TeleKabel in place for a bridging period ending on 30th November, 1998 and not
to be extended with more than one period of 15 days after that date.
It is the intention of the Sellers that the existing loans will be refinanced
after the merger in order to achieve a targeted financial structure of 35%
equity and 65% debt. Both UPC and NUON are willing to raise the level of equity
up to 40%, if the terms and conditions will be substantially more attractive for
a financing based on an equity ratio in excess of 35% instead of 35%.
In the event UTH would be over-capitalised following the merger, given the above
mentioned target level of equity, the Shareholders have the option either to
maintain the capital base and use the capital buffer to finance capital
expenditure in the future (as part of their Anticipated Funding commitments) or
to have UTH distribute a dividend to the Shareholders following a refinancing.
In case of under-capitalisation the Parties may need to contribute further
equity to UTH in order to achieve the targeted capital structure.
Unless agreed otherwise, UPC and NUON will not offer or grant the benefit of a
guarantee from NUON or UPC to any provider of any external debt attracted by UTH
or by any member of UTH's group.
4
<PAGE>
APPENDIX TO
-----------
SCHEDULE II
-----------
VALUATION SHEET Contribution by UPC and NUON*
<TABLE>
<CAPTION>
UPC NUON
-------------------
Amounts in millions
NLG
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------
A Shares in cable subsidiaries 256 248
------------------------------------------------------------------------------------------------
SUBS
B HFC networks *1,000
595 1650
505 1650
833 981
Bookvalue of networks 670 742
Upgrading costs 74 156
------------------------------------------------------------------------------------------------
Sub-total HFC networks net premium 89 83
------------------------------------------------------------------------------------------------
C Ancillary assets
Assets owned by parent companies 13
Undervalued real estate 0 0
------------------------------------------------------------------------------------------------
Sub-total below the line assets net premium 0 13
------------------------------------------------------------------------------------------------
-------------------------------------
Total value contributed 345 344
-------------------------------------
Equivalent value for 49/51% stake 352 338
------------------------------------------------------------------------------------------------
Correction payment 6 -6
------------------------------------------------------------------------------------------------
</TABLE>
*Open to verification by the external auditors
<PAGE>
SCHEDULE VI
- -----------
SELLERS' REPRESENTATIONS AND WARRANTIES
- ---------------------------------------
The below representations and warranties are provided by NUON to the extent that
they relate to NUON and the NUON Assets (sections A and B), and by UPC to the
extent that they relate to UPC and the UPC Assets (sections A and C).
A. Sellers' Representations and Warranties pursuant to article 4.a.
- -- ----------------------------------------------------------------
1. Definitions
-----------
Annual Accounts The balance sheet and profit and loss accounts of the
Companies for the financial year ended on the Balance
Sheet Date, together with the explanatory notes
thereto.
Companies' Assets All material and immaterial assets, whether tangible,
movable or immovable, including but not limited to
their respective Networks, as used by the Companies.
Networks The cable networks that are comprised in the Assets.
All other capitalized terms will have the same meaning as defined in the
Acquisition Agreement.
2 The Sellers
-----------
2.1 The Sellers are companies duly existing under the laws of the
Netherlands.
2.2 The Sellers have the power and have taken all necessary actions to
enter into and perform this Agreement, the Shareholders Agreement and
the Management Services Agreements, and to consummate the transactions
envisaged therein.
2.3 This Agreement constitutes, and the Shareholders Agreement and the
Management Services Agreements when signed by the Sellers will
constitute legal, valid and binding obligations of the Sellers,
enforceable in accordance with their terms.
2.4 The signing and performance of this Agreement, the Shareholders
Agreement and the management Services Agreements by the Sellers do not
and will not contravene or constitute a default under any provision of
applicable law or the terms of any agreement, judgment, injunction,
order or decree applicable to the Sellers.
2.5 Other than mentioned in this Agreement, no consents or approvals and
no licenses or orders from or notices to or filings with any
governmental or quasi governmental body are required for the signing
and performance by the Sellers
6
<PAGE>
of this Agreement, the Shareholders Agreement and the Management
Services Agreements.
7
<PAGE>
3 The Assets and the Companies' Assets
------------------------------------
3.1 The Sellers have legal and beneficial title to the Assets and are
entitled to transfer the ownership thereof to the Purchaser.
3.2 Except as listed in Annex 3.2, the Assets and the Companies' Assets
are free and clear of any rights of pledge, mortgage, usufruct, or
other liens or attachments and no option rights granting same have
been provided to any third party, including group companies.
3.3 Except as listed in Annex 3.3 and as disclosed in the Annual Accounts,
the Companies have legal and beneficial title to the Companies Assets
except for such Assets as are available to the Companies under the
operational or financial leasing arrangements or are subject to any
reservation of title agreed upon between the Companies and the
relevant supplier, except in the ordinary course of business.
3.4 The Companies have the full right to use and operate the Networks,
within the restrictions imposed by some of the operating agreements
relating to the Networks, which agreements have been fully disclosed
by the Sellers and of which each of the Parties is aware.
3.5 Annex 3.5 sets out a complete and accurate survey of the Companies'
freehold and leasehold offices.
3.6 The Companies' Assets comprise all the assets necessary for the
continuation of the Business of the Companies as carried on at the
date of this Agreement.
3.7 The Assets represent all of the Sellers' cable assets and activities
in the Netherlands, and after execution of the transfers envisaged in
this Agreement the Sellers will not own or operate any assets or
companies in the Netherlands of a nature similar to the Assets, except
as set forth in article 17.2 of the Shareholders Agreement.
4 The Companies
-------------
4.1 The Companies have been duly incorporated under Netherlands law as
private or public companies with limited liability ("besloten
vennootschappen met beperkte aansprakelijkheid or naamloze
vennootschappen").
4.2 No proposal has been made and no resolution has been adopted for the
dissolution or liquidation of the Companies nor do any circumstances
exist which may result into the dissolution or liquidation of the
Companies.
Except as listed in Annex 4.2, no proposal has been made or resolution
adopted for a statutory merger ('juridische fusie") of the Companies
with any other entity.
8
<PAGE>
4.3 The Companies have neither been declared bankrupt nor been granted a
moratorium of payments, nor has any of them applied for a declaration
of bankruptcy or moratorium of payments.
5 Shares
------
5.1 The issued share capital of each of the Companies is currently
outstanding at the respective shareholding Companies set forth in
Annex 5.1. Except as listed in Annex 5.1, the Shares are fully paid
up.
5.2 The Companies have neither issued any profit sharing certificates
("winstbewijzen") nor granted any other rights under their articles of
association to share in the profits ("statutaire winstrechten") of the
Companies, nor any other rights to third parties (including but not
limited to employees) entitling such third parties to share in the
profits of the Companies.
5.3 No proposal has been made and no resolution has been adopted to issue
additional shares in the Companies; no rights, including options, have
been granted, relating to unissued shares or shares which have been
repurchased by the Companies.
5.4 Except as listed in Annex 3.2, the Shares are free and clear of any
rights of pledge, attachment and usufruct and no option rights have
been granted in favour of any third party with regard to the Shares.
There are no share certificates in respect of the Shares.
5.5 Except as listed in Annex 5.5, the Sellers either directly or
indirectly have full right and title to 100% of the Shares and as from
Closing there will be no obligations with respect to any of the Shares
to any third party.
5.6 Since the Balance Sheet Date no (interim) dividend or other
distribution has been declared or paid on the Shares; nor have any
rights to a future dividend or other rights with respect to the
Companies' profits been committed or transferred to third parties.
5.7 Except as listed in Annex 5.7, no restrictions on the transfer of the
Shares ("blokkeringsbepalingen") other than those set forth in the
articles of association of the Companies are in effect. Such
restrictions are listed without prejudice to article 7.1.d of this
Agreement and they will not in any way prevent or impair the
fulfilment by the Sellers of their obligations under this Agreement.
6 Annual Accounts
---------------
6.1 The Annual Accounts of the Companies and the annual report
("jaarverslag") thereto:
9
<PAGE>
(i) have been prepared in accordance with the requirements of all
relevant laws and accounting principles generally accepted in
the Netherlands ("GAAP");
(ii) give a true and fair view of the financial position and results
of the Companies at the date and for the period indicated, and
both GAAP and the valuation principles as contained in the
Annual Accounts have been applied on a consistent basis with the
annual accounts for the preceding two (2) financial years of the
Companies; and
6.2 At Closing, the Annual Accounts have all been furnished with an
independent certified auditor's ("register accountant") approving
certificate ("goedkeurende verklaring").
6.3 Except as disclosed in the Annual Accounts and in the Annexes hereto,
there are no:
(i) commitments and liabilities of the Companies, whether actual or
contingent, and whether due at the Balance Sheet Date or to
become due thereafter, except as incurred after the Balance
Sheet Date in the ordinary course of the Company's business or
except for commitments and liabilities of a type which does not
require to be included on a company's balance sheet under GAAP;
(ii) mortgages and other limited rights ("beperkte rechten") or
attachments on the Companies' Assets;
(iii) guarantees or security rights granted by any of the Companies
for any present or future debt of the Sellers or any third
party.
6.4 Since the Balance Sheet Date the businesses of the Companies in all
respects have been conducted in the ordinary course, consistent with
past practice, so as to preserve the same as going concern and there
have been no changes in the condition, financial or otherwise, of the
Companies, which have materially adversely affected their businesses
or financial condition.
7 Tax matters
-----------
7.1 The Companies have duly and timely paid all taxes, duties, levies and
social charges, including but not limited to corporate income tax,
wage tax, capital duty, real property tax, turnover or value added tax
and social security charges (hereinafter "Taxes") due, or either full
provision therefor has been made in the Annual Accounts, except as
incurred in the ordinary course of business. With respect to all Taxes
assessed and paid prior to Closing, no further payments or penalties
or interest charges are or will become due with respect thereto, save
to the extent provided for in the Annual Accounts and in Annex 7.1
hereto.
10
<PAGE>
7.2 The Companies are not and will not on the basis of any events having
occurred during the period up to and including Closing be liable to
repay any investment premiums or subsidies granted to or enjoyed by it
prior to Closing.
7.3 Except as listed in Annex 7.3, the Companies have duly and timely
filed all tax returns and other documents that are required to have
been filed in accordance with applicable laws and regulations. The
Companies have not asked for any extensions of time for the filing of
any tax returns or other documents.
7.4 The execution of this Agreement will not give rise to any material
adverse tax consequences for the Companies.
7.5 Except as listed in Annex 7.5, with respect to the assessment or
payment of Taxes no special agreements, rulings or compromises have
been entered into by the Companies with the tax authorities. The
Companies are not subject to a special regime in respect of the
payment of Taxes.
8 Contracts
---------
8.1 All agreements to which the Companies are a party are in full force
and effect and are binding on all parties involved.
8.2 Except as listed in Annex 8.2 neither the Companies, nor their
respective counter parties, are in default under any contract to which
they are a party and this Agreement will not result in such default or
change any terms of any such contract or permit the premature
termination or cancellation thereof.
8.3 Except as listed in Annex 8.3 there is not in force any agreement to
which such Company is a party materially restricting the freedom of
the Companies to carry on their business in the manner presently
conducted or to supply all legally permitted services to such persons
as it may from time to time think fit, except for restrictions
contained in the operating agreements related to the Networks.
8.4 Neither Seller is under any obligation to invest in unprofitable areas
("onrendabele gebieden") in an amount exceeding NLG 500,000 per
municipality.
8.5 Except as listed in Annex 8.5 the Companies are not party to any bank
financing, credit facility or similar agreement.
9 Litigation
----------
9.1 Except as listed in Annex 9.1, the Companies are not involved in any
civil, criminal, administrative or arbitral proceedings involving an
amount in excess
11
<PAGE>
of NLG 500,000 and no such proceedings have been threatened against
the Companies.
All such pending or threatening litigations in which the Companies are
or may become involved, and of which the Sellers are or should have
been aware, have been disclosed by the Sellers in Annex 9.1.
9.2 The Companies are not the subject of any investigation by any
governmental, administrative or regulatory body in the Netherlands.
To the best knowledge of the Sellers there are no circumstances which
could give rise to any such investigation.
10 Insurance
---------
10.1 The Companies have taken out sufficient insurance on terms customary
in the cable TV and telecommunication industry in the Netherlands
against all risks and liabilities listed in Annex 10.1 hereto. All
insurance premiums on such insurance policies have been paid fully and
in a timely manner.
10.2 No claims, which are still pending, have been made or are likely to be
made in excess of NLG 500,000 under the aforesaid insurance policies.
11 Employees
---------
11.1 Except as has been separately and specifically disclosed by the
Sellers to each other, the basis of remuneration or other terms of
employment payable to the employees of the Companies is the same as
that in force at the Balance Sheet Date and the Companies are not
under any contractual or other obligation to make any increase in the
rates of remuneration of or to make any bonus or incentive or other
similar payments to any of their employees at any future date, save in
the ordinary course of business in accordance with past practice or as
provided in the applicable collective labour agreement.
11.2 Except as has been separately and specifically disclosed by the
Sellers to each other, there are no pension, stock option, share
saving or profit sharing schemes, whether legally enforceable or not,
relating to all or part of the employees of the Companies in operation
or proposed.
11.3 There will be no material change in any premiums or contributions to
be paid in 1998 or any following year with respect to any pension plan
of any of the Companies in comparison to the premiums or contributions
for such pension plan paid in 1997, except as a result of a change in
the (level of) wages as granted in the ordinary course of business.
All contributions with respect to pension obligations (including
'backservice' obligations) have been fully paid or provided for in the
Annual Accounts in accordance with GAAP.
12
<PAGE>
11.4 It is acknowledged by the Parties that certain employees of NUON and
UPC may be transferred to the Purchaser in order to enable the
Purchaser to continue the Business. It is agreed between the Parties
that with regard to such employees as from the date hereof no new or
additional employment guarantees will be provided by the Sellers. In
the event that the unions would impose upon any of the Sellers such
new or additional guarantees, the Seller involved, and not the
Purchaser, will be responsible and liable for the financial
consequences thereof.
12 Compliance with laws
--------------------
The Companies have complied in all material respects with all laws,
regulations, and orders applicable to them or their Business.
13 Permits
-------
13.1 The Companies have obtained (the beneficial interest of) all public
and private licenses and permits ("the Permits") necessary for the
operation of the Networks, including, but not limited to the cable
television and regional infrastructure licenses, and each of the
Permits is in full force and effect. The Companies conduct the
Business in accordance with the Permits and the terms and conditions
relating thereto.
13.2 To the best knowledge of the Sellers, there are no facts or
circumstances that could give rise to the amendment, cancellation,
non-prolongation or non-renewal of any of the Permits, other than the
envisaged changes of the "Telecommunicatiewet".
14 Intellectual property matters
-----------------------------
14.1 The Companies have full legal and beneficial title to the industrial
and intellectual property rights and applications set forth in Annex
14.1.
14.2 To the best knowledge of the Sellers the industrial and intellectual
property rights referred to above are not infringed by any third
party, nor does any of Sellers infringe any third party's industrial
and intellectual property rights.
15 Environment
To the best knowledge of the Sellers, none of the Companies is aware of soil or
water contamination relating to any of the Companies' Assets of such a degree
that under presently applicable legislation -such as but not limited to the Wet
Bodembescherming-clean-up measures are or can be required.
13
<PAGE>
16 Full disclosure
All documents disclosed through this Agreement by the Sellers or their
professional advisors to each other and to the Purchaser in connection with this
Agreement are correct and complete. The information furnished by the Sellers
does not to the best of their knowledge contain any untrue statement or fact and
does not omit any fact which is necessary to prevent such statements from being
false or misleading. The Sellers represent to have conducted investigations
within their groups of companies (as to said information and facts) of a nature
and extent which is customary for transactions of this size and which a prudent
seller is expected to have conducted.
14
<PAGE>
B. NUON's Representations and Warranties pursuant to article 4.b.
- -- --------------------------------------------------------------
1. Casema "swap"
-------------
The Parties acknowledge that TeleKabel and N.V. Casema ("Casema") on April 23,
1997 have entered into an agreement for the sale and transfer of certain cable
assets by NUON to Casema and the sale and transfer of certain cable assets by
Casema to NUON, which agreement has been amended by correspondence between
Casema and TeleKabel between November 1997 and the date hereof, which
correspondence has been fully disclosed by NUON to UPC (hereinafter together
referred to as "the Casema Swap Agreement").
At Closing all transactions envisaged in the Casema Swap Agreement will have
been duly executed by NUON and Casema and all obligations related to said
transactions will have been fulfilled by NUON and Casema in accordance with the
terms and conditions set forth in the Casema Swap Agreement, or any amendments
thereof to be agreed between Casema and TeleKabel, after written consent thereto
by UPC.
2. TeleKabel group statutory merger
--------------------------------
Within the TeleKabel group of companies, N.V. TeleKabel, N.V. TeleKabel
Gelderland-Noord, N.V. TeleKabel Gelderland-Zuid, N.V. TeleKabel Friesland
Beheer and N.V. TeleKabel Friesland on December 31, 1997 have entered into a
statutory merger ('juridische fusie') whereby N.V. TeleKabel has been the
acquiring company and the other companies have disappeared ("the TeleKabel
Statutory Merger").
The TeleKabel Statutory Merger will not have any material negative impact on the
business or financial condition, or the fiscal position, of the Purchaser.
3. EnerTel
-------
3.1 Obligations vis-a-vis EnerTel
-----------------------------
NUON as at the date hereof is the owner of 728,215 shares in the issued share
capital of EnerTel N.V. ("EnerTel") (which is one of the Companies listed on
Schedule I), representing 10,7% of EnerTel's issued share capital.
Neither NUON nor any of its subsidiaries is under any obligation to purchase any
shares in EnerTel, or to make any capital contributions to EnerTel, other than
those set forth in the EnerTel shareholders agreement dated May 14, 1996.
Between Nuon (or any of its subsidiaries) and EnerTel no other agreements are in
effect than:
- - The 'Voorbereidingsovereenkomst' dated May 14, 1996 between EnerTel and its
shareholders;
- - The EnerTel shareholders agreement referred to above;
- - The 'Overeenkomst betreffende terbeschikkingstelling regionale
infrastructuur ten behoeve van het verwerven van een
infrastructuurvergunning zonder gebiedsbeperking door EnerTel' dated
September 6, 1996;
- - The 'Backbone-overeenkomst' dated September 6, 1996;
15
<PAGE>
- - The 'Overeenkomst inzake de levering van het TeleKabel SDH Backbone
Netwerk' dated January 28, 1998;
- - The 'Overeenkomst' dated October 22, 1997 concerning the EDU-net project,
which agreement is commonly referred to as the 'back-to-back' agreement;
and
- - The 'Overeenkomst inzake aanvullende offerte EDU-net project' dated
February 19, 1998.
3.2 Value of the EnerTel shares; 'downside protection'
--------------------------------------------------
The value of the EnerTel shares at sale or at liquidation will be equal to, or
higher than, book value as shown in the 1997 accounts of NUON. Should the value
of the EnerTel shares be lower than book value, then NUON will compensate UPC
for the difference and article 5.5 of the Acquisition Agreement will not be
applicable to such compensation.
This warranty will not apply in the event NUON and UPC together decide to reject
a bona fide offer by a third party for the EnerTel shares. A 'bona fide offer'
in this context means a serious offer which reasonably can be accepted in view
of pricing, (other) conditions of the offer and the position of the offerer on
the Dutch market.
4. Telecom Finland
---------------
The parties acknowledge that the agreement between TeleKabel and Telecom Finland
Ltd. dated August 19, 1997, for the provision of 'Fast Internet Services'
contains a non-compete clause (article 7) for the provision of the so-called
'Basic' and 'Extended' Fast Internet Services.
Said non-compete clause will not have any material negative impact on the
business or financial condition of the Purchaser, nor will it materially limit
the scope of the business of the Purchaser as defined in the Shareholders
Agreement.
5. Euronet
-------
NUON as at the date hereof is the owner of 30% of the issued share capital of
Euronet Internet B.V. ("Euronet") (which is one of the Companies listed on
Schedule I).
The non-compete clause between NUON and Euronet will not have any
material negative impact on the business or financial condition of the
Purchaser, nor will it materially limit the scope of the business of the
Purchaser as defined in the Shareholders Agreement.
The shares held by NUON in Euronet will not be sold by NUON to a third party for
a price which is lower than book value (as per the Balance Sheet Date).
6. Ede
---
By a sale and purchase agreement of February 29, 1996 and by subsequent deed of
transfer of May 6, 1996 the cable network of the municipality of Ede has been
sold and transferred to TeleKabel.
By said agreement, TeleKabel has, inter alia, undertaken towards the Stichting
Media Netwerk Ede the following obligations ("the Ede Obligations"):
16
<PAGE>
- - The establishment of a newly built regional office of TeleKabel in Ede;
- - As a result of the establishment of this regional office, at least 37 full-
time jobs as additional employment will be created by TeleKabel.
TeleKabel is currently in the process of re-negotiating with the Stichting Media
Netwerk Ede the Ede Obligations. In any event, the Ede Obligations will not
have any material negative impact on the business or financial condition of the
Purchaser.
C. UPC's Representations and Warranties pursuant to article 4.c.
- - -------------------------------------------------------------
1. Transfer of A2000 shares
At Closing, any transfer of shares in A2000 Holding N.V. ("A2000") to the
Purchaser pursuant to the Acquisition Agreement or the Shareholders Agreement
constitutes a permitted transfer to a subsidiary within the meaning of Article
9.2(b) of the Joint Venture Agreement regarding A2000 dated February 13, 1996
("the JVA"), as amended by agreement ('consent agreement') dated September 27,
1997.
2. A2000 Settlement Agreement
--------------------------
On July 6, 1995, US West International B.V. ("US West"), Philips Media Networks
B.V. (which has transferred its rights and obligations to UPC) and
Kabeltelevisie Amsterdam B.V. ("KTA") have entered into a settlement agreement
("the Settlement Agreement").
To the extent that US West may have any claims under the Settlement Agreement
against KTA, these claims will never exceed the claims that the Purchaser (after
transfer of UPC's shares in A2000 Holding N.V.) may have against KTA under the
Settlement Agreement, as a result of which (and in view of the fact that US West
and UPC/ the Purchaser (will) each own 50% of the shares in A2000) said claims
will not have a negative impact on the value of the shares held by UPC/ the
Purchaser in A2000.
3. Appointments at A2000
---------------------
UPC will arrange that persons who will be nominated for appointment to one of
the group boards of the A2000 Group can and will be employees or retained
representatives of the Purchaser or its respective subsidiaries (referring to
article 9.2(f) of the JVA).
4. Tariff increase Amsterdam
--------------------------
UPC will contribute to the Purchaser a tariff increase for KTA's basic fee of
NLG 10,44 (excl. VAT) per equity subscriber per year.
5. Operating agreement Son en Breugel
----------------------------------
The operating agreement dated September 30, 1985 ('exploitatieovereenkomst')
between the Municipality of Son en Breugel and KTSB has been terminated.
17
<PAGE>
[THIS PAGE LEFT BLANK]
18
<PAGE>
6. Statutory merger Son en Breugel
-------------------------------
Within the UPC group of companies Kabeltelevisie Son en Breugel B.V. and Cable
Network Brabant Holding B.V. will enter into a statutory merger ('juridische
fusie') whereby Cable Network Brabant Holding N.V. will be the acquiring company
and Kabeltelevisie Son en Breugel B.V. will disappear ("the UPC Statutory
Merger"). The UPC Statutory Merger will not have any material negative impact
on the business or financial condition, or the fiscal position, of the
Purchaser.
7. Kabelweg
--------
The costs of construction, costs of reconstruction and refurbishment expenses of
the A2000 premises at Kabelweg in Amsterdam shall not exceed an amount of NLG 32
million.
19
<PAGE>
ANNEXES TO SCHEDULE VI (Sellers' Representations and Warranties)
- ----------------------------------------------------------------
I. To the extent they relate to UPC
--------------------------------
Annex 3.2 Securities to third parties
- --------- ---------------------------
(NB: the pledges and mortgages listed below are all first ranking, unless
otherwise indicated).
1. Cable Network Brabant Holding B.V. - Cooperative Centrale Raiffeisen
--------------------------------------------------------------------
Boerenleenbank B.A.
-------------------
NLG 250.000.000 Credit Facility Agreement
-----------------------------------------
February 1998
-------------
Securities:
A) Non-possessory pledge on all moveable tangible assets.
B) Non-disclosed pledge on CNBH's rights and proceeds under the Project
Agreements, defined as:
- - The Kabel Televisie Eindhoven Purchase Agreement, dated 29 Sept. 1995.
- - The Combivisie Acquisition Agreement dated Dec. 17, 1997.
- - The Agreement of KTE with the Municipality of Eindhoven, dated 29 Sept.
1995.
- - The GSA between CNBH and UPC, effective January 1, 1998.
- - CNBH's cable TV licences and permits.
- - The exploitation agreements relating to CAI Nuenen, CAI Heeze, CAI Oirschot
en O-W-Middelbeers, all dated 16 Feb. 1995.
- - The signal delivery agreement with the municipalities of Best (1 Sep. 1988)
and Sint-Oedenrode (17 March 1988), and PNEM Zuid-Oost (25 Feb. 1995).
- - The permits and authorisation in connection with the exploitation and
upgrading of the cable networks and the delivery of signals.
- - The rights of CNBH under its insurance policies (other than third party
liability insurances).
C) A disclosed pledge on the rights under the project account, being the
banking account at Rabo Bank.
D) A pledge on all shares issued by CNBH.
E) Mortgage rights over all of CNBH's immovable property, leaseholds and
rights of building.
F) A negative and positive mortgage declaration with respect to the cable
networks.
2. A2000 HOLDING N.V. (A2000) - ABN AMRO Bank
------------------------------------------
NLG 90.000.000 Bank Facility Agreement
--------------------------------------
31 January 1996
---------------
20
<PAGE>
Securities:
A) Pledge on all existing and future accounts (being any claim against any
person or legal entity), including:
I. Disclosed pledges on the designated bank accounts of A2000 at ABN AMRO and
on all claims for money of A2000 against KTA.
II. Non-disclosed pledges on all rights of A2000 under A2000 insurances, on all
rights of A2000 against any credit institution in The Netherlands
(including Postbank NV), and on all rights under the project agreements,
that are defined as:
- - The articles of association of A2000 and its subsidiaries.
- - The shareholders agreement between A2000, the MAA and KTA.
- - The purchase agreements between MAA/USWest/UPC/A2000, and the purchase
agreements with the Municipalities of Zaanstad, Purmerend, Landsmeer and
Ouder-Amstel.
- - Billing agreements (incl. ENW Agreement) regarding subscriber payments;
- - The ABN AMRO Consortium Members Undertaking.
- - CAI Agreements with Municipalities of Amsterdam, Zaanstad, Landsmeer
Purmerend and Ouder-Amstel.
- - The Joint-Venture Agreement between UPC and USWest.
- - The Management Services Agreement between A2000 and KTA, dated 1 Feb. 1996.
- - The customer agreements between KTA and subscribers.
- - All rights under the A2000 insurances.
B) Pledge on all issued and outstanding shares in KTA;
C) Pledges and mortgages as provided for in the KTA Facility (see 3.) on any
good with respect to which A2000 has the right to dispose thereof (not
falling under a) or b) above) to the extent that such good(s) have an
aggregate economic value of NLG 500,000.
The agreement provides for a negative pledge regarding any assets with respect
to which A2000 or any of its subsidiaries has the right to dispose.
3. KABELTELEVISIE AMSTERDAM B.V. (KTA) - ABN AMRO Bank N.V.
--------------------------------------------------------
NLG 375.000.000 Bank Facility Agreement
---------------------------------------
31 January 1996
---------------
Securities:
A) Mortgage on four parcels of land.
B) Pledge on all existing and future accounts of KTA, (being any claim against
any person or legal entity), including:
21
<PAGE>
I. Disclosed pledges on the designated bank accounts of KTA at ABN AMRO, and
on all rights and claims of KTA under the Agreements with the
municipalities of Amsterdam, Zaanstad, Landsmeer, Purmerend, Ouder-Amstel.
II. Non-disclosed pledges:
1. On all rights of KTA under the agreement with NV Energiebedrijf Amsterdam,
on all claims vis-a-vis Energiebedrijf Zaanstreek en Water-land for the
collection of monies and on all claims vis-a-vis Nutsbedrijf for the
collection of monies; and
2. On all rights under the project agreements, that are defined as:
- - The articles of association of KTA, A2000 and its subsidiaries.
- - The shareholders agreement between A2000, the MAA and KTA, dated 6 July
1995.
- - The purchase agreements between MAA/USWest/UPC/A2000, and the purchase
agreements with the Municipalities of Zaanstad, Purmerend, Landsmeer and
Ouder-Amstel.
- - Billing agreements (incl. ENW Agreement) regarding subscriber payments.
- - The ABN AMRO Consortium Members Undertaking.
- - The CAI Agreements with MAA, Zaanstad, Landsmeer Purmerend and Ouder-
Amstel.
- - The Joint-Venture Agreement between UPC and USWest.
- - The Management Services Agreement between A2000 and KTA, dated 1 Feb. 1996.
- - The customer agreements between KTA and subscribers.
3. On all rights of KTA under KTA insurances.
4. On all rights of KTA against any credit institution in The Netherlands
(including Postbank NV).
5. On all rights of KTA against any of its subscribers for telecommunication
services.
C) Pledge on all shares in KTA.
D) Pledge on moveable property (including a/o. equipment, cable, cable works,
installations, connections, (infrastructure-) facilities - together forming
a cable network).
E) Pledges or mortgages with respect KTA or any of its subsidiaries has the
right to dispose thereof.
The agreement provides for a negative pledge regarding any assets with respect
to which KTA or any of its subsidiaries has the right to dispose.
4. A2000 HILVERSUM B.V. (KTH) - ABN AMRO Bank N.V.
-----------------------------------------------
NLG 45.000.000 Bank Facility Agreement
--------------------------------------
16 October 1996
---------------
Securities:
A) Upon written request a mortgage with respect to KTH's interest in real
property.
22
<PAGE>
B) Pledge on all existing and future accounts of KTA, (being any claim against
any person or legal entity), including:
I. Disclosed pledges on the designated bank accounts of KTH at ABN AMRO, and
on all rights and claims for money of KTH under the Acquisition Agreement
with the municipality of Hilversum, dated 1 July 1996
II. Non-disclosed pledges:
1. On all rights and claims for money of KTH under the agreement with NV
Regionaal Energiebedrijf Gooi en Vechstreek and the Municipality of
Hilversum, dated 22 March 1984; and
2. On all rights of KTH under the project agreements, that are defined as:
- - The articles of association of KTH;
- - The ABN AMRO Consortium Members Undertaking;
- - The KTA Bank Facility Agreement;
- - The A2000 Bank Facility Agreement;
- - The Acquisition Agreement with the municipality of Hilversum, dated 1 July
1996;
- - Any and all licences held by KTH necessary to maintain and operate a cable
network.
3. On all rights of KTH under KTH insurances;
4. On all rights of KTH against any credit institution in The Netherlands
(including Postbank NV);
5. On all rights of KTH against any of its subscribers for telecommunication
services;
6. On all rights of KTH under agreements in the schedules to the deed.
C) Pledge on all issued shares in KTH.
D) Pledge on moveable property (including a/o. equipment, cable, cable works,
installations, connections, (infrastructure-) facilities - together forming
a cable network).
E) First right to vest pledges or mortgages with respect to assets KTH or any
of its subsidiaries has the right to dispose thereof.
The agreement provides for a negative pledge regarding any assets with respect
to which KTH or any of its subsidiaries has the right to dispose.
Annex 3.5 Companies' offices
- --------- ------------------
Kabelweg, Amsterdam (freehold)
W. de Zwijgerlaan, Amsterdam (freehold)
Prof. Dorgelolaan, Eindhoven (leasehold)
Torenstraat, Helmond (freehold)
Annex 4.2 Statutory mergers
- --------- -----------------
23
<PAGE>
Kabeltelevisie Son en Breugel B.V. will be merged into Cable Network Brabant
Holding B.V., the latter being the surviving entity.
24
<PAGE>
Annex 5.1 Issued Shares
- --------- -------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Company Shareholder Issued share capital (NLG)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Cable Network Brabant Cable Network Netherlands 40.200
Holding B.V. Holding B.V. (1 share held
by KTE)
- -----------------------------------------------------------------------------------
Kabeltelevisie Son en Cable Network Brabant 240,000 (25% paid up)
Breugel B.V. Holding B.V.
- -----------------------------------------------------------------------------------
A2000 Holding N.V. Belmarken Holding B.V. 200,200
- -----------------------------------------------------------------------------------
Kabeltelevisie Amsterdam A2000 Holding N.V. 501,000
B.V.
- -----------------------------------------------------------------------------------
A2000 Hilversum B.V. A2000 Holding N.V. 200,000
- -----------------------------------------------------------------------------------
Media Groep West B.V. A2000 Holding N.V. 260,000
- -----------------------------------------------------------------------------------
</TABLE>
Annex 5.5 Less than 100% owned Companies
- --------- ------------------------------
50% of the shares of A2000 Holding N.V. are held by US West.
75% of the shares of Media Groep West B.V. are held by N.V. Holdingmaatschappij
De Telegraaf.
1 priority share of KTA is held by the municipality of Amsterdam.
Annex 5.7 Transfer restrictions
- --------- ---------------------
A. Shareholder's consents
<TABLE>
- ------------------------------------------------------------------------------------
<S> <C>
A2000 Holding NV Joint Venture Agreement UPC-US West:
UPC may transfer its partnership interest to an entity
which is a subsidiary of UIH in which UIH owns
consolidated capital and voting rights of greater
than 50%
Relevant conditions:
Transferee to become a party to the JV Agreement;
Ultimate parent remains liable for financial compliance.
- ------------------------------------------------------------------------------------
Kabeltelevisie Amsterdam Shareholders Agreement A2000 / Municipality
BV Amsterdam:
Transfer of A2000 shares possible without approval
Municipality provided that UPC remains in control (acc.
to 2:24a BW)
- ------------------------------------------------------------------------------------
Media Groep West BV Shareholders Agreement A2000 / Telegraaf:
No transfer restrictions with respect to A2000.
- ------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
B. Third party consents:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
<S> <C>
A2000 Holding NV ABN AMRO Facility Agreement:
USWest and UIH jointly are to remain the holders of
control (acc. to 2:24a BW)
- ---------------------------------------------------------------------------------
Kabeltelevisie Amsterdam ABN AMRO Facility Agreement:
BV USWest and UIH jointly are to remain the holders of
control (acc. to 2:24a BW)
Share Pledge:
No restriction with respect to transfer of A2000.
- ---------------------------------------------------------------------------------
A2000 Hilversum BV ABN AMRO Facility Agreement:
USWest and UIH jointly are to remain the holders of
control (acc. to 2:24a BW)
Share Pledge:
No restriction with respect to transfer of A2000.
- ---------------------------------------------------------------------------------
Cable Network Brabant Rabo Credit Facility Agreement:
Holding B.V. UPC not to reduce its voting rights below 51%
without prior written consent of the Agent.
- ---------------------------------------------------------------------------------
</TABLE>
Annex 7.3 Tax returns
- --------- -----------
For filing of the tax returns 1996 of A2000 Holding, A2000 Hilversum, KTA and
KTE extension has been requested and obtained.
Annex 7.5 Tax rulings
- --------- -----------
Capital tax and VAT: rulings (January, 1998) for the exemptions from capital tax
and VAT relating to the acquisition by CNBH of the Combivisie and the KTE
Assets.
Annex 8.2 Defaults
- --------- --------
Discussions are pending between the municipality of Purmerend for alleged breach
of the CAI agreement. The motion for a temporary injunction against A2000,
however, has been withdrawn by the municipality.
Annex 8.3 Restrictive agreements
- --------- ----------------------
Joint venture agreement USW/UPC regarding A2000.
Shareholders agreement MGW and Pay-per-view agreements related thereto.
26
<PAGE>
Annex 8.5 Financing arrangements
- --------- ----------------------
Reference is made to the credit facility agreements listed in Annex 3.2.
Annex 9.1 Pending or threatening litigations
- --------- ----------------------------------
A. Access to cable disputes
------------------------
NVCR and Arcade Group have both filed complaints against A2000's carriage fees.
With respect to Arcade Group, the minister of Economic Affairs has taken a
positive decision for A2000. A2000's carriage fees had to be realigned as per
March 1997 at the risk of a penalty ("dwangsom") of NLG 50K per day. A2000 has
notified in November 1997 the minister of its revised carriage fees. Arcade has
filed an appeal against the minister's decision.
NVCR's case is still pending.
Nethold/Canal+ has already paid for 1996. The amount for 1997 has been set by
the arbiters. The arbitration is binding.
CNBH is in the final stage of the civil law suit that MTV filed against
Stichting Combivisie. MTV wants to recover damages, due to Combivisie's decision
not to carry MTV any longer. A decision is expected in April 1998.
B. Debt collections
----------------
A2000 will undertake debt collections against commercial programme providers
carried in the basic package, following the decision of the minister of Economic
Affairs.
Annex 10.1 Insurances
- ---------- ----------
Overview of insurance policies:
- --------------------------------------------------------------------------------
Insurance Risk
- --------------------------------------------------------------------------------
Accident Disablement or death of employees caused by accident
- --------------------------------------------------------------------------------
Travel Travel insurance for employees on business or
private trips
- --------------------------------------------------------------------------------
Crime Fraud, forgery etc.
- --------------------------------------------------------------------------------
Combined Buildings, equipment, networks and business
interruption
- --------------------------------------------------------------------------------
D&O Directors and officers third party liability
- --------------------------------------------------------------------------------
Liability UPC and its employees third party liability
- --------------------------------------------------------------------------------
27
<PAGE>
Annexes to Schedule VI (Seller's Representations and Warranties
- ---------------------------------------------------------------
II. To the extent they relate to NUON
Annex 3.2 Securities to third parties and 5.4: share certificates
- --------- -------------------------------------------------------
- - CAI Geldermalsen B.V.: loan agreement dated December 18, 1985 (NLG
6,000,000) between the municipality of Geldermalsen and CAI Geldermalsen
B.V.: mortgage up to NLG 500,000 with respect to leasehold on a parcel of
land (section G nummer 2021ged.) and the headend situated on that parcel of
land.
- - Interway Holding B.V.: at the moment N.V. TeleKabel holds 33,33% of the
shares in the share capital of Interway Holding B.V. All shares in the
share capital of Interway Holding B.V. will be converted into share
certificates shortly.
Annex 3.3 Ownership of Companies' Assets
- --------- ------------------------------
- - The cable network in the municipality of Groesbeek (hire-purchase
agreement: N.V. TeleKabel has the exclusive option to buy the cable network
for an amount of NLG 1,-on June 1, 2001).
- - The NUON-copper network (legal owner: N.V. NUON, beneficial owner: N.V.
TeleKabel).
Annex 3.5 Companies' offices
- --------- ------------------
- - Morsestraat, Ede (freehold)
- - Noordvliet, Leeuwarden (freehold).
- - Waterstraat, Velp (leasehold).
- - Utrechtsestraat, Arnhem (leasehold).
28
<PAGE>
Annex 5.1 Issued Shares
- --------- -------------
Situation as per Closing:
<TABLE>
<CAPTION>
Company shareholder number of issued nominal value
shares
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. CAI Almere BV NV TeleKabel 400 NLG 100,-
2. CAI Buren BV NV TeleKabel 400 NLG 100,-
3. CAI Dronten BV NV TeleKabel 400 NLG 100,-
4. CAI Druten BV NV TeleKabel 400 NLG 100,-
5. CAI Dodewaard BV NV TeleKabel 400 NLG 100,-
6. CAI Geldermalsen BV NV TeleKabel 35 NLG 1000,-
7. CAI Lelystad BV NV TeleKabel 400 NLG 100,-
8. CAI Lingewaal BV NV TeleKabel 400 NLG 100,-
9. CAI Midden-Betuwe BV NV TeleKabel 400 NLG 100,-
10. CAI Neerijnen-West BV NV TeleKabel 400 NLG 100,-
11. CAI Over-Betuwe BV NV TeleKabel 400 NLG 100,-
12. CAI Bemmel BV CAI Over-Betuwe BV 400 NLG 100,-
13. CAI Elst BV CAI Over-Betuwe BV 400 NLG 100,-
14. CAI Gendt BV CAI Over-Betuwe BV 400 NLG 100,-
15. CAI Heteren BV CAI Over-Betuwe BV 400 NLG 100,-
16. CAI Valburg BV CAI Over-Betuwe BV 400 NLG 100,-
17. CAI NKM-Nijmegen BV NV TeleKabel 400 NLG 100,-
18. CAI Renkum BV NV TeleKabel 400 NLG 100,-
19. CAI Tiel BV NV TeleKabel 400 NLG 100,-
20. CAI Wageningen BV NV TeleKabel 400 NLG 100,-
21. CAI Wijchen BV NV TeleKabel 400 NLG 100,-
22. NV TeleKabel Beheer NV Kraton 100.000 NLG 10,-
23. NV TeleKabel NV TeleKabel 100.000 NLG 10,-
Beheer
24. TeleKabel Omroep NV TeleKabel 40 NLG 1000,-
Facilitair Bedrijf BV
25. AKEM BV NV TeleKabel 400 NLG 500,-
</TABLE>
Annex 5.5 Less than 100% owned Companies
- --------- ------------------------------
10,7 % of the shares in EnerTel B.V. are held by NV NUON.
30% of the shares in Euronet Internet B.V are held by NV TeleKabel Beheer.
33,33 % of the shares in Interway Holding BV are held by NV TeleKabel.
29
<PAGE>
Annex 5.7 Transfer Restrictions
- --------- ---------------------
- ---------------------- --------------------------------------------------------
Euronet Internet B.V. Agreement between shareholders of Euronet Internet
B.V. dated July 19, 1996:
- A shareholder may transfer its shares when it
demonstrates to the other shareholder that the
transferee meets certain criteria (article 10.2).
- ---------------------- --------------------------------------------------------
EnerTel N.V. Shareholders agreement dated May 14, 1996:
- The participation in the share capital of EnerTel
N.V. will be maintained by the shareholders for a
period of at least three years (article 5.2).
- The shareholders can transfer their shares to
Casema, A2000 or a subsidiary of the shareholders if
and when the transferee meets the criteria mentioned
in article 7.1 of the articles of association
(article 5.3).
- Article 5.4: In the event that the control over the
shares will be transferred to a third party then:
1) if the control over a parent will be transferred to
a third party which undertakes activities that are
competing with the activities of EnerTel, the
parent, or its subsidiary if it holds the shares,
will be obligated to offer its shares to the other
shareholders in accordance with the articles of
association;
2) if the shares in EnerTel will be held by a
subsidiary and 50% or more of the control will be
transferred to a third party, not being a group
company, the subsidiary concerned will be held to
offer its shares to the other shareholders in
accordance with the articles of association.
- ---------------------- --------------------------------------------------------
CAI Wijchen B.V. Operating agreement dated April 29, 1993: The
Municipality of Wijchen can terminate the agreement
immediately if the current control structure of CAI
Wijchen BV is changed, including in any event the
transfer of shares or a merger (article 10.2).
- ---------------------- --------------------------------------------------------
Annex 7.1 Payment of taxes
- --------- ----------------
A request of N.V. TeleKabel Beheer to be registered as a taxable entity as of
October 10, 1996 is currently pending. The tax inspector has not yet replied.
Therefore, at present it is uncertain whether or not N.V. TeleKabel Beheer will
be required to file tax returns.
Annex 7.3 Tax returns
- --------- -----------
For the filing of all tax returns concerning the years 1996 and 1997 an
extension has been requested and obtained.
Sale and purchase agreement dated February 29, 1996 between N.V. NUON TeleKabel
(now: N.V. TeleKabel) and Stichting Media Netwerk Ede, concerning the execution
by N.V. NUON TeleKabel of certain warranties relating to the building of a
regional office and the creation of a certain level of employment (see further
Schedule VI.B article 6).
Annex 8.3 Restrictive agreements
- --------- ----------------------
Euronet Internet B.V.: agreement between the shareholders, signed July 19, 1996.
Telecom Finland OY: agreement between N.V. TeleKabel and Telecom Finland OY,
dated July 19, 1997.
EnerTel N.V.:
'Backbone-overeenkomst' dated September 6, 1996.
'Overeenkomst betreffende terbeschikkingstelling regionale infrastructuur' dated
September 6, 1996. Agreement dated January 28, 1998 concerning the supply of the
'TeleKabel SDH Backbone netwerk' by EnerTel.
Imtech Projects B.V.: agreement 'systeemintegratieovereenkomst inzake realisatie
totaal wijknetconcept' dated May 21, 1997.
Annex 8.5 Financing arrangements
- --------- ----------------------
Intercompany financing arrangement with NUON. This arrangement is interest
bearing (6.65% for 1998) and consists of two parts: a fixed amount (approx. NLG
360 million) for the calendar year for fixed asset financing and a floating
amount (approx. NLG 142 million) for working capital financing. The total
(preliminary) amount of the loan as per December 31, 1997 is approx. NLG 502
million. The estimated impact of the Casema Swap (as defined in Schedule VI, B
article 1) on this amount is NLG 68 million, increasing the aggregate amount up
to approx. NLG 570 million.
Annex 9.1 Pending or threatening litigations
- --------- ----------------------------------
Complaint of NVCR against N.V. TeleKabel's carriage fee, which TeleKabel wants
to charge as from March 1, 1998: risk of a threatening litigation.
Complaint of Talk Radio against N.V. TeleKabel's carriage fee, which TeleKabel
wants to charge as from March 1, 1998: risk of a threatening litigation (Talk
Radio has stated that it will refer to the NVCR-members' point of view in this
case).
Annex 10.1 Insurances
- ---------- ----------
A) TeleKabel Gelderland-Noord area:
- ------------------------------------
. Third party liability insurance ('aansprakelijkheidsverzekering
bedrijven').
. Fire and theft insurance ('inboedelverzekering'); concerns office building
Morsestraat, Ede).
. Building insurance; concerns office building Morsestraat Ede.
30
<PAGE>
. Electronic equipment insurance ('elektronikaverzekering'); concerns
headend Ede. Insured Risk: fire, explosion, short-circuiting etc.
. Electronic equipment insurance ('elektronikaverzekering'); concerns
headend Voorst. Insured risk: fire, explosion, short-circuiting etc..
. Cable networks insurance: (receiving) cable network equipment in the
municipalities of Apeldoorn e.o., Epe e.o. Rheden e.o Insured risks:
various disasters ('van buiten komende onheilen').
B) TeleKabel Gelderland-Zuid area:
- ----------------------------------
. Cable networks insurance: equipment in the municipalities of Nijmegen,
West Maas en Waal, Ubbergen, Millingen aan de Rijn, Groesbeek and Mook en
Middelaar. Insured risks: various disasters ('van buiten komende
onheilen').
. Fire insurance relating to the buildings and equipment of the local
distribution centres in the municipalities of Duiven and Westervoort.
C) TeleKabel Friesland area:
- ---------------------------
. Insurance of the cable networks in Leeuwarden, Leeuwarderadeel,
Ferweradeel, Achtkarspelen, Tierterksteradeel, Heerenveen, Smallingerland
and Menaldumadeel (total number of insured connections: 105,874 as per
January 1, 1997). Insured risks: all disasters ('van buitenkomende
onheilen').
. Fire and theft insurance ('inboedelverzekering'); concerns building at
Noordvliet, Leeuwarden. Insured risks: damage caused by fire, lightning,
explosion, storm, rain, theft after burglary etc.
. Building insurance; concerns building at Noordvliet, Leeuwarden). Insured
risks: damage caused by fire, lightning, explosion, storm, rain, theft
after burglary etc.
D) Fire insurance office equipment concerning the rented office-buildings at
Weurtseweg Nijmegen and at Waterstraat Velp. Insured risks: fire, explosion,
lightning and airplane crash damage.
E) TeleKabel Omroep Facilitair Bedrijf B.V.:
- -------------------------------------------
. Third party liability insurance (aansprakelijkheidsverzekering bedrijven).
. Insurance equipment, laptop computers and mobile phones.
. Fire insurance including business interruption security for company
equipment and inventories.
Concern policies by NUON (these policies can probably not be continued after the
- ------------------------
merger, because the Purchaser will be a participation of NUON instead of a
subsidiary):
. Travel-insurance for employees on business trips abroad.
. Third-party liability insurance ('aansprakelijkheidsverzekering
bedrijven').
. Managing directors' liability insurance. Insured risk: managing directors
and members of the Supervisory Board third party liability.
. Fire insurance relating to inventories.
. Car insurance for a number of company-cars acquired from N.V. NUON Zuid-
Gelderland.
31
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32
<PAGE>
Annex 14.1 Intellectual property rights
- ---------- ----------------------------
Brandname and logo "TeleKabel", brandname "Sprinter", brandname "Waddentel".
All under license of N.V. TeleKabel.
33
<PAGE>
EXHIBIT 10.21 A
SHAREHOLDERS AGREEMENT
-----------------------
The undersigned:
- ---------------
1. United Pan-Europe Communications N.V., with offices at Fred. Roeskestraat
123, 1076 EE Amsterdam ("UPC")
and
2. N.V. NUON Energie-Onderneming voor Gelderland, Friesland en Flevoland, with
offices at Utrechtseweg 68, 6812 AH Arnhem ("NUON")
hereinafter "the Parties", and each "a Party",
and
3. United TeleKabel Holding N.V., with offices at Kabelweg 55, 1014 BA
Amsterdam ("the Company")
Taking into consideration that:
- -------------------------------
a. The Parties own and operate cable and wirebound telecommunications networks
in various regions in the Netherlands;
b. The Parties and the Company have concluded on April 2, 1998, an acquisition
agreement, whereby it has been agreed to contribute the Parties' broadband
cable television and telecommunication companies and activities in the
Netherlands to the Company, subject to the fulfilment of certain conditions
precedent;
c. In this Agreement, the Parties wish to lay down their agreement on their
relationship as shareholder of the Company and their intentions with regard
to their future cooperation and integration,
Have agreed as follows:
- -----------------------
Article 1 Definitions and interpretations
-------------------------------
Article 1.1 Definitions
-----------
Acquisition Agreement The acquisition agreement for the Company to acquire the
Assets, referred to in recital b. above.
Agreement This agreement, including the Exhibits thereto.
Anticipated Funding Funding required to be furnished by the Shareholders
under the Initial Business Plan during the period prior
to January 1, 2001.
1
<PAGE>
Assets The assets that will be transferred by NUON and UPC to
the Company pursuant to the Acquisition Agreement.
Business Shall have the meaning set out in article 2.1.
Business Plan The Initial Business Plan and any and all amendments
thereto and revisions thereof.
Closing The date, agreed between the Parties, on which the
Parties transfer the Assets to the Company.
Discount In 1998 20% of the Fair Market Value.
In 1999 15% of the Fair Market Value.
In 2000 10% of the Fair Market Value.
Fair Market Value Shall have the meaning set out in article 8.1.d.
Funding The provision of financial resources to the Company by
the Shareholders by way of equity, share premium or
loans. In the event funding is provided by way of share
capital, the amount of funding is the amount that will be
paid up on such new shares, including the share premium
amount ("agio").
Funding Schedule The funding schedule referred to in article 8.1.a. and
which is attached hereto as Exhibit I.
Initial Business Plan The first business plan (which will cover a period of
five years) which describes the Company's strategy and
investments, financing, annual budget and the levels of
Anticipated Funding, with respect to the Business of the
Company (the latest version of which is number 5, dated
February 20, 1998).
JVA The joint venture agreement relating to A2000 Holding
N.V. dated February 13, 1996, including the consent
agreement dated September 27, 1997.
Option Agreement The option agreement referred to in article 3.2.
Ordinary Supervisory
Board Resolution A resolution of the Supervisory Board of the Company to
be adopted with a majority representing more than 50% of
the votes of the members of the Supervisory Board.
Qualified Shareholders'
Resolution A resolution of the Shareholders of the Company to be
adopted with a majority representing more than 75% of the
votes attached to all the Company shares then in issue,
except in the event Netherlands law requires a different
majority, in which case such different majority shall
apply.
PO The public offering referred to in article 12.1.
2
<PAGE>
Qualified Supervisory
Board Resolution A resolution of the Supervisory Board of the Company to
be adopted with a majority representing more than 75% of
the votes of the members of the Supervisory Board.
Shareholder A shareholder of the Company.
Unanticipated Funding Funding of the Company to be furnished by the
Shareholders which has not been provided for in the
Initial Business Plan, and Funding to be furnished after
January 1, 2001.
Article 1.2 Interpretations
---------------
"person" A reference to a "person" includes a reference to a body
corporate (rechtspersoon), an unincorporated association
and a partnership.
"subsidiary" Shall have the meaning attributed in Section 2:24a of the
Netherlands Civil Code to the Dutch term
`dochtermaatschappij'.
"parent" Shall mean a legal entity of which a company as aforesaid
is a subsidiary within the said meaning.
"affiliate" Shall mean a legal entity which is either (i) a
subsidiary of that company, (ii) the parent of that
company, or (iii) a subsidiary of a parent which parent
is also the parent of that company.
Article 2 Scope and strategy
------------------
2.1 It is the objective of the Parties that the Company will be the leading
cable TV, Internet and telecommunications operator via broadband cable and
wirebound networks in the Netherlands. The Company will provide point-to-
(multi)point telecommunication services in the Netherlands, including but
not limited to hybrid fiber coax (voice) telephony, data transmission,
internet services, video communication, video on demand and pay-per-view
services, and such other services as has been decided upon in accordance
with article 4.10.h. ("the Business").
The Parties acknowledge that this requires that they continuously and
actively investigate potential future acquisitions in order to consolidate
and extend the position of the Company in the Dutch market.
2.2 The Parties intend to build up as much added shareholder value in the
Company as possible and hence want to focus primarily on areas where
substantial advantages in terms of synergies can be realized. Initially,
changes within the Business and structures will only be made if such
synergies can be realized, and only if the changes are economically viable.
2.3 The Parties recognize that a possible participation by a third party, such
as a telecom partner and/ or a bank in the Company may be advantageous, and
the Parties will actively investigate opportunities for such new partners
to participate in the share capital of the Company, provided that such new
partner would enhance shareholder value in the Company.
3
<PAGE>
The Parties shall together determine which companies are most suitable. The
conditions upon which a new Shareholder is admitted will be set forth in an
addendum to this Agreement which shall be agreed and signed among all
Shareholders and the new party.
Article 3 Shareholdings in the Company
----------------------------
3.1 The Parties will contribute the Assets to the Company pursuant to the
Acquisition Agreement. The shares issued in the capital of the Company are
owned and the votes at a general meeting of Shareholders are exercisable in
the ratio 51% UPC and 49% NUON.
3.2 Immediately after the signing hereof, the Parties will enter into an option
agreement in the form attached hereto as Exhibit III ("the Option
Agreement").
Article 4 Corporate governance
--------------------
4.1 The Parties agree that the Company shall have a Supervisory Board ("raad
van commissarissen"), consisting of non-executive supervisory directors,
and a Board of Management ("statutaire directie"), consisting of executive
managing directors responsible for the day-to-day management of the
Company's affairs.
4.2 The Supervisory Board will initially consist of five members to be
appointed as follows: three of the members will be appointed on the basis
of a binding nomination by UPC and two of the members will be appointed on
the basis of a binding nomination by NUON. In the Supervisory Board the
joint members nominated by UPC will be deemed to have two votes and the
joint members nominated by NUON will equally be deemed to have two votes.
4.3 The Parties agree that if and when a Party's shareholding in the Company
increases or decreases, then the number and composition of Supervisory
Board members, and the nomination rights set forth in article 4.2, will be
revised to reasonably reflect the revised ownership ratio.
Parties commit to nominate the best possible candidates they can provide.
Nomination of qualified Dutch candidates is the preference of the Parties.
Members of the Supervisory Board can be removed or suspended only upon a
binding proposal from the Shareholder having nominated the member
concerned. In the event of such a removal, the Shareholder concerned shall
nominate a new member, which nomination shall be binding.
4.4 The meetings of the Supervisory Board will be chaired by one of its
members, who will have the title of Chairman ("president-commissaris"), but
who will not have a casting vote. The Chairman will be designated by NUON
and UPC on a rotating basis for periods of 12 months, commencing on
Closing, and for the first one year period by NUON.
4
<PAGE>
4.5 The Board of Management will initially consist of 3 members, consisting of
a Chief Executive Officer ("CEO"), a Chief Financial Officer ("CFO") and a
Chief Operational Officer ("COO"). The Parties may change the number of
members or the composition of the Board of Management by Qualified
Shareholders Resolution. The management will also include a General Counsel
("GC") who will not be a member of the Board of Management.
4.6 UPC and NUON will jointly nominate candidates for the position of CEO. NUON
will have the exclusive right and obligation to nominate candidates for the
position of CFO. UPC will have the exclusive right and obligation to
nominate candidates for the position of COO. The Parties may decide to have
a Board of Management of 4 members, the CEO, the CFO, the Chief Technology
Officer ("CTO") and the Managing Director of Marketing and Sales ("MDMS")
In this event, UPC will have the exclusive right and obligation to nominate
candidates for the positions of CTO and MDMS.
Parties commit to nominate the best possible candidates they can provide.
Nomination of qualified Dutch candidates is the preference of the Parties.
4.7 The Parties agree that if and when a Party's shareholding in the Company
increases or decreases, the nomination rights set forth in article 4.6 will
be revised to reasonably reflect the revised ownership ratio.
4.8 The members of the Board of Management will be appointed by Qualified
Shareholders' Resolution. They shall be removed or suspended by the
Shareholders upon request of any of the Shareholders, provided that:
a. the request is presented in writing to the Shareholders, stating the
reasons for such request; and
b. the member of the Board of Management to whom the request pertains
will be provided with the opportunity to be duly heard in the
Shareholders meeting where the votes for the request will be cast.
The Parties will endeavour that the employment contracts with the members
of the Board of Management will contain reasonable protection against
sudden and unreasonable `one to fire' decisions.
4.9 The members of the Board of Management shall be employees of the Company,
and not representatives or seconded employees of a Party.
4.10 The following actions shall require a Qualified Shareholders' Resolution
(either in the form of an autonomous Shareholders' decision or in the form
of a resolution approving a proposed decision of the Board of Management):
a. the issue of shares, rights to acquire shares (whether by conversion,
exchange or otherwise), negotiable debt instruments (`schuldbrieven')
or other securities of the Company;
b. the purchase of shares of the Company's own capital and the sale of
any shares in its own capital which the Company may from time to time
own;
c. applying for the listing of securities issued by the Company on a
stock exchange;
d. the liquidation of the Company;
5
<PAGE>
e. applying for the bankruptcy of or a moratorium with regard to the
Company;
f. a statutory merger of the Company with another legal entity or the
statutory split up or demerger of the Company into several separate
legal entities;
g. the amendment of the articles of association;
h. changes to the scope of the Business of the Company;
i. the appointment of auditors;
j. the appointment of any member of the Board of Management (article
4.8);
k. changes to the number of the members or the composition of the Board
of Management as referred to in article 4.5;
l. adoption of the annual accounts;
m. the furnishing to the Company of Unanticipated Funding as referred to
in article 8.2.a;
n. establishing and amending the dividend policy of the Company;
o. distributions from profits or reserves as referred to in article 10;
p. amendments to the list referred to in article 4.11 below.
4.11.The following management decisions shall require a Qualified Supervisory
Board Resolution of the Company:
a. approval of any Business Plan (including, without limitation, the
Funding Schedule) and approval of medium and long-term strategic plans
and the annual budgets of the Company and any amendments thereof;
b. incurring indebtedness by the Company in excess of an amount of NLG 5
million, unless such indebtedness was approved in the annual budget;
c. approval of mergers, acquisitions, dissolutions and consolidations or
the sale, licensing, pledge, leasing or other disposition of one or
more material assets of the Company at a value in excess of NLG 10
million, or substantially all of the assets of the Company in a
single transaction or a series of related transactions;
d. the entering into contracts relating to the preparation or execution
of a PO;
e. entering into transactions with one of the Parties or their
affiliates;
f. the entering into and amendment of collective labor agreement relating
to the Company;
g. the establishment of a pension plan for the employees of the Company
and its amendments;
h. the establishment of a proxy schedule setting forth the authority of
representatives of the Company, including the members of the Board of
Management, to enter into binding commitments on behalf of the
Company;
i. determination of, or changes to, the place of establishment of the
head office or of any other location of the Company with employment
for more than 100 people on a full-time basis;
j. amendments to the list referred to in article 4.12 below.
4.12.The following management decisions with respect to the Company shall
require the prior approval from the Supervisory Board, such approval
requiring Ordinary Supervisory Board Resolution:
a. entering into commitments involving amounts of at least NLG 1 million,
unless such commitment was approved in the annual budget;
6
<PAGE>
b. approval of mergers, acquisitions, dissolutions and consolidations or
the sale, licensing, pledge, leasing or other disposition of one or
more material assets of the Company at a value in excess of NLG 1
million, unless such commitment was approved in the annual budget;
c. incurring indebtedness by the Company in excess of an amount of NLG 1
million, unless such indebtedness was approved in the annual budget;
d. the collective termination of employment of more than 50 employees by
the Company and proposals by the Board of Management to amend pre-
existing employment arrangements regarding the employees transferred
to the Company with the Business by any of the Parties;
e. the entering into agreements with a value in excess of NLG 1 million
which cannot be terminated by the Company at less than 6 months notice
provided that such agreements, if approved, cannot run consecutively;
f. establishing and changing the accounting policies and principles of
the Company;
g. establishing the format of financial reporting as referred to in
article 7.1.b.;
h. any transaction involving real property or other registered property
(`registergoederen') in excess of NLG 1 million;
i. lending money, except (i) to subsidiaries of the Company in the
ordinary course of business, (ii) for advances to employees not
exceeding 3 months' salary and (iii) for customer credit provided in
the ordinary course of business;
j. the furnishing of personal or collateral security other than within
the Business Plan or annual budget;
k. the recruitment and hiring of employees of the Company whose
individual aggregate cost of employment to the Company (excluding such
items as search fees and selection costs) will or may exceed NLG
200,000 per annum; and
l. participating in litigation, arbitration or other proceedings (and the
settlement thereof), whether as plaintiff, defendant or otherwise,
except with respect to (i) litigation, arbitration or other
proceedings which, in the reasonable opinion of the Board of
Management of the Company, can not await Supervisory Board approval
(provided that such proceedings must be notified to the members of the
Supervisory Board as soon as possible), (ii) debt collection
proceedings in the ordinary course, and (iii) disputes with individual
employees (other than members of the Board of Management or persons
who report directly to a member of the Board of Management).
4.13 The articles 4.10 through 4.12 shall equally apply to actions or decisions
(by the Company as shareholder or by the boards of management) regarding
the Company's subsidiaries and other companies in which the Company has a
voting interest of 50% or more, and, to the extent necessary, the Parties
will amend the articles of association of such companies in order to
effectuate compliance with this article 4.13.
4.14 In case of the dilution of a Shareholder below 25%, but over 15%, prior to
December 31, 2000 other than for reason of not providing Anticipated
Funding by the Shareholder concerned, the decisions referred to in article
4.10 above shall, if to be taken prior to December 31, 2000, require the
affirmative vote of such Shareholder.
7
<PAGE>
In case of the dilution of a Shareholder to or below 15%, but over 5%,
prior to December 31, 2000 other than for reason of not providing
Anticipated Funding by the Shareholder concerned, the decisions referred to
in subsections b., c. and f. of article 4.10 above shall, if to be taken
prior to December 31, 2000, require the affirmative vote of the members of
the Company's Supervisory Board nominated by such Shareholder.
Article 5 Proceedings of the Supervisory Board
------------------------------------
5.1 A meeting of the Supervisory Board may be called by one of its members or
by the Board of Management giving notice to all other members thereof in
writing or by telefax, at least 5 days in advance of the day on which the
meeting is to be held. Such notice shall summarily describe the subjects to
be discussed at the meeting.
5.2 Decisions may be taken at any meeting of the Supervisory Board which has
been properly convened in accordance with this article and at which at
least one nominee of each of the Shareholders is present or represented.
Unless expressly otherwise provided for in this Agreement, decisions about
subjects summarily described in the convening notice may be taken at such
meetings with Ordinary Supervisory Board Resolution. Decisions about
matters not described in the notice convening the meeting concerned may
only be taken if all members of the Supervisory Board are present or
represented.
5.3 Meetings of the Supervisory Board shall be held within the Netherlands,
unless all of the members of the Supervisory Board then in office expressly
agree otherwise.
5.4 Meetings of the Supervisory Board may also be held by telephone conference
or by the use of such other communications facilities as permit each person
participating in the meeting to speak to and hear all other persons
participating therein. In addition, the Supervisory Board may take
decisions by written resolution signed by all members then in office in one
or more counterparts. The date of any such written resolution shall be the
date on which the last member shall have signed a copy of the same.
5.5 Any member of the Supervisory Board who is unable to attend a meeting of
the Supervisory Board may be represented at such meeting by another member
of the Supervisory Board duly authorized to do so for that specific meeting
by proxy. No single member may so represent more than one other member at
any particular meeting.
Article 6 Escalation in the event of a deadlock
-------------------------------------
6.1 If the Supervisory Board is unable to reach a decision on a matter, other
than the matters referred to in article 6.2, for which it is the competent
board to decide at two subsequent meetings held within 15 days after each
other, the proposal on which a decision is required, shall deemed to have
been rejected.
8
<PAGE>
6.2 If the Supervisory Board is unable to reach a decision on any of the
matters listed in the articles 4.11.a, 4.11.d or 4.12.l at two subsequent
meetings held within 15 days after each other, the matter shall be referred
to the CEO's of each of UPC and of NUON to resolve. Any such referral shall
be made by notice in writing to the said two CEO's, signed by at least one
member of the Supervisory Board and describing in reasonable detail the
issue to be decided and the respective viewpoints of the members of the
Supervisory Board. In deciding upon the matter so referred to them, the
CEO's will take the best interests of the Company into account. The Parties
shall be bound by any decision taken in agreement between the said two
CEO's and shall procure that the Company and the Parties' respective
affiliates shall comply with the terms of any such decision.
6.3 If a deadlocked issue has been referred to the two CEO's in accordance with
paragraph 6.2 and such CEO's have been unable to reach a decision on such
issue within 30 days after the date of the notice referred to in the final
sentence of that paragraph, no decision shall be deemed to have been taken,
unless the Parties mutually decide to refer the matter to an arbitrator for
a final and binding decision. If such referral is not decided upon, the
Shareholders, and to the extent applicable, the Supervisory Board, will
continue to behave and decide in such manner that would be most likely to
maintain the status quo, without materially increasing the financial
obligations of the Company or materially deviating from the Business Plan,
as the case may be.
Article 7 Business Plan; reporting and accounting
---------------------------------------
7.1 The Shareholders shall procure that the Board of Management of the Company
shall, beginning in 1998, and each year thereafter:
a. before October 1, of each year, prepare and submit to the Supervisory
Board, with a copy to each of the members, a draft budget (including
narratives) with respect to the following financial year, together
with a draft of any revisions of the Business Plan for approval by the
Supervisory Board;
b. within 14 days after the end of each calendar month (or so much sooner
as a Shareholder may reasonably request for pressing legal or business
reasons), prepare and submit to each of the Shareholders a financial
reporting package substantially in accordance with the format to be
approved by the Supervisory Board from time to time;
c. within 3 months after the end of each calendar year (or so much sooner
as a Shareholder may reasonably request for pressing legal or business
reasons), prepare and submit to each of the Shareholders for adoption
by the Shareholders, the annual accounts of the Company (including for
the avoidance of doubt, a consolidated income statement, reflecting
the financial position and results of the Company);
d. make available to each of the Shareholders such additional financial
and accounting information as such Shareholder may reasonably request
in writing.
9
<PAGE>
7.2 The financial reports and the annual accounts of the Company shall be
prepared in accordance with the accounting policies and principles
established, amended and supplemented in accordance with this Agreement.
Article 8 Funding
-------
8.1 The provisions of this paragraph 8.1 apply to Anticipated Funding.
a. The Board of Management of the Company can decide that Anticipated
Funding shall be furnished by the Shareholders at the moment and in
the way in which this has been provided for in the funding schedule
("the Funding Schedule") of the Initial Business Plan.
b. If one or more of the Shareholders fail to furnish the Funding in
question, within 30 days after such furnishing should have occurred,
without any notice being required, that Shareholder shall be in
default (the "Defaulting Shareholder"), and the other Shareholders
have the following options:
(i) to refrain from furnishing their own portion of the Funding in
question;
(ii) to furnish their own portion of the Funding in question;
(iii) to furnish their own portion of the Funding in question and
thereabove take over the furnishing of the Defaulting
Shareholder's part of the Funding. This option can be exercised
in the proportion of each non-Defaulting Shareholder's
participation in the share capital.
If one or more of the Shareholders do not exercise this option
regarding the part of the Funding that they could have taken up,
the remaining non-Defaulting Shareholders have in their turn an
option regarding that part in the Funding which has not been
taken up, in proportion to their respective participations in
the share capital.
c. A Defaulting Shareholder shall immediately upon default offer such
part of its shares in the Company, together with such part of its
possible claims (vorderingen) against the Company arising out of
loans, to the Shareholder(s) taking over the furnishing of the
Defaulting Shareholder's part of the Funding, as corresponds to the
part of the Funding being taken over by each of such Shareholders
divided by the Defaulting Shareholder's total Anticipated Funding for
a purchase price equal to the Fair Market Value thereof minus the
Discount. The Shareholder(s) receiving an offer under this paragraph
will not be obliged to accept the offer.
The procedure to be followed by the Defaulting Shareholder shall be
the same as set forth in Article 11.
10
<PAGE>
d. For the purpose of article 8.1(c) Fair Market Value of that part of
the claims (vorderingen) against the Company arising out of loans to
be transferred shall be equal to the nominal value; Fair Market Value
of the shares to be transferred shall mean the value of the shares of
the Company offered pursuant to article 8.1.c. as at the offer date,
based on an arms length transaction between a willing buyer and a
willing seller regarding the Company as a going concern, determined by
applying generally accepted commercial principles and making use of
forecasts as to profitability of the Company, if available, which have
been prepared on a prudent basis, making use of the most reasonable
assumptions which can be made under the circumstances. The Fair Market
Value of the shares will be determined as follows:
(i) The Parties shall negotiate in good faith with a view to
agreeing upon the Fair Market Value of the shares.
(ii) Failing such agreement within 30 days of offer, two investment
banks of international repute shall be appointed, one by the
Defaulting Shareholder, and one by the other Shareholder(s); if
either of the Shareholders fails to make such appointment by the
end of such thirty day period, the investment bank appointed by
the other Shareholder(s) alone shall determine the Fair Market
Value.
(iii) If two investment banks have been appointed in accordance with
paragraph (ii), each of them shall make a determination of the
Fair Market Value within one month of its appointment. They
shall submit their valuation report to the Parties within said
period. If the Parties fail to agree on the Fair Market Value
within 15 days of their receipt of the last such determination,
a third investment bank shall be appointed jointly by the first
two investment banks (or, if they fail to do so within 15 days
following the expiry of the fifteen day period, each Party
involved may apply to the Chairman of the Board of the
Netherlands Institute for Chartered Accountants who shall
appoint the third investment bank), and the third investment
bank shall within 30 days of its appointment determine the Fair
Market Value within the range of the values determined by the
first two investment banks.
(iv) The Parties shall procure that the Company shall give the
investment banks appointed pursuant to this article 8.1
reasonable access to such information as they require to enable
them to complete the valuations contemplated hereby.
(v) A determination made in accordance with this article 8.1 shall
be final and conclusive, and binding on the Parties.
(vi) The fees and disbursements of an investment bank appointed
pursuant to this article 8.1 shall be borne by the Parties in
such a way that each of them bears the fees and disbursements of
their own appointee, provided that the fees and disbursements of
a third investment bank appointed pursuant to paragraph (iii)
above shall be borne equally between the Shareholders involved.
11
<PAGE>
e. If a Shareholder fails to furnish Anticipated Funding which has been
called for under Article 8.1(a), the provisions of article 8.1(b), (c)
and (d) constitute the exclusive remedy of the other Shareholder(s).
8.2 The provisions of article 8.1 equally apply to Unanticipated Funding,
except that:
a. the decision by the Board of Management within the meaning of article
8.1(a) shall require approval by the Shareholders with Qualified
Shareholder Resolution;
b. the Discount referred to in article 8.1(c) shall not be applicable.
Article 9 Capital structure and financing
-------------------------------
9.1 It is the intention of NUON to have its at the date of Closing existing
debt financing relating to the NUON Assets (as defined in the Acquisition
Agreement) entirely replaced by external debt financing. NUON is however
willing to leave its existing debt financing relating to the NUON Assets in
place for a bridging period ending on 30th of November 1998, and not to be
extended with more than one period of 15 days after that date. As security
for the repayment of the said bridge loan, NUON will have the right to vest
a first right of pledge on the shares of N.V. TeleKabel Beheer. The Company
will have the right to replace the aforesaid bridge loan in the event it is
able to enter into financing arrangements on more favourable terms.
It is the intention of both UPC and NUON that said loans will be refinanced
after Closing in order to achieve a targeted financial structure of 35%
equity and 65% debt. Both UPC and NUON are willing to raise the level of
equity up to 40%, if the terms and conditions will be substantially more
attractive for a financing based on an equity ratio in excess of 35%
instead of 35%. In the event the Company would be over-capitalised
following the merger, given the above mentioned target level of equity, the
Shareholders have the option either to maintain the capital base and use
the capital buffer to finance capital expenditure in the future (as part of
their Anticipated Funding commitments) or to have the Company distribute a
dividend to the Shareholders following a refinancing. In the event of
under-capitalisation the Parties may need to contribute further equity to
the Company in order to achieve the targeted capital structure.
9.2 Unless NUON and UPC specifically agree otherwise, the providers of any
external debt financing to the Company or any of its subsidiaries shall not
be offered or granted the benefit of a guarantee from NUON or UPC or any of
their respective group companies outside the Company's group.
Article 10 Distributions
-------------
The Parties acknowledge that the Company shall not make any distributions to the
Shareholders from profits or reserves, unless the Shareholders decide otherwise
by Qualified Shareholder Resolution.
12
<PAGE>
Article 11 Transfer of shares in the Company
---------------------------------
11.1 In addition to the restrictions presently contained in the articles of
association of the Company according to which the transfer of shares
requires approval of each of the Shareholders, the Parties agree that, in
the event any Party would decide to sell part or all of its shares in the
Company, the other Party will have the right of first refusal, provided
such other Party owns 40% or more of the issued shares of the Company.
11.2 The price to be paid for the shares being offered for sale and any other
conditions shall be agreed between the parties. If the Parties concerned
can not agree the principal conditions of sale within 30 days, the selling
Party may sell its shares in the Company to a third party, subject to the
following conditions: (a) such sale is at the same price and other
conditions or above those that were offered to the other Party; (b) the
sale is completed within a reasonable period following the end of the 30-
day period set forth above (subject to delays reasonably beyond the
control of the selling Party in obtaining required approvals and permits);
(c) the proposed transferee becomes a party to this Agreement; and (d) the
proposed transferee must be of good financial standing.
11.3 Either Party may transfer all or part of its shares in the Company to a
legal entity incorporated in an OECD member country which is a subsidiary
of that Party without the consent of the other Shareholder(s), provided
that such transfer may only be made if (a) the transferee becomes a party
to this Agreement; (b) the transfer is made subject to the condition
(`ontbindende voorwaarde') that the transferee shall continue to satisfy
the conditions set forth in this article 11.3.
Pursuant to this article 11.3, the Parties acknowledge that at Closing UPC
and NUON will be entitled to assign this Agreement to, in the case of UPC,
Belmarken Holding B.V. and, in the case of NUON, to Kraton N.V., provided
that UPC and NUON will guarantee to each other and will remain liable for
the performance by the assignees of the obligations under this Agreement.
There will be no restrictions on change of control with respect to the
shares in UPC or NUON or any parent thereof.
11.4 Each Party shall be allowed to pledge its shares in the Company to a bank,
a consortium of banks or other financial institution(s) in the framework
of its financing arrangements and facilities, provided that the bank which
exercises its right of pledge against a Shareholder shall be required to
offer the shares in the Company (under the right of first refusal referred
to in article 11.1) to the other Shareholder. In the event that
Shareholder does not exercise its right of first refusal, the bank (for
the avoidance of doubt) shall be free to sell the shares in the Company to
a third party (or to itself) and to continue its voting right as pledge
holder until such sale has been executed.
Article 12 PO procedures
-------------
12.1 It is the intention of the Parties to list the shares of the Company on a
stock exchange, preferably the Amsterdam Stock Exchange, after 3 years
from Closing at the most opportune moment with due consideration for
market circumstances etc. ("the PO"). Each Party may request a PO to be
effected after 3 years from Closing, in accordance with the following
principles and procedures:
13
<PAGE>
a. The Party requesting a PO ("the Initiator") will appoint an investment
bank of international repute ("the Investment Bank") to prepare a
report (the "PO Report") setting forth the Investment Bank's
determination of the PO value of the offered Initiator's shares (the
"Offered Interest") and the appropriate timing for a PO of the Offered
Interest.
b. "PO Value" at any particular date (the "Determination Date") shall
mean the amount, net of costs and commissions, which the Initiator
would receive on sale of the Offered Interest through an initial
offering to the public (preferably in Amsterdam). In preparing the PO
Report, the Investment Bank will take the following into account:
(i) it will be assumed that the Offered Interest will at the time of
the PO consist of a single class of shares in a single company
incorporated in The Netherlands; the PO Report will contain a
description in summary detail of the reorganization of the
Company and its subsidiaries necessary to make the Offered
Interest suitable for public trading (the "PO Reorganization");
the proposed PO Reorganization will take account of the tax
position of the Parties and will aim at minimizing adverse
financial and other consequences which any of them may suffer as
a result of such reorganization;
(ii) the PO value will be derived from the fair stock market value of
the Offered Interest on the Determination Date, based on a
liquid market for the shares;
(iii) the Investment Bank must be prepared to state that it is
confident that a PO at the PO Value will be successful; the PO
Report will contain such a statement from the Investment Bank
itself;
(iv) the PO Value will be net of all costs and commissions associated
with the PO of the Offered Interest, including the cost of the
PO Reorganization and fees payable to underwriters, advisers,
banks, stock exchanges and regulators with respect to the
listing of the Offered Interest;
(v) it is recognized between the Parties that in determining the PO
Value (or adjusted PO Value as set forth in (e) below) the
investment bank(s) involved may start with an indication of the
valuation range, whereby the final PO value will only be
determined at the end of the PO process based on investor
demand.
c. The Parties will procure that the Company and its subsidiaries will
provide reasonable access to information required by the Investment
Bank to complete the PO Report.
d. Within 15 days following the completion of the PO Report, the
Initiator will send a copy thereof to the other Party (the "Responding
Party"), together with a note indicating either:
14
<PAGE>
(i) that it wishes to proceed with the PO of the Offered Interest at
the PO Value in the manner described in the PO Report (including
timing) (the "PO Notice"); or
(ii) that it does not wish to initiate such a PO.
e. Upon receipt of a PO Notice the Responding Party has to choose either:
(i) to dispute the price of the Offered Interest equal to the PO
Value in which case the Responding Party will obtain another PO
Report in accordance with the procedure set forth above (the
"Second PO Report"), within 60 days of the PO Notice; should the
PO values assessed in the PO Report and the Second PO Report
differ by 10% or less the median shall be assumed to be the PO
Value (the "Adjusted PO Value"); should the PO Values differ by
more than 10% the Parties hereto will appoint (with unanimous
consent) a third investment bank of international repute which
will produce an Adjusted PO Report setting out an Adjusted PO
Value in accordance with the principles set out above, within 45
days of the PO Notice; absent consent on the identity of the
third Investment Bank, a bank will be determined by the
President of the Royal Institute of Chartered Accountants in The
Netherlands; upon determining the Adjusted PO Value, the
Responding Party chooses either e(ii), e(iii) or e(iv) below;
(ii) to purchase the Offered Interest at a price equal to the PO
Value or the Adjusted PO Value, as the case may be; the
Responding Party willing to purchase has the right to purchase
the pro rata share of the Party declining to purchase; should
the Initiator not be able to sell such part of its interest
representing 10% of the share capital of the Company within 60
days from PO Notice, it shall be free to proceed with the PO as
set out below;
(iii) to allow the Initiator to proceed with the PO of the Offered
Interest at the PO Value or the Adjusted PO Value, as the case
may be, it being understood that the Responding Party shall not
be obliged to offer its shares in the PO;
(iv) to join the Initiator in the PO to the effect that each Party
will have the right to sell to the public securities
representing their respective interest in the Company on equal
terms;
the choice between the alternatives in e(i) to (iv) must be made
by notice in writing sent by the Responding Party to the Initiator
within 30 days of receipt of the PO Notice by the Responding Party
(the "PO Response Notice"); if the Responding Party fails to give a
timely PO Response Notice, it will be deemed to have chosen option
e(iii);
15
<PAGE>
f. In the event of failure of delivering a PO Response Notice or if the
PO Response Notice reflects the option set out in e(ii) above the
Initiator shall have the right, at its option, to cause the Responding
Party to acquire the Offered Interest at PO Value or Adjusted PO
Value, as the case may be; if the Initiator does not exercise this
right within 30 days upon receipt of the PO Response Notice it shall
no longer be entitled to proceed with the PO;
g. If the PO Response Notice of the Responding Party reflects the option
e(iii) or if the Initiator's shares are not acquired in accordance
with subsection e(ii) or in the event of failure of delivering a PO
Response Notice, the Initiator will be free to proceed with a PO of
the Offered interest at the PO Value or Adjusted PO Value based on the
calculation method described in the PO Report or the Adjusted PO
Report, as the case may be provided that such PO must take Place
within 60 days after the date of the (last) PO Response Notice; the
Company will pay all reasonable fees, expenses, costs, discounts and
commissions relating to the PO (including, without limitation, all
registration and listing fees and expenses for the Company's counsel
and independent accountants) except that the Initiator shall pay all
underwriting discounts and commissions relating to its shares sold in
the PO; if such PO does not take place within said period the
Initiator will no longer be able to proceed with the PO without again
complying with the provisions of this Article;
h. If the PO Response Notices of the Responding Party reflects the option
in e(iv), the Initiator and the Responding Party shall proceed with a
PO of securities representing equal proportional parts of the Offered
Interest and the shareholdings of the Responding Party; unless
otherwise agreed the PO will proceed as recommended in the PO Report
or Adjusted PO Report; the shareholding to be sold in the PO may be
reduced pro rata in the event that the managing underwriter of the PO
advises that the inclusion of all such shareholdings will adversely
affect the marketing of the PO.
12.2 The Initiator shall be entitled to initiate the procedure referred to in
section 1 above prior to the expiry of the period of 3 years from Closing,
it being understood that the earliest date on which the note referred to
in article 12.1 (d) can be delivered shall be 3 months before the expiry
of said period, and provided that a PO, or sale as the case may be, does
not have to take place prior to the expiry of the 3 year period.
12.3 Following the initiation of a failed PO procedure no PO procedure will be
initiated for at least another one-year period.
Article 13 The Company's interest in A2000
-------------------------------
13.1 The Parties acknowledge that the Company will be or become a party to the
JVA. The Parties agree to take appropriate measures to ensure that the
Company will be sufficiently able to always meet the requirements under
(in particular article 9.2.b. of) the JVA.
16
<PAGE>
13.2 On July 22, 1998, NUON and UPC jointly have incorporated a private limited
company ("besloten vennootschap met beperkte aansprakelijkheid") under
Dutch law under the name of United TeleKabel Holding II N.V. ("UTH II").
All provisions in the shareholders agreement and the articles of
association of UTH II will be equal to those of the Company (including the
Option Agreement), except for changes necessary or appropriate to meet the
requirements under (in particular article 9.2.b. of) the JVA.
13.3 In the event UPC would be a Defaulting Shareholder under article 8, and
NUON would opt to take over shares in the Company from UPC pursuant to
article 8.1.c. or 8.2. as the case may be, as a consequence of which event
the Company would no longer be able to meet the requirements under (in
particular article 9.2.b. of) the JVA, then the following procedure will
apply:
a. UPC and NUON will first try to reach agreement about adjusting the
shareholding interests in the Company of both NUON and UPC in order to
enable the Company to continue to meet the requirements under (in
particular article 9.2.b. of) the JVA. UPC in its sole discretion may
propose to NUON to be compensated for a reduced shareholding interest
in the Company by means of UPC offering to NUON publicly listed shares
in UPC. NUON can decide to its sole discretion if it wants to accept
UPC's offer.
b. If NUON does not accept the offer from UPC mentioned in a. above,
before the share transfer to NUON as referred to in to article 8.1.c.
or 8.2. will be effected, the Company will sell and transfer all
shares held in A2000 to UTH II at a price equal to Fair Market Value
of those shares at the moment of transfer.
c. Only after this sale and transfer of the Company's shares in A2000 to
UTH II, NUON will take over from UPC the shares in the Company in
accordance with the provisions of article 8.
d. Upon completion of the share transfer in the Company by UPC to NUON,
both UPC and NUON will use their best endeavours to reach a situation
whereby the shares of A2000 can be re-transferred from UTH II to the
Company.
13.4 In the event part or all of the shares of UPC would be publicly listed, or
in the event of other changes at or above UPC's shareholder's level, as a
consequence of which event the Company would not be able to meet the
requirements under (in particular article 9.2.b. of) the JVA, then the
following procedure will apply:
a. UPC and NUON will first try to reach agreement about adjusting the
shareholding interests in the Company of both NUON and UPC in order to
enable the Company to continue to meet the requirements under (in
particular article 9.2.b. of) the JVA. UPC in its sole discretion may
propose to NUON to be compensated for a reduced shareholding interest
in the Company by means of UPC offering to NUON publicly listed shares
in UPC. NUON can decide to its sole discretion if it wants to accept
UPC's offer.
17
<PAGE>
b. If NUON does not accept the offer from UPC mentioned in a. above,
before the public listing of UPC will be effected the Company will
sell and transfer all shares held in A2000 to UTH II at a price equal
to the Fair Market Value of those shares at the moment of transfer.
c. At the same time of the sale and transfer of shares mentioned in b.
above, an exchange of shares between UPC and NUON will be effected
such that UTH II will, after the public listing of UPC, still be
meeting the requirements under (in particular article 9.2.b. of) the
JVA and such that NUON will be financially compensated for its reduced
ownership in UTH II by means of acquiring from UPC shares in the
Company, both of which shares will be valued at Fair Market Value.
d. Upon completion of the share transfer in the Company by UPC to NUON,
both UPC and NUON will use their best endeavours to reach a situation
whereby the shares of A2000 can be re-transferred from UTH II to the
Company.
Article 14 NUON's interest in the Company
------------------------------
If, as a result of NUON accepting an offer to take over shares in the Company
from UPC pursuant to article 8 or article 13.3.c. or otherwise, NUON would be
owning 50% or more of the issued shares of the Company, NUON has the right,
without article 11.1 being applicable, to transfer as many shares as necessary
to maintain less than a 50% shareholding interest in the Company to any third
party which is a legal entity incorporated in an OECD member country, provided
always that such third party will become a party to this Agreement.
Article 15 Supply of services to and through the Company and to UPC
--------------------------------------------------------
15.1 NUON will be the preferred supplier for energy related services and UPC
will be the preferred supplier for engineering, programming, management
information systems and finance services.
15.2 The terms and conditions of the supply of services to the Company by
NUON and UPC are set out in detail in the management services agreements
that are attached to the Acquisition Agreement and which will be signed
immediately upon the signing hereof.
15.3 In the event the existence of the management services agreement for
energy related services between NUON and the Company would appear to be an
effective bar to substantial growth of the Company, NUON will agree to a
reasonable solution to prevent this bar from happening.
15.4 UPC will grant to NUON opportunities to be preferred supplier for
energy and energy (related) services in UPC's other (European) systems,
based on competitive terms and conditions, including the timely
availability of such services. NUON may also propose such services to UPC.
18
<PAGE>
Article 16 Headoffice and other locations of the Company
---------------------------------------------
16.1 NUON will have the right to nominate the location of the headoffice.
The location shall be the city of Almere (being within the current supply
area of NUON), subject to confirmation by NUON. The Parties acknowledge
that over time they are prepared to reconsider the location of the
headoffice, if the Board of Management of the Company initiates a proposal
to that effect, and if there are strong and material economic and business
reasons that require the Company to change its location, also taking the
best interests of the Shareholders into account.
16.2 NUON will have the right to determine the location of the centrally
organized customer care, billing and call center of the Company, which
determination will be adopted and implemented by the Company, subject to
NUON's determination not being economically unviable to the Company.
16.3 If the Company chooses to build regional network operation centers,
NUON will have at least one regional network operation center established
in its current supply area.
Article 17 Non-compete
-----------
17.1 As long as a Party remains a direct or indirect Shareholder of the
Company (provided that such shareholding shall exceed 5% of the issued
share capital of the Company), it shall not in any way directly or
indirectly compete with the Business carried on by the Company in the
Netherlands, and each Party will cause its shareholders to comply with
same obligation.
17.2 Article 17.1 shall not prevent NUON from providing all wirebound
telecommunication services except for public switched voice telephony
between individual subscribers over power lines (using PLC or a comparable
technique), as part of their portfolio of energy and energy related
services, nor shall article 17.1 prevent UPC or its subsidiaries from
engaging in all programming or content-related activities which are not
specifically or substantially aimed at the Netherlands.
Article 18 Confidentiality
---------------
18.1 In the event that any Party (the "Receiving Party") receives any
information, in whatever form, that relates to any other Party, the
formation of the Company, the Business, this Agreement or the Business
Plan ("Confidential Information") the Receiving Party shall: (i) treat the
Confidential Information strictly as such; (ii) use the Confidential
Information exclusively for the purposes described in this Agreement;
(iii) treat and protect the Confidential Information with the same degree
of care with which the Receiving Party protects its own confidential
information against publicity, but in any event with at least reasonable
care; (iv) not disclose the Confidential Information to any third party
except those associates, advisors or representatives of the Receiving
Party to whom the Confidential Information must be disclosed for the
proper performance of this Agreement, and provided that they also shall be
bound to the obligations of confidentiality and limited use contained
herein.
19
<PAGE>
18.2 The provisions of Article 18.1 do not apply to Confidential
Information which: (i) is already public knowledge at the date of
signature of this Agreement or which has thereafter to become public
knowledge other than through the fault or negligence of the Receiving
Party; (ii) which has been legally obtained by the Receiving Party from a
third party, without breaching any of the provisions of this Agreement and
also without acting unlawfully towards the Party whose information becomes
public; (iii) which information was known to the Receiving Party at the
time it received the information from its co-Party, as must appear from
the records of the Receiving Party at the time of the receipt of the
information; (iv) which was developed or obtained independently by the
Receiving Party, without making use of any confidential information; or
(v) which must be made public on the grounds of a court order or a
directive of government.
18.3 No Party may, without the prior written permission of the other Party
make the contents or the existence of this Agreement known to any third
party, except pursuant to a court or government order.
Article 19 Miscellaneous
-------------
19.1 Articles of association
-----------------------
The articles of association of the Company are attached hereto as Exhibit
II. In the general meeting of shareholders, the Parties will always vote
in accordance with the provisions of this Agreement. In the event of
conflict between the provisions of the articles of association and this
Agreement, the provisions of this Agreement shall, to the fullest extent
permitted by law, prevail.
19.2 Structure regime
----------------
If and when statutory law requires the articles of association of the
Company to be amended in order to comply with the provisions of the Dutch
Civil Code pertaining to the structure regime ("structuurbepalingen"), the
Parties shall cooperate to include such provisions in the articles of
association and to agree on such variations of this Agreement as may be
necessary to preserve such powers and interests as are granted to the
Shareholders under this Agreement, without prejudice to the obligations
under the said provisions of the Dutch Civil Code.
19.3 Amendments
----------
This Agreement can be changed or amended only upon written agreement
between all Shareholders.
Article 20 Costs
-----
The costs related to the execution of and performance under this Agreement and
the merger process resulting therefrom will be split between the Parties on the
basis of their shareholding in the Company as set forth in article 3, to be
based on a budget agreed in advance between the Parties.
20
<PAGE>
Article 21 Governing law; arbitration
--------------------------
21.1 This Agreement shall be governed by and construed in accordance with
the laws of the Netherlands.
21.2 Disputes will be submitted to the competent court in the Netherlands,
unless the Parties mutually agree to refer the dispute to arbitration.
Agreed this 6th day of August, 1998
/s/ J.H. Wolfert /s/ F. Hetterschijt
- ----------------------- -----------------------
UPC NUON
Agreed by:
/s/ Henk Koning
/s/ F. Hetterschijt
- -----------------------
UTH
List of Exhibits:
I Funding Schedule
II Articles of association
III Option Agreement
21
<PAGE>
EXHIBIT 10.22
JOINT VENTURE AGREEMENT
regarding
A2000 HOLDING NV
between
US WEST INTERNATIONAL BV
and
UNITED AND PHILIPS COMMUNICATIONS BV
13 FEBRUARY 1996
Clifford Chance
Apollolaan 171
1077 AS Amsterdam
The Netherlands
Telephone: (+31-20)577-7111
Telefax: (+31-20)676-9326
ref. JF/USW-2
<PAGE>
TABLE OF CONTENTS
Page
----
Article 1: Definitions and Interpretation .................................. 2
Article 2: Objectives of the Joint Venture ................................. 8
Article 3: Establishment of Joint Venture Entities ......................... 8
Article 4: Management and Corporate Governance ............................. 8
4.1 Management Structure of A2000 ................................ 8
4.2 Management Structure of KTA .................................. 11
4.3 General Provisions ........................................... 13
4.4 Proceedings of the Group Boards .............................. 14
4.5 Escalation in the Event of a Deadlock ........................ 14
4.6 Structure Regime ............................................. 15
Article 5. Funding ......................................................... 16
5.1 Initial Funding .............................................. 16
5.2 Additional Funding ........................................... 16
5.3 No Additional Guarantees ..................................... 17
5.4 Consequences of Non-Compliance with Funding Obligations ...... 17
Article 6: Reporting and Accounting ........................................ 17
Article 7: Distributions ................................................... 18
Article 8: Supply of Goods and Services by Shareholders and Afffliates ..... 18
Article 9: Transfer of Joint Venture Interests ............................. 19
9.1 General Prohibition ......................................... 19
9.2 Permitted Transfers to Affiliates ............................ 19
9.3 Standstill Period ............................................ 20
9.4 Right of First Refusal ....................................... 20
9.5 Initial Public Offering ...................................... 22
9.6 Obligation to Take Non-Discretionary Action .................. 22
Article 10: Confidentiality and Non-Competition ............................ 22
Article 11: Miscellaneous .................................................. 23
11.1 General Representation and Warranty .......................... 23
11.2 Previous Arrangements ........................................ 23
11.3 Costs ........................................................ 23
11.4 Duration ..................................................... 23
11.5 Assignment ................................................... 24
11.6 Notices ...................................................... 24
<PAGE>
11.7 Compliance with Laws ......................................... 24
11.8 Governing Law ................................................ 25
11.9 Disputes ..................................................... 25
THE SCHEDULE: THE CURRENT BUSINESS PLAN ............. 27
<PAGE>
JOINT VENTURE AGREEMENT
This Agreement is made on the 13th day of February 1996
BETWEEN:
1. US WEST INTERNATIONAL BV, a private limited company (besloten vennootschap
met beperkte aansprakelijkheid) incorporated under the laws of The
Netherlands and having its official seat (statutaire zetel) in Amsterdam
and its registered office at Vestdijk 18, 5611 CC Eindhoven, The
Netherlands ("US WEST"); and
2. UNITED AND PHILIPS COMMUNICATIONS BV, a private limited company (besloten
vennootschap met beperkte aansprakelijkheid) incorporated under the laws of
the Netherlands and having its registered office at Prof. Dr. Dorgelolaan
28, 5613 AM Eindhoven, The Netherlands ("UPC").
WHEREAS:
(A) US WEST (an indirect subsidiary of US WEST, Inc.), Philips Media Networks
(an indirect subsidiary of Philips Electronics NV ("Philips")) and Time
Warner Entertainment LP, a limited partnership formed under the laws of the
State of New York, United States of America ("Time Warner") have in April
1994 entered into a Memorandum of Understanding (the "Memorandum of
Understanding") with the view to investigating the possibility of jointly
bidding to acquire all or part of the shares in Kabeltelevisie Amsterdam BV
("KTA"), the operator of the cable television network in the Municipality
of Amsterdam;
(B) In the course of the bidding process, Time Warner decided not to
participate in the bidding consortium as an equity partner and hence it is
not for the time being a party to the joint venture arrangements reflected
in this Agreement;
(C) On 23 December 1994, US WEST and Philips entered into binding Heads of
Agreement (the "Heads of Agreement"), reflecting the principal terms of
their cooperation in the context of the bidding process, and this Agreement
and the ancillary documentation hereto are the "Definitive Agreements" as
defined in the Heads of Agreement;
(D) On the basis of an Indication of Interest submitted on 14 December 1994, a
Firm Offer Document submitted on 14 March 1995 and a Final Offer Document
submitted on 19 May 1995, in each case as supplemented by various letters,
the Municipal Authority of Amsterdam has selected the consortium consisting
of US WEST and Philips to acquire all of the ordinary shares issued in the
capital of KTA, Kabeltelevisie Zaanstad BV ("KTZ"), Kabeltelevisie
Landsmeer BV ("KTL"), and
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the businesses and assets of the cable television networks in Purmerend and
Ouder-Amstel (together the "Unincorporated Networks");
(E) The terms applicable to the acquisition of such shares, businesses and
assets are reflected in a series of agreements (the "Acquisition
Agreements") entered into on 23 June 1995 between US WEST, Philips, the
joint venture entities referred to in this Agreement, and the respective
Municipal Authorities of Amsterdam, Zaanstad, Landsmeer, Purmerend and
Ouder-Amstel (together the "Municipalities"), closing under these
agreements took place on 6 June 1995;
(F) On 2 June 1995 US WEST and Philips Media Networks BV ("PMN") incorporated
A2000 Holding NV as a public limited company (naamdoze vennootschap) under
the laws of The Netherlands ("A2000"); at the date of closing under the
Acquisition Agreements, A2000 acquired all the ordinary shares in the
capital of KTA and KTA acquired all the shares in the capital of KTZ and
KTL, as well as the businesses and assets of the Unincorporated Networks;
one priority share in the capital of KTA remains held by the Municipal
Authority of Amsterdam;
(G) The Municipalities have entered into operating agreements with KTA, KTZ and
KTL, pursuant to which the Municipalities have agreed to surrender their
existing licences (machtigingen) to construct, maintain and operate the
cable television networks within their municipal boundaries, so as to allow
the respective network operating companies to obtain such licenses in their
own name;
(H) PMN has sold and agreed to transfer to UPC all its right and interest in
A2000, including its shares in that company; the transfer of such shares is
to take place as soon as permission to do so shall have been obtained from
the Municipal Authority of Amsterdam under the Acquisition Agreements;
(I) With effect from 29 December 1995, KTA, KTZ and KTL merged into a single
legal entity, through a statutory merger (juridische fusie) with KTA as
the surviving entity;
(J) US WEST and UPC now wish to set forth in writing the details of the manner
in which they will organise their investment in the cable television
networks of the Greater Amsterdam Area.
NOW IT IS HEREBY AGREED as follows:
Article 1: Definitions and Interpretation
1.1 In this Agreement, the following terms shall have the following meanings:
"A2000" A2000 Holding NV, a public limited company
(naamloze vennootschap) incorporated under the
laws of The Netherlands and having its registered
office at Groenewoudseweg 1, 5621 BA Eindhoven,
The Netherlands;
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"A2000 Group" A2000, KTA and their subsidiaries from time to
time (if any);
"A2000 Shares" ordinary shares (gewone aandelen) in the capital
of A2000 with a nominal value of NLG 100 (one
hundred Netherlands Guilders) each and any
securities into which such shares may be
converted, combined, sub-divided or amalgamated;
"Acquisition Agreements" the Master Agreement entered into between US
WEST, PMN, A2000 and the Municipalities, together
with the Share Purchase Agreements referred to
therein and all ancillary documents executed or
to be executed pursuant to and contemporaneously
with such Master Agreement and Share Purchase
Agreements;
"Articles of Association" the articles of association (statuten) of A2000,
as the same may be amended or substituted in
accordance with Article 4.1(e)(i) from time to
time;
"Bridge Facility" the bridge facility provided by ABN AMRO Bank NV
to US WEST and Philips Media Networks BV on 6
July 1995, with respect to which Philips Media
Networks BV has since assigned all its rights and
obligations to UPC;
"Business Plan" the business plan with respect to the Networks,
attached hereto as the Schedule, as amended from
time to time by the Holding Board in accordance
with Article 4. 1 (f)(i);
"Constitutional Documents" the Articles of Association and the articles of
association of KTA;
"Existing Licenses" the licenses (machtigingen) to construct,
maintain and operate cable television networks
(draadomroep-inrichtingen), granted to each of
the Municipalities pursuant to Section 21 and
Section 22 of the Telecommunications Act of The
Netherlands (Wet op de
telecommunicatievoorzieningen) and its preceding
legislation;
"Extended Lock-up Period" the period commencing on 1 January 1999 and
ending on 6 July 2001;
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"Finance Closing Date" the date on which closing takes place under the
project finance arrangements presently being
negotiated between the A2000 Group and ABN AMRO
Bank NV, and debt funding is made available
pursuant to those arrangements;
"Greater Amsterdam Area" the geographical area of the Municipalities as
they exist on the date hereof;
"Group Boards" the Supervisory Boards and Management Boards of
A2000 and KTA;
"Holding Board" the Supervisory Board of A2000;
"Initial Lock-up Period" the period commencing on 6 July 1995 and ending
on 31 December 1998;
"Joint Venture Interest" with respect to a particular party to this
Agreement, all of its A2000 Shares, all rights
and obligations with respect to such A2000 Shares
arising under this Agreement all rights and
obligations arising under any loan agreements
entered into by such party or its affiliates (or
their respective successors or assignees) with
any member of the A2000 Group;
"KTA" Kabeltelevisie Amsterdam BV, a private company
with limited liability (besloten vennootschap met
beperkte aansprakelijkheid) incorporated under
the laws of the Netherlands and having its
registered office at Willem de Zwijgerlaan 350,
1055 RD Amsterdam, The Netherlands;
"KTA Shareholders the Shareholders Agreement entered into on 6 July
Agreement" 1995 between A2000, KTA and MAA;
"KTL" Kabeltelevisie Landsmeer BV, a private company
with limited liability (besloten vennootschap met
beperkte aansprakelijkheid) incorporated under
the laws of the Netherlands which merged into KTA
with effect from 29 December 1995, as a result of
a statutory merger (juridische fusie);
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<PAGE>
"KTZ" Kabeltelevisie Zaanstad BV, a private company
with limited liability (besloten vennootschap met
beperkte aansprakelijkheid) incorporated under
the laws of the Netherlands which merged into KTA
with effect from 29 December 1995, as a result of
a statutory merger (juridische fusie);
"MAA" the Municipal Authority (gemeente) of Amsterdam
and its successors in title (including, for the
avoidance of doubt, the smaller municipalities
into which the existing municipality of Amsterdam
may be split up, as well as any Amsterdam City
Province (stadsprovincie Amsterdam) which may be
established);
"Managing Director" bestuurder;
"Municipalities" MAA and the Municipal Authorities (gemeenten) of
Zaanstad, Landsmeer, Purmerend and Ouder-Amstel
and their successors in title;
"Networks" the existing cable networks operated by KTA, as
such networks may be upgraded and expanded from
time to time;
"OECD Member Country" one of the member countries of the Organisation
for Economic Cooperation and Development, which
currently comprises Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany,
Greece, Iceland, Ireland, Italy, Japan,
Luxembourg, The Netherlands, New Zealand, Norway,
Portugal, Spain, Sweden, Switzerland, Turkey, the
United Kingdom and the United States of America;
"Qualified Shareholders'
Resolution" a resolution of the Shareholders adopted with a
majority representing at least seventy-five per
cent (75%) of the votes attached to all A2000
Shares then in issue
"Registered Owners" the person in whose name an A2000 Share is
registered in the shareholder's register of A2000
(assuming such register is accurate and up-to
date);
"Shareholder" any person holding one or more A2000 Shares;
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"Supervisory Director" commissaris;
"Transfer" with respect to an A2000 Share:
(a) any transfer (overdracht), encumbrance
(bezwaring met een beperkt recht) or grant of
security interest under foreign law (whether
recognized in The Netherlands or not);
(b) entering into any agreement, doing any other
act, or omitting to do any act, as a result
of which an obligation (verbintenis) to do
any of the things referred to in (a) above
arises;
(c) entering into any agreement, doing any other
act or omitting to any act, as a result of
which any person other than the Registered
Owner of such A2000 Share:
(i) acquires a direct economic interest in
the profit, dividend or distribution
entitlements attached to such A2000
Share or in the proceeds realised upon a
disposition thereof, and/or
(ii) becomes entitled to exercise or direct
the exercise of any of the voting or
other consensual rights attached to such
A2000 Share; or
(d) becoming subject to any obligation, duty or
requirement to do any of the things referred
to in (a), (b) and (c) above, in each case
whether voluntarily or otherwise, whether
unconditional or conditional and whether
revocable or irrevocable;
"Unincorporated Networks" the businesses and assets of the existing cable
television networks in Purmerend and Ouder-
Amstel, which are the subject of and are
described in the relevant Acquisition Agreements;
"Voice Telephony" has the meaning attributed thereto in the
Telecommunications Services Directive of the
Council of the European Union (90/388/EEC; OJ L
192/10 24.07.90).
1.2 In this Agreement:
(a) a reference to a particular agreement or other document shall be
construed as a reference to the version of such document which is
binding and enforceable on
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the date hereof, as such document may be novated, assigned, amended
and supplemented from time to time hereafter;
(b) a reference to a company or other legal entity shall be construed so
as to include any legal entity or entities into which such company
may during the continuance of this Agreement be merged by means of a
statutory merger (juridische fusie) or into which it may be split up
or demerged, if the laws of its jurisdiction of incorporation allow
the statutory split-up or demerger of an existing legal entity into
several new legal entities;
(c) a reference to a "person" includes a reference to a body corporate
(rechtspersoon), an unincorporated association and a partnership;
(d) the term "subsidiary" of a company shall mean a legal entity with
respect to which that company is able to direct, immediately or
through one or more subsidiaries, (i) the exercise of more than 50%
of the votes at a general meeting of shareholders, (ii) the
appointment of more than 50% of the members of the Management Board
(if any), and (iii) the appointment of more than 50% of the members
of the Supervisory Board (if any); and the term "parent" of a company
shall mean a legal entity of which such company is a subsidiary
within the said meaning;
(e) the term "affiliate" of a company shall mean a legal entity which is
either (i) a subsidiary of that company, (ii) the parent of that
company, or (iii) a subsidiary of a parent which is also the parent
of that company;
(f) the term "group company" shall have the meaning attributed in Section
2:24b of the Netherlands Civil Code to the Dutch term
groepsmaatschappij;
(g) references to a company being "wholly-owned" by another entity shall
be construed so as to mean that (i) such company is a subsidiary of
that other entity, (ii) all voting and other consensual rights with
respect to such company may be exercised by that other entity (or by
an entity which is itself wholly-owned by that other entity), and
(iii) that other entity (or an entity which is itself wholly-owned by
that other entity) shall be solely entitled, legally and
beneficially, to all dividends, distributions to shareholders and
other economic rights which under applicable law accrue to the
holders of all shares, stakes or other equity interests in such
company, including without limitation the rights to the proceeds
realised upon a disposition of any such interests;
(h) references to the singular include a reference to the Plural and vice
versa, and references to the masculine include a reference to the
feminine and neuter and vice versa;
(i) references to Recitals, Articles and Schedules are references to
Recitals and Articles of and Schedules to this Agreement.
1.3 The Recitals and Schedules form an integral part of this Agreement.
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<PAGE>
1.4 The parties agree that if there is a conflict between a provision of this
Agreement and a provision of one of the Constitutional Documents, they
shall observe the provisions hereof to the effect that if the
Constitutional Documents prescribe the observance of requirements which are
less stringent than the corresponding requirements set forth herein, the
parties shall observe the latter requirements; and that if the
Constitutional Documents prescribe the observance of requirements which are
more stringent than the corresponding requirements set forth herein, upon
the latter requirements having been satisfied the parties shall without
discretion cooperate in ensuring that the former requirements are also
satisfied without delay.
Article 2: Objectives of the Joint Venture
2.1 US WEST and UPC are entering into the arrangements set forth in this
Agreement with the view to the operation and expansion, ultimately for
their joint account, of the Networks and the licenses related thereto
(including the Existing Licences). It is the intention of the parties that
the Networks shall be built into state-of-the-art, full service networks
delivering audiovisual and telecommunications services to businesses and
consumers throughout the Greater Amsterdam Area, within the parameters
established in the Business Plan.
2.2 Either party to this Agreement shall be free to pursue interests in The
Netherlands similar to the acquisition of the Networks, provided it shall
first have discussed the same with the other party, in order to evaluate
whether such opportunity could be pursued jointly. In the event that the
parties do indeed agree upon a joint approach in a particular case, they
shall enter into an addendum to this Agreement, setting forth the structure
of the particular investment concerned and specifying which provisions of
this Agreement and the ancillary documents executed pursuant hereto shall
be applicable to such structure.
Article 3: Establishment of Joint Venture Entities
A2000 was established on 2 June 1995 and presently has an issued share capital
of NLG 200,000 (two hundred thousand Netherlands Guilders), represented by 1,000
(one thousand) A2000 Shares held by US WEST and 1,000 (one thousand) A2000
Shares held by UPC.
Article 4: Management and Corporate Governance
4.1 Management Structure of A2000
The Management Structure of A2000 will be as follows:
(a) there will be a Supervisory Board, consisting of non-executive
Supervisory Directors, and a Management Board, consisting of
executive Managing Directors responsible for the day-to-day
management of A2000's business and affairs;
(b) the Supervisory Board of A2000 shall consist of such even number of
Supervisory Directors as may be set by Qualified Shareholders'
Resolution,
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<PAGE>
which number shall initially be two (2); these Supervisory Directors
shall be appointed by the Shareholders as follows:
(i) one half of the members shall be appointed on the basis of a
binding nomination submitted by US WEST; and
(ii) the other half of the members shall be appointed on the basis
of a binding nomination submitted by UPC;
(c) the Management Board of A2000 shall consist of such even number of
members as may be set by Qualified Shareholders' Resolution, which
number shall initially be two (2); these members shall be appointed
by the Shareholders as follows:
(i) one half of the members shall be appointed on the basis of a
binding nomination submitted by US WEST; and
(ii) the other half of the members shall be appointed on the basis
of a binding nomination submitted by UPC;
(d) the meetings of the Holding Board shall be chaired by one of the
Supervisory Directors, who shall have the title of Chairman (or
president-commissaris in Dutch), but who shall not have a casting
vote; such Chairman shall be designated by US WEST and UPC on a
rotating basis for periods of one year, commencing on I July of each
relevant year; the first such Chairman has been designated by US
WEST and shall remain in office as such until 30 June 1996;
(e) the following Actions shall require a Qualified Shareholders'
Resolution (either in the form of an autonomous shareholders'
decision or in the form of a resolution approving a proposed
decision of the Management Board or another relevant body of A2000):
(i) amendments to the Constitutional Documents;
(ii) changing the nature of A2000's business;
(iii) the issue of shares, rights to acquire shares (whether by
conversion, exchange or otherwise), negotiable debt
instruments (schuldbrieven) or other securities;
(iv) applying for the listing of securities issued by A2000 on a
stock exchange;
(v) the appointment of auditors;
(vi) the adoption (vaststelling) of the annual accounts;
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(vii) applying for the bankruptcy (faillissement) of or a
moratorium (surseance van betaling) with regard to A2000;
(viii) the liquidation of A2000;
(ix) a statutory merger (juridische fusie) of A2000 with another
legal entity or the statutory split-up or demerger of A2000
into several separate legal entities, if and when the laws
of The Netherlands shall allow such statutory split-up or
demerger;
(f) the following management decisions with respect to A2000 or any
other member of the A2000 Group shall require the prior approval of
the Holding Board:
(i) the determination of the Business Plan and the annual budget
and of any material changes thereto;
(ii) entering into commitments with respect to capital
expenditure or other investments individually exceeding an
amount of NLG 500,000 (five hundred thousand Netherlands
Guilders), if such capital expenditure or investment has
been foreseen in the most recent annual budget approved by
the Holding Board, or exceeding NLG 100,000 (one hundred
thousand Netherlands Guilders), in other cases;
(iii) entering into material agreements which cannot be terminated
by A2000 at less than six (6) months' notice;
(iv) entering into agreements or other commitments which will or
may result in income or expenditure for A2000, where the sum
of (and not the difference between) any such income and any
such expenditure will or may exceed an amount of NLG 100,000
(one hundred thousand Netherlands Guilders) in any one
calendar year or the amount of NLG 500,000 (five hundred
thousand Netherlands Guilders) during the projected life of
such agreement or other commitment;
(v) applying for any additional licenses, approvals, permits or
registrations with respect to the construction, operation or
use of the Networks;
(vi) mergers with and acquisitions or disposals of other
companies or businesses;
(vii) the establishment of new subsidiaries, participations
(deelnemingen) or branches (nevenvestigingen);
(viii) any transactions involving real property or other registered
property (registergoederen);
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(ix) borrowing or entering into other financing arrangements with
respect to an amount in excess of NLG 100,000 (one hundred
thousand Netherlands Guilders), other than by making
drawings under borrowing arrangements previously approved by
the Holding Board, within the limits and terms of such
arrangements, and other than through the obtaining of
suppliers' credit on customary terms in the ordinary course
of the A2000 Group's business;
(x) lending money, except to wholly-owned subsidiaries of A2000
in the ordinary course of business;
(xi) recruiting employees or other staff members whose aggregate
cost of employment to A2000 and its subsidiaries will or may
exceed an amount of NLG 250,000 (two hundred and fifty
thousand Netherlands Guilders) in any one calendar year;
(xii) making distributions from A2000's profits or reserves;
(xiii) participating in litigation, arbitration or other
proceedings, whether as plaintiff, defendant, interested
party or otherwise, except with respect to summary
proceedings which, in the reasonable opinion of the
Management Board of A2000, cannot await Holding Board
approval (provided that such proceedings must be notified to
the members of the Holding Board as soon as possible),
urgent measures of a conservatory nature, debt collection
proceedings in the ordinary course, disputes with individual
employees (other than Managing Directors or persons who
report directly to a Managing Director);
(xiv) changing the accounting policies and principles of A2000;
(xv) entering into transactions with one of the Shareholders or
an affiliate of one of the Shareholders;
(g) any one Managing Director of A2000 appointed at the nomination of US
WEST acting together with any one Managing Director of A2000
appointed at the nomination of UPC, shall be authorised to sign on
behalf of and otherwise represent A2000, provided that any such two
Managing Directors may from time to time grant power of attorney to
individual Managing Directors of A2000 or to other persons (whether
acting jointly or individually) to do such specific acts or things
on behalf of A2000 as shall be described in the instrument by which
such power of attorney is granted.
4.2 Management Structure of KTA
The Management Structure of KTA will be as follows:
(a) there will be a Supervisory Board, consisting of non-executive
Supervisory Directors responsible for deciding its strategy and
long-term direction, and a
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Managing Board, consisting of Managing Directors responsible for the
day-to-day management of its business and affairs;
(b) the KTA Shareholders Agreement sets forth certain arrangements with
respect to the appointment of one of the Supervisory Directors and
the powers of the Supervisory Board of KTA, which shall apply in
addition to (or, in the case of conflict, instead of) the relevant
provisions of this Agreement;
(c) the Supervisory Board of KTA shall consist of an odd number of
Supervisory Directors which shall be equal to the number of
Supervisory Directors of which the Supervisory Board of A2000
consists (as provided for in Article 4.1(b)), plus one;
(d) the Supervisory Directors of KTA shall be appointed as follows:
(i) one Supervisory Director shall be appointed by MAA, in
accordance with the terms of the KTA Shareholders Agreement
and KTA's articles of association;
(ii) the other Supervisory Directors shall be the persons who are
the Supervisory Directors of A2000 in office from time to
time;
(e) the Management Board of KTA shall consist of such number of members
as may be set by Qualified Shareholders' Resolution, which number
shall initially be two (2); these members shall be appointed by the
general meeting of shareholders of KTA as follows:
(i) a President (algemeen directeur) will be appointed on the
basis of a binding nomination submitted by UPC; this person
must be a Dutch national resident in the Netherlands and
will be the most senior executive at KTA, heading all of its
operations; this Managing Director may also use the title of
"Chief Executive Officer";
(ii) a Finance Director (financieel directeur) will be appointed
on the basis of a binding nomination submitted by US WEST;
this person will be second in command of all operations at
KTA, as well as being principally responsible for business
planning and all financial functions; this Managing Director
may also use the titles of "Chief Financial Officer" and
"Deputy Chief Executive Officer";
the Holding Board may adopt and from time to time amend a
description of the respective tasks and duties of these Managing
Directors;
(f) KTA shall in addition employ two senior executives, who shall not
become members of the Management Board, as follows:
(i) a Director of Cable Operations will be appointed and
employed on the basis of a binding nomination submitted by
UPC; this person will be
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responsible for activities in the field of distributing
television and radio programmes;
(ii) a Director of Telecommunications will be appointed on the
basis of a binding nomination submitted by US WEST; this
person will be responsible for activities in the field of
telephony and other telecommunications services;
(g) without prejudice to the respective parties' right to nominate
candidates for the positions referred to in Articles 4.2(e) and
4.2(f), each appointment shall require to be supported by
three/quarters of the members of the Holding Board, with a view to
avoiding incompatibility of characters and ensuring the best
possible relationships within the management of the A2000 Group;
(h) actions of KTA shall require approval of the Shareholders or the
Holding Board (as the case may be) in the same manner mutatis
mutandis as is provided for with respect to actions at the level of
A2000 itself in Articles 4.1(e) and 4.1(f);
(i) without prejudice to the provision of the previous paragraph, the
management decisions set forth in Articles 5.2 and 6.2 of the KTA
Shareholders Agreement shall require the approval of the Supervisory
Board of KTA in the manner set forth in the said provision;
(j) any two Managing Directors of KTA acting together shall be
authorised to sign on behalf of and otherwise represent KTA,
provided that any such two Managing Directors may from time to time
grant power of attorney to individual Managing Directors of KTA or
to other persons (whether acting jointly or individually) to do such
specific acts or things on behalf of KTA as shall be described in
the instrument by which such power of attorney is granted.
4.3 General Provisions
(a) The parties agree that they will cause their respective nominees and
representatives at all meetings of the Shareholders and, in so far
as permitted by law, their nominees or representatives on all Group
Boards, always to vote and act in accordance with the terms of this
Agreement, so as to give this Agreement full force and effect and to
carry out its intent.
(b) In the event that a party hereto at whose nomination a particular
member of a Group Board has been appointed, requests by notice in
writing to the other party hereto that such member shall be
suspended or dismissed from that Group Board, such other party shall
vote and shall procure its affiliates and (together with the
requesting party, A2000) to vote in favour of such suspension or
dismissal (as the case may be). The same applies mutatis mutandis
with respect to the persons employed by KTA pursuant to Article
4.2(f).
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(c) Where reference is made in this Article 4 to a party being entitled to
submit a binding nomination, such reference shall be construed as a
reference to a binding nomination (bindende voordracht) within the
meaning of Sections 2:133 and 2:243 of the Netherlands Civil Code. The
parties agree that they shall vote, and that they shall procure their
affiliates and A2000 to vote, for the appointment to the relevant
office of the person whose name appears first on the nomination with
respect to such office submitted by the relevant party in accordance
with the terms of this Agreement.
4.4 Proceedings of the Group Boards
(a) A meeting of any Group Board may be called by one of its members
giving notice to all other members thereof in writing or by telefax,
at least 5 (five) days in advance of the day on which the meeting is
to be held. Such notice shall summarily describe the subjects to be
discussed at the meeting.
(b) Decisions may be taken at any meeting of a Group Board which has been
properly convened in accordance with Article 4.4(a) and at which a
majority of the members of such Group Board then in office is present
or represented in accordance with Article 4.4(f) below. Unless
expressly otherwise provided in this Agreement, decisions about
subjects summarily subscribed in the convening notice may be taken at
such meetings with a simple majority of votes validly cast. Decisions
about matters not described in the notice convening the meeting
concerned may only be taken if all members of the relevant Group Board
are present or represented in accordance with Article 4.4(f) below and
vote in favour of the decision concerned.
(c) Decisions of the Supervisory Board of KTA shall require a majority
representing at least one half of the number of members of which that
board must consist pursuant to Article 4.2(c), rounded up to the
nearest whole number, plus one.
(d) The meetings of the Group Boards shall be held within the Greater
Amsterdam Area, unless a majority of the members of the relevant Group
Board then in office expressly agrees otherwise.
(e) Meetings of Group Boards may also be held by telephone conference or
by the use of such other communications facilities as permit each
person participating in the meeting to speak to and hear all other
persons participating therein. In addition, the Group Boards may take
decisions by written resolution signed by all members of the relevant
Group Board then in office, in one or more counterparts. The date of
any such written resolution shall be the date on which the last member
of the relevant Group Board shall have signed a copy of the same.
(f) Any member of a Group Board who is unable to attend a meeting of such
Group Board may be represented at such meeting by
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another member of the same Group Board duly authorised to do so for
that specific meeting by written proxy. No single member of a Group
Board may so represent more than one other member of the same Group
Board at any particular meeting.
4.5 Escalation in the Event of a Deadlock
(a) In the event that any Group Board (other than the Holding Board) is
unable at two subsequent meetings held at least fourteen (14) days
after each other to agree on a matter which, in the opinion of at
least one-third of the members then in office of the relevant Group
Board, is essential to the continued operation and expansion of the
Networks in the Greater Amsterdam Area, such matters shall be referred
to the Holding Board, which shall then have the right and authority to
decide such matter. The parties shall be bound by any decision so
taken by the Holding Board and shall procure that A2000 itself, KTA
and the parties' respective affiliates shall comply with the terms of
any such decision. The notice convening a meeting of the Holding Board
for the purpose of deciding a deadlocked issue in accordance with this
paragraph shall state that the meeting is to be held for this purpose
and shall describe in reasonable detail the issue to be decided and
the respective viewpoints of the members of the other Group Board
which has been unable to decide thereon.
(b) If the Holding Board is unable to reach a decision on an issue
referred to it in accordance with the previous paragraph, or the
Holding Board is unable to reach a decision on a matter for which it
is the competent board to decide at two subsequent meetings held at
least fourteen (14) days after each other, the matter shall be
referred for resolution to the Management Board of Philips (or one of
its members designated by such board) and the Board of Directors of US
WEST, Inc. (or one of its members designated by such board) to
resolve. The parties shall be bound by any decision so taken by the
said two boards (or their designated representatives) and shall
procure that A2000, KTA and the parties' respective affiliates shall
comply with the terms of any such decision. Any such referral shall be
made by notice in writing to the said two boards, signed by at least
one member of the Holding Board appointed at the nomination of US WEST
and at least one member of the Holding Board appointed at the
nomination of UPC, and describing in reasonable detail the issue to be
decided and the respective viewpoints of the members of the Holding
Board.
(c) If a deadlocked issue has been referred to the Management Board of
Philips and the Board of Directors of US WEST, Inc. in accordance with
the previous paragraph, and such boards (or their designated
representatives) have been unable to reach a decision on such issue
within ninety (90) days after the date of the notice referred to in
the final sentence of that paragraph, a decision shall be taken in
such manner that would be most likely to continue the status quo,
without materially increasing the financial obligations of A2000 or
KTA or materially deviating from the Business Plan, as the case may
be. Notwithstanding the other provisions of this Article 4.5(c),
absent consensus amongst the members of a Group Board on a matter
presented for their decision, the parties shall cause the members
nominated by them to the Group
-15-
<PAGE>
Board to vote to approve operating an capital budgets of A2000 and KTA
containing expenditures which in the aggregate do not exceed the prior
budget by more than 5%.
4.6 Structure Regime
If and when statutory law requires the articles of association of any
member of the A2000 Group to be amended in order to comply with the
provisions of Sections 2:158-164 or 2:268-274 of the Netherlands Civil Code
(as the case may be), the parties shall cooperate to include such
provisions in the relevant articles of association or to agree on such
variations to this Agreement as may be necessary to preserve such powers
and interests as are granted to the shareholders of the relevant company
under this Agreement, without prejudice to the relevant company's
obligations under the above mentioned provisions of the Netherlands Civil
Code.
Article 5. Funding
5.1 Initial Funding
At the Finance Closing Date, each of US WEST and UPC:
(a) shall procure that KTA:
(i) repays to each of them the amounts advanced on 6 July 1995 so as
to enable the repayment of loans previously provided by or
through the Municipalities and the acquisition of the shares in
KTZ, the shares in KTL and the Unincorporated Networks, in the
aggregate principal amount for each of them of NLG 114,776,295
(one hundred fourteen million seven hundred seventy-six thousand
two hundred and ninety-five Netherlands Guilders);
(ii) together with interest accrued in respect thereof from 6 July
1995 until the Finance Closing Date, at the rate applicable to
the Bridge Facility;
(b) shall procure that a reduction of share premium (agio) is implemented
with respect to A2000, resulting in a cash repayment to each of them
in an amount of NLG 44,450,000 (forty-four million four hundred and
fifty thousand Netherlands Guilders);
(c) shall pay with respect to the advances drawn down by each of them
respectively under the Bridge Facility, an amount equal to the aggregate
of:
(i) a principal amount of NLG 334,726,295 (three hundred thirty-four
million seven hundred twenty-six thousand two hundred and ninety-
five Netherlands Guilders); and
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<PAGE>
(ii) all interest and costs accrued with respect to the aggregate
amount it has drawn under the Bridge Facility, less any such part
thereof as it may already have paid; and
(d) shall do such acts and things as may be necessary or useful in
connection with the project finance arrangements being finalised
between the A2000 Group and ABN AMRO Bank NV on that date.
For the avoidance of doubt, the parties confirm that US WEST and UPC shall each
remain solely responsible for the repayment of principal and the payment of
interest and costs with respect to the residual amount which shall remain
outstanding under the Bridge Facility after the payments referred to in this
Article 5.1(c) have been made.
5.2 Additional Funding
If, when and to the extent that the Business Plan indicates that further equity
or shareholder debt funding is required by any of the entities within the A2000
Group, US WEST and UPC shall procure that the relevant amount shall be made
available to the relevant entity within thirty (30) days after the Shareholders
have been given written notice by the Chairman of the Holding Board (or by
another member of that Board designated for that purpose), requesting payment of
the same. Unless the Holding Board decides otherwise, any further equity
contribution shall be made either by the issue at par or at a premium of new
A2000 Shares to each of the Shareholders in proportion to their then existing
holdings of such shares, and any further shareholder debt advance shall be made
in the said proportions on terms determined by the Holding Board.
5.3 No Additional Guarantees
Unless the parties hereto specifically agree otherwise, the providers of any
external debt attracted by any member of the A2000 Group shall not be offered or
granted the benefit of a guarantee from US WEST, UPC or any of their respective
group companies outside the A2000 Group.
5.4 Consequences of Non-Compliance with Funding Obligations
In the event that one of the parties (the "Defaulting Shareholder") does not
comply with an obligation to provide additional funding pursuant to Article 5.2
either within the thirty (30) day period referred to in that Article or within
an additional sixty (60) days after notice from a member of the Holding Board
stating that the relevant payment is due and containing a reference to the
sanctions set forth in this Article 5.4, all voting and nomination rights of the
Defaulting Shareholder pursuant to this Agreement and the Articles of
Association shall be suspended until such time as the Defaulting Shareholder
shall have complied with its obligations in full.
Article 6: Reporting and Accounting
6.1 The parties shall procure that the Management Board of A2000 shall,
beginning in 1996, and each year thereafter:
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<PAGE>
(a) before 1 November of each year, prepare and submit to the Holding
Board, with a copy to each of the Shareholders, a draft budget with
respect to the following financial year, together with a draft of any
resulting revisions of the Business Plan, for approval by the Holding
Board in accordance with Article 4.1(f)(i);
(b) within fourteen (14) days after the end of each calendar month (or so
much sooner as a Shareholder may reasonably request for pressing legal
or business reasons), prepare and submit to each of the Shareholders a
financial reporting package substantially in accordance with the
format established by the Holding Board from time to time;
(c) within three (3) months after the end of each calendar year (or so
much sooner as a Shareholder may reasonably request for pressing legal
or business reasons), submit to the Shareholders for adoption in
accordance with Article 4.1(e)(vi), the annual accounts of A2000
(including for the avoidance of doubt, a consolidated balance sheet
and a consolidated income statement, reflecting the financial position
and results of the whole of the A2000 Group);
(d) make available to each of the Shareholders such additional financial
and accounting information as such Shareholder may reasonably request
in writing.
6.2 The financial reports referred to in Article 6.1(b) and the annual accounts
of the members of the A2000 Group shall be prepared in accordance with the
accounting policies and principles established, amended and supplemented in
accordance with Article 4.1(i)(xiv) from time to time.
6.3 The first auditors of the A2000 Group shall be Arthur Andersen & Co., who
shall be auditors of the A2000 Group only with respect to the 1995
financial year. For each subsequent year the auditors of the group shall be
appointed by the Shareholders in accordance with Article 4.1(e)(v).
Article 7: Distributions
7.1 The parties acknowledge that A2000 shall not make any distributions to the
Shareholders from profits or reserves, unless the Shareholders decide
otherwise by Qualified Shareholders' Resolution.
7.2 The parties shall procure that each member of the A2000 Group shall make
sufficient distributions to A2000, within the limits of the law, so as to
enable A2000 to pay its debts and meet its other commitments as and when
due.
Article 8: Supply of Goods and Services by Shareholders and Afffliates
8.1 Any arrangement for the supply of goods or services by a Shareholder or an
affiliate of a Shareholder to any member of the A2000 Group shall be made
on arms' length
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<PAGE>
terms at competitive prices or rates. Where appropriate, tax efficiency
(both in The Netherlands and in the US, where appropriate) shall be
considered.
8.2 The parties confirm that the relevant affiliates of US WEST and UPC shall
provide to the members of the A2000 Group the best resources and expertise
available within the US WEST group and the combined UPC and Philips groups
respectively, as requested by management and supported by the Business
Plan, on the basis of Service Agreements which shall be negotiated and
entered into by the relevant parties on a case-by-case basis. Unless
specifically agreed otherwise among the parties hereto and the parties to
any such Service Agreement, the parties' commitment to make available such
resources and expertise shall continue at least until the end of the
Initial Lock-up Period, provided that such commitment shall be extended to
the end of the Extended Lock-up Period if no transfer of the relevant
party's Joint Venture Interest takes place during the period between the
end of the Initial Lock-up period and the beginning of the Extended Lock-up
Period (if any), always subject to early termination in accordance with the
provisions of the said agreements. Any resources and expertise provided
pursuant to these Service Agreements may be used only by the A2000 Group
and strict confidentiality undertakings will be included therein,
prohibiting disclosure to third parties (specifically including
shareholders and affiliates).
8.3 The parties shall procure that persons qualified to fulfil such job
functions as may be determined from time to time by the Holding Board shall
be seconded to the A2000 Group for the duration of this Agreement, at such
terms as shall be agreed with the relevant member of the A2000 Group on a
case by case basis, it being understood that the salary, secondary benefits
and all costs associated with such secondees shall be for the account of
that member of the A2000 Group, unless specifically agreed otherwise.
8.4 For the avoidance of doubt, the parties agree and confirm that no member of
the A2000 Group shall be deemed to have acquired any right, title or
interest with respect to any know-how, expertise or intellectual property
of US WEST, Philips, UPC, any other Shareholder or any of their respective
group companies, unless such right, title or interest is expressly and
specifically created by separate agreement with the provider of such know-
how, expertise or intellectual property (as the case may be).
Article 9: Transfer of Joint Venture Interests
9.1 General Prohibition
The parties shall not Transfer their Joint Venture Interest or any part
thereof, except if, as and when permitted by this Agreement.
9.2 Permitted Transfers to Affiliates
The parties may Transfer their Joint Venture Interests as follows:
(a) US WEST 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 US WEST, Inc. or
its successor company
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<PAGE>
and in which US WEST, Inc. or its successor company owns consolidated
capital and voting interests of more than 50%;
(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 either:
(i) a subsidiary of Philips in which Philips owns consolidated
capital and voting interests of more than 50%; or
(ii) a subsidiary of UPC in which UPC owns consolidated capital and
voting interests of more than 50 %, with respect to which no
person owns a capital or voting interest exceeding the
consolidated capital or voting interest (as the case may be) of
Philips therein, and which would qualify as a subsidiary of
Philips and United International Holdings, Inc. jointly;
provided in every case that such Transfer may only be made if:
(c) the transferee agrees to become a party to this Agreement;
(d) the transferor or its ultimate parent remains liable for financial
compliance by the transferee with its obligations under this Agreement
and all relevant other documents entered into pursuant hereto, unless
the other party specifically consents to a release of the transferor
in this respect; such release may not unreasonably be refused and must
be granted if the transferee (or another entity) offers reasonably
sufficient security and recourse;
(e) the transfer is made subject to the condition (ontbindende voorwaarde)
that the transferee shall continue to satisfy the conditions set forth
in this Article 9.2; and
(f) the persons who will be nominated for appointment to one of the Group
Boards by the transferee, will continue to be employees or retained
representatives of US WEST or UPC (as the case may be) and their
respective affiliates, except if otherwise agreed with the other
party.
9.3 Standstill Period
Other than as permitted by Article 9.2, the parties shall not Transfer
their Joint Venture Interests or any part thereof during the Initial Lock-
up Period. The parties shall be free to Transfer their Joint Venture
Interests in accordance with Article 9.4 thereafter. In the event that the
A2000 Group becomes licensed or otherwise authorised to provide Voice
Telephony services in the Greater Amsterdam Area, the parties shall not
Transfer their Joint Venture Interests or any part thereof during the
Extended Lock-up Period, provided that in the event that either party gives
notice of its intention to do so to the other party at least twelve (12)
months before the end of the Initial Lock-up Period, the party giving such
notice may make a Transfer of its
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<PAGE>
Joint Venture Interest as soon as reasonably practicable after the Initial
Lockup Period subject to and in accordance with Article 9.4.
9.4 Right of First Refusal
After the expiry of the relevant period referred to in Article 9.3, a party
hereto (the "Offering Party") may Transfer all (but not less than all) of
its Joint Venture Interest in accordance with the following provisions:
(a) the Offering Party must have entered into a bona fide, binding
agreement (the "Third Party Agreement") with a person (the "Third
Party") which is not a group company of the Offering Party and which
is not (and is not an affiliate of) a direct competitor of the A2000
Group, the other party to this Agreement (the "Remaining Party") or
the Remaining Party's ultimate parent;
(b) the Third Party Agreement must contain at least the following
provisions:
(i) a bona fide offer of the Third Party to acquire all of the
Offering Party's Joint Venture Interest for an all-cash purchase
price, payable at the time of Transfer of such interest, subject
to no other terms and conditions than those which are expressly
contained in the Third Party Agreement; and
(ii) the acceptance by the Third Party of an obligation to become a
party to this Agreement, in the event that the Transfer of the
Offering Party's Joint Venture Interest to the Third Party in
accordance with the Third Party Agreement proceeds;
(c) within ninety (90) days after the execution of the Third Party
Agreement, the Offering Party must give written notice to the
Remaining Party of its intention to Transfer its Joint Venture
Interest (the "Offer Notice"), together with a certified copy of the
Third Party Agreement and reasonable evidence of the genuineness
thereof and of the ability of the Third Party to meet its obligations
under the Third Party Agreement as and when due;
(d) upon receipt of an Offer Notice, the Remaining Party may choose to do
one of the following things:
(i) it may agree to acquire the Offering Party's Joint Venture
Interest for the price and on the other terms set forth in the
Third party Agreement, as if it were the Third Party; or
(ii) it may agree that the Offering Shareholder Transfers the Offering
Shareholder's Joint Venture Interest to the Third Party, upon the
terms and conditions set forth in the Third Party Agreement;
such choice must be made known by notice in writing sent by the
Remaining Party to the Offering Party within ninety (90) days after
receipt of the Offer
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<PAGE>
Notice by the Remaining Party (the "Refusal Notice"); if the Remaining
Party fails timely to give a Refusal Notice, it shall be deemed to
have chosen the option described in Article 9.4(d)(ii);
(e) if the Refusal Notice is not timely given or if it reflects the option
described in Article 9.4(d)(ii), the Offering Party shall be free to
Transfer its Joint Venture Interest to the Third Party upon the terms
set forth in the Third Party Agreement, within sixty (60) days after
the date of the Offer Notice; if such Transfer does not take place
within such period, the Offering Party shall no longer be free to
Transfer its Joint Venture Interest and shall be required again to
comply in full with the provisions of this Article 9.4;
(f) if the Refusal Notice reflects the option described in Article
9.4(d)(i), the Offering Party shall Transfer its Joint Venture
Interest to the Remaining Party in accordance with the terms set forth
in the Third Party Agreement at a place within the Greater Amsterdam
Area and at a time and date to be nominated by the Remaining Party,
not being more than sixty (60) days after the date of the Offer
Notice.
9.5 Initial Public Offering
The parties acknowledge that it may be in their mutual interest and in the
interest of the A2000 Group to arrange for an initial offering to the
public of securities representing their respective Joint Venture Interests
at some point in time. Such initial public offering shall only take place
by mutual agreement between the parties, on terms to be negotiated between
them as and when they decide to do so.
9.6 Obligation to Take Non-Discretionary Action
The parties agree that they shall do, and that they shall cause their
respective affiliates and the members of the A2000 Group to do, all such
acts and things as may in the reasonable opinion of one of the parties
hereto be necessary or useful 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 articles of association be requisite to
consummate any such Transfer.
Article 10: Confidentiality and Non-Competition
10.1 The parties hereby covenant and undertake with each other that they will
not at any time disclose or use for any purpose this Agreement, information
about its contents, or any information concerning the members of the A2000
Group or their business or affairs, except:
(a) to the extent required by law or any competent authority after
consultation with each other;
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<PAGE>
(b) to its professional advisers under conditions of confidentiality and
only to the extent necessary for any lawful purpose of such party; or
(c) to the extent that such information is at the date hereof or hereafter
becomes public knowledge otherwise than through improper disclosure by
any person.
10.2 Neither party shall make any announcement to the press or otherwise
regarding the entering into of this Agreement or the transactions
contemplated herein without the prior written permission of the other
party, which permission shall not be unreasonably refused or delayed.
10.3 During the continuance of this Agreement, neither party hereto shall,
either alone or jointly with others, or as adviser, manager, consultant or
agent of any person, directly or indirectly, incorporate, establish or
engage in any business competing with any of the wirebound
telecommunications businesses carried on by any member of the A2000 Group
within the Greater Amsterdam Area.
Article 11: Miscellaneous
11.1 General Representation and Warranty
Each party hereto represents and warrants to the other party 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 their terms;
(d) neither its execution of this Agreement and of the further documents
required to be entered into pursuant hereto nor its consummation of
the transactions contemplated hereby or thereby will constitute a
violation of, or be in conflict with, or constitute or create a
default under any agreement or arrangement binding on it; and
(e) no statutory or regulatory rule or order of a Court or a governmental
body is in effect 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 (so far as it is aware) pending or threatened
any action, suit, proceeding or investigation by any person, entity or
governmental body which questions or might jeopardise the validity of
this Agreement.
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<PAGE>
11.2 Previous Arrangements
The parties confirm that this Agreement supersedes all previous agreements
and arrangements made between them with respect to the subject matter
hereof, including without limitation the Memorandum of Understanding and
the Heads of Agreement.
11.3 Costs
Unless this Agreement expressly provides otherwise, all costs and expenses
incurred by either party in the negotiation and execution of this Agreement
and the consummation of the transactions contemplated herein, shall solely
be borne by and be for the account of such party.
11.4 Duration
This Agreement shall continue in full force and effect until the earlier of
(a) termination by agreement among both parties (or their respective
permitted transferees), and (b) such time as all of the A2000 Shares shall
be wholly-owned by one of the parties hereto (or its permitted transferee).
11.5 Assignment
Neither party shall be entitled to assign all or part of its rights and
obligations under this Agreement without the prior written permission of
the other party, except that a party may assign all (but not less than all)
of its rights and obligations hereunder as part of the Transfer of its
Joint Venture Interest in accordance with Article 9.2, paragraph (a) or
(b).
11.6 Notices
(a) All notices and other communications to be given or made under this
Agreement shall be delivered to the parties in person or sent by
registered letter, postage prepaid and return receipt requested, or by
telefax as follows:
<TABLE>
<CAPTION>
<S> <C>
if to US WEST, to: US WEST International BV
Attn: General Counsel
Telefax: +1-303-793-6294
Address: 7800 East Orchard Road
Suite 200
Englewood, Colorado 80111-2526
United States of America
if to UPC, to: United and Philips Communications BV
Attn: General Counsel
Telefax: +31-20-578-9840
Address: Fred. Roeskestraat 123
1076 EE Amsterdam
The Netherlands
</TABLE>
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<PAGE>
(b) Either party may change its address for the purpose of this Agreement
by giving notice of such change to the other parties in accordance
with the provisions of this Article 11.6.
(c) Any notice or other communication sent by registered mail shall be
deemed to have been received by the party to whom it was sent on the
day shown as the day of receipt on the return receipt sent with the
same. Any notice or other communication sent by telefax shall be
deemed, in the absence of proof to the contrary, to have been received
by the party to whom it was sent on the date of despatch, provided
that the report generated by the sender's telefax machine shows that
all pages of such notice or other communication were properly
transmitted to the recipient's telefax number.
11.7 Compliance with Laws
All actions undertaken in connection with this Agreement shall comply with
all applicable laws, including without limitation:
(a) the United States Foreign Corrupt Practices Act, if applicable to the
A2000 Group;
(b) the Export Control Laws and Regulations of the United States, if
applicable to the A2000 Group;
(c) the Modification of final Judgement, and all related orders, decrees
and stipulations entered by the United States District Court, District
of Columbia, in United States versus Westen Electric Co., et al, Civil
-----------------------------------------------
Action number 82-0192.
11.8 Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of The Netherlands.
11.9 Disputes
Any dispute arising under or in connection with this Agreement shall be
settled by the competent courts in Amsterdam, The Netherlands, subject to
appeal and appeal in the second instance (cassatie).
IN WITNESS WHEREOF this Agreement was duly executed in Amsterdam by the parties
hereto in two counterparts on the date first above written.
for and on behalf of
US WEST INTERNATIONAL BV
_____________________________
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<PAGE>
By: A. Gary Ames
Title: Attorney-in-fact
for and on behalf of
UNITED AND PHILIPS COMMUNICATIONS BV
/s/ Jacques C.S.E. Hackenburg /s/ David M. d'Ottavio
- --------------------------------------- ------------------------------------
By: Jacques C.S.E. Hackenberg By: David M. d'Ottavio
Title: Managing Director Title: Managing Director
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<PAGE>
Each of US WEST INTERNATIONAL HOLDINGS, INC., PHILIPS MEDIA BV and UNITED
INTERNATIONAL HOLDINGS, INC. hereby covenants and agrees with the others of them
and with the parties to this Agreement that it shall ensure that no Transfer or
issue of shares in any person in which it directly or indirectly owns a capital
or voting interest and which in turn directly or indirectly owns a capital or
voting interest in A2000 shall take place without the prior written approval of
the other of them, unless after such Transfer or issue the Shareholders shall
continue to qualify under each of the criteria set forth in Article 9.2(a) (in
the case of US WEST) or Article 9.2(b) (in the case of UPC), applied mutatis
mutandis where appropriate.
for and on behalf of
US WEST INTERNATIONAL HOLDINGS, INC.
- ----------------------------------
By: A. Gary Ames
Title: President and Chief Executive Officer
for and on behalf of
PHILIPS MEDIA BV
/s/ Ton H.E. Voskuijlen
- ----------------------------------
By: Ton H.E. Voskuylen
Title: Attorney-in-fact
for and on behalf of
UNITED INTERNATIONAL HOLDINGS, INC.
- ----------------------------------
By: Bernard G. Dvorak
Title: Chief Financial Officer
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<PAGE>
THE SCHEDULE: THE CURRENT BUSINESS PLAN
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<PAGE>
EXHIBIT 10.26
FORM OF
REGISTRATION RIGHTS AGREEMENT
dated January ___, 1999
among
UNITED PAN-EUROPE COMMUNICATIONS N.V.
and
UNITED INTERNATIONAL HOLDINGS, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
Recitals..................................................................... 1
ARTICLE I Definitions...................................................... 1
1.01. Defined Terms.................................................... 1
1.02. Terms Generally.................................................. 3
ARTICLE II Registration Rights.............................................. 3
2.01. Piggyback Registrations.......................................... 3
2.02. Demand Registration.............................................. 4
2.03. Indemnification by the Company................................... 5
2.04. Indemnification by the Shareholder............................... 5
2.05. Notices of Claims, Etc........................................... 6
2.06. Other Indemnification............................................ 6
2.07. Indemnification Payments......................................... 6
2.08. Adjustments Affecting Registration Securities.................... 7
2.09. Registration Covenants of the Company............................ 7
2.10. Expenses......................................................... 7
2.11. Assignment of Registration Rights................................ 8
2.12. No Preferential Registration Rights.............................. 8
2.13. Other Registration Rights........................................ 8
2.14. Rule 144A and Rule 144........................................... 8
2.15. Form S-3 and F-3 Registration.................................... 9
2.16 Other Exchanges.................................................. 9
ARTICLE III Notices.......................................................... 9
ARTICLE IV Miscellaneous.................................................... 10
4.01. Termination...................................................... 10
4.02. Headings......................................................... 11
4.03. No Waiver........................................................ 11
4.04. Amendment........................................................ 11
4.05. Assignment....................................................... 11
4.06. Entire Agreement................................................. 11
4.07. Governing Law.................................................... 11
4.08. Severability..................................................... 11
4.09. Counterparts..................................................... 12
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT dated as of January __, 1999, is by and
between UNITED PAN-EUROPE COMMUNICATIONS N.V., an entity incorporated in the
Netherlands (the "Company") and UNITED INTERNATIONAL HOLDINGS, INC., a Delaware
corporation (the "Shareholder").
Recitals
--------
A. The Company plans to commence an initial public offering of the
ordinary shares of the Company's stock (in the form of ordinary shares or
American Depository Shares (the "Offering").
B. Immediately prior to the Offering, the Shareholder held all of the
Company's issued and outstanding ordinary shares, other than approximately 8.4%
of such shares that have been registered in the name of a foundation to support
Company's employee equity incentive plan.
C. The parties hereto intend for this Agreement to govern the
Shareholder's registration rights with respect to ordinary shares of the
Company's stock.
Agreement
---------
The parties hereto agree as follows:
ARTICLE I
Definitions
-----------
1.01. Defined Terms. As used herein, the following terms shall have
-------------
the following meanings (terms defined in the singular shall have the same
meanings when used in the plural and vice versa):
----------
Agreement: This Registration Rights Agreement as amended, modified,
---------
restated and replaced from time to time in accordance with the provisions
hereof.
Applicable Exchange: The primary U.S. or European securities market
-------------------
or exchange on which the Company's publicly trading securities are listed or
qualified.
Commission: 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: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations thereunder.
Indemnified Person: As defined in Section 2.05.
------------------
1
<PAGE>
Indemnifying Person: As defined in Section 2.05.
-------------------
Percentage Interest for each holder of Registration Securities at any
-------------------
time means the percentage represented by the fraction, the numerator of which is
the capital stock of the Company considered together as a single class owned by
such holder and the denominator of which is all then issued and outstanding
capital stock of the Company considered together as a single class.
Piggyback Registrations: As defined in Section 2.01(a).
-----------------------
Registration Securities: Ordinary shares of the Company, American
-----------------------
Depository Shares of the Company (each of which represents one ordinary share of
the Company), and any other equity securities issued upon conversion thereof or
that may be issued or distributed in respect thereof by way of stock dividend or
stock split or other distribution, recapitalization, merger, consolidation or
reclassification or other reorganization or otherwise. A Registration Security
shall cease to be a Registration Security when: (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
Registration Securities outstanding at any given time may be sold during any
three-month period pursuant to the exemption of Rule 144 under the Securities
Act.
Registration Statement: A registration statement, 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: Any equity security of the Company and any other
----------
security convertible into, or exercisable or exchangeable for, equity securities
of the Company, including, stock options, rights, warrants and other convertible
securities, subscriptions, calls or commitments.
Securities Act: The 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: The Exchange Act, the Securities Act or any other
---------------
relevant securities law applicable for the sale of securities through the
Applicable Exchange.
U.S.: United States of America.
----
1.02. Terms Generally. Whenever the context may require, any pronoun shall
---------------
include the corresponding masculine, feminine and neuter forms. The words
"include," "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". All references herein to Articles and Sections,
shall be deemed references to Articles and Sections of this Agreement unless the
context shall otherwise require.
ARTICLE II
2
<PAGE>
Registration Rights
-------------------
2.01. Piggyback Registrations.
-----------------------
(a) If the Company shall at any time propose to file a Registration
Statement for an offering of equity securities of the Company, by the Company or
for resale by holders of the Company's securities pursuant to an employee stock
option, stock purchase or similar plan or pursuant to a merger, exchange offer
or a transaction of the type specified in Rule 145(a) under the Securities Act),
the Company shall give the Shareholder notice of such proposed registration at
least 30 days prior to the filing of a registration statement. At the written
request of the Shareholder delivered to the Company within 20 days after the
receipt of the notice from the Company, which request shall state the number of
Registration Securities that the Shareholder wishes to sell or distribute
publicly under the registration statement proposed to be filed by the Company,
the Company shall use its best efforts to include such number of registration
Securities in such Registration Statement (a "Piggyback Registration").
(b) If a Piggyback Registration is an underwritten primary
registration on behalf of the Company, and the managing underwriters thereof
advise the Company in writing that in their opinion the number of Securities
requested to be included in the registration exceeds the number which can be
sold in the offering, the Company shall include in the registration (i) first,
the Securities that the Company proposes to sell, (ii) second, the Registration
Securities the Shareholder proposes to sell, and (iii) third, the Securities
each other holder of the Company's Securities who has registration rights and
has exercised such rights proposes to sell. If the number of shares of
Registration Securities that the Shareholder proposes to sell exceeds the number
of shares that the Shareholder is entitled to sell pursuant to this section
2.01(b), the number of shares of Registration Securities that the Shareholder is
entitled to sell hereunder shall be determined according to the Percentage
Interest of the Shareholder immediately before such Piggyback Registration
becomes effective.
(c) If a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's Securities who have demand
registration rights and the managing underwriters thereof advise the Company in
writing that in their opinion the number of Securities requested to be included
in the registration exceeds the number which can be sold in the offering, the
Company shall include in the registration (i) first, that portion of the
Registration Securities that the Shareholder proposes to sell representing 25%
of such offering, (ii) second, the Securities of the holders of the Company's
Securities who have exercised their demand registration rights and (iii) third,
the Securities any other securityholders of the Company (including any
additional Registration Securities the Shareholder desires to sell) propose to
sell in proportion to the number of Securities each proposes to sell. If the
Company subsequently desires to participate in such a registration of
Securities, the Company shall include in the registration (A) first, that
portion of the Registration Securities the Shareholder proposes to sell
representing 25% of such offering, (B) second, the Securities of the holders of
the Company's Securities who have exercised their demand registration rights and
(C) third, the Securities the Company and any other securityholders of the
Company propose to sell (including any additional Registration Securities the
Shareholder desires to sell) in proportion to the number of shares each proposes
to sell. If the number of shares of Registration Securities that the
Shareholder proposes to sell pursuant to this Section 2.01(c)
3
<PAGE>
exceeds the number of shares that the Shareholder is entitled to sell pursuant
to this Section 2.01(c), the number of shares of Registration Securities the
Shareholder is entitled to sell hereunder shall be determined according to the
Percentage Interest of the Shareholder immediately before such Piggyback
Registration becomes effective.
2.02. Demand Registration
-------------------
(a) Request and Filing. Beginning one year after the date of the
------------------
Offering, the Shareholder may request that the Company file a registration
statement covering the Registration Securities (the "Demand Registration").
Upon receipt of a request, the Company shall prepare and file a registration
statement as promptly as practicable but in any event no later than 45 days
after receipt of notice (the "Deadline"); provided, however, that the Company
shall only be obligated to file and cause to be effective more than three
Registration Statements pursuant to this Section 2.02(a) using forms other than
Form S-3 or F-3 or successor forms, as the case may be, and shall not be
required to file more than one Registration Statement using Form S-3 or F-3 or
successor forms, as the case may be, in any six-month period. The Company
agrees to use its best efforts to cause the Registration Statement to become
effective as promptly as practicable after filing and to use its best efforts to
keep the Registration Statement continuously effective for the period commencing
on the date of effectiveness declared by the Commission and ending on the
earlier of (i) ninety (90) days from the date of effectiveness; (ii) the date
when each of the Registration Securities ceases to be Registration Securities;
and (iii) the date when each of the Registration Securities not otherwise
transferred or sold pursuant to the Registration Statement may be sold or
distributed by the Stockholder in reliance upon Rule 144 under the Securities
Act (giving effect to all conditions thereof, including, without limitation, the
volume limitations contained in Rule 144(e)) (the "Effective Period").
(b) Registration Statement Form. The Registration Statement under
---------------------------
this Section 2.1 shall be on such appropriate registration form of the
Commission as shall be selected by the Company and as shall permit the
disposition of the Registration Securities in accordance with the intended
method or methods of disposition (including an underwritten offering).
2.03. Indemnification by the Company. In the event of any registration
------------------------------
of any Registration Securities under the Securities Act, the Company shall, and
hereby does, indemnify and hold harmless each holder of Registration Securities,
its directors and officers, each other Person who participates as an underwriter
in the offering or sale of such Registration Securities and each other Person,
if any, who controls such holder or any such underwriter within the meaning of
Section 15 of the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which such holder or any such director or
officer or underwriter or controlling Person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which the Registration Securities were registered under the Securities
Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances in
which they were made not misleading, and the Company shall reimburse such
holder, and each such director,
4
<PAGE>
officer, underwriter and controlling Person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided, however, that the
-------- -------
Company shall not be liable in any such case if any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in reliance upon
and in conformity with written information about such holder as a stockholder of
the Company furnished to the Company through an instrument duly executed by or
on behalf of such holder specifically stating that it is for use in the
preparation thereof; and provided further, however, that the Company shall not
---------------- -------
be liable to any Person who participates as an underwriter in the offering or
sale of Registration Securities, or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case if any
such loss, claim, damage, liability (or action or proceeding in respect thereof)
or expense arises out of such Person's failure to send or give a copy of the
final prospectus, as the same may be then supplemented or amended, to the Person
asserting an untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of Registration
Securities to such Person if such statement or omission was corrected in such
final prospectus. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such holder or any such
director, officer or controlling Person and shall survive the transfer of the
Registration Securities by such holder.
2.04. Indemnification by the Shareholder. The Company may require, as a
----------------------------------
condition to including any Registration Securities in any registration statement
filed pursuant to Section 2.01 or Section 2.02, that the Company shall have
received an undertaking satisfactory to it from the holder of such Registration
Securities to indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 2.03) the Company, each director of the Company,
each officer of the Company signing such registration statement and each other
Person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act with respect to any untrue statement or alleged untrue statement
in or omission or alleged omission from such Registration Statement, any
preliminary prospectus, final prospectus or summary prospectus contained therein
or any amendment or supplement thereto, if such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information about such holder as a shareholder of the
Company furnished to the Company through an instrument duly executed by such
holder specifically stating that it is for use in the preparation of such
Registration Statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Such indemnity shall remain in full force
and effect, regardless of any investigation made by or on behalf of the Company
or any such director, officer or controlling Person and shall survive the
transfer of the Registration Securities by such holder.
2.05. Notices of Claims, Etc. Promptly after receipt by a person entitled
-----------------------
to indemnification under Section 2.03 or 2.04 (an "Indemnified Person") of
notice of the commencement of any action or proceeding involving a claim
referred to in Section 2.03 or 2.04, such Indemnified Person will, if a claim in
respect thereof is to be made against a Person required to indemnify such
Indemnified Party under Section 2.03 or 2.04 (an "Indemnifying Person"), give
notice to the Indemnifying Person of the commencement of such action; provided,
--------
however, that the failure of any Indemnified Person to give notice as provided
- -------
herein shall not relieve the Indemnifying Person of its obligations under
5
<PAGE>
Section 2.03 or 2.04, except to the extent that the Indemnifying Person is
actually prejudiced by such failure to give notice. In case any such action is
brought against an Indemnified Person, unless in such Indemnified Person's
reasonable judgment a conflict of interest between such Indemnified and
Indemnifying Persons may exist or the Indemnified Person may have defenses not
available to the Indemnifying Person in respect of such claim, the Indemnifying
Person shall be entitled to participate in and to assume the defense thereof,
with counsel reasonably satisfactory to such Indemnified Person, and after
notice from the Indemnifying Person to such Indemnified Person of its election
so to assume the defense thereof, the Indemnifying Person shall not be liable to
such Indemnified Person for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs of
investigation. No Indemnifying Person shall be liable for any settlement of any
action or proceeding effected without its written consent. No Indemnifying
Person shall, without the Consent of the Indemnified Person, Consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Person of a release from all liability in respect to such claim or
litigation.
2.06. Other Indemnification. Indemnification similar to that specified in
---------------------
this Agreement with appropriate modifications shall be given by the Company and
each holder of Registration Securities with respect to any required registration
or other qualification of Registration Securities under any Federal or state law
or regulation of any Governmental Authority other than the Securities Act.
2.07. Indemnification Payments. The indemnification required by this
------------------------
Agreement shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
2.08. Adjustments Affecting Registration Securities. The Company shall not
---------------------------------------------
effect or permit to occur any combination, subdivision or other recapitalization
of any of its Securities (a) which would materially adversely affect the ability
of any holder of Registration Securities to include its Registration Securities,
or which would reduce the number of Registration Securities that any holder of
Registration Securities would otherwise be entitled to include pursuant to this
Agreement, in any registration of Securities of the Company contemplated by this
Agreement or (b) which would materially adversely affect the marketability of
such Registration Securities under any such registration.
2.09. Registration Covenants of the Company.
-------------------------------------
(a) Whenever any Registration Securities are to be registered
pursuant to Section 2.01 or 2.02 of this Agreement, the Company will use its
best efforts to effect the registration and the sale of such Registration
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 Registration Securities as
contemplated by the Registration Statement. If required or appropriate, the
Company shall enter into the necessary agreements with a Transfer Agent with
respect to such securities.
(b) The Company may require each Shareholder requesting that
Registered Securities be registered pursuant to Section 2.01 or 2.02 to furnish
to the Company such information
6
<PAGE>
regarding the distribution of such securities and such other information
relating to such Shareholder and its ownership of Registration 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, the Shareholder selling Registration
Securities will forthwith discontinue disposition of the Registration Securities
until receipt of copies of a supplemented or amended prospectus or until such
Shareholders are advised in writing by the Company that the use of the
prospectus may be resumed, and have received copies of any additional or
supplemental filings which are incorporated by reference in the prospectus and,
if so directed by the Company, such Shareholders will, or will request the
managing underwriter or underwriters, if any, to, deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
holder's possession of the prospectus covering such Registration Securities
current at the time of receipt of such notice.
2.10. Expenses. In connection with any Piggyback Registration or Demand
--------
Registration, the Company shall pay all commission and securities exchange
registration and filing fees, all fees and expenses of complying with securities
or blue sky laws, all word processing, duplicating and printing expenses, all
messenger and delivery expenses, the fees and disbursements of counsel for the
Company, the fees and disbursements of the Company's independent public
accountants (including the expenses of comfort letters required for the
Piggyback Registration or Demand Registration) and any fees and disbursements of
underwriters. In addition, the Company shall be responsible for the reasonable
fees and disbursements of counsel for each holder of Registration Securities
necessary for the preparation of the Registration Statement. In any
registration, each such holder shall pay for its own underwriting discounts and
commissions and transfer taxes.
2.11. Assignment of Registration Rights. Each party hereto may assign its
---------------------------------
rights under this Agreement to any of its designated Affiliates that may acquire
shares of the Shareholder Shares, as applicable, and to anyone to whom any such
party or any such Affiliate sells, transfers or assigns any of the Registration
Securities (other than in sales pursuant to Rule 144 under the Securities Act or
a Piggyback or Demand Registration effected pursuant to this Agreement);
provided, however, that no assignment shall increase the Company's obligations
- -------- -------
to effect registrations or to pay expenses thereof.
2.12. No Preferential Registration Rights. Notwithstanding any other
-----------------------------------
provision of this Agreement, if the Company grants registration rights to any
other Person on terms which any holder of Registration Securities considers
preferential to the terms in this Agreement, then such holder shall be entitled
to registration rights with such preferential terms.
2.13. Other Registration Rights. The Company shall not grant any right of
-------------------------
registration under the Securities Act relating to any of its Securities to any
Person other than the Shareholder
7
<PAGE>
unless the Shareholder shall be entitled to have included in any Piggyback
Registration effected pursuant to Section 2.01(c) a number of Registration
Securities requested by the Shareholder as applicable, to be so included
representing at least 25% of such offering prior to the inclusion of any
securities requested to be registered by the Persons entitled to any such other
registration rights.
2.14. Rule 144A and Rule 144.
----------------------
(a) If the Company is not subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, but only for so long as the Company is
not so subject, the Company shall take all actions reasonably necessary to
enable each holder of Registration Securities to sell its Registration
Securities without registration under the Securities Act within the limitation
of the exemptions provided by Rule 144A under the Securities Act, as such rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC. Upon the request of any such holder, the Company shall
deliver to such holder a written statement as to whether the Company has
complied with such requirements.
(b) After the Company becomes subject to the reporting requirements
of Section 13 or 15(d) of the Exchange Act, but only for so long as the Company
is so subject, the Company shall take all actions reasonably necessary to enable
each holder of Registration Securities to sell its Registration Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 under the Securities Act, as such rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC, including filing on a timely basis all reports required to be filed
by the Exchange Act. Upon the request of any such holder, the Company shall
deliver to such holder a written statement as to whether the Company has
complied with such requirements.
2.15. Form S-3 or F-3 Registration. In case the Company shall receive from
----------------------------
any holder of Registration Securities a written request or requests that the
Company effect a registration on Form S-3 or F-3 (or any successor form of
abbreviated registration statement) and any related qualification or compliance
with respect to all or a part of the Registration Securities, the Company will,
as soon as practicable, effect such registration and all such qualifications and
compliances as may be so requested and as would permit or facilitate that sale
and distribution of all or such portion of the Registration Securities as are
specified in such request; provided, however, that the Company shall not be
-------- -------
obligated to effect any such registration, qualification or compliance pursuant
to this Section 2.15: (a) if Form S-3 or F-3 is not available for such
offering; (b) if the Company shall furnish to such holder a certificate signed
by the President of the Company stating that in the good faith judgment of the
board of directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such Form S-3 or F-3 registration to be
effected at such time, in which event the Company shall have the right to defer
the filing of the Form S-3 or F-3 Registration Statement for a period of not
more than 90 days after receipt of the request of such holder under this Section
2.14; provided, however, that the Company shall not utilize this right more than
-------- -------
once in any 12-month period; or (c) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance. Subject to the foregoing, the Company shall file a registration
statement covering the Registration Securities so requested to be registered as
soon as practicable after receipt of the request of such holder. All expenses
incurred in connection with a
8
<PAGE>
registration requested pursuant to this Section 2.14 including, all
registration, filing, qualification, printer's and accounting fees and
reasonable fees and disbursements of counsel for each holder of Registration
Securities and counsel for the Company shall be borne by the Company.
2.16 Other Exchanges. The Company has also listed its ordinary shares on
---------------
the Amsterdam Stock Exchange and in the future may list its securities on other
exchanges. The Company hereby grants the Shareholder the right to require the
Company to list or register the Registration Securities on the Amsterdam Stock
Exchange or such other exchanges in a manner substantially consistent with the
registration rights granted in this agreement, taking into account the
applicable securities laws and listing or registration procedures of the
exchanges.
ARTICLE III
Notices
-------
All notices or other communications to be given under this Agreement shall
be given in writing and delivered by hand or sent by express courier or delivery
service or transmitted by telecopier. Copies of notices and communications may
be sent in like fashion. Such notices and communications shall be deemed to
have been received by the addressee upon receipt, but in no event later than 72
hours after the notice or communication is delivered to an express courier or
delivery service, or 24 hours after transmission of the notice or communication
by telecopier and if sent by telecopier, subject to confirmation by sender's
delivery of the notice or communication to an express courier or delivery
service for delivery to the addressee. The addresses and telecopier numbers of
the parties hereto for delivery of notices are set forth below.
(a) If to the Shareholder, addressed to it at:
United International Holdings, Inc.
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237
Attention: President
Telecopier No. 303-770-4207
With a copy to:
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203
Attention: Garth B. Jensen, Esq.
Telecopier No. 303-866-0200
9
<PAGE>
(b) If to the Company, addressed to it at:
United Pan-Europe Communications N.V.
Fred. Roeskestraat 123
1076 EE Amsterdam
The Netherlands
Attention: President
Telecopier No. 31-20-778-98-81
Any party hereto may change its address or telecopier number for receiving
notices and communications by giving notice of such change to the other parties
hereto.
ARTICLE IV
Miscellaneous
-------------
4.01. Termination. The Company's obligations pursuant to this Agreement
-----------
shall expire at such time as all Registerable 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.
4.02. Headings. Section and article headings, captions and numbers in this
--------
Agreement are for convenience only and shall not be used in its interpretation
or considered part of this Agreement.
4.03. No Waiver. The failure or delay of any party at any time or from
---------
time to time to exercise any right under or enforce any provision of this
Agreement shall not be construed as implying a waiver of such provision or of
the right of that party to exercise or enforce it subsequently. No single or
partial exercise of any right under this Agreement shall preclude the further or
full exercise of the right. No waiver of any default on any one occasion shall
constitute a waiver of any subsequent or other default. The rights and remedies
of the parties hereunder are cumulative and are not exclusive of any rights or
remedies which the parties would otherwise have. No notice or demand on any
party hereto in any case shall entitle such party to any other or further notice
or demand in similar or other circumstances.
4.04. Amendment. No provision of this Agreement may be amended, modified
---------
or waived except by an instrument in writing entered into by the parties hereto
and designated as an amendment, modification or waiver.
4.05. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective permitted assigns. In
addition, and whether any express assignment shall have been made, the provision
of this Agreement that are for the benefit of the parties hereto other than the
Company also shall be for the benefit of and enforceable by any subsequent
holder of Registration Securities, subject to the requirement that the
transferring party hereto give written
10
<PAGE>
notice to the Company of such transfer stating the name and address of the
transferee and identifying the Securities with respect to which the registration
rights are being assigned.
4.06. Entire Agreement. This Agreement and the other Operative Agreements
----------------
embody the entire agreement of the parties hereto and thereto regarding the
subject matter hereof and thereof and supersede any prior and contemporaneous
negotiations, agreements and understandings among the parties hereto and
thereto.
4.07. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Colorado.
4.08. Severability. If any provision of this Agreement or the application
------------
thereof to any Person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provision to
other Persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law. Notwithstanding the foregoing,
the Company and the Shareholder shall negotiate in good faith or attempt to
agree on the terms of a mutually satisfactory provision to replace any invalid
or unenforceable provision.
4.09. Counterparts. This Agreement may be executed in any number of
------------
counterparts or counterpart signature pages, each of which shall be deemed an
original, but all of which together shall constitute the same instrument.
IN WITNESS WHEREOF the parties hereto have executed this Registration
Rights Agreement as of the date first set forth above.
THE SHAREHOLDER:
---------------
UNITED INTERNATIONAL HOLDINGS, INC.
By:
----------------------------------
Michael T. Fries, President
THE COMPANY:
-----------
UNITED PAN-EUROPE COMMUNICATIONS N.V.
By:
----------------------------------
J. Timothy Bryan, President
By:
----------------------------------
Anton H.E. v. Voskuijlen, Senior Vice
President, Legal
11
<PAGE>
EXHIBIT 10.31
PROMISSORY NOTE
U.S. $100,000,000.00 January 25, 1999
FOR VALUED RECEIVED, the undersigned, United Pan-Europe Communications
N.V. ("Borrower"), a Netherlands company, hereby promises to pay, on demand at
--------
any time on or after March 31, 2001, to the order of UIH Europe, Inc., a
Delaware corporation or any of its successors or assigns that enters into a deed
of subordination in favour of the Security Trustee as defined below ("Holder"),
------
at 4643 South Ulster Street, Suite 1300, Denver, Colorado 80237 United States of
America, or at such other place as Holder may designate in writing from time to
time, the principal sum of One Hundred Million United States dollars
(U.S.$100,000,000.00) or, if less, the aggregate unpaid principal balance of all
advances hereunder (individually, an "Advance" and collectively, the "Advances")
------- --------
made by the Holder to the Borrower, with interest as set out herein.
The date and amount of each Advance made, and each payment made on
account thereof, shall be recorded by Holder on its books and records. The
failure of Holder so to record shall not affect Borrower's obligations
hereunder. Except as provided in the following paragraph, the unpaid principal
balance of each Advance shall bear interest from the date thereof to but
excluding the date such Advance shall be paid in full at a rate equal to 10.75 %
per annum on the basis of a 360-day year and actual days elapsed.
If Borrower fails to pay any sums owing under this Note when due, all
such sums shall bear interest from the date due to but excluding the date all
such sums are paid in full, at a default rate equal to 11.75 % per annum on the
basis of a 360-day year and actual days elapsed. At such time as a judgment is
obtained for any amounts owing under this Note or any document or instrument
securing this Note, interest shall continue to accrue on the amount of the
judgment until paid, at the rate of 11.75 % per annum.
All payments hereunder shall be credited first toward interest then due
and the remainder toward principal. Borrower may prepay this Note, in whole or
in part, at any time without premium or penalty. All payments of the Advances
and interest will be made without withholding or deduction for or on account of
any present of future taxes, duties, assessments or governmental charges of
whatever nature, unless the withholding of such taxes or duties is required by
law.
In the event that upon demand from Holder for payment, such payment or
such demand for payment would result in a default under then existing public or
private debt of Borrower or any subordination arrangements entered into in
connection with this Note, then Borrower may defer payment until such time as
such payment would not result in default.
At any time on or after the date hereof, Holder may elect to convert
the unpaid principal and interest under this Note into ordinary shares of
Borrower. The conversion rate
<PAGE>
shall be the initial public offering price per ordinary share of Borrower as
adjusted to reflect stock dividends, splits, reclassifications and, combinations
affecting Borrower's ordinary shares.
If an attorney is engaged by Holder to enforce or construe any
provision of this Note and Holder prevails in any court proceeding relating
thereto, then Borrower shall pay, on demand, all attorney's fees and all other
costs incurred by Holder, together with interest thereon from the date of such
demand until paid, at the default interest rate.
Except as expressly provided herein, Borrower and all other makers and
endorsers hereof hereby waive presentment, protest and notice of dishonor.
All terms and conditions of this Note shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
No delay or failure of the holder in the exercise of any right or
remedy hereunder shall be deemed a waiver of such right, and no exercise or
partial exercise of any right or remedy shall be deemed a waiver of any other
right or remedy that the Holder may have.
This Note and the transaction contemplated hereunder shall be governed
by and construed in accordance with the laws of the State of Colorado. Borrower
hereby submits to the jurisdiction U.S. District Court for the District of
Colorado and of any court of the State of Colorado sitting in Denver, Colorado
for purposes of all legal proceedings arising out of or relating to the Note.
Borrower irrevocably waives, to the fullest extent permitted by law, any
objection which Borrower may now or hereafter have to the lack of personal
jurisdiction or laying of the venue of any such proceeding brought in such a
court and any claim that any such proceeding brought in a court has been brought
in an inconvenient forum. Notwithstanding the preceding two sentences, Holder
retains the right to bring any suit, action or proceeding seeking to enforce any
provision of, or based on any matter arising out of or in connection with the
Note in any court that has jurisdiction over the parties and subject matter.
Payments under this Note (other than by way of conversion into ordinary
shares of the Borrower) shall be subordinated to payments to be made by the
Obligors (as therein defined) under the loan agreement dated 8 October 1997 as
amended by a supplemental agreement dated 8 December 1998 (together, as amended,
restated and supplemental from time to time, the "Facility Agreement") and made
------------------
between Borrower as the Parent (1), the entities whose names, registered numbers
(if any) and registered offices are set out in part C of schedule 1 of the
Facility Agreement as Borrowers (2), the entities whose names, registered
numbers (if any) and registered offices are set out in part B of schedule 1 of
the Facility Agreement as Guarantors (3), The Toronto-Dominion Bank ("TDB") as
---
Arranger (4), the banks and financial institutions whose names and addresses are
set out in part A of schedule 1 of the Facility Agreement (5), TDB as Agent (6)
and TDB as Security Trustee (the "Security Trustee") (7) on the terms and
----------------
conditions of a deed of subordination of even date herewith entered into between
Holder and the Security Trustee.
<PAGE>
This Note replaces the Promissory Note, dated March 16, 1998, with
Borrower as borrower and Holder as holder, and with a maximum principal sum of
One Hundred Million Dollars ($100,000,000.00), (the "Prior Note"), which Prior
Note shall cease to have any force or effect and shall be cancelled.
This Note shall be effective on the date the first effective delivery
occurs of the American Depository Shares or ordinary shares of the Borrower in
connection with its initial public offering of share capital.
UNITED PAN-EUROPE COMMUNICATIONS N.V.
By: /s/ J. Timothy Bryan
------------------------------------
Managing Director
And by: /s/ A.H.E. van Voskuijlen
--------------------------------
Managing Director
<PAGE>
10.32
PROMISSORY NOTE
$20,000,000 January 25, 1999
FOR VALUE RECEIVED, the undersigned, UPC Intermediates B.V., a
Netherlands corporation ("Borrower") hereby promises to pay, on demand at any
time on or after March 31, 2001, to the order of UIH Europe, Inc., a Delaware
corporation or any of its successors or assigns ("Holder"), at 4643 South Ulster
Street, Suite 1300, Denver, Colorado 80237 United States of America, or at such
other place as Holder may designate in writing from time to time, the principal
sum of Twenty Million Dollars ($20,000,000) or, if less, the aggregate unpaid
principal balance of all advances hereunder (individually an "Advance" and
collectively, the "Advances") made by the Holder to the Borrower, with interest
as set out herein.
The date and amount of each Advance made, and each payment on account
thereof, shall be recorded by holder on its books and records. The failure of
Holder so to record shall not affect Borrower's obligations hereunder. Except as
provided in the following paragraph, the unpaid principal balance of each
Advance shall bear interest from the date thereof to but excluding the date such
Advance shall be paid in full at a rate equal to rate of 10.75% per annum on the
basis of a 360-day year and actual days elapsed.
If Borrower fails to pay any sums owing under this Note when due, all
such sums shall bear interest from the date due to but excluding the date all
such sums are paid in full, at a default rate equal to 11.75% per annum on the
basis of a 360-day year and actual days elapsed. At such time as a judgment is
obtained for any amounts owing under this Note or any document or instrument
securing this Note, interest shall continue to accrue on the amount of the
judgment until paid, at the rate of 11.75% per annum.
All payments hereunder shall be credited first toward interest then due
and the remainder toward principal. Borrower may prepay this Note, in whole or
in part, at any time without premium or penalty. All payments of the Advances
and interest will be made without withholding or deduction for or on account of
any present or future taxes, duties, assessments or governmental charges of
whatever nature, unless the withholding of such taxes or duties is required by
law.
In the event that upon demand from Holder for payment, such payment or
such demand for payment would result in a default under then existing public or
private debt of Borrower or any subordination arrangements entered into in
connection with this Note, then Borrower may defer payment until such time as
such payment would not result in default.
At any time on or after the date hereof, Holder may elect to have the
unpaid principal and interest under this Note satisfied with ordinary shares of
United Pan-Europe Communications N.V. ("UPC"). Each ordinary share of UPC
delivered to Holder in satisfaction hereof shall, for purposes of determining
the amount of the obligations
<PAGE>
discharged, have a value equal to the initial public offering price per ordinary
share of UPC.
If an attorney is engaged by Holder to enforce or construe any
provision of this Note and Holder prevails in any court proceeding relating
thereto, then Borrower shall pay, on demand, all attorneys' fees and all other
costs incurred by Holder, together with interest thereon from the date of such
demand until paid, at the default interest rate.
Except as expressly provided herein, Borrower and all other makers and
endorsers hereof waive presentment, demand, and notice of dishonor.
All terms and conditions of this Note shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
No delay or failure of the holder in the exercise of any right or
remedy hereunder shall be deemed a waiver of such right, and no exercise or
partial exercise of any right or remedy shall be deemed a waiver of any other
right or remedy that the Holder may have.
This Note and the transaction contemplated hereunder shall be governed
by and construed in accordance with the laws of the State of Colorado. Borrower
hereby submits to the jurisdiction U.S. District Court for the District of
Colorado and of any court of the State of Colorado sitting in Denver, Colorado
for purposes of all legal proceedings arising out of or relating to the Note.
Borrower irrevocably waives, to the fullest extent permitted by law, any
objection which Borrower may now or hereafter have to the lack of personal
jurisdiction or laying of the venue of any such proceeding brought in such a
court and any claim that any such proceeding brought in a court has been brought
in an inconvenient forum. Notwithstanding the preceding two sentences, Holder
retains the right to bring any suit, action or proceeding seeking to enforce any
provision of, or based on any matter arising out of or in connection with the
Note in any court that has jurisdiction over the parties and subject matter.
This Note replaces the Promissory Note, dated July 22, 1998, with
Borrower as borrower and Holder as holder, and with a maximum principal sum of
Twenty Million Dollars ($20,000,000) (the "Prior Note"), which Prior Note shall
cease to have any force or effect and shall be cancelled.
This Note shall be effective on the date the first effective delivery
occurs of the American Depository Shares or ordinary shares of UPC in connection
with its initial public offering of share capital.
UPC INTERMEDIATES B.V.
By: UNITED PAN-EUROPE COMMUNICATIONS N.V.
By: /s/ J. Timothy Bryan
-------------------------------
Managing Director
By: /s/ A.H.E. van Voskuijlen
-------------------------------
Managing Director
<PAGE>
EXHIBIT 21.1
UPC Subsidiaries
----------------
Entity Jurisdiction
Cable-Networks Austria Holding B.V The Netherlands
chello broadband N.V The Netherlands
chello broadband B.V The Netherlands
UPC Intermediates B.V The Netherlands
Cable Network Zuid-Oost Brabant Holding B.V The Netherlands
Cable Network Holding B.V The Netherlands
Priority Telecom N.V The Netherlands
Priority Telecom Netherlands B.V The Netherlands
United TeleKabel Holding N.V The Netherlands
A2000 Holding N.V The Netherlands
Kabeltelevisie Amsterdam B.V The Netherlands
A2000 Hilversum B.V The Netherlands
Media Groep West B.V The Netherlands
Cable Network Brabant Holding B.V The Netherlands
N.V. TeleKabel Beheer The Netherlands
N.V. TeleKabel The Netherlands
Maxinetwerken B.V The Netherlands
TeleKabel Omroep Facilitair Bedrijf B.V The Netherlands
Algemene Kabel Exploitatie Maatschappij B.V The Netherlands
CAI Geldermalsen B.V The Netherlands
CAI Wijchen B.V The Netherlands
CAI Tiel B.V The Netherlands
CAI Buren B.V The Netherlands
CAI Dodewaard B.V The Netherlands
CAI Neerijnen-West B.V The Netherlands
CAI Midden Betuwe B.V The Netherlands
CAI Renkum B.V The Netherlands
CAI Wageningen B.V The Netherlands
Belmarken Holding B.V The Netherlands
CAI Over Betuwe B.V The Netherlands
CAI Heteren B.V The Netherlands
CAI Elst B.V The Netherlands
CAI Bemmel B.V The Netherlands
CAI Valburg B.V The Netherlands
CAI Gendt B.V The Netherlands
CAI Almere B.V The Netherlands
CAI Lingewaal B.V The Netherlands
CAI Dronten B.V The Netherlands
CAI Lelystad B.V The Netherlands
CAI Druten B.V The Netherlands
CAI NKM-Nijmegen B.V The Netherlands
Interway Holding B.V The Netherlands
Binan Investments B.V The Netherlands
U.C.T. - Netherlands B.V The Netherlands
Stipdon Investments B.V The Netherlands
<PAGE>
Entity Jurisdiction
Zeblas B.V The Netherlands
Selasa Holding B.V The Netherlands
Paruse B.V The Netherlands
Bicatobe Investments B.V The Netherlands
TeleKabel Hungary N.V The Netherlands
Zomerwind Holding B.V The Netherlands
Uniport Communications B.V The Netherlands
Cable Network Netherlands Holding B.V The Netherlands
Kabeltelevisie Eindhoven N.V The Netherlands
UPC Programming B.V The Netherlands
United Telekabel Holding II B.V The Netherlands
Telekabel Fernsehnetz Klagenfurt Betriebsgesellschaft mbH Austria
Telekabel-Fernsehnetz Wiener Neustadt/Neunkirchen
Betriebsgesellschaft mbH Austria
Telekabel Wien GmbH Austria
Telekabel-Fernsehnetz Graz Betriebsgesellschaft mbH Austria
Telekabel-Fernsehnetz Region Baden Betriebsgesellschaft mbH Austria
chello broadband GmbH Austria
Janco Multicom A.S Norway
chello broadband A.S Norway
Priority Telecom A.S Norway
Radio Public S.A Belgium
Trnavatel S.R.O Slovak Republic
KabelTel S.R.O Slovak Republic
Burgos Sistemas de Cable S.A Spain
Programova Holdings LLC Delaware
UII Management Delaware
UIH Romania Ventures Inc. Delaware
Magyar Programming Holding Co. Delaware
Kabelkom Management Co. Delaware
Kabelkom Holding Co. Delaware
Ceska Programova Spolecnost S.R.O Czech Republic
Kabel Net Holding A.S Czech Republic
Kabel Net Brno A.S Czech Republic
chello broadband Limited United Kingdom
Tara Television Global Limited United Kingdom
Tara Television UK United Kingdom
UPC Services Ltd. United Kingdom
Xtra Music Limited United Kingdom
United International Holdings, Inc. Colorado
UIH Turkey Inc. Colorado
UCI Enterprises Inc. Colorado
UIH Romania Inc. Colorado
United International Investments Colorado
Melita Partnership Colorado
Multicanal Televisao por Cabo, SGPS, Lda Portugal
Intercabo - Televisao por Cabo, SGPS, Lda Portugal
Intercabo Centro - Televisao por Cabo, S.A Portugal
Intercabo Atlantico - Comunicacoes por Cabo, S.A Portugal
Intercabo Norte - Comunicacoes por Cabo, S.A Portugal
Intercabo Capital - Comunicacoes por Cabo, S.A Portugal
<PAGE>
Entity Jurisdiction
Intercabo Sul - Comunicacoes por Cabo, S.A Portugal
Bragatel - Companhia de Televisao por Cabo de Braga S.A Portugal
MediaReseaux S.A France
MediaReseaux Marne S.A France
chello broadband S.A.R.L France
Eurosat S.R.L Romania
Multicanal Holdings S.R.L Romania
Control Cable Ventures S.R.L Romania
Tara Television Ltd. Ireland
Tishdoret Achzakot Ltd. Israel
Tevel Israel International Communications Ltd. Israel
Israel Cable Programming Company Ltd. Israel
Gvanim Cable Television Ltd. Israel
Gvanim Krayot Cable Television Ltd. Israel
Melita Cable TV P.L.C Malta
Hungary Holding Co. New York
Miskolci Kabel-TV Kereskedelmi es Szolgaltato Kft Hungary
Anfel-Kabelkom Kabelkommunikacios Kft Hungary
Hajdu Kabelkom Kabelkommunikacios Kft Hungary
Kabelkom-Dunaujvaros Kabelkommunikacios Kft Hungary
Telestar-Kabelkom Kabelkommunikacios Kft Hungary
Kabelkom-Szolnok Kabelkommunikacios Kft Hungary
Kabelkom Nyiregyhaza Kabelkommunikacios Kft Hungary
Kabelkom Pecsi Kabeltelevizio Kft Hungary
Kabeltel Kabeltelevizio Szolgaltato Kft Hungary
Global Kabeltelevizio Kft Hungary
Kabelkom Szekesfehervar Kabelkommunikacios Kft Hungary
Kabelkom Veszprem Kabelkommunikacios Kft Hungary
L.N.C.I. Kabelrendszer Uzemelteto Szolgaltato Kft Hungary
Kabeltel Budapest Kabeltelevizios Szolgaltato Kft Hungary
Kabel TV Szervezo es Szolgaltato Kft Hungary
Kabeltel Kanizsa Kabeltelevizios Kft Hungary
Kabeltel Sopron Kabeltelevizios Szolgaltato Kft Hungary
Sopron Varosi Onallo Kozsolgalati Televizio Kft Hungary
Kabeltel-Elektra Kabeltelevizios Szolgaltato Kft Hungary
Megasat Gyarto Szolgaltato es Kereskedelmi Kft Hungary
Monor Telefon Tarsasag Rt Hungary
Kabelkom Kabeltelevizios Kft Hungary
CEU Kozep-Europai Tavkozlesi Kommunikacios Kft Hungary
[UPC Kft. Hungary]
<PAGE>
EXHIBIT 23.1
As independent public auditors, we hereby consent to the use in this
Registration Statement of our reports, dated January 14, 1999 on United Pan-
Europe Communications N.V. for the nine months ended September 30, 1998, the
years ended December 31, 1997 and 1996 and the six months ended December 31,
1995, included in this Registration Statement, and to all references to our
Firm included in this Registration Statement.
ARTHUR ANDERSEN
Amstelveen, The Netherlands
January 25, 1999
<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, January 25, 1999
