<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1998
REGISTRATION NO. 333-47245
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
AMENDMENT NO.1 TO FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
UNITED INTERNATIONAL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-1116217
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4643 SOUTH ULSTER STREET
DENVER, COLORADO 80237
(303) 770-4001
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------
J. TIMOTHY BRYAN
CHIEF FINANCIAL OFFICER
UNITED INTERNATIONAL HOLDINGS, INC.
4643 SOUTH ULSTER STREET
DENVER, COLORADO 80237
(303) 770-4001
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------
COPIES TO:
GARTH B. JENSEN, ESQ.
HOLME ROBERTS & OWEN LLP
1700 LINCOLN, SUITE 4100
DENVER, COLORADO 80203
(303) 861-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 10, 1998
PROSPECTUS
, 1998
OFFER FOR ALL OUTSTANDING
10 3/4% SENIOR SECURED DISCOUNT NOTES DUE 2008, SERIES A IN EXCHANGE FOR
10 3/4% SENIOR SECURED DISCOUNT NOTES DUE 2008, SERIES B OF
[LOGO OF UNITED INTERNATIONAL HOLDINGS, INC.]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON APRIL 10, 1998, UNLESS EXTENDED
United International Holdings, Inc., a Delaware corporation ("UIH"or the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (which
together constitute the "Exchange Offer"), to exchange an aggregate principal
amount at maturity of $1,375,000,000 of 10 3/4% Senior Secured Discount Notes
due 2008, Series B (the "New Notes") of the Company for a like principal amount
at maturity of the issued and outstanding 10 3/4% Senior Secured Discount Notes
due 2008, Series A (the "Old Notes" and, together with the New Notes, the
"Senior Notes") of the Company from the holders (the "Holders") thereof. The
Old Notes were offered for sale on January 30, 1998 (the "Offering"). The terms
of the New Notes are identical in all material respects to the Old Notes,
except (i) for certain transfer restrictions and registration rights relating
to the Old Notes and (ii) that, if the Exchange Offer is not consummated by
April 20, 1998, or the Company fails to comply with certain other registration
obligations with respect to the Old Notes (each such event referred to as an
"Event Date"), the Company is required to pay liquidated damages (the
"Liquidated Damages") to the Holders of the Old Notes in an amount equal to (A)
during the first 90-day period beginning on, and including, the Event Date, an
amount equal 0.5% per annum of the Accreted Value (as defined) of the Old Notes
held by such Holder and (B) during each subsequent 90-day period immediately
following the final day of the prior 90-day period, a percentage of the
Accreted Value of the Old Notes calculated at the rate per annum applicable in
the immediately preceding 90-day period plus 0.5%, provided that, the rate at
which Liquidated Damages are calculated shall not exceed 2.5% per annum, until,
but not including, the date of the consummation of the Exchange Offer or, as
the case may be, compliance by the Company with such other registration
obligations. Any Liquidated Damages due shall be payable on each February 15
and August 15 to Holders of record of the Old Notes on the February 1 or August
1, respectively, next preceding such payment date.
The Senior Notes mature on February 15, 2008, and are redeemable at the
option of the Company on or after February 15, 2003, in whole or in part, at
the redemption prices set forth herein, plus accrued and unpaid interest, if
any, and Liquidated Damages, if any, to the date of redemption. In addition, at
any time prior to February 15, 2001, the Company may redeem up to 35% of the
aggregate principal amount at maturity of the Senior Notes with the net cash
proceeds of certain public sales of equity interests of the Company or assets
of the Company at a redemption price equal to 110.75% of the Accreted Value (as
defined) thereof on the redemption date; provided that not less than 65% of the
principal amount at maturity of the Senior Notes originally issued are
outstanding immediately after giving effect to such redemption. See
"Description of Senior Notes" and "Certain U.S. Income Tax Considerations."
The Old Notes were issued at a significant discount from their aggregate
principal amount at maturity and accrete at a rate of 10 3/4% per annum,
compounded semi-annually to an aggregate principal amount on February 15, 2003
of $1,375,000,000. Cash interest will not commence to accrue on the Senior
Notes prior to February 15, 2003. Commencing August 15, 2003, cash interest on
the Senior Notes will be payable on February 15 and August 15 of each year
until maturity at a rate of 10 3/4% per annum. For each Old Note accepted for
exchange, the Holder of such Old Note will receive a New Note having a
principal amount at maturity equal to that of the surrendered Old Note.
Original Issue Discount of the New Notes will accrue from the date or original
issuance of the Old Notes.
(continued on next page)
SEE "RISK FACTORS" STARTING ON PAGE 22 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
[ARTWORK OF UIH EUROPE APPEARS HERE]
UIH EUROPE AND UPC (3)
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 9/30/97
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL HOMES UNDER LICENSE 1,656,900 3,565,800 4,092,760 4,243,105
TOTAL HOMES PASSED 1,246,527 2,780,669 3,130,949 3,479,415
TOTAL BASIC SUBSCRIBERS(1) 744,787 1,932,339 2,131,835 2,368,661
EQUITY BASIC SUBSCRIBERS(1)(2) 125,065 515,401 691,088 1,514,923
</TABLE>
(1) Excludes programming subscribers.
(2) Equity data represents certain operating statistics multiplied by the
Company's ownership percentage.
(3) UIH Europe and UPC figures take into account the acquisition of Philips'
interest in UPC on December 11, 1997, but do not take into account the
planned acquisition of the Combivisie systems.
TOTAL COMPANY
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 9/30/97
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL HOMES UNDER LICENSE 3,966,900 7,121,400 9,834,130 9,896,705
TOTAL HOMES PASSED 1,507,069 3,980,710 6,996,931 7,389,891
TOTAL BASIC SUBSCRIBERS(1) 819,175 2,115,762 2,745,099 3,071,667
EQUITY BASIC SUBSCRIBERS(1)(2) 158,973 634,733 1,023,431 1,891,269
</TABLE>
(1) Excludes programming subscribers.
(2) Equity data represents certain operating statistics multiplied by the
Company's ownership percentage.
[ARTWORK OF UIH ASIA/PACIFIC APPEARS HERE]
<PAGE>
[ARTWORK OF UIH LATIN AMERICA APPEARS HERE]
<TABLE>
<CAPTION>
UIH LATIN AMERICA
12/31/94 12/31/95 12/31/96 9/30/97
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL HOMES UNDER LICENSE 590,000 1,444,000 3,372,600 3,259,600
TOTAL HOMES PASSED 257,206 875,654 2,189,716 2,106,574
TOTAL BASIC SUBSCRIBERS(1) 73,945 154,138 462,804 450,298
EQUITY BASIC SUBSCRIBERS(1)(2) 33,686 102,857 209,332 168,371
</TABLE>
(1) Excludes programming subscribers.
(2) Equity data represents certain operating statistics multiplied by the
Company's ownership percentage.
<TABLE>
<CAPTION>
UIH ASIA/PACIFIC
12/31/94 12/31/95 12/31/96 9/30/97
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL HOMES UNDER LICENSE 1,720,000 2,111,600 2,368,770 2,394,000
TOTAL HOMES PASSED 3,336 324,387 1,676,266 1,803,902
TOTAL BASIC SUBSCRIBERS(1) 443 29,285 150,460 252,708
EQUITY BASIC SUBSCRIBERS(1)(2) 222 16,475 123,011 207,975
</TABLE>
(1) Excludes programming subscribers.
(2) Equity data represents certain operating statistics multiplied by the
Company's ownership percentage.
<PAGE>
(Continued from the Cover)
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement (as
defined). Based on interpretations by the staff of the Securities and Exchange
Commission (the "SEC" or the "Commission"), as set forth in no-action letters
issued to third parties, the Company believes that New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by Holders thereof (other than any such
Holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act of 1933, as amended (the "Securities Act")), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary
course of such Holders' business and such Holders have no arrangement with any
person to participate in the "distribution" (within the meaning of the
Securities Act) of such New Note. The Company acknowledges and each Holder,
other than a broker-dealer, must acknowledge that it is not engaged in, does
not intend to engage in, and has no arrangement or understanding with any
person to participate in, a distribution of the New Notes. If any Holder is an
affiliate of the Company, is engaged in or intends to engage in or has any
arrangement with any person to participate in the distribution of the New
Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could not
rely on the applicable interpretations of the staff of the SEC and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date (as
defined) and ending at the close of business on the 180th day following the
Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
The Indenture governing the Senior Notes (the "Indenture") limits the
ability of the Company, its Subsidiaries (as defined) and its Restricted
Affiliates (as defined) to incur additional Indebtedness (as defined). The
Indenture also provides that, upon a Change of Control (as defined), holders
of Senior Notes have the right to require the Company to purchase the Senior
Notes at a price of 101% of the Accreted Value thereof at the date of
purchase. See "Description of Senior Notes."
The Senior Notes are general, senior, secured obligations of the Company
that rank senior in right of payment to all existing and future Subordinated
Indebtedness (as defined) of the Company. The Senior Notes rank pari passu in
right of payment with the Company's existing 14% Senior Secured Discount Notes
due 1999 (the "1999 Notes"). As of February 27, 1998, approximately $465,000
principal amount at maturity of the 1999 Notes was outstanding. The Senior
Notes are effectively subordinated to all existing and future Indebtedness and
other liabilities and commitments of the Company's subsidiaries. As of
November 30, 1997, pro forma for the UPC Acquisition (as defined), the Tender
Offer (as defined), the Offering and the use of the proceeds therefrom, the
total liabilities of the Company's subsidiaries were $1.1 billion (excluding
inter-company payables to the Company).
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of
Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date. In the event the Company terminates the Exchange Offer
and does not accept for exchange any of the Old Notes, the Company promptly
will return the Old Notes to the Holders thereof. See "Exchange Offer." The
New Notes have been approved for trading in the Private Offering, Resale and
Trading through Automated Linkages ("PORTAL") market upon issuance.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in, or incorporated by
reference into, this Prospectus. All foreign currency amounts translated to
U.S. dollars have been converted using a convenience translation unless
otherwise stated. See "Management's Discussion and Analysis of Financial
Condition--Certain Accounting Conventions." All references to "$" or "dollars"
are to U.S. dollars. Unless otherwise indicated, the information in this
Prospectus assumes the UPC Acquisition had occured as of the date of such
information.
THE COMPANY
The Company, through its subsidiaries and affiliates, is a leading provider
of multi-channel television services outside the United States, owning and
operating systems in over 20 countries around the world. UIH operates systems
in three geographic regions: (i) Europe, primarily through UPC, which is one of
Europe's largest privately owned multiple system operators; (ii) Asia/Pacific,
including through its indirect 98% owned subsidiary, Austar, which is the
largest provider of multi-channel television services in regional Australia;
and (iii) Latin America, including through its 34% interest in VTR Hipercable
S.A. ("VTR Hipercable"), which is the largest multi-channel television provider
in Chile. These operating systems served an aggregate of approximately 3.1
million subscribers and passed approximately 7.4 million of the approximately
9.9 million homes in their respective service areas at September 30, 1997.
UIH's equity interest as of such date in those subscribers, homes passed and
homes in the Company's service areas was approximately 1.9 million, 4.6 million
and 6.1 million, respectively. See "Corporate Organizational Structure" for a
discussion of UIH's equity interests in its various intermediate holding
companies and operating systems.
UIH was founded in 1989 by a management team that had substantial experience
in the cable television industry in the United States. Recognizing the
opportunities that exist to bring multi-channel television services to
countries that have little or none of such services, UIH has, since its
formation, focused on and invested in multi-channel television systems outside
the United States. UIH originally focused its efforts in Europe and Israel,
whose economies were sufficiently developed to support its operations and where
demand for service was significant. A number of UIH's original development
projects in Europe and Israel have established large subscriber bases, realized
high penetration rates and, as a result, are currently generating substantial
operating cash flow. To capitalize on the opportunities to apply its expertise
in building and operating multi-channel television systems in developing
markets with attractive economic, regulatory and demographic profiles, UIH has
significantly expanded the scope of its operations over time to include
portions of Latin America and the Asia/Pacific region. Many of UIH's operating
companies in these regions have established leading positions in their
respective markets and have built significant subscriber bases.
In its early years, UIH acquired primarily minority ownership interests in
systems, which it, nonetheless, actively managed. Having successfully built and
developed many multi-channel television systems around the world, UIH began
rationalizing its operations in 1996 to focus on large, majority owned systems,
with the goal of significantly expanding the scale of its operations and
increasing the Company's financial flexibility. As a result, the Company's
total equity subscribers increased from approximately 659,000 at December 31,
1995 to approximately 1.9 million at September 30, 1997. The primary elements
of UIH's rationalization plan are: (i) acquiring significant and/or controlling
ownership interests in several operating companies; (ii) selling selected
assets for cash, generally at significant gains on its invested capital; (iii)
obtaining equity partners for certain other companies; and (iv) merging or
swapping selected assets in order to obtain larger or controlling ownership
interests in other companies or interests in larger, combined companies.
Through a series of these types of transactions, UIH has acquired controlling
interests in the majority of its large, primary systems and management believes
the Company is well-positioned to capitalize on the growth opportunities of its
operating companies. See "--UIH Asset Rationalization."
3
<PAGE>
UIH's operating companies are currently a combination of (i) highly
penetrated, mature systems that generate stable cash flow and, which,
management believes, have the opportunity to increase revenues and cash flows
through the introduction of new services such as cable telephony, tiered
programming, pay-per-view and Internet/data services and (ii) earlier stage
businesses that typically have established leading market positions and large
subscriber bases, and whose number of subscribers management believes will
continue to increase primarily through aggressive marketing within their
respective service areas. UIH's principal strategies are to: (i) increase the
revenues and cash flows of its existing systems; (ii) continue to capitalize on
opportunities to rationalize its operations; (iii) pursue selected new
acquisition and development opportunities; and (iv) finance its operating
companies primarily through internally generated cash flow and borrowings by
its regional holding and operating companies under existing facilities.
EUROPEAN OPERATIONS
Through UPC, UIH is one of the largest private sector multi-channel cable
television operators in Europe, with interests in well-established systems, as
well as systems under construction, in 12 countries in Europe and in Israel.
UIH holds effectively all of the voting control of UPC and owns all of its
issued and outstanding shares, other than approximately 8.4% of such shares,
which have been registered in the name of a foundation to support UPC's
employee equity incentive plan. UPC's operations consist primarily of large,
developed systems, including systems in Austria, Belgium, The Netherlands and
Norway (the "UPC Established Systems"). UPC's operations include two of the
world's larger clusters of systems: the Vienna and surrounding areas systems,
in which UPC has a 95% interest, which had approximately 434,100 subscribers as
of September 30, 1997, and the Amsterdam and surrounding areas system, in which
UPC has a 50% interest, which had approximately 519,800 subscribers as of
September 30, 1997. With the continued liberalization of the communications
market in Europe, the Company believes UPC is well-positioned within its
markets to exploit anticipated opportunities for growth in video services,
Internet/data services and cable telephony services. As of September 30, 1997,
UPC's affiliated companies passed a total of approximately 3.3 million homes
and had an aggregate of approximately 2.3 million subscribers and, on an equity
basis, UPC passed approximately 2.1 million homes and had approximately 1.5
million subscribers. For the year ended December 31, 1996, UPC had consolidated
revenues and Adjusted EBITDA (as defined below) of approximately $145.1 million
and $50.8 million, respectively, and for the nine months ended September 30,
1997, UPC had consolidated revenues and Adjusted EBITDA of approximately $128.9
million and $42.7 million, respectively. See "Business--Summary Operating Data
for the Company's Operating Systems."
The UPC Established Systems have been characterized by very high penetration
rates (ranging from 69% to 95% as of September 30, 1997), low net churn rates
(a monthly average of approximately 0.6% for the nine months ended September
30, 1997) and stable positive cash flow. All of the UPC Established Systems
(each of which has been operating for more than ten years) and many of its
other systems have long-term licenses to provide cable television services in
their operating areas. Although the UPC Established Systems have high
penetration rates and low churn rates, the cash flow per subscriber of these
systems is significantly lower than levels achieved in the United States and
many other countries in which UIH operates. UPC is aggressively installing
fiber optic two-way digital networks in many of its systems in an attempt to
increase revenue and cash flow per subscriber by offering enhanced
communications services such as impulse pay-per-view, Internet/data services
and, when permitted, cable telephony. UPC also plans to expand its operations
by selectively building out cable infrastructure in certain unserved regions in
its existing markets and, where appropriate, by investing in new development
and acquisition opportunities.
UPC also has majority interests in systems in the Czech Republic, France,
Portugal, Romania and the Slovak Republic, which are at various stages of
construction and development (the "UPC Development Projects"), and non-
consolidated equity interests in systems in Hungary, Israel, Ireland and Malta
(the "UPC Equity Investments"). The Company believes these interests have
significant value and UPC is evaluating the potential
4
<PAGE>
sale of a portion of, or potentially acquiring a majority interest in, these
and selected other systems in order to do one or more of the following: (i)
rationalize its operations; (ii) reduce debt; or (iii) provide additional
capital for the growth of the UPC Established Systems.
UIH (through entities other than UPC) holds a 46% interest in a Hungarian
company ("Monor Communications") that is building a fiber-optic
telecommunications network in the Monor region of Hungary with approximately
85,000 homes passed and approximately 60,600 telephony subscribers and 21,700
cable television subscribers as of September 30, 1997.
ASIA/PACIFIC OPERATIONS
The Company, through its 98% owned subsidiary UIH Asia/Pacific
Communications, Inc. ("UAP"), is a leading provider of multi-channel television
services in Australia and the Asia/Pacific region. Through its wholly-owned
subsidiary, Austar, UAP is the second largest provider (based on subscribers)
of multi-channel television services in Australia and largest provider of
multi-channel television services in regional Australia, operating MMDS systems
and marketing a DTH service in franchise areas encompassing approximately 1.6
million television homes, or approximately 25% of the total Australian market.
Austar began marketing its services in late 1995 and has grown its subscriber
base from approximately 5,200 subscribers as of December 31, 1995 to
approximately 178,800 subscribers as of September 30, 1997. The Company
believes that Austar has benefitted from several factors, including exclusive
license agreements and a well developed regional infrastructure, which have
provided Austar with an attractive competitive position within its markets.
UAP, through its 65% owned New Zealand subsidiary Saturn Communications
Limited ("Saturn"), is constructing a wireline cable and telephony system in
Wellington, New Zealand, a market with approximately 141,000 television homes.
In addition, Telemondial Holdings, Inc. ("Sun Cable"), in which UAP holds a
note convertible (subject to local restrictions) into a 40% ownership interest,
owns and operates cable television systems in 15 markets in the Philippines
with an aggregate of approximately 65,000 subscribers and a total of
approximately 600,000 television homes in its operating areas as of September
30, 1997. Sun Cable and SkyCable recently announced their intention to form a
joint venture, which, if consummated, would create the second largest multi-
channel television operator in the Philippines and the largest outside of
Manila. See "Business--UIH Asia/Pacific Communications, Inc.--Philippines: Sun
Cable." UAP's other businesses include (i) a 25% interest in XYZ Entertainment
Pty. Ltd. ("XYZ"), a programming company that provides five channels to the
Australian multi-channel television market, four of which are part of the
"Galaxy Package," the core component of Austar's programming offering, and the
most widely distributed programming package in Australia (with a total of
approximately 524,000 subscribers as of September 30, 1997) and (ii) up to a
90% economic interest in Telefenua S.A. ("Telefenua"), the only provider of
multi-channel television services in Tahiti, with an MMDS system in a market
with approximately 31,000 television homes. UIH is evaluating the sale of its
interest in Telefenua.
The Company believes that UAP is well-positioned to capitalize on the strong
demand for multi-channel television and other telecommunications services in
its markets. As of September 30, 1997, UAP's multi-channel television operating
systems had an aggregate of approximately 1.8 million television homes
serviceable and approximately 252,700 subscribers, compared to approximately
324,000 television homes serviceable and approximately 29,000 subscribers as of
December 31, 1995 (with a substantial majority of such growth resulting from
Austar's build out and subscriber marketing). During this same period,
subscribers to XYZ's programming increased from approximately 65,000 to
approximately 524,000. For the nine months ended September 30, 1997, UAP had
consolidated revenues of approximately $49.1 million. While the Company expects
that a substantial portion of UAP's growth will come from the continued
development of Austar, the Company also is anticipating growth by UAP's other
operating companies, which the Company believes have significant opportunities
to increase their subscribers, revenues and cash flows by continuing to market
within their respective existing franchise areas.
5
<PAGE>
LATIN AMERICAN OPERATIONS
Through UIH Latin America, Inc. ("UIHLA"), a wholly-owned subsidiary of the
Company, UIH owns interests in and operates multi-channel television
distribution systems in Chile, Brazil, Mexico and Peru. The Company believes
that many countries in Latin America are characterized by rapidly growing
economies, increasing political stability, declining inflation and low multi-
channel television penetration. In addition, many Latin American countries are
placing an emphasis on privatization of businesses. UIHLA's current strategy is
to (i) increase the subscribers, revenues and cash flows of its existing,
larger core operating companies, (ii) purchase significant or majority
ownership positions in new multi-channel television operating companies and/or
development projects in Latin America, and (iii) reduce the indebtedness of
UIHLA with proceeds from the sale of selected assets.
UIHLA's primary operating company is VTR Hipercable, the largest cable
television operator in Chile, serving an estimated 57% of the total homes
passed in Chile as of September 30, 1997. UIHLA owns a 34% interest in VTR
Hipercable with an option (exercisable until April 30, 1998) to increase its
ownership interest to 50%. VTR Hipercable operates in several regions
throughout Chile, including Santiago, Chile's largest city, and has
substantially completed an upgrade of its network to a 750Mhz hybrid fiber
coaxial system. As a result of the network upgrade, VTR Hipercable began
offering cable telephony service to its customers in June 1997. As of September
30, 1997, VTR Hipercable had approximately 359,200 subscribers (representing an
increase of approximately 11.6% compared to December 31, 1996) and for the nine
months ended September 30, 1997, VTR Hipercable had revenues and Adjusted
EBITDA of $83.5 million and $16.4 million, respectively, representing
substantial increases over the comparable periods in the prior year. VTR
Hipercable's strategy is to improve its current penetration of 24.4% (as of
September 30, 1997) by aggressively marketing its multi-channel television and
cable telephony services.
UIHLA is currently evaluating its ownership positions in (i) systems in
Mexico, which it currently plans to divest in order to reduce debt and (ii) a
46.3% interest in TV Cabo e Communicacoes in Jundiai ("Jundiai"), a system
located in Jundiai, Brazil. The Company anticipates that a portion of the
proceeds of any such sale will be used to repay certain UIHLA indebtedness.
6
<PAGE>
UIH ASSET RATIONALIZATION
During the past two years, UIH has focused on opportunities to rationalize
its operations. Management believes that this strategy has several advantages
for UIH, including: (i) increasing the scale of its operations (from December
31, 1995 to September 30, 1997, UIH increased its equity subscribers from
approximately 659,000 to approximately 1.9 million) while reducing the number
of operating companies in which it participates; (ii) realizing gains on its
investments and redeploying capital to its majority-owned and/or higher growth-
opportunity operating companies (during the past two years, UIH has realized
total proceeds of approximately $315.4 million from asset sales, which resulted
in net proceeds to UIH, after repayment of debt, of approximately $245.8
million, compared to its total cash investment of approximately $81.9 million
in such systems); (iii) reducing the debt of its operating companies; and (iv)
reducing the need for the Company to raise capital from outside parties or to
make contributions to fund the operations of its subsidiaries and affiliates.
This asset rationalization has consisted primarily of: (i) acquiring
significant and/or controlling ownership interests in several operating
companies; (ii) selling selected assets for cash, generally at significant
gains on the Company's invested capital; (iii) obtaining equity partners for
certain other companies; and (iv) merging or swapping selected assets in order
to obtain larger or controlling ownership interests in other companies or
interests in larger, combined companies. Through the completion of a series of
such transactions, UIH has been able to increase its subscriber base
significantly and acquire majority ownership of most of its major operating
systems. Following is a summary of the major transactions that UIH has
completed during the past two years:
ASSET SALES
. Sale of Argentinean Cable Operations. In October 1997, UIH sold all of
its Argentinean cable operations (the "Argentina Transaction") for
approximately $213.3 million in cash, subject to certain post-closing
adjustments currently under negotiation. This purchase price represented
a value of approximately $1,500 per subscriber. UIH had invested cash of
approximately $45.6 million in Argentina and borrowed approximately
$69.6 million prior to the sale, and the Company recognized a net gain
of approximately $91.6 million (after recognizing cumulative operating
losses and other items).
. Sale of Minority Interest in New Zealand Cable/Telephony Operator to
Strategic Partner. In July 1997, Saturn, UAP's wholly-owned New Zealand
subsidiary, sold a 35% interest to a subsidiary of Saskatchewan
Telecommunications Holding Corporation ("Sasktel"), a Canadian
telecommunications company with substantial experience in constructing
and operating telephone networks, for approximately $19.5 million in
cash (implying a value for UIH's remaining 65% stake of approximately
$36.2 million). Saturn is using the proceeds to build out its hybrid
fiber coaxial dual network (cable/telephony) in Wellington. UIH had
invested a total of approximately $28.4 million in Saturn prior to the
transaction.
. Sale of Venezuelan Cable Operations. In May 1997, UIH entered into an
agreement to sell its Venezuelan cable operations for approximately
$10.5 million, which acquisition recently closed. UIH sold these
operations in order to focus its management and financial resources on
other Latin American operations. The Company held this investment for
approximately eight months.
. Sale of 34% Interest in Brazilian Cable Operation. In August 1996, UIH
sold its 34% interest in Cabodinamica TV Cabo Sao Paulo, S.A. ("Net Sao
Paulo"), a company that was building a cable television system in Sao
Paulo, for approximately $78.1 million in cash. UIH had invested
approximately $22.8 million in this company prior to the sale, and
recognized a net gain of approximately $65.2 million (after recognizing
cumulative operating losses of approximately $9.9 million).
. Sale of 25% Interest in Brazilian Cable Operation. In January 1996, UIH
sold its 25% interest in TV-Cabo Rio Telecommunicacoes, S.A. ("TV Cabo
Rio"), a company that was developing a cable television system in Rio de
Janeiro, for approximately $13.5 million. UIH had invested approximately
$1.6 million in this company prior to the sale, resulting in a net gain
of approximately $11.9 million.
7
<PAGE>
POTENTIAL ASSET SALES
UIH expects to continue to rationalize its portfolio of operating companies,
with an emphasis on selling its minority-owned affiliates in order to reduce
debt and provide its majority-owned systems with additional capital to fund
their growth opportunities. The following summarizes the assets and businesses
that UIH is currently evaluating for potential sale or strategic combination:
. Other Europe. In order to finance the Company's acquisition (the "UPC
Acquisition") from Philips (as defined below) of Philips' interest in
UPC, UPC, through a wholly-owned subsidiary, incurred approximately
$125.0 million of additional indebtedness (of which approximately $13.8
million is held as a restricted cash reserve) pursuant to a bridge bank
facility (the "Tranche B Facility"), which facility generally is secured
by certain indirect interests of UPC in its operating companies, other
than the Austria, Belgium and Norway systems, and shares of UIH that UPC
acquired in the UPC Acquisition. The Company plans to use approximately
$63.0 million of the proceeds of the Offering to repay a portion of the
Tranche B Facility. UPC is also considering selling some or all of the
assets securing the Tranche B Facility, the proceeds of which the
Company currently believes would be sufficient to repay the amounts
currently outstanding pursuant to the Tranche B Facility. See "--The UPC
Acquisition." Additionally, UPC has recently sold some smaller systems
in France and its system in Spain.
. Asia/Pacific. UIH is evaluating the sale of its interests in Telefenua,
its Tahitian MMDS operator.
. Latin America. UIH is evaluating the sale of certain of its interests in
its Mexico and Brazil cable operations. UIH intends to apply the
proceeds from these sales, together with approximately $25.0 million of
the proceeds from the Offering, to the repayment of a $40.0 million
short term credit facility of UIHLA (approximately $38.0 million of
which was drawn down and outstanding under such facility as of November
30, 1997) and, if possible, to pursue selected investment opportunities
in the region.
CONSOLIDATIONS, ACQUISITIONS AND POTENTIAL ACQUISITIONS
. Acquisition of Controlling Interest in European Operations. On December
11, 1997, UIH acquired the interest in UPC owned by several subsidiaries
of Philips Electronics N.V. (collectively, "Philips"), thereby making
UPC an effectively wholly-owned subsidiary (subject to certain employee
equity incentive compensation arrangements), and giving the Company
control over the majority of its European operations. See "--The UPC
Acquisition."
. Acquisition of Norwegian Cable Operator. In January 1997, UPC acquired
from Helsinki Media Company ("Helsinki Media") a 70.2% interest in Janco
Kabel-TV A/S ("Janco"), a Norwegian cable operator with approximately
160,900 subscribers at September 30, 1997. See "Business--United Pan-
Europe Communications N.V.--UPC Acquisitions." In November 1997, UPC
merged the Janco operations with its existing Norwegian cable
subsidiary's operations, thereby creating Janco Multicom AS ("Janco
Multicom"), the largest cable television operator in Norway. Following
such merger, UPC holds an 87.3% interest in Janco Multicom. From an
economic perspective, UPC has all the rights and obligations of full
ownership of Janco Multicom and UPC consolidates 100% of the financial
results therefrom, although Helsinki Media has been granted certain
minority shareholder rights. UPC expects to realize economies of scale
as a result of the merger. UPC has the right to acquire, and Helsinki
Media has the right to put to UPC, the remaining interest in Janco
Multicom by July 2, 2001 for approximately NKr165.9 million ($23.5
million as of September 30, 1997), subject to certain adjustments. UPC
has in place a letter of credit facility to fund fully the purchase of
the remaining interest in Janco Multicom.
. UCI Partnership Transaction. In September 1996, UPC purchased for $30.0
million from its partner, Telewest Europe Group, an affiliate of U S
WEST and TCI, the remaining partnership interest in United
Communications International ("UCI"), a partnership that held interests
in cable television companies in Hungary, Norway and Sweden. The UCI
acquisition increased UPC's ownership in its Norway system from 8.3% to
100%, in its Hungary system from 3.9% to 50% and in Swedish Cable and
Dish AB (Sweden) from 2.8% to 26%. In October 1996, UPC sold its
interest in the Sweden operations.
8
<PAGE>
. Acquisition of a Controlling Interest in Australian Operations. In
December 1995, UAP acquired an additional 40% interest (increasing its
interest at that time to 90%) in Austar, its Australian multi-channel
television operation, through the issuance of approximately $29.8
million initial liquidation value of convertible preferred stock of UIH.
In 1996, UAP increased its economic ownership interest in Austar to
100%.
. Acquisition of Netherlands Cable Operator. In February 1998, UPC
acquired the cable television systems surrounding Eindhoven, The
Netherlands ("Combivisie"), a market in which UPC currently operates,
for a purchase price of approximately NLG181.1 million ($91.4 million as
of September 30, 1997). At September 30, 1997, Combivisie had
approximately 137,000 subscribers and a 96.5% penetration rate.
There can be no assurance that any of the potential transactions described
above will occur, or if they occur, that the terms of any such transaction will
be as stated. In addition to those transactions described above, UPC and its
operating companies are in various stages of review and negotiation of other
potential acquisition and diposition opportunities.
THE UPC ACQUISITION
On December 11, 1997, UPC closed the UPC Acquisition pursuant to which UIH
acquired Philips' interest in UPC, thereby increasing its ownership to
effectively 100% (subject to certain employee equity incentive arrangements
described in "Corporate Organizational Structure--UPC"). The Company and
Philips formed UPC in 1995 in order to capitalize on the growth opportunities
in the multi-channel television and related industries in Europe. UPC has grown
significantly since its formation, both through acquisitions and increases in
subscribers, revenues and cash flows at its operating companies. The Company
believes that the UPC Acquisition provides it with an attractive opportunity to
obtain management and operating control of the majority of its European
properties.
In addition to purchasing Philips' interest in UPC, as part of the UPC
Acquisition at closing, (i) UPC purchased all of the 3.17 million shares of
Class A Common Stock of the Company held by Philips, (ii) UPC repaid to Philips
the accreted amount of UPC's 9.96% Series A and 10.03% Series B Pay-in-Kind
Convertible Notes not acquired directly by UIH and (iii) UPC made a payment to
Philips in lieu of issuing a previously negotiated stock appreciation right. In
connection with the UPC Acquisition, UPC refinanced all of its existing
consolidated debt, except for approximately NLG123.4 million ($62.3 million as
of September 30, 1997) of project financing, of which approximately NLG65.0
million ($32.8 million as of September 30, 1997) is expected to be refinanced
in connection with UPC's acquisition of Combivisie.
The UPC Acquisition was financed with (i) approximately NLG305.2 million
($151.5 million as of December 11, 1997 drawn under a NLG1.1 billion nine-year
bank facility (the "Tranche A Facility"), (ii) approximately $111.2 million of
the $125.0 million Tranche B Facility, and (iii) an approximately $162.5
million cash investment by UIH. An additional NLG508.7 million ($252.5 million)
was drawn under the Tranche A Facility to refinance existing debt and pay for
transaction expenses. The following table summarizes the sources and uses of
funds for the UPC Acquisition using a convenience translation as of December
11, 1997 (in millions):
<TABLE>
<CAPTION>
SOURCES OF
FUNDS:
<S> <C>
UPC Bank Facility:
Tranche A(1).................... $404.0
Tranche B(2).................... 111.2
UIH Cash Investment(3)............ 162.5
------
Total sources................... $677.7
======
</TABLE>
<TABLE>
<CAPTION>
USES OF FUNDS:
<S> <C>
Purchase UPC Equity and UIH Class
A Common Stock(4) ............... $256.5
Retire UPC Debt due to Philips.... 168.7
Refinance Existing UPC Debt....... 163.8
Refinance Existing Norway Debt.... 74.5
Transaction Expenses.............. 14.2
------
Total uses...................... $677.7
======
</TABLE>
- --------------------
(1) The Tranche A Facility has total availability of NLG1.1 billion ($546.0
million as of December 11, 1997) and is secured by UPC's interests in the
Austria, Belgium and Norway operating companies. See "Description of Other
Debt--UPC and Affiliates--UPC."
9
<PAGE>
(2) The Tranche B Facility (which matures December 5, 1998, which maturity date
is extendable to June 5, 1999 under certain conditions) is secured by,
among other things, UPC's indirect ownership interest in certain operating
companies, other than the Austria, Belgium and Norway systems, some or all
of which may be sold in order to retire the Tranche B Facility. UPC
currently believes that the proceeds from such sales would be sufficient to
repay the outstanding amounts under the Tranche B Facility. See
"Description of Other Debt--UPC and Affiliates--UPC." The Company plans to
use approximately $63.0 million of the proceeds of the Offering to repay a
portion of the Tranche B Facility.
(3) UIH used proceeds from the Argentina Transaction and a portion of its
unrestricted cash balance to fund its cash investment.
(4) Includes a payment in lieu of issuing a stock appreciation right.
THE TENDER OFFER
The Company used approximately $530.9 million of the proceeds from the
Offering to complete the tender offer for the 1999 Notes (the "Tender Offer")
and the consent solicitation that the Company conducted concurrently therewith.
The Company commenced the Tender Offer on January 7, 1998, and the Tender Offer
expired on February 4, 1998, with over 99.8% of the 1999 Notes being validly
tendered. The Company subsequently purchased $500,000 principal amount at
maturity of the 1999 Notes on the open market. The Company intends to
repurchase the remaining outstanding 1999 Notes ($465,000 principal amount at
maturity) to the extent they come available in the open market.
Those 1999 Notes that remain outstanding will mature on November 15, 1999,
and share a security interest with the Senior Notes in the stock and
intercompany notes of the Company of UIPI, which currently holds all of the
Company's assets, except for its interest in UIH Europe, Inc. ("UIH Europe"), a
wholly owned subsidiary of the Company formerly known as Joint Venture, Inc.
which holds the Company's interest in UPC. In addition to a first-priority
security interest in the stock and intercompany notes to the Company of UIPI,
which holders of the Senior Notes will share with the holders of any
outstanding 1999 Notes, holders of the Senior Notes, but not holders of the
outstanding 1999 Notes, will benefit from a first-priority security interest in
the stock and intercompany notes of the Company of UIH Europe.
10
<PAGE>
ORGANIZATIONAL STRUCTURE
All of the Company's ownership interests in existing operating systems and
development projects (other than UPC) are held through UIPI, a wholly-owned
subsidiary of the Company. The Company's interest in UPC is held through UIH
Europe, a wholly-owned subsidiary of the Company. The Senior Notes, together
with the outstanding 1999 Notes are secured by a first priority security
interest in the capital stock and intercompany notes to the Company of UIPI.
The Senior Notes (but not the 1999 Notes) are also to be secured by a first
priority security interest in the capital stock and intercompany notes to the
Company of UIH Europe. See "Description of Senior Notes."
The following chart sets forth the systems in which the Company has interests
as of the date hereof. The Company's interest in such systems are often held by
various holding companies and its voting rights and rights to participate in
earnings of such entities may differ from the interests indicated in the chart.
For a discussion of certain portions of the Company's current organizational
structure, see "Corporate Organizational Structure."
[CHART APPEARS HERE]
- --------------------
(1) Approximately 8.4% of UPC's outstanding shares are registered in the name
of a foundation administering UPC's employee equity incentive plan to
support stock issuances. As of the date hereof, awards equivalent to
approximately 5.5% of UPC's outstanding shares have been granted to
employees under the plan. See "Corporate Organizational Structure--UPC."
11
<PAGE>
(2) UIH Australia/Pacific, Inc. ("UIH A/P"), a wholly owned subsidiary of UAP,
issued warrants on November 17, 1997 to holders of its 14% Senior Discount
Notes to acquire a total of 3.4% of UIH A/P, which warrants have a total
exercise price of $5.1 million. See "Corporate Organizational Structure--
UAP--UIH A/P."
(3) In November 1997, UPC's wholly-owned subsidiary Norkabel merged with and
into UPC's approximately 70% owned subsidiary, Janco to form Janco
Multicom, in which UPC holds an approximately 87% interest. From an
economic perspective, however, UPC has all the rights and obligations of
full ownership of Janco Multicom and UPC consolidates 100% of the financial
results therefrom, although Janco Multicom's articles of association grant
certain minority rights to Helsinki Media. UPC has the right to acquire,
and Janco's other shareholder has the right to put to UPC, the remaining
interest in Janco Multicom for a purchase price of approximately NKr165.9
million ($23.5 million as of September 30, 1997), subject to certain
adjustments, by July 2, 2001. See "Business--United Pan-Europe
Communications N.V.--Norway: Janco Multicom."
(4) UIH A/P holds an effective 100% economic interest in the Australia system
through a combination of ordinary shares and convertible debentures. See
"Corporate Organizational Structure--UAP-- Austar."
12
<PAGE>
THE EXCHANGE OFFER
Securities Offered.......... $1,375,000,000 aggregate principal amount at
maturity of New Notes. The terms of the New Notes
and the Old Notes are identical in all material
respects, except for certain transfer
restrictions and registration rights relating to
the Old Notes summarized below under "-- The New
Notes."
The Exchange Offer.......... The New Notes are being offered in exchange for a
like principal amount at maturity of Old Notes.
The issuance of the New Notes is intended to
satisfy obligations of the Company contained in
the Registration Rights Agreement (the
"Registration Rights Agreement") dated February
5, 1998, by and among the Company, Donaldson,
Lufkin & Jenrette Securities Corporation, Merrill
Lynch & Co., Morgan Stanley Dean Witter and TD
Securities (USA), Inc., as the initial purchasers
with respect to the initial sale of the Old Notes
(the "Initial Purchasers"). For procedures for
tendering, see "Exchange Offer."
Expiration Date:
Withdrawal................. The Exchange Offer will expire at 5:00 p.m., New
York City time, on April 10, 1998, or such later
date and time to which it is extended (the
"Expiration Date"). Each holder tendering Old
Notes must acknowledge that it is not engaging
in, nor intends to engage in, a distribution of
the New Notes. The tender of the Old Notes
pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date. Any Old
Notes not accepted for exchange for any reason
will be returned without expense to the tendering
holder thereof as promptly as practicable after
the expiration or termination of the Exchange
Offer.
Federal Income Tax
Consequences............... In the opinion of counsel, the exchange of Notes
pursuant to the Exchange Offer should not
constitute a taxable exchange for federal income
tax purposes. See the discussion under "Certain
U.S. Income Tax Considerations."
Use of Proceeds............. There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer.
Exchange Agent.............. Firstar Bank of Minnesota, N.A. is serving as
Exchange Agent in connection with the Exchange
Offer.
Shelf Registration
Statement.................. Under certain circumstances, certain holders of
Senior Notes (including holders who may not
participate in the Exchange Offer, or who may not
freely resell New Notes received in the Exchange
Offer) may require the Company to file, and cause
to become effective, a shelf registration
statement under the Securities Act, which would
cover resales of Senior Notes by such holders.
See "Description of Senior Notes -- Registration
Rights."
13
<PAGE>
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Generally, Holders of Old Notes (other than any Holder who is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) who
exchange their Old Notes for New Notes pursuant to the Exchange Offer may offer
such New Notes for resale, resell such New Notes, and otherwise transfer such
New Notes without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided, that such New Notes are acquired in
the ordinary course of the Holders' business and such Holders, other than
brokers-dealers, are not engaged in do not intend to engage in and have no
arrangement or understanding with any person to participate in, a distribution
of such New Notes. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes must acknowledge that such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with any
resale of such New Notes. See "Plan of Distribution." To comply with the
securities laws of certain jurisdictions, it may be necessary to qualify for
sale or register thereunder the New Notes prior to offering or selling such New
Notes. The Company has agreed, pursuant to the Registration Rights Agreement
and subject to certain specified limitations therein, to register or qualify
the New Notes held by broker-dealers for offer or sale under the securities or
blue sky laws of such jurisdictions as any such holder of such New Notes
reasonably requests in writing. Unless the Company is so requested, the Company
does not intend to register or qualify the sale of the New Notes in any such
jurisdictions. If a Holder of Old Notes does not exchange such Old Notes for
New Notes pursuant to the Exchange Offer, such Old Notes will continue to be
subject to provisions of the Indenture regarding transfer and exchange of the
Old Notes and the restrictions on transfer contained in the legend on the Old
Notes. In general, Old Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, Securities Act and applicable state securities
laws. See "Exchange Offer -- Consequences of Failure to Exchange" and
"Registration Rights -- The Notes."
THE NEW NOTES
The terms of the New Notes are identical in all material respects to the Old
Notes, except (i) for certain transfer restrictions and registration rights
relating to the Old Notes and (ii) that, if the Exchange Offer is not
consummated by April 20, 1998, or the Company fails to comply with certain
other registration obligations with respect to the Old Notes (each such event
referred to as an "Event Date"), the Company is required to pay liquidated
damages (the "Liquidated Damages") to the Holders of the Old Notes in an amount
equal to (A) during the first 90-day period beginning on, and including, the
Event Date, an amount equal to 0.5% per annum of the Accreted Value (as
defined) of the Old Notes held by such Holder and (B) during each subsequent
90-day period immediately following the final day of the prior 90-day period, a
percentage of the Accreted Value of the Old Notes calculated at the rate per
annum applicable in the immediately preceding 90-day period plus 0.5%, provided
that, the rate at which Liquidated Damages are calculated shall not exceed 2.5%
per annum, until, but not including, the date of the consummation of the
Exchange Offer or, as the case may be, compliance by the Company with such
other registration obligations. Any Liquidated Damages due shall be payable on
each February 15 and August 15 to Holders of record of the Old Notes on the
February 1 or August 1, respectively, next preceding such payment date.
Securities Offered.......... $1,375,000,000 aggregate principal amount at
maturity of 10 3/4% Senior Secured Discount Notes
due 2008, Series B.
Maturity.................... February 15, 2008
Interest.................... The Senior Notes will accrete at a rate of 10
3/4%, compounded semi-annually until February 15,
2003. Cash interest will not commence to accrue
on the Senior Notes prior to February 15, 2003.
Commencing
14
<PAGE>
August 15, 2003, cash interest on the Senior
Notes will be payable on February 15 and August
15 of each year until maturity at a rate of 10
3/4% per annum.
Optional Redemption......... On or after February 15, 2003, the Company may
redeem the Senior Notes, in whole or in part, at
the redemption prices set forth herein, plus ac-
crued and unpaid interest, if any, and Liquidated
Damages (as defined), if any, to the date of re-
demption. See "Description of Senior Notes -- Op-
tional Redemption."
At any time prior to February 15, 2001, the Com-
pany may redeem up to 35% of the aggregate prin-
cipal amount at maturity of the Senior Notes with
the net cash proceeds of certain public sales of
equity interests of the Company or assets of the
Company at a redemption price equal to 110.75% of
the Accreted Value (as defined) thereof on the
redemption date; provided that not less than 65%
of the principal amount at maturity of the Senior
Notes originally issued remain outstanding imme-
diately after giving effect to such redemption.
Security.................... The Senior Notes, together with the outstanding
1999 Notes, are secured by a first priority
pledge of (i) all of the Capital Stock of UIPI, a
wholly-owned subsidiary of the Company, and (ii)
all intercompany notes of UIPI held by the Compa-
ny. The Senior Notes (but not the 1999 Notes) are
also be secured by a first priority pledge of the
Capital Stock and intercompany notes of UIH Eu-
rope, a wholly-owned subsidiary of the Company
that holds the Company's interest in UPC.
Ranking..................... The Senior Notes are general, senior, secured ob-
ligations of the Company. The Senior Notes rank
pari passu in right of payment with all existing
and future senior obligations of the Company, in-
cluding the 1999 Notes and senior in right of
payment to all existing and future Subordinated
Indebtedness (as defined) of the Company. As of
November 30, 1997, pro forma for the UPC Acquisi-
tion, the Tender Offer, the Offering and the ap-
plication of the proceeds therefrom, the Company
had outstanding approximately $3.7 million of se-
nior obligations that rank pari passu with the
Senior Notes. The Company is a holding company
with no operations and no substantial assets
other than the equity interests of its subsidiar-
ies and affiliated companies substantially all of
which are held through UIH Europe or UIPI. The
Senior Notes are effectively subordinated to all
obligations (including trade payables) of the
Company's subsidiaries, the total liabilities of
which were $1.1 billion at November 30, 1997 (ex-
cluding inter-company payables to the Company),
pro forma for the UPC Acquisition, the Offering
and the Tender Offer. See "Description of Other
Debt."
Change of Control........... Upon a Change of Control, each holder of Senior
Notes has the right to require the Company to re-
purchase all or any part of such holders' Senior
Notes at a cash price equal to 101% of the Ac-
creted Value thereof, plus Liquidated Damages, if
any, to the date of purchase.
15
<PAGE>
Certain Covenants........... The Indenture contains covenants that, among
other things, limit the ability of the Company
and its Subsidiaries (as defined) to (i) incur
additional Indebtedness and issue Disqualified
Capital Stock (as defined), (ii) make Restricted
Payments (as defined), (iii) enter into agree-
ments that would restrict Subsidiaries' ability
to make distributions, loans or other payments to
the Company, (iv) create Liens (as defined), (v)
make Asset Sales (as defined), (vi) enter into
transactions with Affiliates (as defined) and
(vii) enter into consolidations or mergers or
sell all, or substantially all, of their consoli-
dated assets. See "Description of Senior Notes--
Certain Covenants."
Original Issue Discount..... The Old Notes were issued on February 5, 1998 of
$590.69 per $1,000 principal amount at maturity.
The New Notes will have a substantial original
issue discount for United States federal income
tax purposes. Original issue discount (that is,
the difference between the sum of all payments to
be made on the Senior Notes and the issue price
of the Senior Notes) will accrue from the Issue
Date of a Senior Note to its maturity date and
will be included as interest income for each day
during each taxable year in which the Senior Note
is held by a holder in such holder's gross income
for federal income tax purposes in advance of re-
ceipt of the cash payments to which the income is
attributable. See "Certain U.S. Income Tax Con-
siderations."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors relating to the
Company and the Senior Notes that should be considered by Holders who tender
their Old Notes in the Exchange Offer.
16
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following summary historical consolidated financial data have been
derived from the Company's audited consolidated financial statements. The
following summary selected financial data for the nine-month periods ended
November 30, 1996 and 1997 and as of November 30, 1997 have been derived from
unaudited financial statements that, in the opinion of management of the
Company, reflect all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial data for such periods and as of such
date. The Company's consolidated financial statements do not consolidate the
operating results of its minority-owned affiliates, including UPC historically.
Upon consummation of the UPC Acquisition on December 11, 1997, the Company will
consolidate the results of UPC. The data set forth below are qualified by
reference to and should be read in conjunction with the audited consolidated
financial statements and notes thereto of the Company included in and
incorporated by reference into this Prospectus and also with "Management's
Discussion and Analysis of Financial Condition."
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS NINE MONTHS ENDED
YEAR ENDED YEAR ENDED FEBRUARY 28, 1997 ENDED NOVEMBER 30, 1997
FEBRUARY 28, FEBRUARY 29, ----------------------- NOVEMBER 30, -----------------------
1995 1996 ACTUAL PRO FORMA(1) 1996 ACTUAL PRO FORMA(1)
------------ ------------ --------- ------------ ------------ --------- ------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service and other
revenue.......... $ 701 $ 2,363 $ 30,244 $170,935 $ 13,877 $ 67,719 $178,989
Management fee
income from
related parties.. 912 507 1,311 1,311 756 852 852
Operating
expense.......... (1,651) (4,224) (25,796) (71,386) (13,925) (45,220) (86,440)
Selling, general
and
administrative
expense.......... (18,299) (22,483) (54,475) (98,933) (32,092) (59,466) (95,109)
Equity in income
(losses) of
affiliated
companies, net... (6,106) (48,635) (47,575) (26,348) (33,224) (53,521) (21,739)
Gain on sale of
investments in
affiliated
companies........ -- 16,013 65,249 65,249 65,260 91,600 --
Interest expense,
net.............. (2,787) (27,628) (66,330) (128,334) (45,235) (84,344) (125,324)
Provision for
losses on
investment
related costs.... (2,865) (6,055) (5,859) (5,859) (1,600) (8,148) (8,148)
Net loss.......... (30,614) (91,311) (138,825) (211,538) (59,244) (158,059) (306,983)
Ratio of earnings
to fixed
charges(2)....... -- -- -- -- -- -- --
OTHER DATA(3):
Homes in service
area(4).......... 6,140 8,463 9,834 9,721 9,976 9,897 9,897
Homes passed(5)... 2,440 4,705 6,997 6,898 6,800 7,390 7,390
Subscribers(6).... 1,059 2,426 2,745 2,685 2,678 3,072 3,072
Equity
subscribers(7)... 169 659 1,023 1,624 965 1,153 1,891
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, 1997
---------------------------
ACTUAL PRO FORMA(1)
----------- --------------
(In thousands,
unaudited)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.. $ 239,042 289,295
Investments in and advances to affiliated
companies, including marketable equity
securities........................................ 211,133 209,439
Property, plant and equipment...................... 209,159 444,533
Intangibles........................................ 63,674 571,806
Total assets....................................... 799,182 1,685,674
Long-term debt..................................... 825,876 1,687,559
Total liabilities.................................. 909,919 1,911,218
Total stockholders' deficit........................ (156,179) (274,005)
</TABLE>
- --------------------
(1) Pro forma for the UPC Acquisition, the Tender Offer, the Offering and the
application of the proceeds thereof, as if each had occurred as of the
beginning of the relevant period.
(2) In calculating the ratio of earnings to fixed charges, earnings consist of
(i) net loss before income tax expense and fixed charges plus (ii) equity
in losses of an equity method investee for which the Company has guaranteed
the investee's debt. Fixed charges consist of interest expense on third
party debt, interest expense to the Company's predecessor parent, and the
Company's proportionate share of the interest expense on guaranteed debt of
an equity investee. The ratio of earnings to fixed charges was less than
1.0 to 1.0 for each of the Company's last five fiscal years and for the
nine months ended November 30, 1996 and 1997. Earnings available for fixed
charges were thus inadequate to cover fixed charges for such periods. The
amount of the coverage deficiencies for the years ended February 28, 1993,
1994 and 1995, February 29, 1996 and February 28, 1997 were approximately
$8.8 million, $13.1 million, $26.5 million, $64.7 million and $120.9
million, respectively. The amount of the coverage deficiencies for the nine
months ended November 30, 1996 and 1997 were $44.9 million, and $144.0
million, respectively. On a pro forma basis, assuming that the Offering,
the Tender Offer and the UPC Acquisition had been consummated as of the
beginning of the applicable period, the Company's pro forma earnings would
have been inadequate to cover its pro forma fixed charges for the year
ended February 28, 1997, by $193.8 million and for the nine months ended
November 30, 1997, by $294.4 million. See "Risk Factors--Leverage and
Ability to Service Debt."
(3) Data is for the end of the respective period.
(4) Number of homes within the Company's areas of service. All of these homes
are not necessarily capable of receiving the Company's multi-channel
television signal.
(5) Number of homes within the Company's areas of service that are capable of
receiving the Company's multi-channel television signal.
(6) Number of homes passed that subscribe to the Company's basic cable service.
(7) Calculated as the sum of the subscribers of each of UIH's systems
multiplied by UIH's net equity interest in each system.
17
<PAGE>
ADDITIONAL FINANCIAL DATA FOR THE COMPANY'S MAJOR OPERATING SYSTEMS
The financial information presented below has been derived from financial
information of the respective operating companies and is not adjusted for the
ownership percentage of the Company. Some of the information presented below
has been derived from financial statements prepared in accordance with foreign
generally accepted accounting principles which differ from United States
generally accepted accounting principles. In addition, certain amounts for the
year ended December 31, 1996 and the nine months ended September 30, 1997 have
been converted to dollars using September 30, 1997 exchange rates for the
convenience of translation.
<TABLE>
<CAPTION>
REVENUES
------------------------------------------------------------------------
FUNCTIONAL CURRENCY CONVENIENCE TRANSLATION
--------------------------------------------- --------------------------
NINE MONTHS NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED YEAR ENDED ENDED
------------------------------- SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------------- ------------ -------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MAJOR SYSTEMS:
Austria(/1/)........... AS 869,700 908,800 921,000 985,338 757,231 $ 79,277 $60,925
Belgium(/2/)........... BEF 619,100 662,800 681,539 693,990 550,538 19,036 15,101
Netherlands(/3/)
A2000*................ NLG 67,248 72,747 75,030 89,893 72,290 45,366 36,482
KTE*.................. NLG 14,809 15,894 16,544 17,932 15,115 9,050 7,628
Combivisie*........... NLG 19,586 22,761 25,661 27,143 21,483 13,698 10,842
Norway(/4/)
Norkabel.............. NKr 193,221 213,233 216,062 215,076 167,824 30,433 23,747
Janco................. NKr 84,822 95,321 101,488 101,699 86,970 14,390 12,306
Australia(/5/)......... A$ -- -- 594 26,852 59,972 19,489 43,527
Chile(/6/)............. US$ -- 7,035 16,947 88,423 83,505 88,423 83,505
</TABLE>
<TABLE>
<CAPTION>
ADJUSTED EBITDA(/7/)
--------------------------------------------------------------------------
FUNCTIONAL CURRENCY CONVENIENCE TRANSLATION
----------------------------------------------- --------------------------
NINE MONTHS NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED YEAR ENDED ENDED
-------------------------------- SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------------- ------------ -------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MAJOR SYSTEMS:
Austria(/1/)........... AS 486,200 498,100 468,200 512,356 381,886 $41,223 $30,725
Belgium(/2/)........... BEF 223,900 240,100 255,000 268,232 208,402 7,357 5,716
Netherlands(/3/)
A2000*................ NLG 38,150 38,083 34,841 40,829 24,446 20,605 12,337
KTE*.................. NLG 9,581 9,917 9,948 11,298 9,159 5,701 4,622
Combivisie*........... NLG 14,031 16,286 17,948 19,816 14,063 10,001 7,097
Norway(/4/)
Norkabel.............. NKr 41,602 62,652 67,939 68,446 59,489 9,685 8,418
Janco................. NKr 30,979 35,142 38,009 39,619 31,518 5,606 4,460
Australia(/5/)......... A$ -- -- (9,390) (29,765) (19,179) (21,603) (13,920)
Chile(/6/)............. US$ -- 481 4,500 13,950 16,365 13,950 16,365
</TABLE>
- --------------------
* Certain interests of UPC in these systems secure the UPC Tranche B Facility.
See "Description of Other Indebtedness--UPC and Affiliates--UPC." Some of
these systems may be sold in order to repay the Tranche B Facility.
(1) The Austrian schilling (AS) is the functional currency for the Austria
systems. The financial statements of the Austria systems for 1995, 1996 and
the nine months ended September 30, 1997 have been prepared in accordance
with Dutch GAAP, which differ from those of the United States, although not
materially different with respect to the calculation of revenues and
Adjusted EBITDA. The financial statements of the Austria systems for 1993
and 1994 have been prepared in accordance with Austrian GAAP, which differ
from those of the United States.
(2) The Belgian franc (BEF) is the functional currency for the Belgium systems.
The financial statements of the Belgian systems for 1995, 1996 and the nine
months ended September 30, 1997 have been prepared in accordance with Dutch
GAAP, which differ from those of the United States, although not materially
different with respect to the calculation of revenues and Adjusted EBITDA.
The financial statements of the Belgium systems for 1993 and 1994 have been
prepared in accordance with Belgium GAAP, which differ from those of the
United States.
18
<PAGE>
(3) The Dutch guilder (NLG) is the functional currency for The Netherlands
systems. The financial statements of A2000, Eindhoven and Combivisie have
been prepared in accordance with Dutch GAAP, which differ from those of the
United States, although not materially different with respect to the
calculation of revenues and Adjusted EBITDA.
(4) The Norwegian kroner (NKr) is the functional currency for the Norway
systems. The financial statements of the Norway systems have been prepared
in accordance with Norwegian GAAP, which differ from those of the United
States.
(5) The Australian dollar (A$) is the functional currency for the Australia
systems. The financial statements of the Australia systems have been
prepared in accordance with Australian GAAP, which differ from those of the
United States, although not materially different with respect to the
calculation of revenues and Adjusted EBITDA. The Australia systems
commenced operations in late 1995.
(6) The dollar is the reporting currency for the Chile systems. The financial
statements of the Chile systems have been prepared in accordance with
United States GAAP. The Company acquired its initial interest in its Chile
system in 1994. In 1996, it combined its assets with those of another
operator. See "Business--UIH Latin America, Inc.--Chile: VTR Hipercable."
(7) Adjusted EBITDA represents net income (loss) as determined using generally
accepted accounting principles for Austria, Belgium, The Netherlands,
Norway, Chile and Australia (which differ from those used in the United
States, although not materially different with respect to the calculation
of revenues and Adjusted EBITDA) plus net interest expense, income tax
expense, depreciation, amortization, minority interest, management fee
expense payable to the Company, currency exchange gains (losses) and other
non-operating income (expense) items. Industry analysts generally consider
Adjusted EBITDA to be an appropriate measure of the performance of multi-
channel television operations. Adjusted EBITDA should not be considered as
an alternative to net income or cash flows or to any other measure of
performance or liquidity, or as an indicator of an entity's operating
performance.
19
<PAGE>
ADDITIONAL OPERATING DATA FOR THE COMPANY'S MAJOR OPERATING SYSTEMS
Below is certain operating information for the Company's major systems.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------- AT SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
MAJOR SYSTEMS:
Austria
Subscribers............ 348,475 380,190 401,578 414,775 428,453 434,066
Penetration Rate....... 62.8% 65.0% 68.7% 68.2% 68.8% 68.8%
Avg. Monthly Service
Rev. per
Subscriber(1)......... $13.28 $13.19 $13.44 $13.28 $13.84 $13.84
Belgium
Subscribers............ 130,241 129,923 128,641 127,843 127,815 126,438
Penetration Rate....... 97.2% 97.0% 96.7% 96.1% 96.1% 95.1%
Avg. Monthly Service
Rev. per
Subscriber(1)......... $8.53 $9.13 $9.29 $9.49 $9.63 $9.90
Netherlands
A2000*
Subscribers............ 473,000 477,500 479,859 488,631 523,940 519,848
Penetration Rate....... 94.0% 97.0% 94.1% 95.4% 94.3% 92.4%
Avg. Monthly Service
Rev. per
Subscriber(1)......... $5.85 $6.06 $6.06 $6.54 $6.54 $6.72
KTE(2)*
Subscribers............ 81,400 82,535 83,794 83,408 84,660 90,638
Penetration Rate....... 95.0% 95.0% 98.0% 94.5% 95.0% 95.0%
Avg. Monthly Service
Rev. per
Subscriber(1)......... $7.32 $7.42 $7.42 $8.38 $8.93 $9.01
Combivisie(3)*
Subscribers............ 94,039 105,905 126,157 130,429 133,775 137,000
Penetration Rate....... 94.7% 95.0% 95.4% 95.6% 96.2% 96.5%
Avg. Monthly Service
Rev. per
Subscriber(1)......... $7.61 $7.65 $7.38 $7.90 $8.18 $8.56
Norway
Norkabel
Subscribers............ 140,167 141,735 147,344 152,257 156,915 157,381
Penetration Rate....... 68.6% 67.3% 67.4% 70.1% 70.9% 68.0%
Avg. Monthly Service
Rev. per
Subscriber(1)......... $16.98 $16.98 $18.11 $17.83 $16.70 $17.26
Janco
Subscribers............ 158,740 157,787 157,419 159,210 160,331 160,946
Penetration Rate....... 72.2% 71.7% 71.6% 71.6% 71.3% 71.5%
Avg. Monthly Service
Rev. per
Subscriber(1)......... $6.65 $6.37 $7.07 $7.50 $7.50 $8.77
Australia(4)
Subscribers............ -- -- -- 5,204 103,447 178,832
Penetration Rate....... -- -- -- 2.2% 6.8% 11.3%
Avg. Monthly Service
Rev. per
Subscriber(1)......... -- -- -- NM $26.70 $30.54
Chile(5)
Subscribers............ -- -- 38,498 89,349 321,730 359,153
Penetration Rate....... -- -- 21.4% 30.4% 21.7% 24.4%
Avg. Monthly Service
Rev. per
Subscriber(1)......... -- -- $17.13 $20.99 $23.57 $27.35
</TABLE>
- --------------------
* Certain interests of UPC in these systems secure the Tranche B Facility. See
"Description of Other Indebtedness--UPC and Affiliates--UPC."
(1) Average Monthly Revenue per Subscriber for the years ended December 31,
1992, 1993, 1994, 1995 and 1996 and for the nine months ended September 30,
1997 using a convenience translation as of September 30, 1997. This figure
represents the service revenue (excluding installation revenue) of the
operating system for the respective period divided by the weighted average
number of subscribers during the period.
(2) These numbers include the Son en Breugel system, acquired by UPC in July
1997.
(3) UPC acquired the Combivisie system in February 1998. See "Business--United
Pan-Europe Communications N.V.--UPC Acquisitions."
(4) The Company launched operations in Australia in August 1995 and full-scale
marketing for these operations began in early 1996.
(5) In September 1996, the Company merged its then existing Chilean operations
with VTR S.A. See "Business--UIH Latin America, Inc.--Chile: VTR
Hipercable."
20
<PAGE>
OTHER INFORMATION
The Company was incorporated in 1989 as a Delaware corporation. The principal
executive office of the Company is located at 4643 South Ulster Street, Suite
1300, Denver, Colorado 80237, and its telephone number is (303) 770-4001.
Unless the context otherwise requires, the terms "UIH" and the "Company" refer
to United International Holdings, Inc. and its subsidiaries and non-majority
owned affiliates and their respective predecessors. All references to the
"Company" in the Indenture and the terms of the Senior Notes refer only to
United International Holdings, Inc.
21
<PAGE>
RISK FACTORS
Holders of the Old Notes should consider carefully the following Risk
Factors, as well as the other information set forth in this Prospectus
(including attachments and items incorporated by reference), before tendering
the Old Notes in the Exchange Offer.
This Prospectus and the documents incorporated herein by reference contain
statements which constitute forward-looking statements within the meaning of
Section 27A of the Securities Act. Discussions containing such forward-looking
statements may be found in the material set forth below and under "Summary,"
"Management's Discussion and Analysis of Financial Condition--Liquidity and
Capital Resources" and "Business," as well as within the Prospectus generally.
In addition, when used in this Prospectus, the words "believes,"
"anticipates," "expects," "plans," "intends" and similar expressions are
intended to identify forward-looking statements. Forward-looking statements
and statements of expectations, plans and intent are subject to a number of
risks and uncertainties. Actual results in the future could differ materially
from those described in the forward-looking statements as a result, among
other things, of the risk factors set forth below and the matters set forth in
the Prospectus generally. The Company undertakes no obligation to release
publicly the result of any revisions to these forward-looking statements that
may be made to reflect any future events or circumstances. The Company
cautions the reader, however, that this list of risk factors and other
cautionary language contained herein may not be exhaustive.
Holding Company Structure; Limitations on Access to Cash Flow. The Company
is a holding company with no business operations of its own. The Company's
assets consist primarily of its ownership interests in its direct and indirect
subsidiaries and affiliated companies, which are held through UIPI and UIH
Europe. The Company's ability to repay the Senior Notes at maturity will be
dependent upon (i) earnings and cash flows or sales of assets of the Company's
subsidiaries and affiliated companies and payment of funds by the affiliated
companies to the Company in the form of loans, dividends and otherwise and/or
(ii) the Company's ability to refinance the Senior Notes prior to maturity.
The Company currently is unable to gain access to the cash flow of many of its
subsidiaries and affiliated companies because (i) in the case of certain of
its affiliates, the Company owns 50% or less of the equity of such entities
and, therefore, does not have the requisite control to cause such entities to
pay dividends to their equity holders and (ii) certain subsidiaries and other
affiliates are parties to credit or other borrowing agreements that severely
restrict or prohibit the payment of dividends (see "Description of Other
Debt"), and such entities are likely to continue to be subject to such
restrictions and prohibitions for the foreseeable future. As a result, the
Company's ability to generate any significant cash through dividends or other
distributions from its affiliates in the near future is severely restricted.
See "--Leverage and Ability to Service Debt."
The Senior Notes are effectively subordinated to all existing and future
indebtedness and other liabilities of the Company's subsidiaries and
affiliated companies because the Company's right to receive the assets of any
such affiliates upon their liquidation or reorganization will be subordinated
by operation of law to the claims of such affiliates' creditors (including
trade creditors), except to the extent that the Company is itself recognized
as a creditor of any such affiliate, in which case the claims of the Company
still would be subordinated to any indebtedness of such affiliate that is
senior in right of payment to the Company's claim. See "Description of Certain
Indebtedness." UIPI and UIH Europe, the capital stock and intercompany notes
of which secure the Company's obligations under the Senior Notes, are also
holding companies with no business operations of their own.
The Indenture restricts the ability of the Company, its Subsidiaries and its
Restricted Affiliates to incur additional Indebtedness, however, it does not
otherwise prohibit the Company from incurring indebtedness that provides for
cash payments of interest or principal prior to maturity of the Senior Notes.
See "Description of Senior Notes."
The covenants set forth in the Indenture governing the Senior Notes restrict
the activities of the Company, its Subsidiaries and Restricted Affiliates.
Under certain limited circumstances, the Company is entitled to designate
certain of its Subsidiaries as Unrestricted Subsidiaries, which are not
subject to many of the restrictions set forth in the Indenture. The Company's
ability to make future Investments (as defined) in persons other than
Subsidiaries and Restricted Affiliates is also limited by the Indenture. See
"Description of Senior Notes."
22
<PAGE>
Leverage and Ability to Service Debt. The Company is highly leveraged. As of
November 30, 1997, pro forma for the UPC Acquisition, the Offering and the
Tender Offer, the Company would have had consolidated long-term debt of
approximately $1.7 billion and a stockholders' deficit of approximately $274.0
million. See "Capitalization" and "Pro Forma Consolidated Condensed Financial
Information of the Company." The Company's earnings have been insufficient to
cover its fixed charges in each of the last five years. See "Selected
Consolidated Financial Data." On a pro forma basis, assuming that the Offering
and the Tender Offer had been so consummated as of the beginning of fiscal
1997, the Company's pro forma earnings on a consolidated basis would have been
inadequate to cover its pro forma fixed charges in that year by $193.8
million. Additionally, for each of the last five fiscal years, the amount of
operating cash flow generated by the Company on a consolidated basis was less
than the sum of (i) the amount by which the 1999 Notes accreted during such
fiscal year plus, (ii) the sum of all fixed charges in such year.
Prior to the maturity of the Senior Notes, the Company will be obligated to
satisfy significant payment and purchase obligations in the near term,
including, but not limited to, the Combivisie acquisition, the repayment of
the Tranche B Facility and the satisfaction of certain obligations described
in "Description of Other Debt." Although the Company currently believes that
cash on hand, cash flow from its future operations and its borrowing capacity
will be sufficient to meet these obligations as they become due, no assurance
can be given that the Company will satisfy all of the conditions precedent to
borrowing pursuant to certain of its existing credit facilities or that
circumstances will not require the Company to sell assets or obtain additional
equity or debt financing, which the Company may not at such time be able to do
on terms satisfactory to it or at all.
UIH is required to repay in November 1999 the 1999 Notes, approximately
$465,000 principal amount at maturity of which are outstanding as of February
27, 1998. The Company's Series A Preferred Stock is subject to a mandatory
redemption in June 2000. Assuming no shares of the Series A Preferred Stock
are converted into shares of the Company's common stock prior to the
redemption date, the aggregate redemption price will be approximately $35.7
million.
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the Senior Notes)
will depend on the future performance of the Company, which, to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors beyond its control. Currently, the Company
believes that its cash on hand, cash flow from operations and available
borrowings under its current financial facilities, will be adequate to meet
the Company's anticipated future requirements for working capital, capital
expenditures and scheduled payments of principal and interest on its
indebtedness. There can be no assurance, however, that the Company's business
will generate sufficient cash flow from operations or that future working
capital borrowings will be available in an amount sufficient to enable the
Company to pay the principal amount of maturity of the Senior Notes, or make
necessary capital expenditures. See "Management's Discussion and Analysis of
Financial Condition--Liquidity and Capital Resources."
The degree to which the Company will be leveraged following the Offering
could have important consequences to holders of the Senior Notes, including,
but not limited to, the following: (i) a substantial portion of the Company's
cash flow from operations will be required to be dedicated to debt service and
will not be available for other purposes; (ii) the Company's ability to obtain
additional financing in the future could be limited; (iii) certain of the
Company's borrowings are at variable rates of interest, which could result in
higher interest expense in the event of increases in interest rates; and (iv)
the Company's ability to execute its business plan, to compete effectively, to
respond adequately to unforseen events and to take advantage of unforseen
opportunities could be limited. The Indenture and other instruments governing
the Company's consolidated indebtedness contain financial and restrictive
covenants that limit the ability of the Company, among other things, to borrow
additional funds, dispose of assets or pay cash dividends. Failure by the
Company to comply with such covenants could result in an event of default
which, if not cured or waived, would have a material adverse effect on the
Company.
The Company's ability to sell or transfer its ownership interests in certain
of its affiliated companies is subject to limitations contained in the
agreements between the Company and its strategic and financial partners
23
<PAGE>
including, in certain cases, complete prohibitions on sales or transfers for a
period of years and/or rights of first refusal. In addition, there can be no
guarantee that there will be in the future either a public or private market
for the securities of the Company's affiliates. As a result, the Company's
ability to liquidate any or all of its investments may be substantially
limited and there can be no guarantee that the Company will be able to do so
in a timely manner in the event of an acceleration of the Senior Notes prior
to their maturity. In addition, many of the Company's affiliates are parties
to credit agreements that limit or, in some cases, restrict their ability to
pay dividends or make other distributions to their equity investors. Under
many of the credit and other agreements of the Company's affiliates, the
exercise by the Collateral Agent (as defined) of its security interest in UIPI
and UIH Europe would cause such affiliates to be in default of such credit
agreements, which are structurally senior to the Senior Notes.
Capital-intensive Business. The development, construction and operation of
multi-channel television and telephony systems require substantial capital
investment. In addition, many of the Company's operating companies are
expanding and upgrading their respective networks to increase channel capacity
and to be able to offer additional services. As technology changes in the
multi-channel television and telephony industry, additional system upgrades
may be necessary for the Company's operating systems to compete effectively in
their respective markets. While the Company believes it has capital available
to it from cash on hand, existing credit facilities and cash to be generated
from operations that is sufficient for the planned operations, and in certain
systems construction and rebuilding projects, of its existing systems, there
can be no assurance that the Company's resources will be sufficient for future
capital needs. The Company's inability to continue upgrading its operating
systems' networks or to make its other planned capital expenditures could
adversely affect the Company's operations and competitive position.
To the extent the Company pursues new acquisition or development
opportunities, the Company would likely need to raise additional capital,
either through asset sales, issuances of its debt or equity securities (which
could increase the Company's leverage) or through operating company
borrowings. There can be no assurance the Company will be able to raise
additional capital through any such methods. See "--Leverage and Ability to
Service Debt."
History of Losses. The Company has experienced significant losses since its
inception. As of November 30, 1997, the Company had an accumulated deficit of
approximately $461.6 million. The Company had net operating losses of $20.0
million, $26.2 million and $87.7 million for fiscal years 1995, 1996 and 1997,
respectively, and $98.1 million for the nine months ended November 30, 1997,
and expects to incur substantial additional losses for the foreseeable future.
There can be no assurance that such losses will not continue indefinitely. See
"Management's Discussion and Analysis of Financial Condition." Continuing net
operating losses could have a material adverse effect on the Company's results
of operations and increase the Company's need for additional capital in the
future. See "--Capital-intensive Business."
Dependence on Key Personnel. The success of the Company and its growth
strategy depends in large part on the ability of the Company to attract and
retain key management, marketing and operating personnel, both at the
corporate and operating company levels. Retaining a successful international
management team may be particularly difficult because key United States
employees may be required to live and work overseas and because experienced
local managers are often unavailable. There can be no assurance that the
Company will be able to attract and retain the qualified personnel needed for
its business.
Risks Inherent in Foreign Investment. The Company has invested its resources
outside of the United States and intends to continue to make international
investments in the future. Risks inherent in foreign operations include loss
of revenue, property and equipment from expropriation, nationalization, war,
insurrection, terrorism and other political risks, risks of increases in taxes
and governmental royalties and fees and involuntary renegotiation of contracts
with foreign governments. The Company carefully considers those risks when
evaluating investment opportunities and insures against risks where possible
in circumstances where its assessment of the costs and risks involved
justifies obtaining insurance. Only a portion of such risks may be insured.
The Company is also exposed to the risk of changes in foreign and domestic
laws and policies that govern operations of foreign-based companies.
24
<PAGE>
Foreign Currency Exchange Rate and Conversion Risks. Although the Company's
operating companies have attempted, and will continue to attempt, to match
costs and revenues and borrowings and repayments in terms of their respective
local currencies, payment for a majority of purchased equipment has been, and
may continue to be, required to be made in dollars. In addition, the value of
the Company's investment in an operating company is partially a function of
the currency exchange rate between the dollar and the applicable local
currency. In general, the Company and certain of its operating companies do
not execute hedge transactions to reduce the Company's exposure to foreign
currency exchange rate risks. Accordingly, the Company may experience economic
loss and a negative impact on earnings with respect to its holdings solely as
a result of foreign currency exchange rate fluctuations, which include foreign
currency devaluations against the dollar. Furthermore, certain of the
Company's operating companies have notes payable and notes receivable that are
denominated in a currency other than their own functional currency or loans
linked to the dollar. The Company may also experience economic loss and a
negative impact on earnings related to these monetary assets and liabilities.
The countries in which the Company's primary operating companies now conduct
business generally do not restrict the removal or conversion of local or
foreign currency; however, there can be no assurance this situation will
continue. The Company also may acquire equity interests in companies that
operate in countries where the removal or conversion of currency is
restricted. See "Management's Discussion and Analysis of Financial Condition--
Inflation and Foreign Currency Exchange Rate Risks."
Possible Inability to Control Operating Companies. The Company holds a
controlling interest in the majority of its operating companies, including
most of its primary systems. In certain circumstances, however, financial,
regulatory and operational considerations have required the Company to invest
with financial and strategic partners in operating systems. Although the
Company is actively involved in the management of the operating companies in
which it has a minority ownership interest and intends to invest in the future
primarily in operating companies in which it can control or at least
participate in management, its existing minority voting positions may preclude
it from affirmatively controlling certain of the companies in which it has an
interest. In particular, the Company may not be able to cause these operating
companies to pay dividends and other distributions and its lack of control may
inhibit the Company's ability to implement strategies that it favors. The
Company has an effective 100% interest in Austar, its Australian operating
company and believes that through the securities it holds it has the right to
designate all the directors of Austar. While the transactions pursuant to
which the Company acquired its interest in Austar did not require any advance
notification or approval under Australian law, the Treasurer of Australia has
the power to review such transactions under provisions of the Australian
Foreign Acquisition and Takeovers Act of 1975, as amended ("FATA"). If the
Treasurer determines the ownership structure is in violation of the FATA, the
Treasurer could require the voting structure of Austar to be changed such that
the Company would be entitled to appoint only three of the six directors of
Austar. See "Corporate Organizational Structure--UIH Asia/Pacific
Communications, Inc.--Austar" and "Regulation--Australia."
Regulation. Multi-channel television operations and programming services are
subject to governmental regulation, which may change from time to time.
Changes in applicable laws and regulations could increase the costs of the
Company. There can be no assurance that material and adverse changes in the
regulation of the Company's existing operating systems will not occur in the
future. Regulation can take the form of price controls, service requirements,
programming content restrictions and foreign ownership restrictions, among
others. Delays in obtaining any required regulatory approvals could adversely
affect the Company's ability to offer some or all
of its proposed range of services in certain of its markets. Moreover, most
countries have regulatory regimes that provide for non-exclusive licenses to
provide multi-channel television services within a geographic area. Operators
may have to compete with each other for contracts to provide services to
apartments, hotels and other multi-unit buildings as well as with providers of
other multi-channel television services via other distribution technologies.
The lack of a regulatory framework and the terms upon which such contracts are
available may limit the ability to add subscribers to developing systems and,
if such contracts and licenses are not renewed, may limit the long-term
appreciation in the value of the systems involved. In addition, certain
countries may impose interconnection obligations and other regulatory controls
with respect to the telecommunications services offered by the Company's
operating systems. See "Regulation."
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General Risks of Multi-Channel Television Operations. A substantial portion
of the Company's initial investments have been in cable television. Cable
television, as an industry, could become technologically obsolete upon the
introduction of technologies that do not currently exist or the substantial
improvement of existing competing technologies. In some markets, only a
limited amount of indigenous programming may be available in which case the
Company's systems must repackage available programming in the local language.
Limited availability of competitive programming may adversely affect
subscriber demand for multi-channel television services and thereby the
operations of the Company's systems. There can be no assurance that adequate
programming will be available for all systems in which the Company has an
ownership interest.
Ability to Procure Additional Programming Services. The Company's success is
largely dependent upon management's ability to procure programming that is
attractive to its customers at reasonable commercial rates. The Company is
dependent upon third parties for the development and delivery of programming
services. These programming suppliers will charge the operating companies for
the right to distribute the channels to the operating companies' customers.
The costs to the operating companies for additional services will be
determined through negotiations between the operating companies and these
programming suppliers. Management believes that the availability of sufficient
programming on a timely basis will be critical to the Company's future
success. There can be no assurance that the operating companies will have
access to additional programming services or that management can secure rights
to such programming on commercially acceptable terms.
Australis Media Limited ("Australis"), Austar's primary supplier of
programming, has engaged in a rapid roll-out of service that has required a
significant amount of capital and has strained its liquidity. Australis
recently announced a $20 million note sale that is expected to allow it to
meet its short-term funding requirements. Australis has also announced it is
continuing to negotiate with its bondholders, certain of the movie studios
that supply it with programming and other third parties in order to implement
a longer-term source of funding. If Australis is unable to make arrangements
to satisfy its long-term capital needs, Australis may have difficulty meeting
contractual obligations with respect to the four non-XYZ Galaxy channels
distributed directly by Australis. The Company believes that if Austar is no
longer able to obtain the four Galaxy channels provided by Australis and the
Company was required to seek replacement programming, it could have access to
the same programming directly from the suppliers of such four Galaxy channels
or sufficient alternative programming on competitive terms. There can be no
assurance, however, that this would be the case, and the ability of Austar to
procure the same or suitable alternative programming at competitive rates and
on an exclusive basis in its service areas could have a material adverse
effect on the Company's Australian operations. See "Business--UIH Asia/Pacific
Communications, Inc.--Austar--Programming."
Competition. The multi-channel television and telephony industries in many
of the markets in which the Company operates are highly competitive and often
are rapidly changing. The Company recognizes that in the future it is likely
to encounter increased competition as new entrants with competing technologies
enter its markets and launch new services. Multi-channel television also
competes with the direct reception of broadcast television signals and, in
varying degrees, with other communications and entertainment media. The
success of the Company's existing operating systems is dependent, in part, on
their ability to provide services and programming not otherwise available to
subscribers. The Company may also have to compete initially in certain areas
with unlicensed operators. In many of the Company's markets, the Company
competes with other multi-channel television and telephony operators, many of
which have substantially greater resources than the Company.
Construction Risks. Many of the Company's operating systems are currently
upgrading their physical plant. Construction activity may require the Company
to obtain qualified subcontractors, the availability of which varies
significantly from country to country. Construction projects are subject to
cost overruns and delays not within the control of the Company or its
subcontractors, such as those caused by acts of governmental entities,
financing delays and catastrophic occurrences. Delays also can arise from
design changes and material or equipment shortages or delays in delivery.
Services to buildings passed by the operating systems can be delayed if the
operating companies or their subcontractors have difficulty in obtaining
necessary easements or rights-of-way. Failure to complete construction on a
timely basis could jeopardize a system's subscriber contracts, franchises and
licenses or the system's ability to preempt its competition.
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Introduction of New Services. The multi-channel television and
telecommunications services industry is characterized by changing technology
and regulatory requirements, each of which influences the demand for the
Company's products and services. Acceptance of new products and services may
be affected by the adoption of new government regulations. The Company's
ability to anticipate changes in technology and regulatory standards and to
develop and introduce new and enhanced products successfully on a timely basis
will be a factor in the Company's ability to continue to grow and to remain
competitive. Upon completion of the upgrade of certain of its systems, the
Company intends to offer a range of new services in many of its markets
including the provision of additional channels and tiers, impulse pay-per-view
services, high speed data services, Internet access and telephony. There can
be no assurance that the Company will be able to achieve the technological
advances that may be necessary for it to remain competitive. In addition, the
Company is subject to the risks generally associated in all of its markets
with new product introductions and applications, including lack of market
acceptance, delays in development or failure of products to operate properly.
There is no proven market for certain of the advanced services referred to
above and there can be no assurance that sufficient demand will develop for
such telephony and enhanced services in each of the Company's markets.
Limited Insurance Coverage. The Company's operating companies obtain
insurance of the type and amount customary for the property in their systems.
Consistent with industry practice in the United States, however, they do not
insure the entire cable portion of multi-channel television systems.
Accordingly, any catastrophe affecting a significant portion of a system's
cable could result in substantial uninsured losses.
International Tax Risks. In general, a United States corporation may claim a
foreign tax credit against its federal income tax expense for foreign taxes
paid and accrued. Because the Company must calculate its foreign tax credit
separately for dividends received from each foreign corporation in which the
Company owns 10% to 50% of the voting stock and because of certain other
limitations, the Company's ability to claim a foreign tax credit may be
limited, particularly with respect to dividends paid out of earnings subject
to a high rate of foreign tax. This limitation and the inability of the
Company to offset losses in one foreign jurisdiction against income earned in
another foreign jurisdiction could result in a high effective tax rate on the
Company's earnings. The Company has acquired ownership interests and may
acquire additional ownership interests in operating companies located in
countries with which the United States does not have income tax treaties, in
which case the Company may be subject to increased withholding taxes on
distributions and other payments from those operating companies and also may
be subject to double taxation with respect to income generated in such
countries.
Inflation Risks. Certain of the operating companies in which the Company
holds an interest operate in countries where the rate of inflation is
extremely high relative to that in the United States. While the Company's
affiliated companies attempt to increase their subscription rates to offset
increases in operating costs, there is no assurance that they will be able to
do so. Therefore, operating costs may rise faster than associated revenue,
resulting in a material negative impact on reported earnings. See
"Management's Discussion and Analysis of Financial Condition--Inflation and
Foreign Currency Exchange Rate Risks."
Original Issue Discount Consequences. The Senior Notes were issued at a
significant discount from their aggregate principal amount at maturity.
Consequently, the purchasers of the Senior Notes generally will be required to
include amounts in gross income for federal income tax purposes in advance of
receipt of any cash payment on the Senior Notes to which the income is
attributable. See "Certain U.S. Income Tax Considerations" for a more detailed
discussion of the federal income tax consequences to the holders of the Senior
Notes of the purchase, ownership and disposition of the Senior Notes.
If a bankruptcy case is commenced by or against the Company under the United
States Bankruptcy Code (the "Bankruptcy Code") after the issuance of the
Senior Notes, the claim of a holder of Senior Notes with respect to the
principal amount thereof will be limited to an amount equal to the sum of (i)
the initial offering price of the Senior Notes and (ii) that portion of the
original issue discount that is not deemed to constitute "unmatured interest"
for purposes of the Bankruptcy Code. Any original issue discount that was not
amortized as of any such bankruptcy filing would most likely constitute
"unmatured interest."
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Trading Market for the Securities; Absence of Public Market. The New Notes
are being offered to the Holders of the Old Notes. The Company has not sought
a listing for the Senior Notes on a national securities exchange or an
authorization for quotation on the Nasdaq Stock Market. The Senior Notes may
trade at a discount from their respective initial offering prices, depending
upon prevailing interest rates, the market for similar securities and other
factors. The Initial Purchasers have informed the Company that, following the
completion of this Offering, the Initial Purchasers currently intend to make a
market in the Senior Notes offered hereby. The Initial Purchasers are not
obligated to do so, however, and any such market making may be discontinued by
them at any time without notice at the Initial Purchasers' sole discretion.
There can be no assurance that an active trading market will develop for the
Senior Notes. The liquidity of, and trading market for, the Senior Notes may
also be significantly adversely affected by declines in the market for high
yield securities generally. See "Plan of Distribution."
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EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes that are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on April 10, 1998, provided, however, that if the Company,
in its sole discretion, has extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended, and provided, further, that the
Expiration Date shall not, however, be extended to a date beyond 60 days after
the date of this Prospectus.
As of the date of this Prospectus, approximately $1,375,000,000 aggregate
principal amount at maturity of the Old Notes was outstanding. This
Prospectus, together with the Letter of Transmittal, is first being sent on or
about March 13, 1998, to all Holders of Old Notes known to the Company. The
Company's obligation to accept Old Notes for exchange pursuant to the Exchange
Offer is subject to certain conditions as set forth under "Certain Conditions
to the Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the Holders thereof; provided that the
Expiration Date shall not, however, be extended to a date beyond 60 days after
the date of this Prospectus. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified below under "Certain Conditions to the Exchange Offer." The
Company will give oral or written notice of any extension, amendment, non-
acceptance or termination to the Holders of the Old Notes as promptly as
practicable, such notice in the case of any extension to be issued by means of
a press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder (which term for
purposes of the Exchange Offer, includes any participant in the Book-Entry
Transfer Facility (as defined) system whose name appears on a security
position listing as the holder of such Old Notes) who wishes to tender Old
Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal to Firstar Bank of Minnesota,
N.A. (the "Exchange Agent") at the address set forth below under "Exchange
Agent" on or prior to the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the exchange Agent along
with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depositary Trust Company
(the "Book-Entry Transfer Facility") pursuant to he procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date along with the Letter of Transmittal, or (iii) the Holder must
comply with the
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guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD
NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED
THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED
IN ALL CASES. SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO
LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) a registered Holder of the Old Notes who has
not competed the box entitled "Special Issuance Instructions" or "Special
Delivery Instruction" on the letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm that is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealer, Inc. or by a commercial bank or trust
company having an office or correspondent in the United States or by such
other Eligible Institution within the meaning of Rule 17(A)(d)-15 of the
Exchange Act, as amended (collectively, "Eligible Institutions"). If Old Notes
are registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must be endorsed by, or be
accompanied by a written instrument or instruments of transfer, or exchange,
in satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered Holder with the signature thereon guaranteed by an
Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt and acceptance) of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to no accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or conditions of the Exchange Offer as to
any particular Old Notes either before or after the Expiration Date (including
the right to waive the ineligibility of any Holder who seeks to tender Old
Notes in the Exchange Offer). The interpretation of the terms and conditions
of the Exchange Offer as to any particular Old Notes either before or after
the Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall
any of them incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered Holder or Holders that appear on the
Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporation or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted with the Letter of Transmittal.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder, that neither the Holder nor
any such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes and that neither the Holder
nor any such other person is an "affiliate", as defined under Rule 405 of the
Securities Act, of the Company. If any Holder is an affiliate of the Company,
is engaged in or intends to engage in or has any arrangement with any person
to participate in the distribution of the New Notes to be acquired pursuant to
the Exchange Offer, such Holders (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospects delivery requirements of the Securities Act in
connection
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with any resale transaction. Each broker-dealer that receives New Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered, issue the New Notes promptly after acceptance of the Old
Notes and cause such New Notes to be authenticated. See "Certain Conditions to
the Exchange Offer" below. For purposes of the Exchange Offer, the Company
shall be deemed to have accepted properly tendered Old Notes for exchange
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent.
For each Old Note accepted for exchange the Holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. If the Exchange Offer is not consummated by April 20,
1998, Liquidated Damages will accrue from and including April 20, 1998. Such
Liquidated Damages will be payable in cash semiannually in arrears each
February 15 and August 15, respectively, commencing August 15, 1998, to
holders of record on the immediately preceding February 1 and August 1,
respectively, at a rate per annum equal to 0.5% of the Accreted Value of the
Old Notes (determined daily). The aggregate amount of Liquidated Damages
payable pursuant to the above provisions will in no event exceed 2.5% per
annum of the Accreted Value (determined daily). Upon the consummation of the
Exchange Offer after April 20, 1998, the liquidated Damages payable on the Old
Notes form the date of such consummation will cease to accrue and all accrued
and unpaid Liquidated Damages as of the consummation of the Exchange Offer
shall be paid promptly thereafter to the holders of record of Old Notes
immediately prior to the time of such occurrence.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent for certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount at
maturity that the Holder desires to exchange, such unaccepted or non-exchanged
Old Notes will be returned without expense to the tendering Holder thereof
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Facility pursuant to the book-entry
procedures described below, such non-exchange Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book- Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility to transfer such Old Notes into the exchange Agent's account in the
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. Although delivery of Old Notes may be
effected through book-entry transfer at the Book-Entry Transfer Facility, the
Letter of Transmittal (or a manually signed facsimile thereof), with any
required signature guarantee and any other required documents, must, in any
case, however, be transmitted to and received by the Exchange Agent at the
address set forth below under "Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the
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Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis; a tender may be effected if
(i) the tender is made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent received from such Eligible Institution a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by the Company (by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth the name and address of the Holder of the Old Notes
and the amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that within five New York Stock Exchange ( "NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Old Notes, in proper form or
transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal, are received by the Exchange
Agent within five NYSE trading days after the date of execution of the Notice
of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under "Exchange
Agent." Any such notice of withdrawal must specify the name of the person
having tendered the Old Notes to be withdrawn, identify the Old Notes to be
withdrawn (including the principal amount at maturity of such Old Notes) and
(where certificates for Old Notes have been transmitted), specify the name in
which such Old Notes are registered, if different from that of the withdrawing
Holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing Holder must also submit the serial numbers of
the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer described above, the executed notice of
withdrawal, guaranteed by an Eligible Institution, unless such Holder is an
Eligible Institution, must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been tendered for exchange for purposes of the Exchange Offer. Any Old Notes
that have been tendered for exchange but that are not exchanged for any reason
will be returned to the Holder thereof without cost to such Holder (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above such Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility for the Old Notes)
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer. Properly withdrawn, Old Notes may be retendered by
following one of the procedures described under "--Procedures for Tendering
Old Notes" above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the
New Notes for such Old Notes, any of the following event shall occur:
(a) there shall be threatened instituted or pending any action or
proceeding before, or any injunction order or decree shall have been issued
by, any court or governmental agency or other governmental regulatory or
administrative agency or commission, (i) seeking to restrain or prohibit
the making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, or assessing or seeking any damages as
a result thereof, or (ii) resulting in a material delay in the ability of
the Company to accept for exchange or exchange some or all of the Old Notes
pursuant to the Exchange Offer,
or any statute, rule, regulation, order or injunction shall be sought,
proposed, introduced, enacted, promulgated or deemed applicable to the
Exchange Offer or any of the transactions contemplated by the Exchange
Offer by any government or governmental authority, domestic or foreign, or
any action shall have
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been taken, proposed or threatened, by any government, governmental
authority, agency or court, domestic or foreign, that in the sole judgment
of the Company might directly or indirectly result in any of the
consequences referred to in clauses (i) or (ii) above or, in the sole
judgment of the Company, might result in the holders of New Notes having
obligations with respect to resales and transfers of New Notes which are
greater than those described in the interpretation of the SEC referred to
on the cover page of this Prospectus, or would otherwise made it
inadvisable to proceed with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit, or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company and its subsidiaries taken as a whole that, in the
reasonable judgment of the Company, is or may be adverse to the Company, or
the Company shall have become aware of facts that, in the reasonable
judgment of the Company, have or may have adverse significance with respect
to the value of the Old Notes or the New Notes;
that, in the reasonable judgment of the Company in any case, and regardless of
the circumstances (including any action by the Company) giving rise to any
such condition, makes it inadvisable to proceed with the Exchange Offer and/or
with such acceptance for exchange or with such exchange.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right and each such right shall be deemed an ongoing right that
may be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall be threatened or in effect with respect
to the Registration Statement of which this Prospectus constitutes a part or
the qualification of the Indenture under the Trust Indenture Act of 1939 (the
"TIA").
EXCHANGE AGENT
Firstar Bank of Minnesota, N.A. has been appointed as the Exchange Agent for
the Exchange Offer. All executed Letters of Transmittal should be directed to
the Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
DELIVERY TO: FIRSTAR BANK OF MINNESOTA, N.A., AS EXCHANGE AGENT
By Mail, By Hand and Overnight Courier: By Facsimile:
Firstar Bank of Minnesota, N.A. (612) 229-0415
Attention: Frank P. Leslie, III
Vice President Confirm by Telephone:
101 East Fifth Street
St. Paul, Minnesota 55101-1860 Frank P. Leslie, III
(612) 229-2600
33
<PAGE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptance of the Exchange Offer except for reimbursement of
mailing expenses.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by Company and are estimated in the aggregate to be
$325,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions
in the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend on the
Old Notes and as described in the Offering Memorandum dated January 30, 1998
relating to the Old Notes, as a consequence of the issuance of the Old Notes
pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Notes may not be offered or sold unless
registered under the Securities Act, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. The Company does not currently anticipate that it will be
required to register the Old Notes under the Securities Act. Based on
interpretations by the staff of the SEC, as set forth in no-action letters
issued to third parties, the Company believes that New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold or otherwise transferred by Holders thereof (other than any such Holder
which is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such Holders' business and such Holders,
other than broker-dealers, are not engaged in, do not intend to engage in and
have no arrangement or understanding with any person to participate in, the
distribution (within the meaning of the Securities Act) of such New Notes. If
any Holder has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) could not rely on the applicable interpretations of the staff
of the SEC and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes must acknowledge that such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities and
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution." In addition, to comply with the securities
laws of certain jurisdictions, if applicable, the New Notes may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdiction or any exemption from registration or qualification is available
and is complied with. The Company does not currently intend to register or
qualify the sale of the Senior Notes in any such jurisdictions.
34
<PAGE>
USE OF PROCEEDS
The Company will not receive any cash proceeds from the exchange of the Old
Notes for the New Notes. The proceeds to the Company (less discounts,
commissions and expenses associated with the Offering) from the Offering were
approximately $791.9 million. The Company used approximately $530.9 million of
the net proceeds to purchase 1999 Notes tendered pursuant to the Tender Offer
and to pay the Consent fees and other related expenses. The proceeds of the
1999 Notes were used to finance the construction, development and acquisition
of the Company's operating systems. The Company plans to use approximately
$88.0 million of the excess proceeds from the Offering for repayment of
approximately $63.0 million of the Tranche B Facility indebtedness and
approximately $25.0 million of UIHLA's bridge loan facility. The Company
intends to use the remaining portion of the excess proceeds for general
corporate purposes including to fund the construction and upgrading of its
existing systems, as well as to pursue additional development and acquisition
opportunities. Pending application, the Company intends to hold such proceeds
in short-term, interest bearing, investment grade securities, including
governmental obligations and other money market instruments.
35
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of November 30, 1997, as adjusted to reflect the UPC Acquisition,
the Offering and the application of the net proceeds from the Offering. The
consolidated capitalization of the Company, as further adjusted, reflects the
repurchase of all of the 1999 Notes in the Tender Offer and otherwise and the
planned repayment of approximately $88.0 million of existing subsidiary
indebtedness including (i) approximately $63.0 million of the Tranche B
Facility indebtedness (approximately $111.2 million as of November 30, 1997)
and (ii) approximately $25.0 million of UIHLA's bridge loan facility
(approximately $38.0 million as of November 30, 1997). The table should be
read in conjunction with the Consolidated Financial Statements of the Company
and the Notes thereto and "Management's Discussion and Analysis of Financial
Condition" included elsewhere in, or incorporated by reference into, this
Prospectus.
<TABLE>
<CAPTION>
NOVEMBER 30, 1997
----------------------------------------
AS FURTHER
AS ADJUSTED ADJUSTED FOR THE
FOR THE UPC OFFERING AND THE
ACTUAL ACQUISITION TENDER OFFER
--------- ----------- ----------------
(In thousands, unaudited)
<S> <C> <C> <C>
Cash, cash equivalents and short-
term investments................ $ 239,042 $ 111,307 $ 289,295
========= ========== ==========
Current portion of long-term
debt:
Notes payable.................. 38,000 68,971 43,971
Other debt--current............ 4,181 4,181 4,181
--------- ---------- ----------
42,181 73,152 48,152
--------- ---------- ----------
Long-term debt:
10 3/4% Senior Secured Discount
Notes due 2008................ -- -- 812,199
14% Senior Secured Discount
Notes due 1999(1)............. 455,595 455,595 --
UIH Australia/Pacific, Inc. 14%
Senior Discount Notes due
2006(2)....................... 302,076 302,076 302,076
Bank Facilities(3)............. 63,144 631,223 568,223
Other.......................... 5,061 5,061 5,061
--------- ---------- ----------
Total long-term debt......... 825,876 1,393,955 1,687,559
--------- ---------- ----------
Minority interest in subsidiary.. 13,200 16,219 16,219
--------- ---------- ----------
Convertible Preferred Stock,
Series A, stated at liquidation
value(4)........................ 32,242 32,242 32,242
--------- ---------- ----------
Stockholders' equity:
Common stock................... 392 392 392
Additional paid-in capital..... 347,127 347,127 347,127
Treasury stock................. -- (33,163) (33,163)
Cumulative translation
adjustment.................... (38,782) (38,782) (38,782)
Deferred compensation.......... (121) (121) (121)
Unrealized loss on investments
in marketable equity
securities.................... (3,183) (3,183) (3,183)
Accumulated deficit............ (461,612) (461,612) (546,275)
--------- ---------- ----------
Total stockholders' equity... (156,179) (189,342) (274,005)
--------- ---------- ----------
Total capitalization......... $ 757,320 $1,326,226 $1,510,167
========= ========== ==========
</TABLE>
- ---------------------
(1) The Company acquired approximately 99.8% of the 1999 Notes in the Tender
Offer and subsequently purchased an additional 0.1% of the 1999 Notes in
the open market. The Company intends to repurchase the remaining
outstanding 1999 Notes (approximately $465,000 principal amount at
maturity) to the extent they come available in the open market.
(2) From May 15, 1997 until such time as UIH A/P effects a sale of equity
resulting in gross proceeds of at least $70 million ("UIH A/P Equity
Sale"), the rate at which these notes accretes is 14.75%. As of December
31, 1997, the Company has funded approximately $15.7 million of such $70
million requirement.
(3) Primarily consists of three facilities: (i) the Tranche A Facility with
total availability of NLG1.1 billion ($555.1 million, as of September 30,
1997), of which approximately NLG813.9 million ($404.0 million as of
December 11, 1997) was drawn as of December 11, 1997 (ii) the Tranche B
Facility with total availability of $125.0 million, all of which was drawn
as of December 11, 1997 in conjunction with the closing of the UPC
Acquisition and (iii) approximately A$87.0 million ($63.1 million as of
September 30, 1997) drawn as of September 30, 1997 by Austar on its bank
credit facility, which has total availability of approximately A$200
million ($145.2 million as of September 30, 1997) upon Austar having
achieved certain minimum subscriber and operating cash flow levels. The
Tranche B Facility matures December 5, 1998, which maturity date is
extendable to June 5, 1999 under certain conditions, and the Company
expects to retire this facility with proceeds from the sale of selected
systems of UPC as well as from proceeds of the Offering. See "Description
of Other Debt--UPC and Affiliates--UPC" and "Description of Other Debt--
UAP and Affiliates -- Austar."
(4) All unconverted shares of the Series A Preferred Stock are subject to a
mandatory redemption on June 19, 2000 and are convertible into shares of
Class A Common Stock at $17.50 per share. The liquidation value on the
mandatory redemption date will be approximately $35.7 million.
36
<PAGE>
The following table sets forth information from the pro forma consolidating
balance sheets of the Company as of November 30, 1997 as adjusted to reflect
the UPC Acquisition, the Offering and the Tender Offer, net of estimated
commissions, fees and expenses, and the application of the proceeds therefrom.
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, 1997
---------------------------------------------------------
UIH UPC UIH A/P UIHLA TOTAL
-------- -------- -------- ------- ----------
(In thousands, unaudited)
<S> <C> <C> <C> <C> <C>
Long-term debt/preferred stock:
10 3/4% Senior Secured Discount
Notes due 2008................... $812,199 $ -- $ -- $ -- $ 812,199
UIH A/P 14% Senior Discount Notes
due 2006(1)...................... -- -- 302,076 -- 302,076
Bank facilities and debt of
consolidated subsidiaries........ -- 505,079(2) 63,144(3) -- (4) 568,223
Other debt........................ -- -- 2,068 2,993 5,061
Preferred stock ($.01 par value).. 32,242(5) -- -- -- 32,242(5)
-------- -------- -------- ------- ----------
Total debt and preferred stock.. $844,441 $505,079 $367,288 $ 2,993 $1,719,801
======== ======== ======== ======= ==========
</TABLE>
- ---------------------
(1) From May 15, 1997 until such time as UIH A/P effects a UIH A/P Equity
Sale, the rate at which these notes accretes is 14.75%. As of December 31,
1997, the Company has funded approximately $15.7 million of such $70
million equity sale requirement.
(2) Includes the Tranche A and Tranche B Facilities. The Company plans to use
approximately $63.0 million of the proceeds from the Offering to repay a
portion of the Tranche B Facility.
(3) Represents approximately A$87.0 million ($63.1 million as of September 30,
1997) drawn as of September 30, 1997 by Austar on its bank credit
facility, which has total availability of approximately A$200 million
($145.2 million as of September 30, 1997), upon Austar having achieved
certain minimum subscriber and operating cash flow levels.
(4) Excludes approximately $38.0 million drawn as of November 30, 1997 on a
new UIHLA credit facility following the Argentina Transaction. This
facility matures in November 1998 and the Company expects to apply the
proceeds from the sale of select Latin American assets, together with
approximately $25.0 million of the proceeds from the Offering, to repay
this facility.
(5) The Series A Preferred Stock is subject to a mandatory redemption on June
19, 2000 and is convertible into shares of Class A Common Stock at $17.50
per share. The liquidation value on the mandatory redemption date will be
approximately $35.7 million.
37
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected annual consolidated financial data includes portions
of selected consolidated financial data incorporated by reference in this
Prospectus and have been derived from the Company's audited consolidated
financial statements. The following selected financial data for the nine-month
periods ended November 30, 1996 and 1997 and as of November 30, 1997 have been
derived from unaudited financial statements that, in the opinion of management
of the Company, reflect all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial data for such periods
and as of such date. The Company's consolidated financial statements do not
consolidate the operating results of its minority-owned affiliates, including
UPC historically. Upon consummation of the UPC Acquisition on December 11,
1997, the Company will consolidate the results of UPC. The data set forth
below are qualified by reference to and should be read in conjunction with the
audited consolidated financial statements and notes thereto of the Company
included in and incorporated by reference into this Prospectus and also with
"Management's Discussion and Analysis of Financial Condition."
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
FEBRUARY 28, YEAR ENDED YEAR ENDED NOVEMBER 30,
--------------------------- FEBRUARY 29, FEBRUARY 28, ---------------------
1993 1994 1995 1996 1997 1996 1997
------- -------- -------- -------------- ------------ --------- ----------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service and other
revenue............... $ -- $ -- $ 701 $ 2,363 $ 30,244 $ 13,877 $ 67,719
Management fee income
from related parties.. 1,246 746 912 507 1,311 756 852
Operating expense...... -- -- (1,651) (4,224) (25,796) (13,925) (45,220)
Selling, general and
administrative
expense............... (6,181) (10,126) (18,299) (22,483) (54,475) (32,092) (59,466)
Depreciation and
amortization.......... (102) (182) (1,701) (2,331) (38,961) (16,773) (61,953)
------- -------- -------- -------- --------- --------- ----------
Net operating loss..... (5,037) (9,562) (20,038) (26,168) (87,677) (48,157) (98,068)
Equity in losses of
affiliated companies,
net................... (2,709) (2,551) (6,106) (48,635) (47,575) (33,224) (53,521)
Gain on sale of
investments in
affiliated companies.. -- 356 -- 16,013 65,249 65,260 91,600
Interest income
(expense), net........ (2,059) 1,034 (2,787) (27,628) (66,330) (45,235) (84,344)
Provision for losses on
investment related
costs................. (135) (2,754) (2,865) (6,055) (5,859) (1,600) (8,148)
Other.................. 21 (407) 1,182 1,162 3,367 3,712 (5,578)
------- -------- -------- -------- --------- --------- ----------
Net loss............... $(9,919) $(13,884) $(30,614) $(91,311) $(138,825) $ (59,244) $ (158,059)
======= ======== ======== ======== ========= ========= ==========
Ratio of earnings to
fixed charges(1)...... -- -- -- -- -- -- --
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
AS OF FEBRUARY 28, AS OF AS OF AS OF
--------------------------- FEBRUARY 29, FEBRUARY 28, NOVEMBER 30,
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------------- ------------ ------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA :
Cash, cash equivalents
and short-term
investments........... $ 160 $ 65,260 $130,102 $147,910 $139,143 $ 239,042
Property, plant and
equipment, net........ 419 2,989 13,741 31,102 219,342 209,159
Investments in and
advances to affiliated
companies, including
marketable equity
securities............ 12,995 24,427 94,037 275,478 257,401 211,133
Total assets........... 19,492 107,312 370,290 580,206 819,936 799,182
Notes payable to
related parties....... 5,027 1,836 -- -- -- --
Senior secured notes
and other debt........ 4,293 4,504 202,416 371,227 671,540 825,876
Total liabilities...... 35,076 12,145 212,946 384,482 773,240 909,919
Stockholders' equity
(deficit)............. (16,059) 93,836 138,870 151,976 15,096 (156,179)
</TABLE>
- ---------------------
(1) In calculating the ratio of earnings to fixed charges, earnings consist of
(i) net loss before income tax expense and fixed charges plus (ii) equity
in losses of an equity method investee for which the Company has
guaranteed the investee's debt. Fixed charges consist of interest expense
on third party debt, interest expense to the Company's predecessor parent,
and the Company's proportionate share of the interest expense on
guaranteed debt of an equity investee. The ratio of earnings to fixed
charges was less than 1.0 to 1.0 for each of the Company's last five
fiscal years and for the nine months ended November 30, 1996 and 1997.
Earnings available for fixed charges were thus inadequate to cover fixed
charges for such periods. The amount of the coverage deficiencies for the
years ended February 28, 1993, 1994 and 1995, February 29, 1996 and
February 28, 1997 were approximately $8.8 million, $13.1 million, $26.5
million, $64.7 million and $120.9 million, respectively. The amount of the
coverage deficiencies for the nine months ended November 30, 1996 and 1997
were $44.9 million, and $144.0 million, respectively. On a pro forma
basis, assuming that the Offering, the Tender Offer and the UPC
Acquisition had been consummated as of the beginning of the applicable
period, the Company's pro forma earnings would have been inadequate to
cover its pro forma fixed charges for the year ended February 28, 1997, by
$193.8 million and for the nine months ended November 30, 1997, by $294.4
million. See "Risk Factors--Leverage and Ability to Service Debt."
39
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION OF THE COMPANY
The following unaudited pro forma consolidated balance sheet gives effect to
the consummation of (i) the UPC Acquisition and (ii) the Tender Offer, the
Offering and the application of the proceeds therefrom as if each had occurred
on November 30, 1997. The following unaudited pro forma consolidated statement
of operations for the year ended February 28, 1997 and nine months ended
November 30, 1997 gives effect to these transactions, together with the
Argentina Transaction, as if each had occurred as of the beginning of fiscal
1997. The pro forma consolidated condensed financial information and notes
thereto do not purport to represent what the Company's results of operations
would actually have been if such transactions had in fact occurred on such
dates.
The pro forma adjustments are based upon currently available information and
upon certain assumptions that management believes are reasonable. The
unaudited pro forma consolidated condensed financial information and
accompanying notes should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto, and other financial
information pertaining to the Company including "Management's Discussion and
Analysis of Financial Condition" included in and incorporated by reference
into this Prospectus.
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, 1997
-----------------------------------------------------
PRO FORMA ADJUSTMENTS
---------------------------
THE OFFERING
THE UPC AND THE
HISTORICAL ACQUISITION(1) TENDER OFFER PRO FORMA
---------- -------------- ------------ -----------
(In thousands, unaudited)
<S> <C> <C> <C> <C>
CONSOLIDATED CONDENSED
BALANCE SHEET:
ASSETS
Cash and cash
equivalents and short-
term investments....... $239,042 $(127,735) $177,988(2) $ 289,295
Restricted and escrowed
cash................... 15,171 -- -- 15,171
Subscriber receivables,
net.................... 2,670 54,092 -- 56,762
Costs to be reimbursed
by affiliated compa-
nies................... 10,610 -- -- 10,610
Other current assets.... 18,576 7,725 (6,153)(3) 20,148
-------- --------- -------- -----------
Total current assets... 286,069 (65,918) 171,835 391,986
Property, plant and
equipment, net......... 209,159 235,374 -- 444,533
Goodwill, net........... 54,888 205,645 -- 260,533
License rights.......... 8,786 302,487 -- 311,273
Investments in and ad-
vances to affiliated
companies.............. 211,133 (1,694) -- 209,439
Other non-current as-
sets................... 29,147 26,657 12,106 (4) 67,910
-------- --------- -------- -----------
Total assets........... $799,182 $702,551 $183,941 $ 1,685,674
======== ========= ======== ===========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Accounts payable, ac-
crued liabilities and
other.................. $ 41,862 $108,501 -- $ 150,363
Notes payable........... 38,000 30,971 (25,000) (5) 43,971
Current portion of long
term debt.............. 4,181 -- -- 4,181
-------- --------- -------- -----------
Total current liabili-
ties.................. 84,043 139,472 (25,000) 198,515
Deferred income taxes... -- 25,144 -- 25,144
Senior secured notes and
other debt............. 825,876 568,079 293,604 (6) 1,687,559
-------- --------- -------- -----------
Total liabilities...... 909,919 732,695 268,604 1,911,218
Minority interest....... 13,200 3,019 -- 16,219
Preferred stock......... 32,242 -- -- 32,242
Stockholders' equity
(deficit).............. (156,179) (33,163) (84,663)(7) (274,005)
-------- --------- -------- -----------
Total liabilities and
stockholders' equity
(deficit)............. $799,182 $702,551 $183,941 $ 1,685,674
======== ========= ======== ===========
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28, 1997
--------------------------------------------------------------------
PRO FORMA ADJUSTMENTS
--------------------------------------------
THE OFFERING
THE ARGENTINA THE UPC AND THE
HISTORICAL TRANSACTION(8) ACQUISITION(1) TENDER OFFER PRO FORMA
---------- -------------- -------------- ------------ ---------
(In thousands, except share and per share data)
(Unaudited)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED CONDENSED
STATEMENT OF
OPERATIONS:
Service and other
revenue................ $ 30,244 $ (4,385) $145,076 $ -- $ 170,935
Management fee income
from related parties... 1,311 -- -- -- 1,311
Operating expense....... (25,796) 2,031 (47,621) -- (71,386)
Selling, general and
administrative
expense................ (54,475) 2,183 (46,641) -- (98,933)
Depreciation and
amortization........... (38,961) 1,592 (70,385) -- (107,754)
--------- -------- -------- -------- ---------
Net operating loss..... (87,677) 1,421 (19,571) -- (105,827)
Other income (expense):
Equity in income
(losses) of affiliated
companies, net......... (47,575) -- 21,227 -- (26,348)
Gain on sale of
investment in
affiliated company..... 65,249 -- -- -- 65,249
Interest expense, net... (66,330) 1,078 (34,113) (28,969)(9) (128,334)
Provision for losses on
investment related
costs.................. (5,859) -- -- -- (5,859)
Other................... 3,367 (22) (13,764) -- (10,419)
--------- -------- -------- -------- ---------
Net income (loss) ..... $(138,825) $ 2,477 $(46,221) $(28,969) $(211,538)
========= ======== ======== ======== =========
Net income (loss) per
common share.......... $ (3.56) $ (5.90)
========= =========
<CAPTION>
NINE MONTHS ENDED NOVEMBER 30, 1997
--------------------------------------------------------------------
PRO FORMA ADJUSTMENTS
--------------------------------------------
THE OFFERING
THE ARGENTINA THE UPC AND THE
HISTORICAL TRANSACTION(8) ACQUISITION(1) TENDER OFFER PRO FORMA
---------- -------------- -------------- ------------ ---------
(In thousands, except share and per share data)
(Unaudited)
CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Service and other
revenue................ $ 67,719 $(17,627) $128,897 $ -- $ 178,989
Management fee income
from related parties... 852 -- -- -- 852
Operating expense....... (45,220) 8,886 (50,106) -- (86,440)
Selling, general and
administrative
expense................ (59,466) 5,626 (41,269) -- (95,109)
Depreciation and
amortization........... (61,953) 3,288 (66,174) -- (124,839)
--------- -------- -------- -------- ---------
Net operating loss..... (98,068) 173 (28,652) -- (126,547)
Other income (expense):
Equity in income
(losses) of affiliated
companies, net......... (53,521) 203 31,579 -- (21,739)
Gain on sale of
investment in
affiliated company..... 91,600 (91,600)(10) -- -- --
Interest expense, net... (84,344) 7,046 (25,570) (22,456)(9) (125,324)
Provision for losses on
investment related
costs.................. (8,148) -- -- -- (8,148)
Other................... (5,578) 1,089 (20,736) -- (25,225)
--------- -------- -------- -------- ---------
Net income (loss)...... $(158,059) $(83,089) $(43,379) $(22,456) $(306,983)
========= ======== ======== ======== =========
Net income (loss) per
common share.......... $ (4.03) $ (8.52)
========= =========
</TABLE>
- ---------------------
(1) Represents the net effect of the UPC Acquisition. On December 11, 1997, the
Company acquired Philips' entire interest in UPC. In addition to purchasing
Philips' interest in UPC at closing, (i) UPC purchased 3.17 million shares
of the Company's Class A Common Stock held by Philips, (ii) UPC repaid to
Philips the accreted amount of UPC's pay-in-kind convertible notes not
acquired directly by UIH, and (iii) UPC made a payment to Philips in lieu
of issuing a previously negotiated stock appreciation right. In connection
with the UPC Acquisition, UPC refinanced all of its existing consolidated
debt, except for approximately NLG123.4 million ($62.3 million as of
September 30, 1997) of project financing and other notes payable. The UPC
Acquisition was financed with (i) approximately NLG813.9 million ($404.0
million as of December 11, 1997) drawn under the Tranche A Facility and
$111.2 million drawn under the Tranche B Facility and an approximate $162.5
million cash investment by UIH. The following consolidated condensed
financial statements of UPC give effect to the above transaction:
41
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS TO ADJUSTMENTS TO
HISTORICAL (A) UPC BALANCES UIH BALANCES PRO FORMA
-------------- --------------- --------------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED CONDENSED
BALANCE SHEET
AS OF SEPTEMBER 30,
1997:
Cash and cash
equivalents and short
term investments....... $ 34,765 $ -- $(162,500)(b) $(127,735)
Restricted and escrowed
cash................... -- -- -- --
Subscriber receivables,
net.................... 54,092 -- -- 54,092
Costs to be reimbursed
by affiliated
companies.............. -- -- -- --
Other current assets.... 7,725 -- -- 7,725
-------- -------- --------- ---------
Total current assets... 96,582 -- (162,500) (65,918)
Property, plant and
equipment, net......... 225,961 9,413 (c) -- 235,374
Goodwill, net........... 74,043 131,602 (c) -- 205,645
License rights, net..... 242,740 59,747 (c) -- 302,487
Investments in and
advances to affiliated
companies.............. 30,004 24,243 (c) (55,941)(d) (1,694)
Other non-current
assets................. 26,657 -- -- 26,657
-------- -------- --------- ---------
Total assets........... $695,987 $225,005 $(218,441) $ 702,551
======== ======== ========= =========
Accounts payable,
accrued liabilities and
other.................. $108,501 $ -- $ -- $ 108,501
Current portion of long
term debt.............. 269,277 (238,306)(e) -- 30,971
-------- -------- --------- ---------
Total current
liabilities........... 377,778 (238,306) -- 139,472
Deferred income taxes... 23,545 1,599 (c) -- 25,144
Senior secured notes and
other debt............. 225,573 342,506 (f) -- 568,079
-------- -------- --------- ---------
Total liabilities...... 626,896 105,799 -- 732,695
Minority interest....... 3,019 -- -- 3,019
Preferred stock......... -- -- -- --
Stockholders' equity
(deficit).............. 66,072 119,206 (g) (218,441)(h) (33,163)
-------- -------- --------- ---------
Total liabilities and
stockholders' equity
...................... $695,987 $225,005 $(218,441) $ 702,551
======== ======== ========= =========
CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 1996:
Service and other
revenue................ $145,076 $ -- $ -- $ 145,076
Management fee income
from related parties... -- -- -- --
Operating expense....... (47,621) -- -- (47,621)
Selling, general and ad-
ministrative expenses.. (46,641) -- -- (46,641)
Depreciation and amorti-
zation................. (57,001) (13,384)(i) -- (70,385)
-------- -------- --------- ---------
Net operating loss..... (6,187) (13,384) -- (19,571)
Other income (expense):
Equity in income (loss-
es) of affiliated com-
panies, net............ (3,438) -- 24,665 (j) 21,227
Gain on sale of invest-
ment in affiliated com-
pany................... -- -- -- --
Interest expense, net... (21,485) (12,628)(k) -- (34,113)
Provision for losses on
investment related
costs.................. -- -- -- --
Other................... (13,764) -- -- (13,764)
-------- -------- --------- ---------
Net income (loss)...... $(44,874) $(26,012) $ 24,665 $ (46,221)
======== ======== ========= =========
CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
1997:
Service and other reve-
nue.................... $128,897 $ -- $ -- $ 128,897
Management fee income
from related parties... -- -- -- --
Operating expense....... (50,106) -- -- (50,106)
Selling, general and ad-
ministrative expenses.. (41,269) -- -- (41,269)
Depreciation and amorti-
zation................. (56,136) (10,038)(i) -- (66,174)
-------- -------- --------- ---------
Net operating loss..... (18,614) (10,038) -- (28,652)
Other income (expense):
Equity in income (loss-
es) of affiliated com-
panies, net............ (3,509) -- 35,088(j) 31,579
Gain on sale of invest-
ment in affiliated com-
pany................... -- -- -- --
Interest expense, net... (24,143) (1,427)(k) -- (25,570)
Provision for losses on
investment related
costs.................. -- -- -- --
Other................... (20,736) -- -- (20,736)
-------- -------- --------- ---------
Net income (loss)...... $(67,002) $(11,465) $ 35,088 $ (43,379)
======== ======== ========= =========
</TABLE>
42
<PAGE>
---------------------
(a) Represents UPC historical balance sheet balances as of September 30,
1997 and historical statement of operations balances for the year ended
December 31, 1996 and for the nine month period ended September 30, 1997
all prepared in accordance with United States generally accepted
accounting principles.
(b) Reduction in cash of UIH as partial consideration for the acquisition of
UPC ordinary shares and UPC pay-in-kind convertible notes owned by
Philips.
(c) Represents the allocation of excess purchase price over book value to
UPC assets as a result of applying purchase accounting. The total step-
up of $225,005 includes the push-down of goodwill ($22,905) from UIH's
investment in UPC to UPC goodwill, transaction costs ($10,200), deferred
taxes ($1,599), and the step-up related to the acquisition of Philip's
interest in UPC totalling $190,301. This amount is the difference
between the price paid for Philips' interest ($223,337) and their
proportionate interest in UPC's net assets ($33,036).
(d) Represents the following:
<TABLE>
<S> <C>
Additional investment by the Company in UPC..................... $ 162,500
Elimination of the Company's investment in UPC.................. (218,441)
---------
$ (55,941)
=========
</TABLE>
(e) Represents the refinancing of certain existing UPC credit facilities.
(f) Represents the following:
<TABLE>
<S> <C>
Repayment of the pay-in-kind convertible notes................. $(163,242)
Refinancing of certain existing UPC credit facilities.......... 238,306
Acquisition of UPC ordinary shares............................. 223,337
Acquisition of 3.17 million shares of UIH Class A Common Stock
owned by Philips.............................................. 33,163
Transaction costs.............................................. 10,200
Other.......................................................... 742
---------
Total.......................................................... $ 342,506
=========
</TABLE>
(g) Represents the following:
<TABLE>
<S> <C>
Acquisition of ordinary shares held by Philips................. $(223,337)
Additional investment by the Company in UPC.................... 162,500
Step-up in basis at UPC as a result of the UPC Acquisition..... 213,206
Reclassification of UPC's investment in UIH Class A Common
Stock to treasury stock....................................... (33,163)
---------
Total.......................................................... $ 119,206
=========
</TABLE>
(h) Represents the following:
<TABLE>
<S> <C>
Elimination of historical UIH investment in UPC.................. $ (55,941)
Elimination of additional investment by UIH in UPC............... (162,500)
---------
$(218,441)
=========
</TABLE>
(i) Represents additional depreciation and amortization as a result of the
step-up in basis of property, plant and equipment, license rights and
goodwill.
(j) Represents elimination of the Company's historical equity in losses
related to UPC.
(k) Represents the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
FEBRUARY 28, 1997 NOVEMBER 30, 1997
----------------- -----------------
<S> <C> <C>
Elimination of historical interest
expense on the pay-in-kind con-
vertible notes.................... $ 14,327 $11,558
Elimination of historical interest
on the refinanced credit
facilities........................ 5,609 11,438
Additional interest expense on the
Tranche A Facility (assuming
borrowings of $400,000 at an
interest rate of 5.5%)............ (22,000) (16,500)
Additional interest expense on the
Tranche B Facility (assuming
borrowings of $111,200 at an
interest rate of 9.5%)............ (10,564) (7,923)
-------- -------
Total.............................. $(12,628) $(1,427)
======== =======
</TABLE>
43
<PAGE>
(2) Represents the net increase in cash as a result of the Offering and the
Tender Offer:
<TABLE>
<S> <C>
Cash paid to redeem 1999 Notes*.................................. $(455,595)
Cash paid for Tender Premium and other costs*.................... (70,342)
Cash proceeds of the Offering.................................... 791,925
Estimated repayment of subsidiary indebtedness................... (88,000)
---------
$ 177,988
=========
* Based on a payment of $887.29 per $1,000 principal amount at maturity and
assuming (i) a Tender Offer expiration date of November 30, 1997 and (ii)
repurchase of 100% of the 1999 Notes. As of the expiration of the Tender
Offer period on February 4, 1998, 99.8% of the 1999 Notes were validly and
irrevocably tendered. The Company subsequently purchased $500 principal
amount at maturity of the 1999 Notes on the open market, and intends to
purchase the remaining approximately $465 principal amount at maturity of
the 1999 Notes with the proceeds from the Offering to the extent they
become available on the open market.
(3) Represents elimination of the current portion of deferred offering costs
related to the 1999 Notes.
(4) Represents net increase in deferred offering costs as follows:
Elimination of deferred offering costs related to 1999 Notes..... $ (8,168)
Deferred Offering costs related to the Offering.................. 20,274
---------
$ 12,106
=========
(5) Represents the planned repayment of approximately $25,000 of the UIHLA
bridge loan facility.
(6) Represents net increase in senior secured notes and other debt as follows:
Redemption of 1999 Notes......................................... $(455,595)
The Offering..................................................... 812,199
Repayment of a portion of the Tranche B Facility................. (63,000)
---------
$ 293,604
=========
</TABLE>
(7) Represents the extraordinary loss on the repayment of the 1999 Notes
computed as the excess of the cash paid to redeem existing notes ($525,487)
over the accreted value of existing notes ($455,595) plus the write-off of
unamortized debt costs on the existing notes ($14,321), and $450 of other
costs. The actual loss on redemption on or about February 4, 1998 will be
less than the pro forma loss by approximately $6.6 million, due to the
difference between the actual accretion amount and the actual redemption
amount at February 4, 1998.
(8) Represents elimination of historical Argentina results of operations due to
the Argentina Transaction.
(9) Represents the net increase in interest expense as result of the Offering:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
FEBRUARY 28, 1997 NOVEMBER 30, 1997
----------------- -----------------
<S> <C> <C>
Elimination of historical interest
expense and amortization of deferred
debt costs on the 1999 Notes......... $ 56,759 $ 48,573
Reduction of interest expense for the
planned repayment of $63,000 on the
Tranche B Facility at 9.5%*.......... 5,985 4,489
Additional interest expense on the
Senior Notes (assuming borrowings of
$812,199 at an interest rate of
10.75%; compounded semi-annually).... (89,658) (74,015)
Amortization of deferred debt costs on
the Senior Notes..................... (2,055) (1,503)
-------- --------
$(28,969) $(22,456)
======== ========
</TABLE>
* Effect of reduction of interest expense on UIHLA bridge loan facility is
immaterial, as the indebtedness was incurred on November 28, 1997.
(10) Represents elimination of the estimated gain recorded on the Argentina
Transaction during the quarter ended November 30, 1997.
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The section below includes portions of "Management's Discussion and Analysis
of Financial Condition and Results of Operation" incorporated by reference in
this Prospectus, as updated to reflect the Offering and recent commitments to
certain new development projects. A detailed "Management's Discussion and
Analysis of Financial Condition and Results of Operations," including an
analysis of the Company's consolidated financial statements, is incorporated
by reference from the Company's Form 10-K for the year ended February 28,
1997, and Form 10-Q for the nine months ended November 30, 1997, copies of
which may be obtained from the Company.
INTRODUCTION
The Company was formed in 1989 for the purpose of acquiring and developing
multi-channel television and telecommunications systems outside the United
States. The Company currently, through UPC, owns interests in multi-channel
television operating systems in 12 countries in Europe and in Israel. The
Company, through UIHLA and UAP, holds interests in multi-channel television
operating systems and related business development projects in Chile, Brazil,
Mexico, Peru, Australia, New Zealand, Tahiti, the Philippines and China. The
Company also holds interests in a private telecommunications network in Russia
and a telephony project in Hungary, as well as programming companies for the
Australia, Spain, Portugal and Ireland markets. The Company has historically
accounted for UPC and all of the interests it holds directly through UIHLA and
UAP using the equity method, except for the interests in the Australia, New
Zealand, Tahiti and Peru operating systems, which are consolidated. Prior to
the Argentina Transaction, the Company consolidated the results of the Bahia
Blanca, Argentina system. Following the UPC Acquisition on December 11, 1997,
the Company will consolidate the operations of UPC and its consolidated
subsidiaries (the Austria, Belgium, Netherlands (Eindhoven), Norway, Czech
Republic, France, Portugal, Romania and Slovak Republic operating systems).
The Company's consolidated financial statements do not consolidate the
operating results of its minority-owned operating companies. Historically, the
only revenue reflected on the Company's consolidated statements of operations
other than revenue of consolidated subsidiaries is management fees from
related parties and certain operating entities. General and administrative
costs include salaries, employee benefits, rent and other routine overhead
expenses of the Company as well as legal, accounting and consulting fees.
The Company accounts for its share of the income or loss of its operating
companies based on the calendar year results of such operating company. This
creates a two-month delay in reporting the operating company results in the
Company's consolidated results for its fiscal year end. Based on reported
historical results and the activities of the operating companies, the Company
believes this two-month delay has not had and will not have a significant
impact on reported operating results of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations, as well as its
investments in and development of its operating systems and development
opportunities, primarily through the sale of equity and debt securities as
well as through the sale of appreciated assets. During the period from 1989 to
the Offering in February 1998, the Company has raised total gross cash
proceeds of approximately $287.3 million from the sale of its common equity in
a series of private transactions and public offerings and approximately $325.9
million from the sale of the 1999 Notes. The following table summarizes the
total gross cash proceeds raised by the Issuer from sales of its common stock
and the 1999 Notes:
<TABLE>
<CAPTION>
GROSS PROCEEDS
(IN MILLIONS)
--------------
<S> <C>
Management and original investors............................... $ 28.5
Private equity offerings (April and July 1993).................. 30.0
Initial public offering (July 1993)............................. 76.5
Public equity offering (November 1994).......................... 86.3
Public equity offering (November 1995).......................... 66.0
------
Total equity proceeds.......................................... 287.3
------
14% Senior Secured Discount Notes (November 1994)............... 200.9
14% Senior Secured Discount Notes (November 1995) .............. 75.9
14% Senior Secured Discount Notes (February 1996) .............. 49.1
------
Total 1999 Notes proceeds...................................... 325.9
------
Total equity and debt gross proceeds........................... $613.2
======
</TABLE>
45
<PAGE>
In December 1995, in connection with the Company's acquisition of an
additional 40% economic interest in Austar, the Company issued 170,513 shares
of its Convertible Preferred Stock, Series A ("Series A Preferred Stock"),
having a liquidation value at issuance of approximately $29.8 million as
partial consideration for the 40% interest it acquired in Austar (increasing
its interest at that time to 90%). The Company is required to redeem in June
2000 the Series A Preferred Stock not previously converted at the then
liquidated value. Assuming that none of the Series A Preferred Stock is
converted prior to redemption, the total cost to the Company of redeeming the
Series A Preferred Stock would be approximately $35.7 million.
From November 1994 through February 1996, the Company raised total gross
proceeds of approximately $325.9 million from the public and private offerings
of $599.4 million aggregate principal amount at maturity of the 1999 Notes. In
February 1998, the Company raised gross proceeds of $812.2 million from the
sale of Senior Notes in the Offering. The Company used approximately $530.9
million of the proceeds from the Offering to complete the Tender Offer, with
over 99.8% of the 1999 Notes being validly and irrevocably tendered. The
Company subsequently purchased $500,000 principal amount at maturity of the
1999 Notes on the open market. The Company plans to repurchase the remaining
outstanding 1999 Notes (approximately $465,000 principal amount at maturity)
to the extent they become available on the open market. See "Pro Forma
Consolidated Condensed Financial Information of the Company."
In January 1996, the Company sold its 25% interest in a company developing a
cable television system in Rio de Janeiro, Brazil for approximately $13.5
million cash. The Company had a net investment of approximately $1.6 million
in connection with such interest. In August 1996, the Company sold its 34%
interest in a company developing a cable television system in Sao Paulo,
Brazil for $78.1 million in cash and recognized a net gain of $65.2 million
(after recognizing cumulative operating losses of approximately $9.9 million).
In May 1997, the Company entered into an agreement to sell its Venezuela cable
television operations for approximately $10.5 million. In October 1997, the
Company sold all of its Argentina multi-channel television system assets for
approximately $213.3 million cash subject to post closing adjustments,
resulting in a net gain of approximately $91.6 million (after giving
recognition of cumulative operating losses and other items).
As the Company has matured, it has financed the operations of its operating
companies on a more regional and local level. Since its formation in July
1995, UPC has funded the construction, upgrading and operations of its
operating companies and development projects through cash from operations,
proceeds from debt facilities of certain of its operating companies and cash
contributed by UIH upon formation of UPC. In connection with the UPC
Acquisition and refinancing existing debt of UPC, UPC incurred debt of (i)
approximately NLG813.9 million ($404.0 million as of December 11, 1997)
pursuant to the Tranche A Facility; and (ii) $111.2 million pursuant to the
Tranche B Facility. UIH also invested cash of approximately $162.5 million to
complete the UPC Acquisition. The maximum available under the Tranche A
Facility is approximately NLG1.1 billion ($555.1 million as of September 30,
1997), approximately NLG479.0 million ($238.3 million as of December 11, 1997)
of which was used to repay existing debt of UPC. UPC plans to use any
additional borrowings under such facility for general corporate purposes,
including capital expenditures, working capital requirements of its
subsidiaries and acquisitions. UPC used a portion of the proceeds of the
Tranche A Facility and substantially all of the proceeds of the Tranche B
Facility, together with UIH's unrestricted cash and proceeds from the
Argentina Transaction, to fund the UPC Acquisition. The Company plans to repay
approximately $63.0 million of the Tranche B Facility with proceeds of the
Offering.
In addition to contributions from the Company, UAP has funded its
operations, primarily in Australia, through private debt offerings by UIH A/P.
In 1996 and 1997, UIH A/P raised total gross proceeds of approximately $255.0
million from the sale of its 14% Senior Discount Notes due 2006 (the "UIH A/P
Notes"). In addition, Austar has in place an up to A$200.0 million ($145.2
million as of September 30, 1997) senior bank facility, proceeds of which are
being used to finance the installation of equipment for new subscribers and
working capital needs. As of September 30, 1997, Austar had drawn
approximately A$87.0 million ($63.1 million as of September 30, 1997) under
such facility and had up to A$113.0 million available, subject to compliance
with certain financial covenants. The Company believes that Austar has
sufficient capital to meet its anticipated working capital needs, although
there can be no assurance as such.
46
<PAGE>
In addition to contributions by the Company, UIHLA has recently funded its
operations through cash generated from the sale of its Brazilian and
Venezuelan assets as well as with approximately $110.0 million drawn under a
bank credit facility. The credit facility was repaid in full in October 1997
with proceeds from the Argentina Transaction. UIHLA has arranged a $40.0
million short-term bank facility, $38.0 million of which was drawn down and
outstanding as of November 30, 1997, with Toronto Dominion (Texas), Inc. The
Company plans to repay approximately $25.0 million of the facility with
proceeds of the Offering. UIHLA plans to sell certain of its assets, including
its Mexico system, and to apply the proceeds of such sales, if sufficient, to
(i) the repayment of the remainder of such credit facility, (ii) the
construction of its existing systems, and (iii) the pursuit of new-build
opportunities, primarily in Brazil.
As of November 30, 1997, pro forma for the UPC Acquisition, the Argentina
Transaction, the Offering and the Tender Offer (based on a payment of $887.29
per $1,000 principal amount at maturity and assuming the Company's acquisition
of 100% of the 1999 Notes), the Company had approximately $284.3 million of
cash on hand. The Company believes that this cash balance, combined with
internally generated cash flow and amounts available under the existing credit
facilities of its subsidiaries, will provide it with sufficient capital to
meet the growth plans of its existing subsidiaries and affiliates, although
there can be no assurance that the Company will not require additional capital
for such subsidiaries or affiliates. In addition, UIH is considering the sale
of a number of its operations. If the Company completes any such sales, it
intends to use the proceeds from such sales to reduce debt, finance the growth
of its existing operations and potentially for new acquisition/development
opportunities.
To the extent the Company pursues new acquisition or development
opportunities, the Company would need to raise additional capital, either
through asset sales, issuances of its debt or equity securities or through
operating company borrowings. There can be no assurance the Company will be
able to raise additional capital through any such methods.
Prior to the maturity of the Senior Notes, the Company will be obligated to
satisfy significant payment and purchase obligations in the near term,
including, but not limited to, the Combivisie acquisition, the repayment of
the Tranche B Facility and the satisfaction of certain obligations described
in "Description of Other Debt." Although the Company currently believes that
cash on hand, cash flow from its future operations and its borrowing capacity
will be sufficient to meet these obligations as they become due, no assurance
can be given that the Company will satisfy all of the conditions precedent to
borrowing pursuant to certain of its existing credit facilities or that
circumstances will not require the Company to sell assets or obtain additional
equity or debt financing, which the Company may not at such time be able to do
on terms satisfactory to it or at all.
Because the Company does not currently generate positive operating cash
flow, its ability to repay its obligations on the Senior Notes at maturity as
well as any other obligations that become due before such time will be
dependent on developing one or more additional sources of cash prior to the
maturity of the Senior Notes in 2008. The Company plans to develop additional
cash flow through the addition of revenue generating services to many of its
systems, as well as by obtaining controlling ownership of systems whose
revenues it will be able to consolidate. In addition, the Company may sell
assets where appropriate to realize additional cash. There can be no
assurance, however, that the Company will be successful in such activities or
be able to generate sufficient cash to repay the Senior Notes at maturity and
any other indebtedness due prior to the maturity of the Senior Notes. See
"Risk Factors--Leverage and Ability to Service Debt."
INFLATION AND FOREIGN CURRENCY EXCHANGE RATE RISKS
The Company's foreign operating companies' monetary assets and liabilities
are subject to foreign currency exchange risk as certain equipment purchases
and payments for certain operating expenses, such as programming expenses, are
denominated in currencies other than their own functional currency. In
addition, certain of the Company's foreign 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. In
addition, the Company's entire equity investment portfolio is indirectly
impacted by foreign exchange rate risk.
47
<PAGE>
Certain of the Company's operating companies operate in countries where the
rate of inflation is extremely high relative to that in the United States.
While the Company's affiliated companies attempt to increase their
subscription rates to offset increases in operating costs, there is no
assurance that they will be able to do so. Therefore, operating costs may rise
faster than associated revenue, resulting in a material negative impact on
reported earnings. The Company is impacted by inflationary increases in
salaries, wages, benefits and other administrative costs, the effects of which
to date have not been material to the Company.
FOREIGN INVESTMENT RISK
The Company's foreign operating companies are all directly affected by their
respective countries' government, economic, fiscal and monetary policies and
other political factors. The Company believes that its operating companies'
financial conditions and results of income (loss) from operations have not
been materially adversely affected by these factors. See "Risk Factors--Risks
Inherent in Foreign Investment."
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
which is required to be adopted by affected companies for fiscal years ending
after December 15, 1997; early adoption is not permitted. SFAS 128 revised the
standards for the computation of earnings per share and the related disclosure
requirements. The Company does not believe that the provisions of SFAS 128
will have a material effect on the Company's reported earnings per share.
YEAR 2000 CONVERSION
The Company has established a central committee to coordinate the
identification, evaluation, and implementation of changes to computer systems
and applications necessary to achieve a year 2000 date conversion with no
effect on customers or disruption to business operations. These actions are
necessary to ensure that the systems and applications will recognize and
process information for the year 2000 and beyond. Major areas of potential
business impact have been identified and are being dimensioned, and initial
conversion efforts are underway. The Company also is communicating with
suppliers, dealers, financial institutions and others with which it does
business to coordinate year 2000 conversion. The total cost of compliance and
its effect on the Company's future results of operations is being determined
as part of the detailed conversion planning. In addition, the Company could be
materially adversely affected by the failure of its vendors to achieve year
2000 date conversion.
48
<PAGE>
BUSINESS
The Company, through its subsidiaries and affiliates, is a leading provider
of multi-channel television services outside the United States, owning and
operating systems in over 20 countries around the world. UIH operates systems
in three geographic regions: (i) Europe, primarily through UPC, which is one
of Europe's largest privately owned multiple system operators; (ii)
Asia/Pacific, including through its indirect 98% owned interest in Austar,
which is the largest provider of multi-channel television services in regional
Australia; and (iii) Latin America, including through its 34% interest in VTR
Hipercable, which is the largest multi-channel television provider in Chile.
These operating systems served an aggregate of approximately 3.1 million
subscribers and passed approximately 7.4 million of the approximately 9.9
million homes in their respective service areas at September 30, 1997. UIH's
equity interest as of such date in those subscribers, homes passed and homes
in the Company's service areas was approximately 1.9 million, 4.6 million and
6.1 million, respectively. See "Corporate Organizational Structure" for a
discussion of UIH's interests in its various intermediate holding companies
and operating systems.
UIH was founded in 1989 by a management team that had substantial experience
in the cable television industry in the United States. Recognizing the
opportunities that exist to bring multi-channel television services to
countries that have little or none of such services, UIH has, since its
formation, focused on and invested in multi-channel television systems outside
the United States. UIH originally focused its efforts in Europe and Israel,
whose economies were sufficiently developed to support its operations and
where demand for service was significant. A number of UIH's original
development projects in Europe and Israel have established large subscriber
bases, realized high penetration rates and, as a result, are currently
generating substantial operating cash flow. To capitalize on the opportunities
to apply its expertise in building and operating multi-channel television
systems in developing markets with attractive economic, regulatory and
demographic profiles, UIH has significantly expanded the scope of its
operations over time to include portions of Latin America and the Asia/Pacific
region. Many of UIH's operating companies in these regions have established
leading positions in their respective markets and built significant subscriber
bases.
In its early years, UIH acquired primarily minority ownership interests in
systems, which it, nonetheless, actively managed. Having successfully built
and developed many multi-channel television systems around the world, UIH
began rationalizing its operations in 1996 to focus on large, majority owned
systems, with the goal of significantly expanding the scale of its operations
and increasing the Company's financial flexibility. As a result, the Company's
total equity subscribers increased from approximately 659,000 at December 31,
1995 to approximately 1.9 million at September 30, 1997. The primary elements
of UIH's rationalization plan are: (i) acquiring significant and/or
controlling ownership interests in several operating companies; (ii) selling
selected assets for cash, generally at significant gains on its invested
capital; (iii) obtaining equity partners for certain other companies; and (iv)
merging or swapping selected assets in order to obtain larger or controlling
ownership interests in other companies or interests in larger, combined
companies. Through a series of these types of transactions, UIH has acquired
controlling interests in the majority of its large, primary systems and
management believes the Company is well-positioned to capitalize on the growth
opportunities of its operating companies. See "Offering Memorandum Summary--
UIH Asset Rationalization."
UIH's operating companies are currently a combination of (i) highly
penetrated, mature systems that generate stable cash flow and, which,
management believes, have the opportunity to increase revenues and cash flows
through the introduction of new services such as cable telephony, tiered
programming, pay-per-view and Internet/data services and (ii) earlier stage
businesses that typically have established leading market positions and large
subscriber bases, and whose number of subscribers management believes will
continue to increase primarily through aggressive marketing within their
respective service areas. UIH's principal strategies are to: (i) increase the
revenues and cash flows of its existing systems; (ii) continue to capitalize
on opportunities to rationalize its operations; (iii) pursue selected new
acquisition and development opportunities; and (iv) finance its operating
companies primarily through internally generated cash flow and borrowings by
its regional holding companies and operating companies under existing
facilities.
49
<PAGE>
SUMMARY OPERATING DATA FOR THE COMPANY'S OPERATING SYSTEMS
The financial and other operating data set forth below reflect aggregate
statistics of multi-channel television operating systems in which the Company
has, or has agreed to acquire, an ownership interest. See "--United Pan-Europe
Communications N.V.," "--UIH Latin America Inc.," "--UIH Asia/Pacific
Communications, Inc." and "Corporate Organizational Structure."
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED AT SEPTEMBER 30,
AT SEPTEMBER 30, 1997 SEPTEMBER 30, 1997 1997
--------------------------------------- -------------------------- ----------------
HOMES BASIC UIH NET EQUITY
UNDER HOMES BASIC PENE- ADJUSTED OWNERSHIP
LICENSE PASSED SUBSCRIBERS TRATION REVENUE EBITDA(1) INTEREST
--------- --------- ----------- ------- ------------ ------------- ----------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
UPC(2):
UPC ESTABLISHED SYSTEMS
Austria................ 844,200 630,549 434,066 68.8% $ 60,925 $ 30,725 95.0%
Belgium................ 133,000 133,000 126,438 95.1 15,101 5,716 100.0
Netherlands
A2000*................ 569,000 562,433 519,848 92.4 36,482 12,337 50.0
KTE*.................. 98,358 95,407 90,638 95.0 7,628 4,622 100.0
Combivisie(3)*........ 150,000 142,000 137,000 96.5 10,842 7,097 --
Norway
Norkabel.............. 277,924 231,441 157,381 68.0 23,747 8,418 100.0
Janco(4).............. 252,000 225,000 160,946 71.5 12,306 4,460 70.2
--------- --------- --------- ------------ ------------
Subtotal............. 2,324,482 2,019,830 1,626,317 167,031 73,375
--------- --------- --------- ------------ ------------
UPC DEVELOPMENT PROJECTS
Czech Republic*........ 271,100 143,833 49,953 34.7 2,651 (2,768) 100.0
France*................ 86,000 23,105 4,613 20.0 803 (1,844) 99.0
Portugal*.............. 186,449 12,202 2,688 22.0 275 (1,919) 100.0
Romania*
Bucharest............. 70,000 21,220 7,534 35.5 132 78 90.0
Ploiesti.............. 80,000 48,400 31,719 65.5 588 392 51.0
Spain(5)............... 74,235 58,763 3,503 6.0 362 (658) 25.0
Slovak Republic*....... 21,839 19,683 14,927 75.8 367 (140) 75.0
--------- --------- --------- ------------ ------------
Subtotal............. 789,623 327,206 114,937 5,178 (6,859)
--------- --------- --------- ------------ ------------
UPC EQUITY INVESTMENTS
Hungary*............... 300,000 287,347 259,157 90.2 18,817 6,253 50.0
Ireland*............... 355,000 349,609 128,594 36.8 25,712 8,129 20.0
Israel*................ 360,000 346,561 237,343 68.5 75,457 37,621 23.3
Malta*................. 179,000 151,189 56,999 37.7 8,514 3,220 25.0
--------- --------- --------- ------------ ------------
Subtotal............. 1,194,000 1,134,706 682,093 128,500 55,223
--------- --------- --------- ------------ ------------
UPC Total............ 4,308,105 3,481,742 2,423,347 300,709 121,739
--------- --------- --------- ------------ ------------
OTHER UIH EUROPE:
Hungary................ 85,000 139,673 82,314 58.9 10,676 6,155 46.3
--------- --------- --------- ------------ ------------
Total Europe............ 4,393,105 3,621,415 2,505,661 311,385 127,894
--------- --------- --------- ------------ ------------
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
AT SEPTEMBER 30, 1997 SEPTEMBER 30, 1997 AT SEPTEMBER 30, 1997
---------------------------------------- -------------------------- ---------------------
HOMES BASIC UIH NET EQUITY
UNDER HOMES BASIC PENE- ADJUSTED OWNERSHIP
LICENSE PASSED SUBSCRIBERS TRATION REVENUE EBITDA(1) INTEREST
---------- --------- ----------- ------- ------------ ------------- ---------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
UAP(6):
Australia.............. 1,622,000 1,589,000 178,832 11.3% $ 43,527 $ (13,920) 98.0%
New Zealand............ 141,000 20,124 2,829 14.1 299 (3,653) 63.7
Philippines............ 600,000 174,650 64,790 36.7 4,938 1,431 39.2(6)
Tahiti*................ 31,000 20,128 6,257 31.1 1,875 677 88.2
---------- --------- --------- ------------ ------------
UAP Total............. 2,394,000 1,803,902 252,708 50,639 (15,465)
---------- --------- --------- ------------ ------------
UIHLA:
Chile.................. 2,321,000 1,472,890 359,153 24.4 83,505 16,365 34.0
Brazil*
TV Show
Brasil............... 387,000 387,000 12,018 3.1 5,106 1,120 40.0
Jundiai............... 70,000 52,243 18,947 36.3 5,471 1,602 46.3
Peru................... 140,000 28,324 6,662 23.5 1,021 (477) 97.7-100.0(7)
Mexico*................ 341,600 166,117 53,518 32.2 7,141 1,900 49.0
---------- --------- --------- ------------ ------------
UIHLA Total........... 3,259,600 2,106,574 450,298 102,244 20,510
---------- --------- --------- ------------ ------------
UIH Total............. 10,046,705 7,531,891 3,208,667 $ 464,268 $ 132,939
========== ========= ========= ============ ============
</TABLE>
- --------------------
* The Company's interests in these systems may be sold, some of the proceeds
of which would be used to repay the Tranche B Facility.
(1) Adjusted EBITDA represents profit (loss) as determined using GAAP of the
reporting country, which differ from those of the United States, plus net
interest expense, income tax expense, depreciation, amortization, minority
interest, management fee expense payable to the Company and other non-
operating income (expense) items.
(2) Approximately 8.4% of UPC's outstanding shares are registered in the name
of a foundation administering UPC's employee equity incentive plan to
support stock issuances. As of the date hereof, awards equivalent to
approximately 5.5% of UPC's outstanding shares have been granted to
employees under the plan. See "Corporate Organizational Structure--UPC."
(3) UPC acquired the Combivisie in February 1998. The Company estimates that
this system has approximately 142,500 homes passed and approximately
137,000 basic subscribers as of September 30, 1997. See "--United Pan-
Europe Communications N.V.--UPC Acquisitions."
(4) In November 1997, UPC merged Norkabel into Janco, following which merger
UPC retained an 87.3% interest in Janco Multicom. From an economic
perspective, UPC has all the rights and obligations of full ownership of
Janco Multicom and UPC consolidates 100% of the financial results
therefrom, although Janco Multicom's articles of association grant certain
minority shareholder rights to Helsinki Media. UPC has the right to
acquire, and Helsinki Media has the right to put to UPC, the remaining
interest in Janco Multicom, for a purchase price of approximately NKr165.9
million ($23.5 million as of September 30, 1997), subject to certain
adjustments, by July 2, 2001. See "--United Pan-Europe Communications
N.V.--UPC Acquisitions."
(5) The Company plans to sell its interest in its Spanish operating and holding
companies in the next few months.
(6) UAP currently holds a convertible loan, which upon full conversion, if and
when allowed by law, would provide UAP with a 40.0% ownership interest in
the Philippines operating company. See "Regulation--Philippines."
(7) Varying ownership percentages in its Peru systems ranging from 97.7% to
100.0%.
51
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
OVERVIEW
UPC owns, operates and develops broadband multi-channel distribution systems
and related services throughout Europe and Israel. UPC is one of the largest
private sector multi-channel cable television operators in Europe, with
ownership interests in well-established systems, as well as systems under
construction, in 12 countries in Europe and in Israel. UIH holds effectively
all of the voting control of UPC and owns all of its issued and outstanding
shares, other than approximately 8.4% of such shares, which have been
registered in the name of a foundation to support UPC's employee equity
incentive plan. UPC's operations include two of the world's larger clusters of
systems: its 95% owned Vienna and surrounding areas systems, which had
approximately 434,100 subscribers as of September 30, 1997, and the Amsterdam
and surrounding areas systems, in which UPC has a 50% interest, which had
approximately 519,800 subscribers as of September 30, 1997. With the continued
liberalization of the communications markets in Europe, the Company believes
UPC is well-positioned within its markets to exploit anticipated opportunities
for growth in video services, Internet/data services and cable telephony
services. As of September 30, 1997, UPC's affiliated companies passed a total
of approximately 3.3 million homes and had an aggregate of approximately 2.3
million subscribers and, on an equity basis, passed approximately 2.1 million
homes and had approximately 1.5 million subscribers. For the year ended
December 31, 1996, UPC had consolidated revenues and Adjusted EBITDA of
approximately $145.1 million and $50.8 million, respectively, and for the nine
months ended September 30, 1997, UPC had consolidated revenues and Adjusted
EBITDA of approximately $128.9 million and $42.7 million, respectively. See
"--Summary Operating Data for the Company's Operating Systems."
The UPC Established Systems, which include systems in Austria, Belgium, The
Netherlands and Norway, have been characterized by very high penetration rates
(ranging from 69% to 95% as of September 30, 1997), low net churn rates (a
monthly average of approximately 0.6% for the nine months ended September 30,
1997) and stable positive cash flow. All of the UPC Established Systems (each
of which has been operating for more than ten years) and many of its other
systems have long-term licenses to provide cable television services in their
operating areas. Although the UPC Established Systems have high penetration
rates and low churn rates, the cash flow per subscriber of these systems is
significantly lower than levels achieved in the United States and many other
countries in which UIH operates. The Company believes UPC is well-positioned
to continue to benefit from its highly penetrated basic cable television
service and to improve its revenues and cash flow by offering customers in
UPC's more established systems a broader menu of communications services. UPC
is aggressively installing fiber optic two-way digital networks in many of its
systems in an attempt to increase revenue and cash flow per subscriber by
offering enhanced communications services such as impulse pay-per-view
services, Internet/data services and, when permitted, cable telephony
services.
To date, UPC has successfully launched, or has plans to launch, the
following communications services in the UPC Established Systems, which are in
addition to its existing basic cable television service.
<TABLE>
<CAPTION>
LAUNCH DATE/
SERVICE EXPECTED LAUNCH DATE
---------------------------------- --------------------
<S> <C> <C>
Austria................. Expanded Basic Tier (7 channels) May 1997
Impulse Pay-Per-View (10 channels) May 1997
Internet/Data Services September 1997
Cable Telephony April 1998
Belgium................. Expanded Basic Tier (12 channels) October 1996
Internet/Data Services September 1997
Impulse Pay-Per-View(/1/) January 1999
Netherlands/A2000....... Expanded Basic Tier (11 channels) October 1996
Impulse Pay-Per-View (5 channels) April 1997
Cable Telephony July 1997
Internet/Data Services October 1997
Netherlands/KTE......... Expanded Basic Tier (8 channels) October 1996
Impulse Pay-Per-View(/1/) March 1998
Internet/Data Services August 1998
Cable telephony March 1999
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
LAUNCH DATE/
SERVICE EXPECTED LAUNCH DATE
--------------------------------- --------------------
<S> <C> <C>
Norway................... Expanded Basic Tier (14 channels) 1989
Premium Services (3 channels) 1990
Internet/Data Services March 1998
Impulse Pay-Per-View (/1/) September 1998
Cable Telephony July 1999
</TABLE>
- ---------------------
(1) Number of channels to be determined.
UPC launched cable telephony services in its 50% owned system in Amsterdam
in July 1997. This roll-out has been successful with over 15.0% of marketed
homes purchasing service as of November 30, 1997. UPC intends to leverage the
cable telephony experience it has gained in Amsterdam as it expands cable
telephony offerings to its other systems.
The UPC Established Systems are characterized generally by the following:
. High Penetration. Prior to the deregulation of cable television in
Europe, cable television was perceived as a utility by customers and had
penetration rates similar to those enjoyed by utilities. UPC has
maintained these penetration levels in a less regulated environment and
believes its average penetration of homes passed of 81.4% in 1996 is
among the highest in the world. The average cable television penetration
rate was 66.7% in the United States in 1996.
. Consistent Cash Flow. The UPC Established Systems, which are fully built
out, have been characterized by high penetration rates and stable cash
flow derived from their core cable businesses. Historically, UPC's
revenues have consisted primarily of basic subscription revenues, which,
in general, are regulated.
. Revenue and Cash Flow Growth Opportunities. UPC is aggressively pursuing
a strategy of expanding the service offerings of the UPC Established
Systems to include tiered services, impulse pay-per-view services,
Internet/data services and cable telephony. UPC believes the
introduction of these services will increase its revenue and cash flow
per subscriber, which is currently substantially below the levels
experienced in the United States and many other countries in which UIH
operates.
. Modern Networks with Adequate Funding for Upgrade to Full Two-Way
Capability. The UPC Established systems generally have modern robust
system architecture that allows UPC to offer its customers multiple,
high quality telecommunications services. Since January 1, 1996, UPC has
invested approximately $148.0 million in capital expenditures in the UPC
Established Systems. In addition, UPC believes that it will have,
through cash on hand, borrowing capacity and cash flow generated from
future operations, the funding necessary to upgrade the UPC Established
Systems to full two-way capability, which will allow the continued
introduction of enhanced telecommunications services such as cable
telephony services and Internet/data services.
. Low Churn. The UPC Established Systems experience a very low churn rate
in comparison to systems in other parts of the world. The average annual
churn rate of the UPC Established Systems was 8.5% in 1996. By
comparison, the Company estimates that the average churn rate of urban
U.S. cable televisions systems was between 20% and 30% in 1996.
. High Density Clusters. UPC has systems that cover large areas of dense
population, which, UPC believes, allows them to pass a high number of
customers quickly and on a cost effective basis.
. Economies of Scale. UPC, as one of the largest private multi-channel
television operators in Europe with two of the larger systems in the
world (Amsterdam and the surrounding areas systems and Vienna and the
surrounding areas systems), has a scale that generally gives it
negotiating leverage with suppliers of both hardware and software
(programming), as well as allowing it to spread central administrative
and maintenance costs over a large subscriber base.
53
<PAGE>
UPC also has majority interests in systems, which are at various stages of
construction and development, in the Czech Republic, France, Portugal, Romania
and the Slovak Republic and non-consolidated equity interests in systems in
Hungary, Israel, Ireland and Malta. The Company believes these interests have
significant value and UPC is evaluating the potential sale of a portion of, or
potentially acquiring a majority interest in, these and selected other systems
in order to do one or more of the following: (i) rationalize its operations;
(ii) reduce debt; or (iii) provide additional capital for the growth of the
UPC Established Systems.
AUSTRIA: TELEKABEL GROUP
The following selected financial data have been derived from the
financial statements of Telekabel Group ("Telekabel Group"). These financial
statements have been prepared in accordance with generally accepted accounting
principles in The Netherlands with the Austrian schilling as the functional
currency. The following selected financial data includes a convenience
translation using the September 30, 1997 exchange rate of 0.0805 dollars per
Austrian schilling ("AS").
<TABLE>
<CAPTION>
CONVENIENCE
TRANSLATION
TO DOLLARS
------------------
YEAR ENDED DECEMBER 31, NINE MONTHS NINE MONTHS
------------------------------------ ENDED ENDED
1994 1995 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
--------- --------- -------------- ------------------ ------------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues......................... AS908,800 AS921,000 AS985,338 AS757,231 $60,925
Adjusted EBITDA(1)............... 498,100 468,200 512,356 381,886 30,725
<CAPTION>
AT DECEMBER 31,
------------------------------------ AT SEPTEMBER 30,
1994 1995 1996 1997
--------- --------- -------------- ------------------
<S> <C> <C> <C> <C>
OTHER DATA:
Homes passed(2)......... 585,000 608,000 623,100 630,549
Basic subscribers................ 401,578 414,775 428,453 434,066
Basic penetration................ 68.7% 68.2% 68.8% 68.8%
Avg. mo. service rev. per sub.(3) $13.44 $13.28 $13.84 $13.84
</TABLE>
---------------------
(1) Adjusted EBITDA represents profit (loss) as determined using Dutch
generally accepted accounting principles for 1995, 1996 and for the
nine months ended September 30, 1997, which differ from those of the
United States (although not materially different with respect to the
calculation of revenues and Adjusted EBITDA) and determined using
Austrian generally accepted accounting principles for 1994, which
differ from those of the United States, plus net interest expense,
income tax expense, depreciation, amortization, minority interest,
management fee expense to the Company, currency exchange gains
(losses) and other non-operating income (expense) items.
(2) The Company estimates that there are currently approximately 844,200
homes under license in Telekabel Group's franchise areas.
(3) Service revenues excluding installation revenue for the years ended
December 31, 1994, 1995 and 1996 and for the nine months ended
September 30, 1997 using a convenience translation as of September 30,
1997.
Overview/Growth Strategy. UPC owns 95% of Telekabel Group, which provides
communications services to the Austrian cities of Vienna, Klagenfurt, Graz,
Baden and Wiener Neustadt and is the largest multi-channel distribution system
in Austria with over 40% market share. Telekabel Group's largest subsidiary,
Telekabel Wien, which serves the City of Vienna and represents over 87% of
Telekabel Group's total subscribers, is one of the larger clusters of cable
systems in the world, passing approximately 545,000 homes with more than
376,000 subscribers as of September 30, 1997. Telekabel Group has a long
operating history of high penetration (approximately 69% as of September 30,
1997) and consistent positive cash flow. UPC is capitalizing on Telekabel
Group's strong market position by expanding aggressively Telekabel Group's
service offerings as its network is upgraded to full two-way capability. The
upgraded network, which passed approximately 180,000 homes or 29% of the total
homes passed as of September 30, 1997, allowed Telekabel Group to launch an
expanded basic (tiered) service, impulse pay-per-view services and
Internet/data services in 1997. In addition, Telekabel Group plans to launch
the initial phase of a cable telephony service in April 1998.
54
<PAGE>
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, Eurosport, Super Channel and MTV.
Telekabel Group launched a tiered service in May 1997 by providing subscribers
covered by the network upgrade program with an advanced analog decoder box,
the cost of which is provided for in the monthly rate. The tiered service
currently provides seven channels of additional programming with a focus on
German language content. Featured providers include Nickelodeon, VH-1 Germany,
CMT and two BBC channels, BBC World and BBC Prime. In conjunction with the
launch of this tiered service, Telekabel Group launched an impulse pay-per-
view service with up to ten channels of programming in May 1997. Telekabel
Group also intends to offer 50 channels of pay digital radio programming to
subscribers. The launch of Telekabel Group's tiered and pay-per-view services
in Vienna was the first launch of such services by an Austrian cable
television company.
Technology. Telekabel Group owns the complete cable system infrastructure
for each of its systems from the headend to the home. Under Austria's new
telecommunications law, however, the owner of a telecommunications network
must permit other users to access its network if certain thresholds are
satisfied. See "Regulation--Austria." In early 1992, Telekabel Wien initiated
the rebuild and upgrade of its existing cable network in Vienna. The rebuild
and upgrade of the network includes the overlay of trunk lines with fiber
optic technology, as well as the replacement of all 45,000 UHF amplifiers and
60,000 passives. The headend is also being upgraded concurrently with the
installation of 200 additional fiber nodes. The upgrade is expected to be
fully completed by mid-1999 and will allow the operating systems to have full
two-way capability, which will enable Telekabel Group to increase its channel
capacity from 45 to 85 analog channels. Telekabel Group's new high capacity
860MHz two-way network will also provide sufficient bandwidth in the upstream
and downstream to provide the capability for future digital services as well
as enhanced video and communications services. As of September 30, 1997, the
rebuild and upgrade of the Telekabel Group's network passed approximately
180,000 homes, or 29% of the total homes passed.
Budgeted Capital Expenditures and Capital Resources. Telekabel Group has
budgeted approximatelyAS628,200 million ($50.6 million as of September 30,
1997) in 1998 to continue the rebuild and upgrade of the system. In connection
with new services, in particular Internet/data services and cable telephony
services, additional significant capital expenditures are expected to be
incurred for customer premises equipment. Management expects Telekabel Group
to fund such capital expenditures from its existing cash flow. Telekabel Group
has also upgraded its subscriber management billing system to accommodate the
introduction of these new services.
Competition. The off-air Austrian television market is currently limited to
two broadcast channels (ORF 1 and 2) and foreign off-air channels that are
available only in certain parts of the country. Telekabel Group's cable
systems compete with a DTH service that is available throughout Austria.
Currently, DTH penetration of the Austrian market is approximately 33%,
concentrated primarily in the rural areas of the country, however penetration
in Vienna is approximately 11%. Telekabel Group competes with DTH service on
the basis of quality of service and superior programming selection.
Ownership. Telekabel Group consists of five Austrian corporations, each of
which owns a cable television operating system. UPC owns 95% of, as well as
manages, each Telekabel Group company. Each of the respective cities in which
the operating systems are located indirectly owns the remaining 5% interest.
Liquidity Restrictions. Each city in which a member of the Telekabel Group
operates must consent if UPC desires to transfer its interest in such
Telekabel Group member. Each city also has the right to purchase UPC's
interests at fair market value if UPC elects to terminate the cooperation
agreement with such city after its original term expires. Similarly, UPC has
the right to purchase the city's interest at fair market value if the city
elects to terminate such cooperation agreement after its original term.
Furthermore, the City of Vienna's approval is required for any change of
control over UPC, which approval cannot be unreasonably withheld if the buyer
is a reputable telecommunications and/or cable television operator. In the
absence of such approval, the City of Vienna can require UIH to own Telekabel
Wien separately from UPC. Under the UPC Acquisition agreement, so long as
Philips has any liability in respect of the agreements relating to the
Telekabel Wien system, Philips'
55
<PAGE>
representative on the UPC supervisory board must approve UPC's disposition of
its interests in Telekabel Wien. In addition, the Tranche A Facility restricts
UPC's ability to dispose of its interest in Telekabel Group. See "--UPC
Liquidity Issues."
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. ("Radio Public"). These
financial statements have been prepared in accordance with generally
accepted accounting principles in The Netherlands with the Belgian franc
as the functional currency. The following selected financial data
includes a convenience translation using the September 30, 1997 exchange
rate of 0.0274 dollars per Belgian franc ("BEF").
<TABLE>
<CAPTION>
CONVENIENCE
TRANSLATION
TO DOLLARS
------------------
YEAR ENDED DECEMBER 31, NINE MONTHS NINE MONTHS
---------------------------------- ENDED ENDED
1994 1995 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
---------- ---------- ---------- ------------------ ------------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues........................... BEF662,979 BEF681,539 BEF693,990 BEF550,538 $15,101
Adjusted EBITDA(1)................. 240,100 255,000 268,232 208,402 5,716
<CAPTION>
AT DECEMBER 31,
---------------------------------- AT SEPTEMBER 30,
1994 1995 1996 1997
---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
OTHER DATA:
Homes passed(2).................... 133,000 133,000 133,000 133,000
Basic subscribers.................. 128,641 127,843 127,815 126,438
Basic penetration.................. 96.7% 96.1% 96.1% 95.1%
Avg. mo. service rev. per sub.(3).. $9.29 $9.49 $9.63 $9.90
</TABLE>
- --------------------
(1) Adjusted EBITDA represents profit (loss) as determined using Dutch
generally accepted accounting principles for 1995, 1996 and the nine
months ended September 30, 1997, which differ from those of the United
States (although not materially different with respect to the
calculation of revenues and Adjusted EBITDA) and determined using
Belgium generally accepted accounting principles for 1994, which differ
from those of the United States, plus net interest expense, income tax
expense, depreciation, amortization, minority interest, management fee
expense to the Company, currency exchange gains (losses) and other non-
operating income (expense) items.
(2) The Company estimates that there are currently approximately 133,000
homes under license in Radio Public's franchise areas.
(3) Service revenues excluding installation revenue for the years ended
December 31, 1994, 1995 and 1996 and for the nine months ended
September 30, 1997 using a convenience translation as of September 30,
1997.
Overview/Growth Strategy. Radio Public, a 100% owned subsidiary of UPC,
primarily provides communications services in selected areas of Brussels and
nearby Leuven in Belgium. Radio Public, which currently has over 95%
penetration, plans to grow through the introduction of new services that are
not subject to the price regulations applicable to basic cable services. As
Radio Public upgrades portions of its network to full two-way capability, it
plans to introduce new services such as impulse pay-per-view. Radio Public's
management believes that there is a strong demand for such services within its
market as evidenced by the success of Radio Public's expanded basic service,
which was launched in October 1996. Introduction of Internet/data service
occurred in September 1997 and, when the upgrade is fully completed in early
1999, Radio Public will also be in a position to introduce cable telephony
services, with impulse pay-per-view services expected to be introduced shortly
thereafter.
Programming. Radio Public's system in Brussels offers 34 channels of basic
programming, 12 expanded basic programs, two premium channels, 20 channels of
FM radio programming and 42 premium digital radio channels, and its Leuven
system offers 27 channels of basic programming with three premium channels, 20
FM radio channels and 42 premium digital radio channels.
In October 1996, Radio Public launched a tiered service of nine channels, the
first cable provider in Belgium to launch such a service, by providing
subscribers with advanced analog decoder boxes at a monthly rental. The tiered
service currently offers 12 channels as four different bouquets: "TVD Extra,"
which consists of five
56
<PAGE>
thematic channels, "TVD Cine," which consists of three movie channels, "TVD
Arabesque" and "TVD Turquoise," each with two channels offering Arabic and
Turkish language programming, respectively. Radio Public believes tiered
services not only provide revenue growth opportunities but also offer an
alternative to DTH competition aimed at specific user groups.
Radio Public currently pays copyright fees at the rate of 15% of its basic
services revenue to cover the cost of 15 programs (principally those produced
by public broadcasters). Recently, the assembled collecting agencies attempted
to increase copyright fees by 40% but to date, Radio Public and other
operators have refused to pay such increase. Although Radio Public believes a
limited increase in fees is likely to occur, in the past Radio Public has been
able to pass such cost increases through to customers.
Technology. With the exception of Etterbeek (15,000 subscribers), where
Radio Public has an agreement with the municipality scheduled to expire in
2016 to operate the network, Radio Public owns the complete cable system
infrastructure for each of its systems from the headend to the home. Radio
Public currently employs 860MHz distribution technology. In the fourth quarter
of 1996, Radio Public began phase one of a three-phase program to upgrade its
network through fiber optic overlay of its trunk lines and replacement of all
amplifiers. Phase one is scheduled to be completed by the end of 1998. The
implementation of full two-way capability will enable Radio Public to increase
its channel capacity from 56 to 72 analog channels.
Budgeted Capital Expenditures and Capital Resources. Radio Public has
budgeted approximately BEF260.9 million ($7.2 million as of September 30,
1997) for capital expenditures in 1998 to upgrade its network to full two-way
capability. Radio Public expects to fund these expenditures from available
cash flow.
Competition. As of September 30, 1997, Radio Public had approximately 95.1%
penetration in its market and faced limited competition. The most significant
competition comes from DTH service. Within Radio Public's service area,
however, DTH competition is limited as local authorities apply a restrictive
policy in terms of building permits and levy taxes on the ownership of
satellite dishes. DTH services typically have been used by specific user
groups looking for programming in a certain language. A second license has
been granted to another cable operator in the city of Leuven. In addition,
Radio Public has now applied for a license outside its current territory in
areas where other operators are present. Radio Public currently competes and
will continue to compete primarily on the basis of the quality and content of
its programming packages, as well as its pricing. Other competition includes
seven off-air broadcasting channels available throughout Belgium.
Ownership. Radio Public, a Belgian corporation, is a wholly-owned subsidiary
of UPC.
Liquidity Restrictions. Other than the Tranche A Facility, which restricts
UPC's ability to dispose of its interest in Radio Public, there are no
agreements or regulations affecting UPC's ability to dispose of all or a
portion of its interest in Radio Public. See "--UPC Liquidity Issues."
57
<PAGE>
NORWAY: JANCO MULTICOM
The following selected financial data have been derived from the financial
statements of Norkabelgruppen A/S ("Norkabel") and Janco Kabel-TV A/S
("Janco"). These financial statements have been prepared in accordance with
generally accepted accounting principles in Norway with the Norwegian kroner as
the functional currency. The following financial data have been converted to
dollars using a convenience translation using a September 30, 1997 exchange
rate of approximately 0.1415 dollars per Norwegian kroner ("NKr").
NORKABEL:
<TABLE>
<CAPTION>
CONVENIENCE
TRANSLATION
TO DOLLARS
------------------
YEAR ENDED DECEMBER 31, NINE MONTHS
---------------------------------- ENDED NINE MONTHS ENDED
1994 1995 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
---------- ---------- ---------- ------------------ ------------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues........................... NKr213,233 NKr216,062 NKr215,076 NKr167,824 $23,747
Adjusted EBITDA(1)................. 62,652 67,939 68,446 59,489 8,418
<CAPTION>
AT DECEMBER 31,
---------------------------------- AT SEPTEMBER 30,
1994 1995 1996 1997
---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
OTHER DATA:
Homes passed(2).................... 218,589 217,267 221,441 231,441
Basic subscribers.................. 147,344 152,257 156,915 157,381
Basic penetration.................. 67.4% 70.1% 70.9% 68.0%
Avg. mo. service rev. per sub.(3).. $18.11 $17.83 $16.70 $17.26
</TABLE>
JANCO:
<TABLE>
<CAPTION>
CONVENIENCE
TRANSLATION
TO DOLLARS
------------------
YEAR ENDED DECEMBER 31, NINE MONTHS
--------------------------------- ENDED NINE MONTHS ENDED
1994 1995 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
--------- ---------- ---------- ------------------ ------------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues........................... NKr95,321 NKr101,488 NKr101,699 NKr86,970 $12,306
Adjusted EBITDA(1)................. 35,142 38,009 39,619 31,518 4,460
<CAPTION>
AT DECEMBER 31,
--------------------------------- AT SEPTEMBER 30,
1994 1995 1996 1997
--------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
OTHER DATA:
Homes passed(2).................... 220,000 222,500 225,000 225,000
Basic subscribers.................. 157,419 159,210 160,331 160,946
Basic penetration.................. 71.6% 71.6% 71.3% 71.5%
Avg. mo. service rev. per sub.(3).. $7.07 $7.50 $7.50 $8.77
</TABLE>
- --------------------
(1) Adjusted EBITDA represents profit (loss) as determined using Norwegian
generally accepted accounting principles, which differ from those of the
United States, plus net interest expense, income tax expense, depreciation,
amortization, minority interest, management fee expense to the Company,
currency exchange gains (losses) and other non-operating income (expense)
items.
(2) The Company estimates that there are approximately 278,000 homes in
Norkabel's franchise areas and approximately 252,000 homes in Janco's
franchise areas.
(3) Services revenues excluding installation revenue for the years ended
December 31, 1994, 1995 and 1996 and the nine months ended September 30,
1997 using a convenience translation as of September 30, 1997.
Overview/Growth Strategy. UPC's strategy for its Norway systems, since its
acquisition of control, has been to integrate more fully its operating
subsidiaries to take advantage of economies of scale in implementing the
technical, operational and marketing expertise offered by UPC. In an effort to
increase its position in the Norwegian cable television market, UPC acquired
from Helsinki Media in January 1997, 70.2% of Janco, a cable
58
<PAGE>
system with a non-exclusive license to provide cable television service in the
Oslo, Norway area. In November 1997, UPC merged Norkabel into Janco forming
Janco Multicom, following which merger UPC retained a 87.3% interest in Janco
Multicom. From an economic perspective, UPC has all the rights and obligations
of full ownership of Janco Multicom and UPC consolidates 100% of the financial
results therefrom. UPC has the right to acquire on or before July 2, 2001, and
Helsinki Media has the right to put to UPC on July 2, 2001, the remaining
interest in Janco Multicom, for a purchase price of approximately NKr165.9
million ($23.5 million as of September 30, 1997), subject to adjustments based
upon the operating results of Janco Multicom. UPC has in place a letter of
credit to fund fully the purchase of the remaining interest in Janco Multicom.
As a result of the merger, Janco Multicom is Norway's largest cable
television operator with approximately 47.0% of the total Norwegian cable
television market as of September 30, 1997. Janco Multicom owns and operates
16 television systems located primarily in southeastern Norway and along the
southwestern coast, as well as its main network in Oslo, Norway. The well-
established Norwegian cable television market has high penetration,
approximately 70% as of September 30, 1997, primarily due to poor over-the-air
reception in much of Norway and significant demand for television
entertainment. UPC's goal is to continue to increase Janco Multicom's
subscriber base, to improve revenue per subscriber by providing additional
programming and services and to increase per subscriber revenue in the former
Janco systems to equal or exceed the per subscriber revenue the Company
currently receives from the former Norkabel systems. UPC plans to introduce
Internet/data service in 1998 and cable telephony service in 1999.
Programming. Janco Multicom currently offers subscribers five tiers of
programming: (i) must carry (a limited number of off-air channels required by
the government to be carried), (ii) basic, (iii) an expanded basic tier, (iv)
a "mini-tier" of certain selected channels, and (v) premium services.
Generally, Janco Multicom has the capacity to offer 40 channels and currently
offers a total of 31 channels on its systems. Because English is widely
understood in Norway, Janco Multicom is able to use English-language
programming to supplement the limited, but slowly increasing, supply of
available Scandinavian-language programming. UPC believes that Janco Multicom
has access to sufficient quantities of appropriate programming.
Technology. Janco Multicom owns the complete cable system 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
association. Janco Multicom uses a total of 16 CATV headends and 39 SMATV
headends to operate its cable television systems. Janco Multicom's systems
have security devices to scramble signals to prevent unauthorized receipt of
its services. UPC's plan is to upgrade the network in Norway to full two-way
capability, with the exception of 75,000 homes in southern rural areas.
Initially, fiber will extend to nodes of 2,000 homes, however, the network
upgrade has been planned such that each node can be split further to 500 homes
at relatively little incremental cost should demand for services require.
Budgeted Capital Expenditures and Capital Resources. Janco Multicom has
budgeted a total of approximately NKr278.0 million ($39.3 million as of
September 30, 1997) for capital expenditures in 1998, primarily for plant
upgrade, installation materials for new subscribers and cable telephony
equipment needed for the anticipated July 1999 cable telephony service launch.
Janco Multicom plans to fund such capital expenditures through cash flow from
operations as well as existing debt facilities.
Competition. Prior to the combination of their operations, Norkabel and
Janco were the second and third largest cable television operators in Norway,
respectively. Janco Multicom is currently the largest cable television
operator in Norway. All Norwegian cable television companies offer similar
levels of service and therefore compete primarily on the basis of price. The
DTH market in Norway is also beginning to grow, as DTH companies, particularly
Telenor, are competing more effectively on price and entrance costs for
subscribers are declining.
Janco Multicom's cable television systems also compete with private SMATV
systems. Janco Multicom's systems generally offer more channels of programming
to subscribers and provide better picture quality than SMATV systems. UPC
believes that the quantity and quality of SMATV programming offered are
important to Janco Multicom's competitive position.
59
<PAGE>
Ownership. Until September 1996, UPC's interests in Norkabel were held
through UCI, a partnership with Telewest Europe Group. In September 1996, UPC
bought Telewest Europe Group's participation in UCI, thereby increasing its
ownership of Norkabel from 8.3% to 100%. In January 1997, UPC acquired from
Helsinki Media 70.2% of Janco. As a result of the merger of Norkabel into Janco
and formation of Janco Multicom in November 1997, UPC's interest in the
combined company became 87.3%. Janco Multicom's articles of association,
however, grant certain minority rights to Helsinki Media. UPC has the right to
acquire, and Helsinki Media has the right to put to UPC, the remaining interest
in Janco Multicom by July 2, 2001.
Liquidity Restrictions. UPC's shares of Janco Multicom have been pledged as
security under the Tranche A Facility, thus affecting UPC's ability to dispose
of all or a portion of its interest in Janco Multicom.
THE NETHERLANDS (AMSTERDAM): A2000
The following selected financial data have been derived from A2000 Holding
N.V.'s ("A2000") combined financial statements. These financial statements have
been prepared in accordance with generally accepted accounting principles in
The Netherlands with the Dutch guilder as the functional currency. The
following selected financial data includes a convenience translation using the
September 30, 1997 exchange rate of 0.5047 dollars per Dutch guilder ("NLG").
UPC has a 50% interest in A2000.
<TABLE>
<CAPTION>
CONVENIENCE
TRANSLATION
TO DOLLARS
------------------
YEAR ENDED DECEMBER 31, NINE MONTHS
---------------------------------- ENDED NINE MONTHS ENDED
1994 1995 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
---------- ---------- ---------- ------------------ ------------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues......................... NLG72,747 NLG75,030 NLG89,893 NLG72,290 $36,482
Adjusted EBITDA(1)............... 38,083 34,841 40,829 24,446(2) 12,337
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------- AT SEPTEMBER 30,
1994 1995 1996 1997
---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Homes passed(3)......... 509,907 516,998 555,459 562,433
Basic subscribers....... 479,859 488,631 523,940 519,848
Basic penetration....... 94.1% 94.5% 94.3% 92.4%
Avg. mo. service rev. per sub.(4) $6.06 $6.54 $6.54 $6.72
</TABLE>
- --------------------
(1) Adjusted EBITDA represents profit (loss) as determined using Dutch
generally accepted accounting principles, which differ from those of the
United States, plus net interest expense, income tax expense, depreciation,
amortization, minority interest, management fee expense to the Company,
currency exchange gains (losses) and other non-operating income (expense)
items.
(2) Adjusted EBITDA for the nine months ended September 30, 1997 has decreased
compared to the comparable period for 1996 primarily due to the expenses
associated with the launching of new services.
(3) The Company estimates that there are over 569,000 homes in A2000's
franchise areas.
(4) Service revenues excluding installation revenue for the years ended
December 31, 1994, 1995 and 1996 and the nine months ended September 30,
1997 using a convenience translation as of September 30, 1997.
Overview/Growth Strategy. A2000, a 50%/50% joint venture between UPC and U S
WEST, currently enjoys basic penetration rates of approximately 92.4% in its
two systems that serve Amsterdam, Landsmeer, Purmerend, Zaanstad and Ouder-
Amstel and Hilversum, The Netherlands. As a result of this high penetration and
the rate regulation of basic cable services in A2000's franchise areas, A2000
has focused its efforts on increasing its per subscriber revenue growth through
the introduction of new services. A2000 has aggressively pursued this strategy,
launching a nine channel expanded basic tier in October 1996, impulse pay-per-
view services in April 1997, a cable telephony service in July 1997 and
Internet/data service in October 1997. UPC believes that the introduction of
these services will increase A2000's revenue and cash flow per subscriber
although there can be no assurance as to such increases. Approximately 15.0% of
A2000's marketed customers have signed up for cable telephony service as of
November 30, 1997. UPC intends to draw on the experience it has gained in A2000
as it rolls out enhanced communications services in its other systems.
Programming. A2000 currently offers 27 channels of cable programming and 39
FM radio channels to its basic subscribers in the A2000 systems. A2000 also
distributes two premium channels provided by Canal+. The variety of programming
covers many languages such as Dutch, English, German, Italian, French and
Turkish.
60
<PAGE>
Programming costs for basic service are minimal, as many programming providers
want to reach A2000's extensive customer base for advertising and, in certain
cases, such programming providers pay A2000 a carriage fee to have their
programming included in the basic tier service.
The expanded basic tier carries 11 channels of programming, two of which are
part-time. The tier carries general interest programming as well as science
fiction, travel, music, adult and art channels. A2000 will continue to
introduce new channels on its tiered services when such programming is
available and deemed to meet A2000's quality content specifications. The
impulse pay-per-view service offers up to four movie channels and one adult
channel.
The basic programming service content is overseen by a programming council
in each municipality. The programming council retains the right to request the
removal or addition of certain programming providers in the basic tier as it
deems necessary. The council has no authority over any services beyond the
basic tier. While tariffs for basic programming services are regulated by
local governmental authorities, the recently amended Dutch Media Act provides
that the maximum tariffs may be determined by Dutch governmental order. See
"Regulation--The Netherlands."
Technology. A2000 owns the complete cable system infrastructure for each of
its systems from the headend to the home. A2000 is currently in the process of
upgrading its cable network with a fiber optic overlay and is replacing all of
its amplifiers and passive network components. A2000 had in excess of 165,000
homes rebuilt with full two-way capability at year-end 1997, with total
rebuild expected to be complete by the end of the third quarter of 1999. The
upgrade of the headend and network will enable A2000 to increase its channel
capacity in its systems from 45 to 85 channels. A2000's initiation of the new
860MHz two-way network should also provide sufficient bandwidth in the
upstream and downstream to allow for the capacity of future digital services,
as well as enhanced video and communications services.
Budgeted Capital Expenditures and Capital Resources. UPC anticipates A2000
will spend approximately NLG136.0 million ($68.6 million as of September 30,
1997) in capital expenditures in 1998 for system upgrades and equipment
necessary for each of its systems to launch tiered service, impulse pay-per-
view services, Internet/data services and the continued deployment of cable
telephony services. UPC expects A2000 to fund this amount through cash flow
from operations and A2000's non-recourse debt facilities.
Competition. To date, the A2000 systems have maintained stable, high
penetration rates (approximately 92.4%) and competition from off-air
television signals, DTH and local SMATV systems has been limited. In July
1997, the A2000 systems began offering cable telephony services on a limited
basis in direct competition with the Dutch PTT ("KPN") and other providers of
cable telephony services. UPC believes that A2000 has negotiated reasonable
interconnect agreements, leased line agreements and other agreements necessary
for the cable telephony services the A2000 systems currently provide.
Ownership. UPC and U S WEST each currently own 50% of the ordinary share
capital of A2000. A2000 holds 100% ownership in Kabeltelevisie Amsterdam B.V.
("KTA"), which operates cable systems in Amsterdam, Landsmeer, Purmerend,
Zaanstad and Ouder-Amstel, and holds a 100% ownership in A2000 Hilversum B.V.
("KTH"), which operates a cable system in Hilversum. The Municipality of
Amsterdam owns one priority share in KTA. A2000 and KTA are managed by a
management board, responsible for day-to-day management, under the supervision
of a non-executive supervisory board.
The boards of A2000, KTA and KTH consist of an even number of directors: one
half appointed by U S WEST and one half appointed by UPC. Certain major
decisions require approval by the shareholders with a qualified majority of at
least 75%. The A2000, KTA and KTH management boards consist of at least a
chief executive officer, appointed by UPC, and a chief financial officer,
appointed by U S WEST, as well as other members appointed by both. Certain
major decisions affecting KTA, such as approval of business plans and annual
budgets, require approval of the majority of the supervisory board of KTA, one
member of which is appointed by the Municipality of Amsterdam.
Liquidity Restrictions. Under the agreements with the municipalities,
neither the legal title nor the economic benefits of the networks may be
transferred without the consent of the affected municipality. If KTA
61
<PAGE>
has been declared bankrupt or in case of non-payment, KTA must, at the relevant
municipality's request, transfer the network to such municipality or to a third
party designated by such municipality at fair market value.
Under the joint venture agreement between U S WEST and UPC, neither party can
transfer its interest in A2000 prior to December 31, 1998 with the exception of
transfers of each party's entire interest to certain subsidiaries in which UIH
or U S WEST owns consolidated capital or voting interests of greater than 50%
in such subsidiary. Any bona-fide third party offers are subject to the right
of first refusal by the remaining partner. Furthermore, the Municipality of
Amsterdam's approval is required for any change of control over A2000, which
approval shall be granted if the buyer is a reputable telecommunications and/or
cable television operator or financial institution.
THE NETHERLANDS (EINDHOVEN): KTE AND COMBIVISIE
The following selected financial data have been derived from the
financial statements of Kabeltelevisie Eindhoven N.V. ("KTE") and
Combivisie. These financial statements have been prepared in accordance
with generally accepted accounting principles in The Netherlands with the
Dutch guilder as the functional currency. The following selected financial
data includes a convenience translation using the September 30, 1997
exchange rate of 0.5047 dollars per Dutch guilder ("NLG").
<TABLE>
<CAPTION>
CONVENIENCE
TRANSLATION
KTE(1): TO DOLLARS
YEAR ENDED DECEMBER 31, NINE MONTHS ------------------
------------------------------- ENDED NINE MONTHS ENDED
1994 1995 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
--------- --------- --------- ------------------ ------------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues................ NLG15,894 NLG16,544 NLG17,932 NLG15,115 $ 7,628
Adjusted EBITDA(2)...... 9,917 9,948 11,298 9,159 4,622
<CAPTION>
AT DECEMBER 31,
------------------------------- AT SEPTEMBER 30,
1994 1995 1996 1997
--------- --------- --------- ------------------
<S> <C> <C> <C> <C>
OTHER DATA(2):
Homes passed(3)......... 85,504 88,290 89,116 95,407
Basic subscribers....... 83,794 83,408 84,660 90,638
Basic penetration....... 98.0% 94.5% 95.0% 95.0%
Avg. mo. service rev.
per sub.(4)............ $7.42 $8.38 $8.93 $9.01
<CAPTION>
CONVENIENCE
TRANSLATION
COMBIVISIE(5): TO DOLLARS
YEAR ENDED DECEMBER 31, NINE MONTHS ------------------
------------------------------- ENDED NINE MONTHS ENDED
1994 1995 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
--------- --------- --------- ------------------ ------------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues................ NLG22,761 NLG25,661 NLG27,143 NLG21,483 $10,842
Adjusted EBITDA(1)...... 16,286 17,948 19,816 14,063 7,097
<CAPTION>
AT DECEMBER 31,
------------------------------- AT SEPTEMBER 30,
1994 1995 1996 1997
--------- --------- --------- ------------------
<S> <C> <C> <C> <C>
OTHER DATA:
Homes passed(2)......... 132,205 136,375 139,062 142,000
Basic subscribers....... 126,157 130,429 133,775 137,000
Basic penetration....... 95.4% 95.6% 96.2% 96.5%
Avg. mo. service rev.
per sub.(4)............ $7.38 $7.90 $8.18 $8.56
</TABLE>
- --------------------
(1) In July 1997, UPC acquired a cable system in Son en Breugel with
approximately 5,000 subscribers. The September 30, 1997 data includes the
Son en Breugel system as it has been integrated into KTE.
(2) Adjusted EBITDA represents profit (loss) as determined using Dutch
generally accepted accounting principles, which differ from those of the
United States, plus net interest expense, income tax expense, depreciation,
amortization, minority interest, management fee expense to the Company,
currency exchange gains (losses) and other non-operating income (expense)
items.
(3) The Company estimates that there are approximately 98,400 homes in KTE's
franchise areas and approximately 150,000 homes in Combivisie's franchise
areas.
(4) Service revenues excluding installation revenue for the years ended
December 31, 1994, 1995 and 1996 and for the nine months ended September
30, 1997 using a convenience translation as of September 30, 1997.
(5) UPC acquired the Combivisie system in February 1998.
62
<PAGE>
Overview/Growth Strategy. In Eindhoven, The Netherlands, UPC operates the
KTE system, which has basic penetration of approximately 95%. In addition, in
order to create a large, densely populated system with the critical mass
necessary to introduce economically new communications services, UPC acquired
in February 1998 the cable television systems of Combivisie for a purchase
price of approximately NLG181.1 million ($91.4 million as of September 30,
1997). Combivisie administers the cable television systems on behalf of 18
municipalities in the region surrounding Eindhoven and, as a result, UPC
believes that the acquisition of Combivisie will provide it with synergies.
See "--UPC Acquisitions--Combivisie." In July 1997, UPC acquired the 5,000-
subscriber Son en Breugel system in the Eindhoven cluster for approximately
NLG5.9 million ($3.0 million as of September 30, 1997).
KTE introduced an expanded basic service in October 1996, and expects to
launch impulse pay-per-view services in March 1998 and Internet/data services
in August 1998. UPC intends to roll out quickly these services to the
Combivisie systems. In addition, UPC plans to introduce the initial phase of
cable telephony services in these systems in early 1999.
Programming. KTE currently offers its subscribers 28 channels of basic
programming along with a music channel and 33 FM radio channels. KTE also
distributes three premium channels provided by Canal+. KTE's basic programming
package includes Dutch off-air broadcasting channels, as well as a variety of
German, French and English channels. The eight channels in KTE's extended
basic tier of service offer programming consisting of sports, travel, news,
science fiction, music and general entertainment. KTE expects to add channels
to this service as additional quality programming becomes available.
Technology. KTE owns the complete cable system infrastructure for each of
its systems from the headend to the home. During 1994, KTE upgraded its fiber
network by replacing all of its coaxial trunk with a fiber optic trunk. The
new technology incorporates 860 MHz capability that provides sufficient
bandwidth in the upstream and downstream to allow for the introduction of
digital services, as well as enhanced video and communications services. This
upgrade also included the municipalities for which KTE operates a cable
network, representing an additional 16,000 subscribers. KTE recently completed
the replacement of its amplifiers and passive network components to
accommodate full two-way capability. UPC expects the Combivisie systems to be
fully two-way capable during 1999.
Budgeted Capital Expenditures and Capital Resources. KTE recently upgraded
its system infrastructure by replacing its coaxial main lines with fiber optic
cable, which will allow KTE to add additional services and channels without
incurring significant additional capital expenditures. KTE and Combivisie have
budgeted for 1998 approximately NLG43.9 million ($22.1 million as of September
30, 1997) primarily for equipment necessary to complete the upgrade of
Combivisie's network to full two-way capability and equipment for
Internet/data and cable telephony services. UPC anticipates KTE and Combivisie
will use available cash, cash flow from operations and a new bank facility
currently under negotiation for such capital expenditures.
Competition. KTE is the only cable system in its franchise area. To date,
KTE and Combivisie have maintained a high level of penetration (approximately
95%) and competition from off-air television signals, DTH and local SMATV
systems has been limited.
Ownership. KTE, a Dutch corporation, is a wholly-owned subsidiary of UPC.
The Combivisie systems are held in a wholly-owned subsidiary of UPC.
Liquidity Restrictions. Under its agreement with the City of Eindhoven,
neither legal title to the KTE shares nor the economic benefits of the
Eindhoven system may be transferred without the City's consent. In case of
KTE's bankruptcy, KTE must, at the City's request, transfer the Eindhoven
system to the City or to a third party designated by the City at market value
as of the date of transfer.
63
<PAGE>
UPC EQUITY INVESTMENTS (ISRAEL, IRELAND, MALTA AND HUNGARY)
UPC has non-consolidated equity investments in systems in Israel, Ireland,
Malta and Hungary. The Company believes that these systems, which in aggregate
had approximately 682,100 subscribers at September 30, 1997 and generated
Adjusted EBITDA of approximately $58 million for the nine months ended
September 30, 1997, have significant value and, as part of the Company's focus
on rationalizing its operations, UPC may sell all or a portion of, or acquire
majority positions in, the systems comprising the UPC Equity Investments.
The following selected financial data have been derived from the financial
statements of the respective companies. The financial statements for the
operating companies in Israel, Ireland, Malta and Hungary have been prepared in
accordance with generally accepted accounting principles in the respective
jurisdictions with the functional currency of such jurisdictions the New Israel
shekel, the Irish pound, the Maltese lira and the dollar, respectively. The
following selected financial data has been converted to U.S. dollars as a
convenience translation using the September 30, 1997 exchange rates.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AT SEPTEMBER 30, 1997
------------------------ ---------------------------------
ADJUSTED UIH NET
REVENUE EBITDA(1) SUBSCRIBERS PENETRATION OWNERSHIP
------------ ------------- ----------- ----------- ---------
(In thousands, unaudited)
<S> <C> <C> <C> <C> <C>
UII SYSTEMS
Israel................ $ 75,457 $ 37,621 237,343 68.5% 23.3%
Ireland............... 25,712 8,129 128,594 36.8 20.0
Malta................. 8,514 3,220 56,999 37.7 25.0
OTHER UPC EQUITY
INVESTMENT:
Hungary............... $ 18,817 $ 6,253 259,157 90.2 50.0
</TABLE>
- --------------------
(1) Adjusted EBITDA represents profit (loss) as determined using generally
accepted accounting principles in the respective jurisdiction, which differ
from those of the United States, plus net interest expense, income tax
expense, depreciation, amortization, minority interest, management fee
expense to the Company, currency exchange gains (losses) and other non-
operating income (expense) items.
UNITED INTERNATIONAL INVESTMENTS
Partnership Overview. United International Investments ("UII"), a Colorado
general partnership formed in 1991, holds interests in multi-channel
distribution systems in Ireland, Israel and Malta. Its partners are UPC and a
subsidiary of Tele-Communications International, Inc. ("TINTA"). Each of UPC
and TINTA holds a 50% interest in UII. As a consequence of a difference in
capital contributions upon the acquisition by UII of its equity interests in
the entities referred to below, the interests of UPC and TINTA in such entities
cannot directly be deduced from the 50% partnership interest. UPC's current
indirect economic interest in these systems is as follows: 20.0% in the Ireland
system, 23.3% in the Israel system and 25.0% in the Malta system.
At any time after May 31, 1997, with respect to UII's Israel interest, June
30, 1998, with respect to UII's Ireland interest, and December 31, 1998, with
respect to UII's Malta interest, a partner of UII may propose that the other
partner purchase UII's ownership interest in Israel, Ireland or Malta at its
appraised value. The other partner must then either purchase the interest as
proposed or consent to the exercise by UII of its right granted at the
operating company level to sell its interest in the relevant operating company.
Israel: Tevel Israel International Communications Ltd. Tevel Israel
International Communications Ltd. ("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). These franchise areas cover approximately 360,000
homes, approximately 24% of the homes in Israel, giving Tevel a substantial
share of the Israeli multi-channel television market. Tevel's growth strategy
is to increase its subscriber base by completing line extensions within
existing franchise areas and to increase penetration rates by offering a wider
variety of programming, including multimedia and Internet/data services. Future
growth in revenues will depend upon increased penetration rates in built and
unbuilt franchise areas, acquisition and distribution of additional programming
that will justify increases in service rates and increased sales of additional
services, such as impulse pay-per-view services.
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<PAGE>
Tevel offers basic subscribers 40 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 its areas.
Currently, Tevel averages approximately 84,000 pay-per-view buys per month.
Tevel, together with four of the five other Israeli cable television
companies, owns a programming company, Israel Cable Programming Company
Limited ("ICP"). 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.
The Company believes that the current pricing of Tevel's pay-per-view
services are competitive with the home video cassette rental and motion
picture entertainment alternatives in Israel. The DTH market in Israel is very
small, as the Company estimates only approximately 10,000 households in the
country had satellite dishes as of September 30, 1997. The Company does not
believe that present DTH services compete with Tevel's systems because Israel
is not in the general transmission path of existing European programming
satellites and equipment capable of receiving those distant signals is
relatively expensive. The Israeli government recently declared, however, its
intention to open DTH for competition in late 1998 or early 1999. Such
service, if widely available, may adversely affect Tevel's existing operations
and the price structure of its services.
Ireland: Princes Holdings Limited. Princes Holdings Limited ("PHL"), through
two wholly-owned subsidiaries and one 96% owned subsidiary (collectively, the
"PHL Operating Companies"), owns interests in established cable television
systems and has exclusive franchises through 2001 to construct and operate
MMDS systems for areas covering approximately 355,000 homes, or approximately
69% of all potential MMDS homes in Ireland. Given the strong demand for more
programming options as evidenced by high subscription rates in existing cable
televisions systems in Ireland, including those owned by PHL, the Company
believes that the expansion of multi-channel television services into recently
activated franchise areas presents an opportunity for significant growth in
the number of subscribers. As these franchises are developed, PHL expects to
become the largest multi-channel television provider in Ireland, holding
franchises covering a service area containing over 32% of the country's
television households. PHL is currently the largest MMDS operator in Ireland.
The cable systems operated by the PHL Operating Companies offer 12 to 17
channels of basic programming with four premium service channels. The PHL
Operating Companies' MMDS systems currently offer a nine-channel basic package
with three optional premium channels.
PHL is currently focusing on improving subscriber penetration through
increased marketing and sales efforts. PHL plans to offer additional
programming and tiered and packaged services over time to increase the
revenues generated from each subscriber.
PHL's MMDS systems compete with unlicensed DTH deflector operators on off-
air reception channels. In rural areas of Ireland, PHL typically offers fewer
channels than DTH. Generally, the installation charge for PHL's MMDS service
is substantially less than that of a DTH service; however, PHL's MMDS monthly
subscription rate is typically more than the rate for DTH service. The rate of
growth in satellite households has stabilized since 1993 to about 0.2% or
approximately 3,000 dish sales per year, due to the ready availability of
cable and MMDS. The DTH penetration rate in Ireland at year end 1995 was
estimated to be approximately 7.6%.
The Minister of Telecommunications recently rejected a license application
from one of the unlicensed operators that is currently serving approximately
30,000 subscribers in one of PHL's operating areas. This operator has sought
judicial review and continues to operate. PHL believes, however, that if a
license is ultimately granted, such license would violate PHL's licenses, and
may give rise to a suit by PHL for damages.
Malta: Melita Cable TV P.L.C. Malta, a group of islands located in the
Mediterranean Sea between Italy and North Africa, is an English-speaking
nation with a population of approximately 375,000. In 1991, Melita Cable TV
P.L.C. ("Melita") was awarded an exclusive franchise to deliver cable
television services for Malta.
65
<PAGE>
The license expires in 2006 and is renewable upon application to and review by
the government. Melita's network currently passes over 84% (approximately
151,200) of the homes on the island. Melita currently provides 44 channels of
programming, grouped in three tiers: (i) reception (local and foreign off-air
channels), (ii) basic (reception service plus 15 additional satellite
services); and (iii) TV Plus (reception and basic service plus nine additional
satellite services). Because English is widely spoken in Malta, Melita is able
to take advantage of the abundant supply of English language programming
available for licensing from various programming companies.
Melita's growth strategy is to continue to market aggressively its services
to homes in its franchise areas, as well as to provide an increased amount of
programming to increase its appeal to subscribers. 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.
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.
HUNGARY: KABELKOM HOLDING CO.
UCI and Time Warner formed Kabelkom Holding Co. ("Kabelkom"), a Delaware
general partnership, to invest in and further develop cable opportunities in
Hungary. Kabelkom, through its wholly-owned subsidiary Kabelkom Kabeltelevizio
Kft, to date has purchased an ownership interest in ten existing Hungarian
cable television systems located in different cities throughout the country,
with the most recent acquisition occurring in August 1996. Kabelkom has
substantially completed the rebuilding and upgrading of its cable
infrastructures to support increased channel capacity. Revenue per subscriber
in Hungary has historically been relatively low in comparison with Western
European or U.S. standards, while the subscriber penetration rates have been
extremely high. UPC has succeeded in increasing revenues per subscriber as it
upgrades the systems and adds new services in step with the growth of
Hungary's economy.
Kabelkom currently offers 33 channels of programming in its ten systems. In
September 1991, Kabelkom launched a pay movie channel (HBO Hungary) to supply
its systems with additional programming as well as for sale to other cable
television operators. The channel currently offers programming consisting of a
broad mix of U.S., European and Hungarian films. Kabelkom licenses HBO Hungary
to other operating systems in addition to the operating systems in which it
has an ownership interest. HBO Hungary has quickly become, and UPC believes
will continue to be, a substantial source of revenue for Kabelkom. HBO Hungary
provides programming 24 hours per day, seven days a week. In February 1995,
Kabelkom launched its second channel of Hungarian language programming,
"Spektrum TV". This channel provides a minimum of ten hours of documentary
programming per day (15 hours on the weekends), seven days a week. In June
1997, a third channel of Hungarian language programming was launched. The
channel provides 16 hours of music video programming per day. Kabelkom began
distributing these channels to cable TV systems by satellite in 1997, changing
from the tape delivery method. Kabelkom may also develop additional
programming to be offered on the systems in which it has an ownership
interest, as well as to be offered for sale to non-competitive Hungarian
multi-channel television systems.
At the present time, Kabelkom experiences a very limited amount of
competition from DTH, as the installation costs of DTH currently are
prohibitive for the local market. At year end 1996, there were 429,000
satellite/DTH households in Hungary, representing a penetration rate of 12.5%.
Duna TV, the main satellite channel, was launched in 1992, and broadcasts
news, films and cultural programs ten hours a day. Kabelkom generally has not
faced competition from cable television systems overbuilding in its franchise
areas.
UPC's ownership interest in Kabelkom was originally held through UCI. In
September 1996, UPC purchased Telewest Europe Group's interest in UCI,
increasing its ownership in Kabelkom from 3.9% to 50%. Generally, UPC and Time
Warner share distributions in proportion to their respective capital
contributions until each partner has received an amount equal to the capital
contributed by it plus interest on such contributions at
66
<PAGE>
an annual rate of 12%. On the basis of these capital contributions, the
respective economic interests currently are 47.2% for UPC and 52.8% for Time
Warner. After return of capital, distribution amounts will be shared equally.
With respect to ownership in each of the ten systems, Kabelkom formed local
joint ventures with private enterprises or the municipality that owned and
operated the systems. As of June 30, 1997, Kabelkom held net ownership
interests ranging from 70% to 100% in nine of the ten local Hungarian cable
television systems and a minority interest in the remaining system.
UPC DEVELOPMENT PROJECTS
UPC is currently pursuing various development projects throughout Europe,
including projects in the Czech Republic, France, Portugal, Romania and the
Slovak Republic. UPC is currently building out its franchises and has
initiated cable television operations in each of these countries. Although
these development projects will require more time to realize returns
comparable to the returns generated by the UPC Established Systems, they
provide the potential for UPC to expand beyond its established base. In
pursuing development opportunities, UPC searches for projects that, once
developed, would provide clustering and scale effects comparable to the UPC
Established Systems. The Company believes that its extensive experience in
developing new-build cable systems, as evidenced by the Company's record in
UIHLA and UAP, will provide it with an advantage over competitors in the
regions covered by the UPC Development Projects. The Company is evaluating the
sale of a portion of the UPC Development Projects in order to rationalize its
operations, reduce debt and provide additional capital for the growth of the
UPC Established Systems. The Company expects that each of the UPC Development
Projects that will not be sold will fund their respective growth through
internally generated cash flow or local level borrowings.
Czech Republic: Kabel Net Holding A.S./Kabel Net Brno A.S. UPC's wholly
owned subsidiaries currently offer cable television services in the cities of
Prague and Brno. At September 30, 1997, the MMDS systems served approximately
38,456 subscribers, representing a penetration rate of 33.5% and the cable
system served approximately 11,497 subscribers, representing a penetration
rate of 38.5%.
Romania: CCV and Multicanal Holdings. UPC is currently involved in the
development of two cable companies in Romania: Control Cable Ventures, SRL
("CCV"), with operations in Ploiesti and Slobozia, in which UPC holds a 100%
interest, and Multicanal Holdings, SRL ("Multicanal Holdings") located in
Bucharest, Romania's capital, in which UPC holds a 90% interest. As of
September 30, 1997, the combined UPC Romania operations passed approximately
69,620 homes and served approximately 39,253 subscribers, representing a
penetration rate of 54.5%. In December 1997, UPC acquired a 51% interest in
Eurosat, SRL, which has approximately 19,000 subscribers and passes 22,000
homes in the city of Bacau.
Slovak Republic: Trnavatel and Kabel Tel. UPC entered the Slovakian market
in 1995 and currently has over 100,000 homes in its franchise areas. Together
with local partners, UPC is currently developing projects in the cities of
Trnava (Trnavatel) and Zvolen, Povzska Bystericz and Nove Zamky (all three
operated as Kabel Tel). UPC holds a 75% interest in Trnavatel and a 95%
interest in Kabel Tel. Construction of the network in Trnava has been
completed while the three Kabel Tel cities are all currently under
construction. The Kabel Tel systems are expected to be completed by year-end
1998. As of September 30, 1997, the combined UPC Slovak Republic operations
passed approximately 19,700 homes and served approximately 14,900 subscribers
representing a penetration rate of 75.8%.
France: Mediareseaux Marne, S.A. UPC has an approximate 99% ownership
interest and a 95% economic interest (with the other shareholder carrying the
remaining economic interest) in Mediareseaux Marne S.A. ("Mediareseaux"),
which holds cable television franchises for 86,000 homes in the Marne-la-
Vallee area east of Paris. Mediareseaux secured a 30-year exclusive license in
1996 that gives it control of the network, channel line-up and rate control,
without price regulation, even of basic services. UPC plans for Mediareseaux
to develop these franchises as one clustered system, passing at least 300,000
homes and offering integrated video, Internet/data and cable telephony
services. Mediareseaux began construction of its network in September 1996,
and as of September 30, 1997, Mediareseaux's system passed approximately
23,100 homes and served approximately 4,600 subscribers.
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<PAGE>
Portugal: Intercabo Televisao Por Cabo. UPC, through its 100% owned
subsidiary, Intercabo Televisao por Cabo ("Intercabo"), currently holds non-
exclusive cable operating licenses covering more than 805,000 homes. At
September 30, 1997, Intercabo's system in Moita passed approximately 12,200
homes and served an estimated 2,700 subscribers. UPC has recently stopped
construction of this system as it is actively seeking the sale of its Portugal
interests.
UPC ACQUISITIONS
Subject, in certain circumstances, to the consent of certain of UPC's
lenders, UPC intends to pursue acquisitions opportunities which allow it to
rationalize its operations or which offer the opportunity to create new
clusters. This acquisition strategy would allow UPC to achieve greater
economies of scale. Below is a summary of UPC's recent and planned acquisition
activities. In addition to those transactions described below, UPC and its
operating companies are in various stages of review and negotiation of other
potential acquisition and diposition opportunities consistent with its
rationalization policy.
Combivisie. In February 1998, UPC acquired the cable television systems
surrounding Eindhoven, The Netherlands for approximately NLG181.1 million
($91.4 million as of September 30, 1997). Combivisie is a foundation under
Dutch law that administers the cable television systems on behalf of 18
municipalities in the region surrounding Eindhoven. At September 30, 1997, the
Combivisie systems passed approximately 142,000 homes and served approximately
137,000 subscribers, representing a basic penetration rate of 96.5%. UPC
financed this acquisition through local level borrowing and availability under
the Tranche A Facility. For the year ended December 31, 1996, Combivisie had
annual revenues and Adjusted EBITDA of approximately $13.7 million and
approximately $10.0 million, respectively, calculated according to Dutch GAAP
and converted to dollars using a September 30, 1997 convenience translation.
UCI Partnership Transaction. In September 1996, UPC acquired Telewest Europe
Group's partnership interest in UCI. As a result of this acquisition, UPC
increased its ownership in Norkabel from 8.3% to 100%, Kabelkom from 3.9% to
50% and in Swedish Cable and Dish AB (Sweden) from 2.1% to 25.9%. In October
1996, UPC sold its interest in Swedish Cable and Dish AB. At September 30,
1997, Norkabel passed approximately 231,400 homes and served approximately
157,400 subscribers, representing a basic penetration rate of 68.0%, and
Kabelkom passed approximately 287,300 homes and served approximately 259,300
subscribers, representing a 90.2% basic penetration rate. UPC believes that
there are significant opportunities to increase the revenues and cash flows of
both these systems by offering new programming options and offering additional
communications services.
Janco. In January 1997, UPC acquired 70.2% of Janco, a cable system with a
non-exclusive license to provide cable television service in Oslo, Norway from
Helsinki Media. In November 1997, UPC merged Norkabel into Janco to form Janco
Multicom. As a result of such merger UPC holds an 87.3% interest in Janco
Multicom. Janco Multicom's articles of association grant certain minority
rights to Helsinki Media. From an economic perspective, however, UPC has all
the rights and obligations of full ownership of Janco Multicom and UPC
consolidates 100% of the financial results therefrom. UPC has the right to
acquire on or before July 2, 2001, and Helsinki Media has the right to put to
UPC on July 2, 2001, the remaining interest in Janco Multicom for a purchase
price of approximately NKr165.9 million ($23.5 million as of September 30,
1997), subject to certain adjustments based upon the operating results of
Janco Multicom. UPC has in place a letter of credit to fund fully the purchase
of the remaining interest in Janco Multicom. As a result of this merger, UPC
has a leading position in the Norwegian cable television market with service
in most of Norway's largest cities. At September 30, 1997, pro forma for the
merger, Janco Multicom passed approximately 456,400 homes and served
approximately 318,300 subscribers, representing a basic penetration rate of
69.7%. UPC plans to expand offerings in the Norwegian market to include other
broadband communications products such as Internet/data services and cable
telephony services.
Son en Breugel. In July 1997, UPC acquired the Son en Breugel cable
television system located near UPC's KTE system for approximately NLG5.9
million ($3.0 million as of September 30, 1997). The Son en Breugel system has
approximately 5,000 subscribers and has been integrated into KTE.
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<PAGE>
Nuon. In November, 1997, UPC and a Dutch energy company ("Nuon") entered
into an agreement in principal to combine their interests in broadband cable
and wirebound telecommunications networks in The Netherlands. Consummation of
the agreement is conditioned upon, among other things, the receipt of board
approvals and the completion of definitive agreements, although there can be
no assurance that such transaction will occur. It is anticipated that UPC and
Nuon would own 51% and 49%, respectively, of the entity holding their combined
interests ("United Telekabel Holding") although the parties will maintain
equal voting rights on certain matters. If consummated, UPC would contribute
its equity interests in A2000, KTE, Combivisie and Son en Breugel systems, and
Nuon would contribute its equity interests in systems in Friesland and
Gelderland and parts of Noord-Brabant and Zuid-Holland. These operating
systems served approximately 1.1 million subscribers as of September 30, 1997.
UPC LIQUIDITY ISSUES
The joint venture and shareholder agreements relating to some of UPC
operating systems, particularly those that were originally contributed by the
Company to UPC when UPC was formed, include restrictions on the Company's
ability to dispose of all or a portion of its interests in UPC without the
consent of the relevant partner or shareholder. These provisions are generally
applicable if such disposal would result in a change of control of UPC. The
Tranche A Facility and the Tranche B Facility, as well as the UPC Acquisition
agreement, also restrict UPC's ability to dispose of certain of its assets.
Prior to UPC achieving a specified financial ratio, the Tranche A Facility
lenders may accelerate the repayment of the facility if the Company ceases to
own at least 51% of the shares and voting rights in UPC. After the ratio is
achieved, the Company must continue to own at least 30% of the shares and
voting rights in UPC. In addition, under the Tranche A Facility, UPC is
restricted from merging with or into any entity. The Tranche A Facility also
requires UPC to maintain its present ownership in the Telekabel Group and
Radio Public and to own at least 87.3% of Janco Multicom. The Tranche A
Facility and the Tranche B Facility restrict UPC's ability to dispose of those
assets which secure the facilities. The Tranche A Facility mandates that asset
sales not be made, with the exception of certain specified transactions,
unless certain financial conditions are met and unless the prior written
consent of the lender is obtained. Under the Tranche B Facility, the lenders
may accelerate the repayment of the facility if the Company ceases to own all
of the issued shares and voting rights in UPC. The Tranche B Facility
prohibits asset sales, except as specifically allowed in the facility
agreement. Under the proposed project financing for UPC's Eindhoven,
Combivisie and Son en Breugel systems, UPC will be required to maintain
indirectly or directly at least 51% of the voting rights in the entity holding
those systems.
Under the UPC Acquisition agreement, so long as Philips has any liability in
respect of the agreements relating to the Telekabel Wien system, UPC must
indemnify Philips against such liability and Philips' representative on the
UPC supervisory board must approve certain specified matters concerning the
Telekabel Group, including 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. Philips' representative on the UPC
supervisory board must also approve the merger or consolidation of UPC into
any other entity that is not wholly owned by UPC. The Company and UPC have
agreed to use their reasonable best efforts to obtain the release of Philips
from such liability.
OTHER UIH EUROPE
UIH (through entities other than UPC) holds interests in several operations
in Europe. These operations include (i) a 46% interest in Monor
Communications, a fiber-optic telecommunications network that is under
construction in the Monor region of Hungary with approximately 84,000
telephony homes passed and approximately 55,600 cable television homes passed
and approximately 60,600 telephony subscribers and 21,700 cable television
subscribers as of September 30, 1997; (ii) a 34% interest in a programming
venture in Spain that had approximately 315,000 subscribers as of September
30, 1997; and (iii) a 100% interest in a programming venture in Ireland that
had approximately 148,000 subscribers as of September 30, 1997.
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<PAGE>
UIH ASIA/PACIFIC COMMUNICATIONS, INC.
OVERVIEW
The Company, through its 98% owned subsidiary UAP, is a leading provider of
multi-channel television services in Australia and the Asia/Pacific Region.
Through its wholly-owned subsidiary, Austar, UAP is the second largest
provider of multi-channel television services in Australia and largest
provider of multi-channel television services in regional Australia, operating
MMDS systems and marketing a DTH service in franchise areas encompassing
approximately 1.6 million television homes, or approximately 25% of the total
Australian market. Austar began marketing its services in late 1995 and has
grown its subscriber base from approximately 5,200 subscribers as of December
31, 1995 to approximately 178,800 subscribers as of September 30, 1997. The
Company believes that Austar benefits from several factors, including
exclusive license agreements and favorable programming agreements, which have
provided Austar with an attractive competitive position within its markets.
UAP, through its 65% owned New Zealand subsidiary Saturn, is constructing a
wireline cable and telephony system in Wellington, New Zealand, a market with
approximately 141,000 television homes. In addition, Sun Cable, in which UAP
holds a note convertible (subject to local restrictions) into a 40% ownership
interest, owns and operates cable television systems in 15 markets in the
Philippines with an aggregate of approximately 64,800 subscribers and a total
of approximately 600,000 television homes in its operating areas as of
September 30, 1997. Sun Cable and SkyCable recently announced their intention
to form a joint venture, which, if consummated, would create the second
largest multi-channel television operator in the Philippines and the largest
outside of Manila. See "--Philippines: Sun Cable." UAP's other businesses
include (i) a 25% interest in XYZ, a programming company that provides five
channels to the Australian multi-channel television market, four of which are
part of the "Galaxy Package," the core component of Austar's programming
offering, and the most widely distributed programming package in Australia
(with a total of approximately 524,000 subscribers as of September 30, 1997)
and (ii) up to a 90% economic interest in Telefenua, the only provider of
multi-channel television services in Tahiti, with an MMDS system in a market
with approximately 31,000 television homes.
The Company believes that UAP is well-positioned to capitalize on the strong
demand for multi-channel television and other telecommunications services in
its markets. As of September 30, 1997, UAP's multi-channel television
operating systems had an aggregate of approximately 1.8 million television
homes serviceable and approximately 252,700 subscribers, compared to
approximately 324,000 television homes serviceable and approximately 29,000
subscribers as of December 31, 1995 (with a substantial majority of such
growth resulting from Austar's build out and subscriber marketing). During
this same period, subscribers to XYZ's programming increased from
approximately 65,000 to approximately 524,000. For the nine months ended
September 30, 1997, UAP had consolidated revenues of approximately $49.1
million. While the Company expects that a substantial portion of UAP's growth
will come from the continued development of Austar, the Company also is
anticipating growth by UAP's other operating companies, which the Company
believes have significant opportunities to increase their subscribers,
revenues and cash flows by continuing to market within their respective
existing franchise areas.
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AUSTRALIA: AUSTAR
The following selected financial data have been derived from the combined
financial statements of CTV Pty Limited and STV Pty Limited (collectively,
"Austar"). These financial statements have been prepared in accordance with
generally accepted accounting principles in Australia with the Australian
dollar as the functional currency. The following selected financial data
includes a convenience translation using the September 30, 1997 exchange rate
of 0.7258 dollars per Australian dollar ("A$").
<TABLE>
<CAPTION>
CONVENIENCE
TRANSLATION
TO DOLLARS
YEAR ENDED DECEMBER 31, NINE MONTHS ------------------
------------------------ ENDED NINE MONTHS ENDED
1994 1995 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
---- -------- --------- ------------------ ------------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues(1)........................ -- A$ 594 A$ 26,852 A$ 59,972 $43,527
Adjusted EBITDA(2)................. -- (9,390) (29,765) (19,179) (13,920)
<CAPTION>
AT DECEMBER 31,
------------------------ AT SEPTEMBER 30,
1994 1995 1996 1997
---- -------- --------- ------------------
<S> <C> <C> <C> <C>
OTHER DATA:
Homes passed(3).................... -- 240,658 1,529,000 1,589,000
Basic subscribers.................. -- 5,204 103,447 178,832
Basic penetration ................. -- 2.2% 6.8% 11.3%
Avg. mo. service rev. per sub.(4).. -- NM $26.70 $30.54
</TABLE>
- --------------------
(1) Service launched in August 1995.
(2) Adjusted EBITDA represents profit (loss) as determined using Australian
generally accepted accounting principles, which differ from those of the
United States, plus net interest expense, income tax expense, depreciation,
amortization, minority interest, management fee expense, currency exchange
gains (losses) and other non-operating income (expense) items.
(3) The Company estimates that there are currently approximately 1,622,000
homes under license in Austar's franchise areas.
(4) Service revenues excluding installation revenue for the years ended
December 31, 1995 and 1996 and the nine months ended September 30, 1997
using a convenience translation as of September 30, 1997.
Overview/Growth Strategy. Austar is the largest provider of multi-channel
television services in regional Australia (areas outside Australia's six
largest cities). In early 1996, Austar initiated widespread deployment of its
services and, as of September 30, 1997, had launched MMDS service in all of its
38 metropolitan markets containing approximately 842,000 homes, and had
initiated the marketing of DTH services in non-metropolitan markets containing
approximately 747,000 homes. These markets represent substantially all of
Austar's approximately 1,622,000 franchise television homes.
The deployment of MMDS networks in combination with DTH has allowed Austar to
roll out its service quickly and achieve rapid subscriber growth in its
franchise areas. Austar believes that the ability to be the first provider of
multi-channel television services in each of its markets has allowed Austar to
establish a significant market presence and strong brand awareness, factors
which management believes provide it with a competitive advantage. Austar is
currently the only provider of multi-channel television services in
substantially all of its franchise areas, which contain approximately 25% of
all homes in Australia. These markets are generally smaller than the capital
cities, but are growing more quickly and have fewer entertainment options.
Austar has focused its marketing and sales efforts to support its strategy of
rapid system roll-out which management believes will provide it with a
competitive advantage in each of its markets. Austar has developed a
comprehensive marketing and sales organization consisting of a 180 person
direct sales force and over 200 national customer service and telemarketing
personnel. The direct sales force, which operates out of local offices in each
of Austar's metropolitan markets, is currently generating sales of
approximately 2,500 subscriptions per week.
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Technology. Due to the relatively small size and low housing densities that
characterize the markets in its franchise areas, Austar is primarily utilizing
MMDS and DTH wireless technologies to deliver its services. In its
metropolitan markets, Austar constructs and owns the MMDS transmission
facilities and installs and retains ownership of the in-home subscriber
equipment. In its non-metropolitan markets, Austar is marketing a DTH service
(consisting primarily of the Galaxy Package) and installs and retains
ownership of the in-home subscriber equipment. As a result, Austar did not
incur the costs necessary to own the facilities required to offer a DTH
service and only incurs capital costs when a DTH subscriber is installed.
Approximately 875,000 of the television homes in Austar's service area are in
metropolitan markets with sufficient size and densities to justify the
construction of MMDS networks. Austar owns virtually all of the licenses in
the MMDS spectrum currently available in these markets for the provision of
MMDS services. Austar markets its programming services via DTH in its non-
metropolitan franchise areas representing 747,000 television homes. These are
less densely populated areas outside its metropolitan markets that are more
effectively serviced by DTH technology. Austar also uses DTH technology for
certain homes in its metropolitan franchise areas that are unable to be
serviced by MMDS technology. In addition, Austar recently began construction
of a wireline cable network in Darwin, a market containing approximately
26,200 serviceable homes where dense vegetation makes an MMDS system
impractical.
Programming. Austar has secured the right to distribute the Galaxy Package
in its service areas pursuant to franchise agreements with Australis with
initial terms through 2009 (extendible at the option of Austar through 2019).
Austar believes that the terms of its franchise agreements with Australis are
favorable to Austar and that these terms provide Austar with a programming
cost advantage over potential competitors. The Galaxy Package is the most
widely distributed programming package in Australia and is the core
programming offering of Austar, East Coast Television, Australis and FoxTel.
Management believes that approximately 75% of Australia's multi-channel
television subscribers subscribe to the Galaxy Package. The channels in the
Galaxy Package were developed exclusively for the Australian market by several
of the world's leading programming companies, including Paramount, Sony,
Universal, Fox and Viacom. The Galaxy Package consists of the following eight
channels:
<TABLE>
<CAPTION>
GALAXY CHANNEL PROGRAMMING GENRE
<S> <C>
Showtime................... premium feature movies
Encore..................... library movies
Fox Sports................. sports
TV-1....................... general entertainment
Discovery.................. documentary, adventure, history and lifestyle
Nickelodeon/Nick at Nite... children's and family entertainment
Arena...................... general entertainment
Channel [V]................ music video
</TABLE>
Australis, Austar's primary supplier of programming, has engaged in a rapid
roll-out of service that has required a significant amount of capital and has
strained its liquidity. Australis recently announced a $20 million note sale
that is expected to allow it to meet its short-term funding requirements.
Australis has also announced it is continuing to negotiate with its
bondholders, certain of the movie studios that supply it with programming and
other third parties in order to implement a longer-term source of funding. If
Australis is unable to make arrangements to satisfy its long-term capital
needs, Australis may have difficulty meeting contractual obligations with
respect to the four non-XYZ Galaxy channels distributed directly by Australis.
The Company believes that if Austar is no longer able to obtain the four
Galaxy channels provided by Australis and the Company was required to seek
replacement programming, it could have access to the same programming directly
from the suppliers of such four Galaxy channels or sufficient alternative
programming on competitive terms. See "Risk Factors--Ability to Procure
Additional Programming Services."
Austar has also secured additional programming on a non-exclusive basis,
which it distributes to its customers as part of its standard basic
programming package, and Austar integrates all available free-to-air channels
into its standard basic channel line up at no additional charge. Austar's
other "cable" channels include
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CMT, BBC World, TNT, CNBC, Asia Business News, Cartoon Network, CNN
International, Comedy Channel, LifeStyle and The Value Channel. In March 1996,
Austar began offering its first optional premium channel, World Movies, which
consists primarily of foreign movies, art films and features. Austar is
charging approximately $5.30 per month for World Movies. Demand for this
service has been strong with approximately 26,200 subscribers as of September
30, 1997, representing approximately 15% of Austar's basic customers. On
November 1, 1997, Austar launched Nightmoves, Australia's first adult premium
channel, for a charge of A$19.95 per month ($14.80 as of September 30, 1997).
Austar estimates that this service will net Austar approximately 77% of the
subscription revenues generated.
Budgeted Capital Expenditures and Capital Resources. As of September 30,
1997, Austar had spent $54 million for construction of MMDS headend and
transmission facilities for all of its operating systems. Variable
installation and equipment costs for each MMDS and DTH subscriber are
currently approximately $460 and $780 per subscriber, respectively. These
subscriber costs are partially offset by Austar's metropolitan and non-
metropolitan installation charges of $31 to $75 and $115, respectively. Austar
retains ownership of all MMDS and DTH customer premises equipment. Austar has
budgeted approximately $112.0 million for capital expenditures in 1998. UAP
expects to fund these expenditures from cash on hand and funds from Austar's
bank facility although there can be no assurance that sufficient funds will be
available.
Competition. The substantial majority of Austar's metropolitan markets are
either small (i.e., approximately 20,000 homes), and/or have relatively low
household densities (generally 25 to 75 homes per square kilometer as compared
to 100 to 130 homes per square kilometer in Australia's largest capital
cities). As a result, Austar believes that its metropolitan markets generally
do not have sufficient density to justify the construction of competitive
wireline cable systems. While Austar believes household densities potentially
could support wireline cable construction in areas representing approximately
20% of Austar's total franchise homes, the relatively small size of these
markets reduces the attractiveness of constructing a competitive wireline
cable network. Nonetheless, Austar, as a licensed subscription television
provider, is authorized to build wireline cable systems in its markets and
where appropriate could construct wireline cable systems. With the exception
of the FoxTel cable television system currently extending into Austar's
116,000-home Gold Coast metropolitan market, Austar currently does not have
any operational subscription television competitors in its franchise areas. At
September 30, 1997, Austar had approximately 17,000 subscribers in the Gold
Coast and estimates that FoxTel had approximately 10,000 subscribers in this
market. Austar is entitled to receive compensation for each FoxTel subscriber
in Austar's franchise area, starting in January 1998. Through the term of its
franchise agreements, Austar has the right, in its sole discretion, either to
(i) sublicense to FoxTel the right to transmit the services provided to it by
Australis (and any other services) by cable transmission in its franchise
areas or (ii) require Australis to pay Austar an amount each month equal to
the sum of (a) the greater of A$4.50 ($3.27 as of September 30, 1997) per
subscriber or all revenues (less programming costs) per subscriber during such
month received under the agreement between FoxTel and Australis, with respect
to FoxTel subscribers located in Austar's franchise areas and (b) an
additional amount (if any) to put Austar in the position that it would have
been in had it subscribed the services provided to it by Australis directly to
FoxTel (which currently would be approximately A$10.00 ($7.26 as of September
30, 1997) per Foxtel subscriber per month).
Approximately 747,000 of Austar's 1.6 million franchise homes are in non-
metropolitan markets that generally have densities of fewer than 25 households
per square kilometer. As a result, UAP believes that these markets can only be
served economically with DTH technology. Although regulations no longer
prohibit additional DTH services, Austar retains its exclusive right to market
the Galaxy Package in its franchise areas through 2009 (extendible to 2019 at
Austar's option). In addition, Austar believes it has an additional
competitive advantage in offering DTH service in these markets because over
70% of its serviceable homes are within a 50 kilometer radius of its
metropolitan markets, in most of which it has sales personnel and installation
technicians. Accordingly, Austar believes its cost to market and install
subscribers in these areas should be below that of any potential competitor
without similar infrastructure in place.
Austar's monthly churn, which averaged 5.4% per month during 1996, declined
to an average of 3.9% per month during 1997. Austar expects its churn to
continue to decline by increasing its installation charges in certain
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areas and continuing to implement customer assurance and retention programs,
including the introduction of direct debit billing for customers. There can be
no assurances, however, that Austar will be successful in these efforts to
decrease churn or that Austar will not face increased churn as competitors
enter its markets.
Ownership. UAP holds an effective 100% economic interest in Austar. See
"Corporate Organizational Structure -- UAP."
Liquidity Restrictions. Pursuant to agreements among securityholders of
Austar, UIH A/P may not transfer its interests in Austar, except among certain
affiliates and under certain other specified conditions, until it has offered
its interests to such other securityholders. If such other securityholders do
not purchase the offered securities, UIH A/P may, within six months after such
offer, transfer its interest in Austar to a third party at a price not less
than that offered to the other securityholders, subject to board of director
approval, which is to be granted if the securityholder follows the requisite
procedures.
NEW ZEALAND: SATURN
Overview/Growth Strategy. UAP owns 65% of Saturn, which recently launched
service on the initial portions of its hybrid fiber coaxial ("HFC") network
that will allow it to provide multi-channel television services as well as
business and residential telecommunications services in the Wellington area,
encompassing approximately 141,000 homes. Wellington is New Zealand's capital
and second largest city. Saturn launched service in portions of this system in
September 1996 and expects construction to be completed by mid-1999. In
addition, Saturn has secured additional rights to attach its network cable to
existing utility poles in markets representing 500,000 homes, subject to local
planning approval, and is exploring the possibility of expanding its networks
and services to these markets.
In July 1997, SaskTel invested approximately $19.5 million in Saturn in
return for a 35% interest. UAP believes that SaskTel will contribute
substantial telephony expertise to Saturn as it builds and operates its cable
television/telephony service in Wellington.
Saturn is constructing a HFC network designed to allow the integrated
delivery of pay television, cable telephony, Internet/data and future
interactive services. The majority of Saturn's approximately 1,600 kilometers
of plant will be constructed on aerial utility poles that will allow for
quicker and more cost-effective network construction than underground
wireline. Because the only significant multi-channel television competitor in
the Wellington market offers a UHF-delivered service that is limited to only
five channels, Saturn's management believes it will be able to build a
significant customer base by offering an attractive basic programming line-up
of over 30 channels at competitive prices, as well as pay-per-view, data and
cable telephony services. Saturn recently executed an interconnect agreement
with Telecom New Zealand ("Telecom") that will allow it to provide local
residential and business telephone services. By bundling both subscription
television and cable telephony services, Saturn will be able to offer pricing
discounts across both services, which management believes will provide an
advantage over competitors that offer only one service.
Programming. Saturn's programming strategy is to offer a wide variety of
high-quality channels at competitive prices. Saturn is currently offering a
single tier of service consisting of 23 channels and currently is negotiating
with a number of programming services to expand its channel offering. In
addition, in August 1997, Saturn launched a 20 channel pay-per-view service
pursuant to licensing agreements with Universal Studios International, B.V.,
Twentieth Century Fox Telecommunications International, Inc, Warner Bros.
International Distribution and Columbia Tristar International Television.
Competition. There are currently five broadcast networks in New Zealand. The
largest provider of subscription television services in New Zealand is Sky,
which operates a five channel scrambled UHF subscription television service.
Although Sky offers a popular sports channel on an exclusive basis, Sky does
not currently offer the programming diversity or television/telephony bundling
that Saturn plans to offer, services Saturn believes will drive its
penetration. In addition, Telecom, New Zealand's largest telecommunications
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<PAGE>
service provider with nearly a 100% share of local loop revenues, 75% of
national and international toll revenues and 90% of cellular revenues, has
announced its intention to rebuild certain of its existing networks using HFC
technology, which will allow it to offer video and data services to a total of
approximately 70,000 homes in various parts of New Zealand. Telecom has
announced that it will not expand beyond its current network. Telecom recently
activated the initial portion of its network in the Wellington area, which
passes approximately 8,000 homes. Telecom is also expected to be the primary
competition to Saturn's planned local loop telephony service.
PHILIPPINES: SUN CABLE
Overview/Growth Strategy. The Company holds a note in Sun Cable (the "Sun
Cable Loan"), which, upon certain events, is convertible into a 40% equity
interest in Sun Cable, the third largest cable television operator in the
Philippines with wireline cable television systems in 15 markets that had a
total of approximately 600,000 television homes at September 30, 1997. Sun
Cable is dedicating significant resources to the construction and build-out of
these franchise areas. Multi-channel television in the Philippines is
experiencing rapid growth due in part to the country's recent economic growth,
widespread proficiency of English and the high demand for television and
alternative entertainment services. Sun Cable is also exploring the provision
of cable telephony services over its networks, many of which are HFC. At three
lines per 100 persons, the Philippines' telephone penetration rate is
currently one of the lowest in the world. As of September 30, 1997, Sun
Cable's systems passed approximately 171,000 homes and had approximately
65,000 subscribers, representing a penetration rate of 38%. Due to limitations
on foreign ownership under existing Philippine law, the Company is currently
not permitted to hold any common equity interest in Sun Cable. The Company
believes the law will change within the next few years to allow up to 40%
foreign ownership in Philippine multi-channel television companies.
There are currently an estimated seven million television households in the
Philippines, of which only 350,000 receive multi-channel television systems.
With the country's high television viewership and a general acceptance of
Western programming, due to the fact that English is widely spoken in the
country, the Company believes that the Philippine multi-channel television
market has strong potential for continued growth.
Sun Cable has selected markets where management believes it can be a major
cable television provider. These markets are generally either among the
country's top 50 population centers or are strategically important to Sun
Cable's existing operating areas. Sun Cable has initiated or is planning to
initiate a rebuild and expansion program in each of its markets involving,
where feasible, the construction of HFC networks that will allow the systems
to offer cable telephony services. Sun Cable is also expanding its existing
networks and pursuing additional licenses and existing cable television
systems in selected markets. Sun Cable is pursuing a $15 million credit
facility to fund its system construction, although there can be no assurance
it will be successful in obtaining such a facility.
Programming. Sun Cable offers a combination of English and local language
services. Sun Cable's systems generally provide 40 to 60 channels of
programming in a single basic tier of services including HBO, ESPN
International, Discovery, STAR Plus, CNN International and MTV. Sun Cable
plans to introduce in the near future one or more tiered premium services as
well as pay-per-view services.
Competition. Because cable television licenses in the Philippines are non-
exclusive, many of the markets in which Sun Cable operates have more than one
operator providing service. In its more rural markets, Sun Cable is either the
only provider of multi-channel television services or is competing with
operating systems that management believes to be generally small and
undercapitalized. In several urban markets, representing a total of
approximately 300,000 television homes, however, Sun Cable faces competition
from SkyCable and Home Cable, national multi-channel cable television
operators that are consolidating smaller cable television systems into their
operating systems. In such markets, the Company believes Sun Cable maintains
its competitiveness by pricing its product aggressively and by providing
better picture quality as a result of its generally higher quality network and
equipment.
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Joint Venture with SkyCable. In November 1997, Sun Cable and SkyCable, the
largest multi-channel television service operator in the Philippines,
announced their intention to form a joint venture into which Sun Cable will
contribute its properties and SkyCable will contribute its multi-channel
television properties outside of Manila, and in which SkyCable will hold a 51%
interest and Sun Cable will hold a 49% interest. Upon formation, the joint
venture is expected to be the second largest multi-channel television operator
in the Philippines and the largest outside the Manila metro area and would
have had, pro forma for the proposed joint venture, approximately 150,000
subscribers and approximately 1.0 million franchise homes as of September 30,
1997. Each company will contribute management personnel to manage the venture.
SkyCable will be allowed to appoint four of the seven directors, although all
major decisions of the venture will require unanimous board approval. UAP
believes that, if consummated, the joint venture will be a substantial benefit
to Sun Cable as it currently competes with SkyCable in markets representing
approximately 66% of its subscribers and 85% of its franchise homes. In
addition, it is anticipated that the joint venture agreement will permit Sun
Cable to sell its interest in the joint venture to SkyCable after three years
if the joint venture is not a public company at that time.
AUSTRALIA: XYZ (PROGRAMMING)
Through its 25% interest in XYZ, UAP provides five channels (the "XYZ
Channels"), four of which are part of the eight channels that are distributed
as the Galaxy Package, the most widely distributed programming package in
Australia. As of September 30, 1997, the XYZ Channels that are part of the
Galaxy Package were distributed to approximately 524,000 multi-channel
television subscribers. The XYZ Channels consist of the following:
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING GENRE
<S> <C>
Discovery Channel....... documentary, adventure, history and lifestyle programming
Nickelodeon/Nick at children's educational, entertainment and cartoons/family-
Nite................... oriented drama and entertainment
Channel [V]............. music video with local presenters
Arena................... drama, comedy, general entertainment, programming, library
movies
LifeStyle............... home and personal improvement programming
</TABLE>
Though not part of the Galaxy Package, LifeStyle is being carried by Austar
and by the FoxTel systems.
XYZ is an independently managed venture that purchases, edits, packages and
transmits programming for the XYZ Channels in exchange for a monthly fee per
subscriber. UIH A/P and Continental Century Pay Television Pty Limited
("Century") jointly manage Arena and LifeStyle; UAP, Century and FoxTel manage
Channel [V]; and UAP and Century, together with Nickelodeon Australia, Inc.
("Nickelodeon") manage the Nickelodeon/Nick at Nite channel. Each of these
three channels reports to a board comprised of UAP, Century and FoxTel
executives. The Discovery Channel is managed by Discovery Asia and distributed
by XYZ.
XYZ is focusing its marketing efforts on creating, building and supporting
channel identification and brand awareness. XYZ's goal is to acquire quality
programming that will engender viewer loyalty. XYZ also plans to create and
distribute an additional channel in 1998. Advertising sales were launched on
all XYZ Channels on July 1, 1997. Advertising sales are managed by Multi-
Channel Network, a consortium of all advertising channels funded by channel
providers and distributors.
In July 1995, XYZ and Discovery Asia executed a twelve-year exclusive
carriage agreement whereby a localized version of the Discovery Channel
replaced the existing documentary channel developed by XYZ. XYZ and
Nickelodeon, a division of Viacom, are jointly producing and distributing an
Australian version of Nickelodeon/Nick at Nite, which XYZ began distributing
in October 1995. In March 1997, XYZ and Channel [V] Music Networks ("CVMN"), a
joint venture between Star TV and several record companies including B.M.G.,
EMI, Sony and Warner Music, entered into an agreement to re-brand XYZ's music
video channel under a license arrangement with the international music video
channel, Channel [V].
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TAHITI: TELEFENUA
UAP has an up to 90% economic interest in Telefenua which operates a 16
channel MMDS service in a service area that, as of September 30, 1997, passed
approximately 20,100 television homes. Telefenua currently is expanding its
network by selectively adding beam benders and repeaters that will allow its
signal to reach substantially all of the approximately 31,000 serviceable
homes in its franchise areas. Telefenua had approximately 6,300 subscribers as
of September 30, 1997, representing a 31.1% penetration rate. UAP is in the
early stages of negotiating the sale of all or a portion of Telefenua to local
strategic investors, although there can be no assurance that UAP will conclude
such a transaction. See "Other Information--Legal Proceedings."
Telefenua offers a combination of French and English language services.
Telefenua's current channel line-up consists of 16 channels segregated into
three tiers of service: a basic service with 11 channels, an expanded tier
with an additional three channels and a premium service consisting of two
channels. Telefenua's basic tier offers the two local broadcast channels as
well as French language children's, sports, general entertainment and music
channels and the English language CNN International channel. Telefenua also
plans to offer a local public access channel. The expanded tier includes
French language movies, a documentary channel and ESPN International. The
premium service includes HBO International and Cinestar.
Telefenua's only subscription television competitor is Canal+, which offers
a single channel UHF service offering a combination of sports, movies and
general entertainment programming. UAP estimates that as of September 30,
1997, Canal+ had approximately 3,800 subscribers, of which an estimated 1,000
are also customers of Telefenua. The monthly subscription fee for Canal+'s
service is approximately equal to the subscription fee for Telefenua's 14-
channel expanded tier service. There is no existing competition in Tahiti from
DTH services due to limited satellite coverage in the region and lack of
available satellite-delivered French language programming.
AUSTRALIA: UNITED WIRELESS (AUSTRALIAN MOBILE DATA)
UAP owns a 100% economic interest in United Wireless, a provider of two-way
wireless mobile data services in Australia. Wireless data networks provide for
the two-way transmission of packet switched data between a customer's terminal
and a host computer. The transmission of wireless data occurs over a network,
similar in configuration to a cellular telephone network, which is constructed
and maintained by a local network carrier, such as United Wireless. United
Wireless has deployed a national network with coverage extending to the major
capital cities and encompassing approximately 80% of the urban population.
United Wireless' network is based on the "Mobitex" technology, developed by
Ericsson and Swedish Telekom and launched in 1984. Today, there are 15
operational Mobitex wireless data networks deployed throughout Europe, North
America and the Asia/Pacific region.
CHINA: HITV
UAP owns a 49% interest in HITV, a joint venture with the Broadcast Bureau
of Hunan Province, which owns the remaining 51%. HITV owns and operates a
recently rebuilt and expanded microwave relay network (the "HITV Network")
that currently delivers one television broadcasting channel to cable
television systems in 14 cities through the Hunan Province. UAP has invested
approximately $6.6 million that was used to rebuild and upgrade the HITV
Network to a digital system with expanded transmission capacity.
HITV plans to deliver additional television programming services to cable
systems in the Hunan Province in exchange for an agreed upon yearly fee per
cable system subscriber. In addition, HITV has the right to receive 30% of all
domestic advertising revenues generated through the HITV Network and 70% of
all international advertising revenues generated through the HITV Network.
HITV plans to use the HITV Network for the provision of additional data and
voice services as and when government regulations in China allow such
services.
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UAP DEVELOPMENT OPPORTUNITIES
UAP is engaged in the origination and development of new opportunities to
construct, acquire or distribute multi-channel television systems and services
in newly emerging markets throughout the Asia/Pacific region. These
development projects include potential investments and/or acquisition
opportunities in Taiwan, Japan, Indonesia and Malaysia.
UIH LATIN AMERICA, INC.
OVERVIEW
Through UIHLA, UIH owns interests in and operates multi-channel television
distribution systems in Chile, Brazil, Mexico and Peru. The Company believes
that many countries in Latin America are characterized by rapidly growing
economies, increasing political stability, declining inflation and low multi-
channel television penetration. In addition, many Latin American countries are
placing an emphasis on privatization of businesses. UIHLA's current strategy
is to (i) increase the subscribers, revenues and cash flows of its existing,
larger core operating companies, (ii) purchase significant or majority
ownership positions in new multi-channel television operating companies and/or
development projects in Latin America, and (iii) reduce the indebtedness of
UIHLA with proceeds from the sale of selected assets.
UIHLA's primary operating company is VTR Hipercable, the largest cable
television operator in Chile, serving an estimated 57% of the total cable
subscribers in Chile. UIHLA owns a 34% interest in VTR Hipercable with an
option (exercisable until April 30, 1998) to increase its ownership interest
to 50%. Hipercable operates in several regions throughout Chile, including
Santiago, Chile's largest city, and has substantially completed an upgrade of
its network to a 750Mhz hybrid fiber coaxial system. In June 1997, VTR
Hipercable began offering cable telephony service in a 13,000 home community
outside of Santiago and as of September 30, 1997, had approximately 2,000
telephony subscribers. VTR Hipercable expects to roll out telephony services
to other areas of Chile throughout 1998. As of September 30, 1997, VTR
Hipercable had approximately 359,200 subscribers (representing an increase of
approximately 23.8% compared to December 31, 1996) and for the nine months
ended September 30, 1997, VTR Hipercable had revenues and Adjusted EBITDA of
$83.5 million and $16.4 million, respectively, representing substantial
increases over the comparable periods in the prior year. VTR Hipercable's
strategy is to improve its current penetration of 24.4% at September 30, 1997
by aggressively marketing its multi-channel television services and rolling
out cable telephony services to other areas of Chile.
UIHLA is currently evaluating its ownership positions in systems in (i)
Mexico, which it currently plans to divest in order to reduce debt and (ii) a
46.3% interest in Jundiai, which it is currently negotiating to divest. The
Company anticipates that a portion of the proceeds of any such sale will be
used to repay certain UIHLA indebtedness.
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CHILE: VTR HIPERCABLE S.A.
The following combined selected financial data for the years ended
December 31, 1994 and 1995 have been derived from the financial statements
of Cablevision S.A. ("Cablevision") and Red de Television y Servicios pos
Cable S.A. ("STX"). The following combined selected financial data for the
year ended December 31, 1996 have been derived from the financial
statements of Cablevision, STX and VTR Hipercable S.A. These financial
statements all have been prepared in accordance with generally accepted
accounting principles in the United States with the U.S. dollar as the
reporting currency.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS
------------------------------ ENDED
1994(1) 1995(1) 1996(2) SEPTEMBER 30, 1997
-------- -------- ---------- ------------------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenues................ $ 7,035 $ 16,947 $ 88,423 $ 83,505
Adjusted EBITDA(3)...... 481 4,500 13,950 16,365
<CAPTION>
AT DECEMBER 31,
------------------------------ AT SEPTEMBER 30,
1994 1995 1996 1997
-------- -------- ---------- ------------------
<S> <C> <C> <C> <C>
OTHER DATA:
Homes passed(4)......... 180,262 293,772 1,482,000 1,472,890
Basic subscribers....... 38,498 89,349 321,730 359,153
Basic penetration ...... 21.4% 30.4% 21.7% 24.4%
Avg. mo. service rev.
per sub.(5)............ $ 17.13 $ 20.99 $ 23.57 $ 27.35
</TABLE>
- --------------------
(1) The Company acquired a 50% interest in Cablevision in January 1994, and
the remaining 50% interest in January 1996. The Company acquired a 65%
interest in STX in June 1995, and the remaining 35% interest in June
1996. The Company accounted for its investments in Cablevision and STX
under the equity method of accounting through August 1996, at which
time both Cablevision and STX were contributed to VTR Hipercable. The
combined revenue and Adjusted EBITDA amounts shown above for the years
ended December 31, 1994 and 1995 include revenues and Adjusted EBITDA
from Cablevision and STX. Historical results for properties contributed
by VTR to VTR Hipercable for the years ended December 31, 1994 and 1995
are not available.
(2) The Company contributed its ownership interests in Cablevision and STX
to VTR Hipercable in August 1996 in exchange for a 34% interest in VTR
Hipercable. The combined selected financial data shown above for the
year ended December 31, 1996 includes revenues and Adjusted EBITDA for
Cablevision and STX for the eight months ended August 31, 1996 and for
VTR Hipercable for the year ended December 31, 1996, which includes
revenue and Adjusted EBITDA from Cablevision and STX for the four
months ended December 31, 1996.
(3) Adjusted EBITDA represents profit (loss) as determined using U.S.
generally accepted accounting principles, plus net interest expense,
income tax expense, depreciation, amortization, minority interest,
management fee expense to the Company, currency exchange gains (losses)
and other non-operating income (expense) items.
(4) The Company estimates that there are currently approximately 2,321,000
homes under license in VTR Hipercable's franchise areas.
(5) Service revenues excluding installation revenue for the years ended
December 31, 1994, 1995 and 1996 and for the nine months ended
September 30, 1997 using a convenience translation as of September 30,
1997.
Overview/Growth Strategy. UIHLA owns a 34% interest in VTR Hipercable, the
largest multi-channel television provider in Chile, with a market share of
approximately 57%. UIHLA has an option to increase this interest to 50% by
April 30, 1998. VTR Hipercable's growth strategy includes (i) completing the
upgrade of its existing network to 750 MHZ HFC to provide cable telephony
services, (ii) increasing penetration levels through superior programming and
customer service; (iii) tiering of service; (iv) introduction of local cable
telephony and Internet access services and (v) the introduction of pay per
view and other interactive services. VTR Hipercable expects that its packaging
of video, Internet/data and cable telephony services will position it as a
fully integrated provider of telecommunications services. Currently, VTR
Hipercable, which distributes television signals through the use of wireline
and wireless cable, is the only operator of MMDS in the Santiago metropolitan
area (where 40% of the Chilean population resides) and is the only operator of
DTH in Chile. VTR Hipercable has upgraded 80% of its network to 750 MHz HFC
architecture that will eventually support cable telephony operations and
should enable the Company to offer other interactive services such as
Internet/data access and impulse pay-per-view. As of September 30, 1997, VTR
Hipercable passed a total of approximately 1,473,000 cable homes, had
approximately 359,200 total pay television subscribers and passed
approximately 13,000 cable telephony homes with approximately 2,000 cable
telephony subscribers.
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Programming. VTR Hipercable's services includes all programming, including
soccer matches, movie channels and special events, in a single package for a
basic monthly fee. The fee for the package is not constant, but rather varies
depending on the geographic area of the subscriber, the market size, the
number of channels being provided and the level of competition. Like most
Latin American operators, VTR Hipercable's programming relies mainly on
international sources such as the United States, Europe, Argentina and Mexico
to compile their channel lineups. Domestic cable TV programming is beginning
to develop, however, particularly around local sporting events, such as soccer
matches.
Technology. VTR Hipercable distributes television signals through the use of
wireline and wireless cable, as well as DTH.
Budgeted Capital Expenditures and Capital Resources. VTR Hipercable has
budgeted approximately $49.5 million for capital expenditures in 1998
primarily for the equipment necessary to upgrade certain portions of the
network for cable telephony services and for additional cable infrastructure.
VTR Hipercable expects to fund these expenditures from operations and project
financing.
Competition. The Chilean cable television market has only two dominant
providers of cable television (i) VTR Hipercable with approximately a 57%
market share and (ii) Metropolis-Intercom with approximately a 42% market
share. As of September 30, 1997, Metropolis-Intercom had approximately 270,000
subscribers, 925,000 homes passed, a 29.2% penetration and 13 headends, while
as of the same date, VTR Hipercable had approximately 359,200 subscribers,
1,473,000 homes passed, a 24.4% penetration and 36 headends. As a part of
Metropolis-Intercom's growth strategy, it has been aggressively purchasing
systems and currently operates in over 15 cities, and focuses its operations
in Santiago, Chile. Metropolis-Intercom is prohibited from offering telephony
services because it leases most of its network from CTC, the local telephony
provider.
Ownership. UIHLA currently owns 34% of VTR Hipercable. In connection with
the formation of VTR Hipercable, UIHLA and VTR, VTR Hipercable's other
shareholder, agreed for the revaluation of the respective assets each party
contributed, which revaluation is scheduled to occur by April 30, 1998. If the
appraised value of the assets UIHLA contributed to VTR Hipercable is greater
or less than 34% of the total assets contributed to VTR Hipercable by both
parties, UIHLA will be obligated to purchase sufficient shares to restore its
ownership percentage to 34%. Following such ownership percentage adjustments,
if any, UIHLA, at its sole election by April 30, 1998, may increase its
ownership to 50% at a purchase price based upon the appraised value of VTR
Hipercable.
Liquidity Restrictions. UIHLA and VTR are parties to a Shareholder's
Agreement that restricts either party's ability to dispose of its interest in
VTR Hipercable prior to September 1999.
BRAZIL: TV CABO E COMMUNICACOES IN JUNDIAI, S.A. AND TV SHOW BRASIL, S.A.
UIHLA currently has ownership interests in two systems in Brazil: (i) a
46.3% interest in Jundiai, which holds nonexclusive cable television licenses
for the city of Jundiai and (ii) a 40.0% interest in TV Show Brasil, an owner
and operator of a 31 channel exclusive license MMDS system. Because of the
small size of the Brazilian operations, the Company is evaluating its
strategic alternatives that include divestiture or increased investment.
Currently, cable passes only a small portion of Brazil's television
households. The government has announced, however, plans to issue new cable
television licenses for over 100 cities in 1998 via a competitive tender
process. As a result, UIHLA believes the Brazilian cable market represents a
significant growth opportunity and has identified a Brazilian partner with
which it intends to pursue licenses covering total households of between one
and two million. As of September 30, 1997, the UIHLA's Brazilian operations
passed a total of approximately 439,200 homes and had estimated total
subscribers of approximately 31,000. UIHLA is currently negotiating with its
partner in Jundiai to sell its 46.3% interest to them in order to focus all of
its cable operations on the new license tender process. UIHLA is also
negotiating with its partner in TV Show Brasil to increase its 40.0% ownership
interest.
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MEXICO: TELE CABLE CABLE DE MORELOS, S.A. DE C.V.
UIHLA and its Mexican partner recently engaged an investment bank to explore
the possible sale of the Mexican operations. UIHLA plans to use proceeds of
any such sale to reduce indebtedness at UIHLA. UIHLA has a 49% interest in
Tele Cable de Morelos, S.A. de C.V. and its six operating subsidiaries
("Megapo") in Mexico, one of the largest multi-channel television markets in
Latin America with over 14.6 million television households and two million
multi-channel television households. As of September 30, 1997, Megapo owned
and operated cable television systems with approximately 53,500 subscribers,
approximately 341,600 homes under franchise, and a total of approximately
166,100 households passed in Acapulco, Cuernavaca, Oaxaca and Chilpacingo,
Mexico. Although UIHLA is restricted by Mexican law to a maximum 49% ownership
interest in Megapo, UIHLA's agreement with Megapo provides that UIHLA may
appoint two of the five directors for each operating subsidiary and one of the
two management committee members for each operating subsidiary. Generally,
most significant actions of an operating subsidiary require the approval of at
least four board members, giving UIHLA veto power over such actions.
Additionally, four of the operating subsidiaries have entered into technical
assistance agreements with a subsidiary of the Company to provide assistance
relating to the design and construction of the cable systems network,
marketing of services and the management of subscriber and information
systems.
In Mexico, cable operators were generally granted exclusive operating
licenses for a given territory although under Mexico's new Telecommunications
Law, exclusive cable franchises were phased out by the end of 1997, opening up
the industry to overbuilds. Cable operators also have faced increased
competition from MMDS operators and DTH, which was introduced in 1997.
PERU: CABLE STAR, S.A. AND TV CABLE, S.R. LTDA.
UIHLA is currently involved in the development of two cable systems in Peru:
Cable Star, S.A. ("Cable Star"), located in Arequipa, Peru's second largest
city, in which UIHLA holds a 99.0% interest, and TV Cable, S.R. Ltda.
("Tacna"), which has a license to provide cable television services to 30,000
franchise homes in the cities of Tacna and Alto De La Alianza, in which UIHLA
holds a 100% interest. At September 30, 1997, Cable Star passed approximately
23,700 homes and served approximately 5,600 subscribers representing a basic
penetration rate of 23.7%, and Tacna passed approximately 4,600 homes and had
1,000 subscribers representing a basic penetration rate of 22.7%.
PROGRAMMING VENTURE
The Company has a 50% interest in United Family Communications LLC ("UFC"),
a programming venture for the Latin American market. As of September 30, 1997,
UFC had approximately 1.2 million subscribers. The Company is currently
negotiating the purchase of the remaining 50% interest in UFC and the resale
of such 50% interest to a potential joint venture programming partner.
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OTHER INFORMATION
EMPLOYEES
As of September 30, 1997, the Company, together with its consolidated
subsidiaries, had approximately 2,600 consolidated employees. The Company
believes its relations with its employees are generally good.
LEGAL PROCEEDINGS
Other than as described below, the Company is not a party to any other
material legal proceedings, nor is it currently aware of any other threatened
material legal proceedings. From time to time, the Company may become involved
in litigation relating to claims arising out of its operations in the normal
course of its business.
The territorial government of Tahiti (in French Polynesian) has legally
challenged the Decree and authority of the Conseil Superieur de l'Audiovisuel
("CSA") of France to award Telefenua the authorization to operate an MMDS
system in French Polynesia. The French Polynesian's challenge to France's
authority to award Telefenua an MMDS license in Tahiti was upheld by the
Conseil d'Etat, the supreme administrative court of France. The territorial
government of Tahiti has brought an action in French court seeking
cancellation of the MMDS licenses awarded by the CSA to Telefenua, although no
such cancellation has yet taken place. There can be no assurance, however,
that if the existing authorization is nullified a new authorization will be
obtained. UAP believes that if the existing authorization is cancelled and
Telefenua is unable to obtain a new authorization, Telefenua may petition for
restitution for the taking of such authorization. If Telefenua does not obtain
a new authorization, however, there is no assurance that Telefenua will
receive any restitution. In addition, any available restitution could be
limited and could take years to obtain.
On November 6, 1996, Austar filed a complaint in the Supreme Court of New
South Wales, Commercial Division, seeking injunctive relief to prevent (i)
Australis from transferring its satellite delivery systems and associated
infrastructure to its joint venture with Optus Vision and (ii) Optus Vision
from using such infrastructure to deliver DTH services in Austar's franchise
area. Austar believes that the use of the infrastructure by any entity other
than Austar for the provision of DTH services within Austar's franchise areas
violates the terms of Austar's franchise agreement with Australis which
granted Austar an exclusive license and franchise to use the infrastructure
within its franchise areas. Austar is seeking injunctive relief or, in the
alternative, damages associated with this violation of its franchise
agreements. On December 6, 1996, Australis filed counterclaims against Austar
and UAP alleging generally that Austar and UAP breached implied terms of the
Australis Arrangement by seeking such injunctive relief. In addition, Optus
Vision claims that the exclusive nature of Austar's franchise agreements
violates Australia's Trade Practices Act. On May 9, 1997, pursuant to the
court's permission, Austar amended its complaint to include claims that the
agreement between Australis and Optus Vision violates Australia's Trade
Practices Act and that Austar is entitled to damages arising from interference
with its contractual relations with Australis under the Franchise Agreements.
Austar's complaint was also amended to add as defendants two affiliates of
Optus Vision: Publishing and Broadcasting Ltd. and its subsidiary, Pay TV
Options. In response, on September 10, 1997, Australis lodged an amended
cross-claim. On May 30, 1997, the Supreme Court of New South Wales, in
separate proceedings brought by FoxTel, granted a permanent injunction
restraining Australis from transferring such assets to the joint venture. Both
Optus Vision and Australis appealed the decision, Optus Vision indicated, in
the meantime, that it was pursuing its claim that the exclusive nature of
Austar's franchise agreements violate Australia's Trade Practices Act. The New
South Wales Court of Appeal, on December 23, 1997 upheld the appeal brought by
Optus Vision and Australis against the granting of the permanent injunction.
UAP intends to defend vigorously its position.
In April 1997, following a trial in the United States District Court for the
District of Colorado, the Company and its majority owned affiliate, UIH Asia
Investment Co., as plaintiffs, obtained a jury verdict against The Wharf
(Holdings) Limited ("Wharf Holdings"), its wholly-owned subsidiary, Wharf
Communications Investments
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Limited and Wharf Holdings' deputy chairman, Stephen Ng, on claims of
securities fraud, fraud, breach of fiduciary duty, breach of contract and
negligent misrepresentation, and was awarded $67.0 million in compensatory
damages and $58.5 million in exemplary damages. In May 1997, the Court awarded
prejudgment interest of $28.2 million, and entered judgment on the verdicts.
In October 1997, the Court denied the defendants' motion for a reduction in
the amount of damages, for a new trial, and/or for a judgment as a matter of
law. On November 4, 1997, defendants appealed the judgment to the United
States Court of Appeals for the Tenth Circuit. On December 31, 1997, Wharf
Holdings filed a separate appeal to the Tenth Circuit related to the contempt
sanctions that the District Court imposed as a result of Wharf Holdings'
refusal to turn over certain assets in satisfaction of the judgment. On
January 29, 1998, Wharf Holdings posted a $173.5 million supersedeas bond to
secure the judgment entered in favor of the Company. Although the Company and
UIH Asia Investment Co. intend to defend vigorously the appeals, there can be
no assurance that the judgment will be affirmed or that the damages will be
collected.
CORPORATE ORGANIZATIONAL STRUCTURE
For strategic purposes and, in some cases, because of foreign ownership
restrictions, the Company has often initially invested in operating systems
with local strategic partners. In some cases, such as in many of the Company's
European and Australian systems, the Company subsequently acquired its
partners' interests in these systems. Below is a summary of the ownership
structure of the Company's three regional holding companies as well as certain
of the Company's other interests.
UPC
For applicable corporate law and tax considerations, in June 1996 the
Company and Philips transferred approximately 8.4% of UPC's issued and
outstanding ordinary shares on a fully diluted basis (to take into account
shares of UPC held by a wholly-owned subsidiary of UPC) to a foundation
administering UPC's employee equity incentive plan. The options vest over a
three year period. As of the date hereof, options representing a total of
approximately 5.5% of UPC's outstanding ordinary shares have been granted
under UPC's equity incentive plan, of which options representing 2.3% of UPC's
outstanding shares have been exercised with notes, including some unvested
options that remain subject to forfeiture. Upon the exercise of options, the
foundation issues depository certificates representing the beneficial interest
in the underlying shares. All of the voting rights of the underlying shares
remain with the foundation, the governing board of which consists of
representatives of UIH Europe. The foundation has contractually agreed to vote
the UPC shares as directed by UIH Europe. Employees have the right, under
certain circumstances, to require UPC to purchase their options and interests
in the underlying shares at fair market value. UPC is recording the difference
between the estimated fair market value and the exercise price per share as a
deferred compensation liability for each accounting period. All of the
underlying shares will remain with the foundation until the time of an initial
public offering of the underlying shares of UPC, at which time such shares
will be distributed to the persons who have exercised the options or such
persons may require UPC to repurchase their options at fair market value. If
no public offering is consummated, the shares held by the foundation will
ultimately revert to UIH Europe.
UAP
UIH A/P. Pursuant to the terms of its Indentures, UIH A/P, currently a
wholly-owned subsidiary of UAP, issued on November 16, 1997 warrants
exercisable for 3.4% of its common stock on a fully diluted basis. The
warrants have an aggregate exercise price of approximately $5.1 million.
Austar. UIH A/P holds a combined effective 100% economic interest in CTV and
STV, which operate together under the name Austar, through direct and indirect
holdings of convertible debentures and ordinary shares. UAP holds
approximately 14.9% of the ordinary shares of CTV and STV, which accounts for
an approximately 0.3% economic interest in Austar. UAP holds all of CTV's and
STV's convertible debentures, which accounts for an approximately 97.8%
economic interest in Austar. In addition, through its holdings of certain
debentures of Salstel Media Holdings Pty Limited ("SMH") and Salstel Media
Investments Pty Limited
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("SMI"), which in turn hold ordinary shares of CTV and STV, UIH A/P has an
additional effective 1.9% economic interest in Austar. Although UIH A/P holds
debentures and one share in each of SMH and SMI, it does not control such
entities or have controlling rights as a shareholder of such entities.
UIH A/P, CTV, STV, SMI and SMH are parties to securityholders' agreements,
(collectively, the "CTV/STV Securityholders' Agreements") that contain
provisions relating to governance of the companies, transfers by the
securityholders of their respective interests in the companies (including a
change in control), raising additional capital and funding for the companies
and other matters concerning ownership and operation of the companies. Under
the CTV/STV Articles of Association and the CTV/STV Securityholders'
Agreements, each holder of an ordinary share or debenture of CTV and STV is
entitled to cast one vote for the election of directors of CTV or STV,
respectively, for each share or debenture held. Each such holder is required
to vote its shares and debentures for those voting directors nominated by the
other holders, with each holder of 15% or more of the shares and debentures
having the right to nominate one voting director for each 15% of the shares
and debentures held and each holder of 10% or more but fewer than 15% of the
shares and debentures having the right to nominate one voting director. For
the purposes of determining such rights, UIH A/P and any person nominated by
UIH A/P to hold economic interests in CTV and STV are considered one holder
and their economic interests are aggregated. Thus, UIH A/P and SMH, with
respect to CTV, and UIH A/P and SMI, with respect to STV, are effectively
treated as one holder for the purposes of determining the right to nominate
voting directors. Based on the current economic interests, UIH A/P and SMH
together have the right to nominate all of CTV's voting directors for election
by CTV's securityholders, and UIH A/P and SMI together have the right to
nominate all of STV's voting directors for election by STV's securityholders.
While adoption of the securityholders' voting and director selection
arrangements for CTV and STV did not require compulsory notification to the
Treasurer under FATA, they may be determined by the Treasurer to result in a
change of control of CTV and STV that has resulted in a foreign person being
in control who had not previously been in control. See "Regulation--
Australia." If the Treasurer makes such a determination and concludes that the
change of control is against the national interest, then the Treasurer may,
among other things, cause the control of CTV and STV to be restored to the
position it was in before UIH A/P increased its ownership interest from 50% to
100%. Before December 1995, directors were not elected but were appointed
directly by securityholders, and UIH A/P had the right to appoint half of the
directors of CTV and STV and the other securityholders had the right to
appoint the other half of the directors of CTV and STV.
Under the SMH/SMI Agreements, UIH A/P has the right to nominate all voting
directors that UIH A/P and SMH, with respect to CTV's board, and UIH A/P and
SMI, with respect to STV's board, have the right to nominate. Thus, UIH A/P is
currently entitled to designate all of the six voting directors of each
company. UIH A/P and SMH and SMI have agreed that if the Treasurer issues an
order restoring control or indicates the intention to do so, UIH A/P will have
the right to designate three directors of the relevant company and SMH and SMI
will have the right to designate the remaining directors that the parties are
entitled to designate pursuant to the CTV/STV Articles of Association and
CTV/STV Securityholders' Agreements. They have also agreed that if that
arrangement is considered in breach of any law or prompts such government
action, then UIH A/P will have the right to designate the maximum number of
voting directors permitted by law and UIH A/P and SMH, in the case of CTV, and
UIH A/P and SMI, in the case of STV, will designate as independent directors
the remaining number of voting directors that the parties are entitled to
designate pursuant to the CTV/STV Articles of Association and CTV/STV
Securityholders' Agreements. An independent director is, among other things, a
person agreed on by UIH A/P and SMH or SMI, as the case may be, but not
associated with either UIH A/P or SMH or SMI. While the Company believes an
adverse review and determination by the Treasurer to be unlikely, there can be
no assurance that the Treasurer, if he reviews the transaction, would give
effect to the contractual provisions of the SMH/SMI Agreements. See "Risk
Factors--Possible Inability to Control Minority Owned Affiliates."
Telefenua. UIH-SFCC Holdings, L.P. ("UIH-SFCC"), a limited partnership
wholly owned by UIH A/P, is the general partner of a limited partnership (the
"Partnership") that owns 100% of the preferred stock of SFCC, the parent
company of Telefenua ("SFCC"), representing approximately 40% of the share
capital of
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SFCC. SFCC is the parent company of Telefenua, which owns and operates the
multi-channel television system in Tahiti. As holder of 100% of the preferred
stock of SFCC, the Partnership is entitled to certain preferential
distributions by SFCC. Through its general partner's interest in the
Partnership, UIH-SFCC will receive 90% of distributions made by SFCC until
UIH-SFCC has received a return of its investment plus a 20% cumulative
compounded annual return, 75% of distributions until it has received the
return of its investment plus a 40% cumulative compound annual return and 64%
of distributions thereafter. Once UIH-SFCC's total equity investment exceeds
$10 million, further equity investments would not be entitled to the 90% and
75% distributions. Instead, equity investments above $10 million, to the
extent not matched pro rata by UIH A/P's partners, would increase the 64% that
UIH-SFCC receives after the preferential distributions are made on the first
$10 million.
Sun Cable. UAP has loaned Sun Cable $6.3 million as of September 30, 1997
under the Sun Cable Loan. The Sun Cable Loan is structured in such a manner as
to give UAP a 40% equity interest in Sun Cable and its business upon certain
conditions. UAP has also loaned $1.9 million as of September 30, 1997 to Sun
Cable, which loan is not convertible to equity. While, current Philippine law
does not permit foreign ownership in the cable television sector, the Company
believes that a law allowing foreign ownership up to 40% will be passed in the
next 12-24 months. In the event such legislation is passed, UAP may convert
the Sun Cable Loan into a 40% equity stake in Sun Cable.
UIHLA
The Company's interest in UIHLA is held through an intermediate holding
company, UIHLA Holdings, Inc. UIHLA Holdings, Inc. has pledged all of its
shares of UIHLA to secure the UIHLA Loan Facility. See "Description of Other
Debt--UIHLA and Affiliates."
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REGULATION
The provision of multi-channel television services and telephony in the
countries in which the Company operates is regulated by national, and in
certain areas by local, governmental authorities. The scope of regulation
varies among the countries. Generally, exclusive or non-exclusive franchises
or licenses are awarded to multi-channel television operators. Franchises and
licenses often require the payment of fees. Local laws sometimes limit the
amount of subscription fees that may be charged and often regulate the content
of programming and use of advertising. See "Risk Factors--Regulation." Below
is a summary of certain regulations and franchise terms effecting the
Company's major operating companies.
EUROPEAN COMMUNITY
For national jurisdictions within the European Community ("EC"), the
timetable and details of the liberalization of cable infrastructures are
defined by EC directives. The European and national legal frameworks are
rapidly changing. As members of the EC, The Netherlands, Belgium and Austria
are either in the process of enacting new rules for telecom and media
infrastructures and services or have just completed these codifications.
Although not a EC Member State, Norway generally adheres to the same
principles and it respects the same implementation timetable.
The liberalization of telecommunications infrastructure and cable television
networks is one of the main policy goals of the European Commission in support
of an information society. The EC Cable TV Networks Directive ensures that
cable television networks are allowed to interconnect with the public
telecommunications network and each other directly. The conditions and rules
for licensing and inter-connection are established by each member state in
accordance with the principles set forth in the EC directives. Licensing
conditions are based only on essential requirements, conditions or permanence,
availability and quality of the service provided and financial obligations
with regard to universal service. Interconnection is ensured on non-
discriminatory, proportional, and transparent terms, based on objective
criteria.
The European Commission recently issued a proposal to require
telecommunications organizations to separate legally their telecommunications
activities from their cable television network operations. In individual cases
of dominance, the Commission could impose further measures, such as
divestiture. In addition, the Commission proposed to lift all restrictions on
the use of telecommunications networks for the provision of cable television
capacity before January 1, 2000.
AUSTRIA
In accordance with the Telecommunications Law of 1997, as amended (the
"Austrian Telecommunications Act"), the telecommunications sector in Austria
was liberalized as of August 1, 1997, in line with the liberalization process
in the EC. The Austrian Telecommunications Act permits the use of cable
networks for telecommunications services. Licenses issued by the Telekom
Control Commission are required for mobile telephony services, public voice
telephony services and public offer of leased lines by means of a fixed
telecommunication network that the provider operates itself. Telekom-Control
GmbH must be notified of the intended provision of certain other
telecommunications services. The Telekabel Group has not yet applied for, nor
been granted, a license for providing public voice telephony services in
Austria. While it anticipates obtaining such license, there can be no such
assurances.
The pricing of the basic cable television service is subject to price
control by the Wage and Price Commission upon informal agreements and price
increases must be approved. Increases for the basic service have been made
historically only every other year, and, to date, all price increase
applications have been approved (the most recent such application was in 1996
for an increase of 5.5%).
Licenses are to be issued by the Telekom Control Commission, under normal
circumstances, within six weeks following application, if the applicant meets
the technical requirements and the applicant is deemed
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capable of providing the service in accordance with the license, particularly
in relation to the quality of service and the service obligation. Mobile
telephony licenses are issued by the Telecom Control Commission following a
specified tender offer procedure on an auctionary basis as described in the
Austrian Telecommunications Act. Radio frequency and mobile telephony licenses
are issued for a limited time period and in general, all other licenses are
granted for an unlimited period. A license fee and an annual contribution to
cover administration and regulatory costs are payable by the licensee and
service provider. In some cases, radio frequency fees will also be payable.
Telekabel Wien is aware of the notification requirements to the Telekom
Control Commission for the provision of Internet services (according to the
Austrian Telecommunication Act) and to the Regional Radio and Cable Broadcast
Authority for the provision of pay-per-view services (according to the Cable
and Satellite Broadcast Radio Law). Telekabel Wien is in the process of
preparing these notifications.
The Telekabel Group's recently introduced pay-per-view service may be a
regulated service that would be subject to a foreign ownership limit of 49%.
If this is the case, the Telekabel Group may divest part of its ownership
interest.
According to the Austrian Copyright Act, the Telekabel Group has to conclude
agreements with the Austrian Collecting Societies
("Verwertungsgesellschaften") stipulating the conditions for retransmitting
broadcasts on which copyrights exist, which applies to the Telekabel Group's
pay-per-view services. Negotiations between the Telekabel Group and the
Collecting Societies are still in progress. While UPC believes the
negotiations will conclude successfully, there can be no such assurances.
The Federal Ministry of Science and Transport, which is responsible for
adopting ordinances based on the Austrian Telecommunications Act, has not yet
issued many key ordinances. Consequently, there is uncertainty relating to the
scope of regulation of telecommunications services in Austria.
BELGIUM
New cable television decrees were adopted in 1994 in the Flemish Community
and in 1996 in the Brussels Capital Region. Under both decrees, cable
television licenses are no longer exclusive and new cable operators only need
an authorization from the appropriate regulating Minister. These
authorizations are renewed for nine-year terms, unless renounced by the
distributor or revoked by the Minister in case of noncompliance by the cable
operator with the cable decree. During 1996, five authorizations for Brussels
municipalities were renewed becoming valid until 2005.
The cable decrees both for Brussels and the Flanders grant the cable
operators a right of way for the use of public and private property for the
installation and exploitation of their cable systems. As a consequence, the
cable operators no longer need to renew the concession agreements with the
various municipalities as was the case in the past. It is unclear whether the
existing municipal concessions agreements that had not yet expired when the
new cable decree was introduced, and hence the obligation for the cable
operators to pay franchise fees to the municipalities provided for therein,
will be maintained. Although this is currently subject to debate, Radio Public
believes that the outcome of this discussion will not affect its ability to
operate in the region.
A dispute with the municipality of Etterbeek (one of the townships of
Brussels) concerning the ownership of the network was settled in 1997 through
a sale and lease back, whereby Radio Public was granted an exclusive right to
operate the network for a period of 20 years. Negotiations with other
townships in Brussels (none of which owns the network) are being carried on in
order to establish a partnership agreement for the future. The municipality of
Leuven has decided to start constructing an overbuild as of 1998. The Company
expects that this will increase the competition in the area over the years.
Price increases for basic cable television services require the approval of
the Minister of Economic Affairs. Radio Public has historically been allowed
to increase prices for basic cable television services, although to date such
increases have not kept pace with the level of inflation.
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In line with the liberalization process in the EC, the Belgian Parliament
adopted in December 1997 a law abolishing the remaining monopoly rights of
Belgacom, the national telecommunications operator. Belgacom's competitors
have been granted the right to access Belgacom's leased lines and to
interconnect with Belgacom's network on a non-discriminatory and cost-oriented
basis. Radio Public has already obtained a license to offer Internet-related
services.
NORWAY
Governmental approval is required to establish a cable network
infrastructure in Norway. Generally, networks can only be established and
operated upon obtaining a concession from the State Authority of
Telecommunication. Janco Multicom has all of the necessary licenses and
concessions for the operation of its current business.
Beginning in November 1996, however, cable television networks were able to
offer (i) value added services; (ii) digital mobile communications; (iii) data
services; (iv) resale of spare capacity on leased lines; and (v) satellite
communications. As of January 1, 1998, alternative networks may also offer
voice telephony services, however, the regulations regarding such services
have not yet been finalized. Cable telephony is also open to competition and
anti-competition provisions designed to balance the strong market position of
dominant providers of such service may apply although some government
regulations implementing the anti-competition aspects of the new
telecommunications regime have not yet been finalized. Norway has followed the
lead of the EC in moving to deregulate the telecommunications field, however,
and it is expected that it will do so in the future.
THE NETHERLANDS
Generally, local municipalities hold a license granted by the Dutch
Independent Post and Telecommunications Authority for the construction,
maintenance and operation of cable television networks within their respective
municipal areas. The beneficial interests in these licenses in the areas where
A2000 operates have been transferred to KTA pursuant to an agreement with the
municipalities, as a result of which KTA has the right to construct, maintain
and operate the cable networks. These agreements have indefinite terms and
terminate only if KTA has been declared bankrupt or in case of a breach. KTE
holds similar licenses for Eindhoven and the surrounding areas.
KTA's agreements with the municipalities regulate, among other things, the
rates for the basic package of radio and television channels. Such rates
remain fixed until at least January 1, 2005, except for certain costs that KTA
cannot control, such as copyright fees and municipal duties and levies, which
can be passed on to subscribers as long as such costs do not exceed the
maximum tariffs allowed by law. These rates can also be changed with the
municipalities' approval if the basic subscription package changes or there is
a considerable increase in the operating costs of providing the basic package.
Historically, price increase applications have been approved. Programming
enhancements and other programming outside the basic package, as well as
telecommunications services, are not subject to rate regulation. KTE's
franchise has similar terms.
Until recently, the telecommunications fixed infrastructure was a statutory
monopoly of KPN. The 1996 liberalization of fixed infrastructure enables
existing permit holders to apply for a license to exploit alternative
infrastructures and supply leased lines. The granting of licenses to permit
holders to install, maintain and operate fixed infrastructure on the basis of
the 1996 legislation is in progress. Licenses are granted for a period of not
more than 20 years but may be extended under certain circumstances. As of July
1, 1997, A2000 began offering licensed telephony services over cable in parts
of its franchise.
Pursuant to Dutch law, KPN is obliged to make available to licensees,
without discrimination, the facilities required for, or directly related to,
connecting the licensed network to its own infrastructure. KPN is obliged to
accommodate the licensee's wishes concerning the interconnection.
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A draft for the new Telecommunications Act is currently pending in the Dutch
Parliament. This new Telecommunications Act is intended to regulate further
the liberalization of the provision of switched voice telephony services,
which has been effective in The Netherlands since July 1, 1997, and sets the
framework for the total liberalization of the telecommunications networks and
telecommunications services market. The new Act implements the recent EC
directives in this respect and, if passed, will replace the current
Telecommunications Act for the provision of telecommunications services. It is
expected that the new Telecommunications Act will not become effective until
mid-1998 and there can be no assurance that the present draft will be enacted
without change.
The draft of the new Telecommunications Act pertains, inter alia, to
"conditional access," which is defined as "a system which enables access to
coded programs or other services which can only be received through a decoder
by those who agreed so with the provider of the system." The provider of a
conditional access system has to make available, on fair, reasonable and non-
discriminatory conditions, such technical facilities in order to enable those
who have agreed with the provider of such system to receive such services. In
the event the provider of a conditional access system also has other
activities, it needs to keep separate accounts for the different activities.
Pursuant to the Act for the provision of telecommunications services, the
holder of a license to construct, maintain and operate a cable television
network must transmit at least 15 programs for television and at least 25
programs for radio, including certain "must carry" programs. The programs
offered by a cable television provider in its basic package are chosen on the
basis of an "advice" issued by the Dutch Programming Council. License holders
may deviate from the advice only for substantial reasons.
AUSTRALIA
The provision of subscription television services in Australia is regulated
by the Federal government under various Commonwealth statutes. In addition,
State and Territory laws, including environmental and consumer contract
legislation, may impact the construction and maintenance of a transmission
system for subscription television services, the content of those services, as
well as on various aspects of the subscription television business itself.
The Broadcasting Services Act of 1992 ("BSA") regulates the ownership and
operation of all categories of television and radio services in Australia
including cable, DTH, MMDS or any other means of transmission. The BSA
regulates subscription television broadcasting services by requiring each
service to have an individual license. Subscription television broadcasting
licenses are issued by the Australian Broadcasting Authority upon receipt of a
written application and fee and a satisfactory report from the antitrust
authorities that the grant of the license would not substantially lessen
competition. Companies associated with Austar hold approximately 100 non-
satellite subscription television broadcasting licenses. These licenses,
together with Austar's MMDS licenses, enable Austar to provide subscription
television broadcasting services by MMDS in its franchise areas.
Foreign ownership of "company interests" of subscription television
broadcasting licensees is limited to 20% by a single foreign person and an
aggregate of 35% by all foreign persons. "Company interests" under the BSA
mean, in broad terms, a beneficial entitlement to, or an interest in, shares
of the company, being in a position to exercise control of votes as a poll at
a shareholders meeting, having a beneficial entitlement to a dividend, a share
of profits under the company's memorandum and articles of association or
shareholder distributions upon liquidation or otherwise. Currently, UAP's
indirect interests in the companies that hold the licenses are in the form of
debentures and not company interests under the BSA.
The Radiocommunications Act regulates the use of the radio spectrum in
Australia, including the issue and use of MMDS apparatus licenses and spectrum
access licenses. Apparatus licenses authorize the licensee (and certain
persons authorized by the licensee) to operate specified radiocommunications
devices. The apparatus licenses issued to Austar authorize the operation of
radiocommunications transmitters at each of Austar's MMDS
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systems and permit the transmission of signals over specified frequencies to
Austar's subscribers. As of the date hereof, the government has not issued any
spectrum access licenses.
The Company's increase in its ownership of Austar and certain amendments to
the articles of association and securityholder agreements of Austar made in
1995 affected the number of Austar directors designated by the Company and the
manner in which those directors are elected. While those matters did not
require any advance notification or approval under Australian law, they could
be reviewed in the future by the Treasurer of Australia under provisions of
FATA. If so reviewed and determined by the Treasurer to have resulted in a
change of control of an Australian person to a foreign person that is against
the national interest, there would be no violation of law but the Treasurer
could, among other things, require control of Austar to be restored to its
previous position. Prior to the ownership increase, the Company was entitled
to appoint directly three of six directors of Austar. While the Company
believes that it is unlikely that the Treasurer would reach such a conclusion
if it decided to review Austar, there can be no such assurance. If the
Treasurer were to require control of Austar to be restored to the maximum
extent permitted by the FATA, the Company could appoint only one-half of the
directors of Austar and it might no longer affirmatively control Austar. While
the Company believes a determination under the FATA would not affect the
Company's 100% economic interest in Austar, there can be no assurance that
such would be the case. If the Treasurer were to review matters, the Company
would seek to minimize the effect of any required change on its relationship
with Austar through a restructuring of its ownership interest or arrangements
providing for the designation of independent persons as the directors it does
not designate. See "Risk Factors--Possible Inability to Control Minority Owned
Affiliates."
CHILE
Regulation of the cable television and telephony industry in Chile is
minimal. Cable and telephony registrations are through the Subsecretary of
Telecommunications and the Ministry of Transportation and Telecommunications
is the government body responsible for regulating, granting concessions, and
registering all telecommunications. Wireline cable television licenses are
non-exclusive and granted for indefinite terms, based on a business plan for a
particular geographic area. There is a 15% Value Added Tax levied on cable
television services but no royalty or other charges associated with the re-
transmitting of programming from off-air broadcasting television networks.
MMDS licenses have a term of 25 years and are renewable for an additional 25
years. UIHLA has licenses in every major and medium sized market in Chile. A
total of 157 licenses, including 14 for MMDS, have been granted for cable
television. Chilean law allows for 100% foreign ownership in local cable
concerns and foreign citizens can serve on a holding company's Board of
Directors. Cross ownership between cable television and telephony is also
permitted.
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DESCRIPTION OF OTHER DEBT
The following is a discussion of the primary outstanding indebtedness, and
existing financing facilities, of the Company and its subsidiaries and
affiliates. All of the indebtedness described below is consolidated by the
Company, other than the indebtedness of Monor Communications, Sun Cable, VTR
Hipercable and the companies listed under the heading "UPC Unconsolidated
Affiliates." As of November 30, 1997, the Company had outstanding
approximately $454.3 million of consolidated liabilities, excluding the
Existing Notes.
THE COMPANY
The Company has outstanding approximately $599.4 million aggregate principal
amount at maturity of 1999 Notes, the total accreted value of which, as of
November 30, 1997, was approximately $455.6 million. Pursuant to the Tender
Offer, the Company acquired approximately 99.8% of the outstanding 1999 Notes
with the substantial majority of the proceeds of the Offering. The Company has
subsequently acquired an additional $500,000 principal amount of maturity of
1999 Notes in the open market and intends to repurchase the remaining
outstanding 1999 Notes (approximately $465,000 principal amount at maturity)
to the extent they become available on the open market. In addition, as of
November 30, 1997, the Company had outstanding a $2.9 million note payable to
Empresa Electrica de Antofagasta S.A., secured by the Company's interest in
its Chilean operating company. Principal and interest on such note are due
quarterly until its maturity in June 1998.
UPC AND AFFILIATES
UPC
As of September 30, 1997, UPC and its consolidated subsidiaries had notes
payable and other debt totalling approximately NLG941.4 million ($475.5
million as of September 30, 1997).
Tranche A. Facility. In October 1997, UPC and Norkabel as borrowers entered
into an NLG1.1 billion ($555.1 million as of September 30, 1997)
Multi-Currency Revolving Credit Facility with The Toronto-Dominion Bank, among
other banks. Norkabel was succeeded as a borrower by Janco Multicom in
connection with the merger of Janco and Norkabel. In December 1997, Telekabel
Wien became a borrower under the Tranche A Facility. Amounts advanced under
the Tranche A Facility generally are available for a term of one, two, three,
or six months through September 30, 2006 and bear interest at the London
interbank offered rate ("LIBOR") on the respective currencies borrowed plus a
margin ranging from 0.50% to 2.0% per annum. The Tranche A Facility requires
that interest rate protection arrangements be maintained in respect of at
least 50% of the Tranche A Facility. The Tranche A Facility is secured by
various guarantees from, negative pledges over and, in some cases, share
pledges of, certain UPC subsidiaries in Austria, Belgium and Norway. Following
the repayment of the Tranche B Facility, Belmarken Holding B.V. ("Belmarken")
and other of UPC's wholly owned subsidiaries must accede as guarantors under
the Tranche A Facility. The Tranche A Facility generally prohibits dividends
and other distributions prior to repayment of the facility. The aggregate
amount available for borrowing under the facility is reduced automatically by
5.0% per quarter beginning December 31, 2001. The Tranche A Facility also
limits borrowings by UPC, certain of its subsidiaries in Austria, Belgium and
Norway and Belmarken, which together before September 30, 2001, may not exceed
NLG1.3 billion ($656.6 million as of September 30, 1997) (after September 30,
2001, the limit is based on a debt to cash flow financial ratio), and
generally limits UPC's investments in, loans to and guarantees for Belmarken
and its subsidiaries and downstream affiliates to NLG80.0 million ($40.4
million as of September 30, 1997).
Tranche B Facility. In connection with the UPC Acquisition, Belmarken
entered into the $125.0 million Tranche B Facility. The Tranche B Facility
matures on December 5, 1998, which maturity date is extendable to June 5, 1999
under certain conditions, and bears interest at LIBOR plus a margin ranging
from 4.5% to 6.0% per annum. 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
Belmarken share holdings or partnership interests of Belmarken and UPC in The
Netherlands, the Czech Republic, France, Portugal, Romania, the Slovak
Republic and Hungary multi-channel television systems and in UII, as well as a
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first charge over approximately 3.2 million of the Company's Class A Common
Stock, which UPC acquired from Philips as part of the UPC Acquisition. The
lenders have demand registration rights with respect to such stock, which they
may exercise at any time. Belmarken must apply proceeds from disposals, if any,
of its share holdings and partnership interests to prepayment of the facility,
which restricts the manner and terms on which Belmarken may dispose of these
assets. By September 5, 1998, UPC must prepare an offering circular for the
offer and sale by it of securities in sufficient amount, and, distribute such
offering circular in sufficient time so that UPC will receive net proceeds
sufficient to repay the facility by the applicable maturity date. The Company
plans to use approximately $63.0 million of the proceeds of the Offering to
repay a portion of the Tranche B Facility indebtedness. See "Use of Proceeds."
UPC CONSOLIDATED SUBSIDIARIES
Janco Multicom. Janco Multicom became a borrower and guarantor under the
Tranche A Facility in connection with the merger of Janco and Norkabel. As of
December 11, 1997, Janco Multicom had borrowed the principal amount of NKr540.0
million ($76.4 million as of September 30, 1997) under the Tranche A Facility.
Under the Tranche A Facility, Janco Multicom may not borrow more than NLG350.0
million ($176.6 million as of September 30, 1997) and its guaranty is limited
by the amount drawn down and utilized by Janco Multicom and a portion of the
total amount drawn down by all of the borrowers up to the amount of
distributable equity of Janco Multicom.
KTE/Combivisie. In February 1998, Cooperative Centrale Raiffeisen-
Boerenleenbank B.A. ("Rabobank") granted an NLG250.0 million ($126.2 million as
of September 30, 1997) ten-year term facility (the "CNBH Facility") to Cable
Network Brabant Holding B.V. ("CNBH"), an indirect wholly-owned subsidiary of
Belmarken and the entity that holds interests in the KTE, Combivisie and Son en
Bruegel systems. The CNBH Facility replaced an NLG65.0 million ($32.8 million
as of September 30, 1997) facility the ("KTE Facility") originally granted by
Rabobank to KTE in February 1997 and an approximate NLG122.0 million ($61.6
million as of September 30, 1997) facility (the "New Combivisie Bridge")
originally granted by Rabobank to CNBH on February 3, 1998. Proceeds of the New
Combivisie Bridge were used to finance the acquisition of the Combivisie
systems, including the repayment of an NLG50.0 million ($25.3 million as of
September 30, 1997) bridge facility (the "Existing Combivisie Bridge") granted
by Rabobank to CNBH on January 6, 1998 and the payment of approximately NLG71.1
million ($35.9 million as of September 30, 1997) to Combivisie. The remaining
tranche under the CNBH Facility of approximately NLG63.0 million ($31.8 million
as of September 30, 1997) is available to finance capital and operating
expenditures of CNBH. The CNBH Facility bears interest at the applicable
Amsterdam interbank offered rate ("AIBOR") plus a margin ranging from 0.60% to
1.60% per annum. Beginning in 2001, CNBH is required to apply 50% of its excess
cash flow to prepayment of the CNBH Facility. The CNBH Facility is secured by,
among other things, an encumbrance over CNBH's assets, including the KTE,
Combivisie and Son en Breugel systems, and a pledge of shares in CNBH. The
facility generally restricts the payment of dividends and distributions. As of
February 28, 1998, NLG189.2 million ($95.5 million as of September 30, 1997)
was outstanding under the CNBH Facility.
In connection with the CNBH Facility, UPC and CNBH entered into a project
support agreement providing, among other things, for UPC to: (i) cause equity
contributions of NLG95.0 million ($47.9 million as of September 30, 1997) to
CNBH or its subsidiaries, which condition was satisfied prior to the first
disbursement under the facility; (ii) not reduce its direct or indirect voting
power below 51% or, without Rabobank's consent, cease to be a direct or
indirect shareholder of CNBH; and (iii) acknowledge and accept subordination of
all loans provide to CNBH by UPC and its affiliates. In addition, UPC's
guaranty of the Existing Combivisie Bridge was discharged.
In connection with the CNBH Facility, UPC also expects Rabobank to grant an
NLG5.0 million ($2.5 million as of September 30, 1997) ten-year term working
capital facility to CNBH, the repayment of which will be amortized over seven
years, with final maturity at December 31, 2007. The working capital facility
will bear interest at Rabobank's base rate plus 0.50% per annum. This facility
is expected to be secured by the same assets securing the CNBH Facility. There
can be no assurances CNBH will be able to obtain this facility, the New
Combivisie Bridge or the CNBH Facility or as to the terms of such financing.
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KTE is also a party to five pension fund loan agreements totalling NLG42.0
million ($21.2 million as of September 30, 1997) of which approximately
NLG20.0 million ($10.1 million as of September 30, 1997) remained outstanding
as of September 30, 1997. The loan agreements are unsecured but are guaranteed
by the City of Eindhoven and counter-guaranteed by UPC.
Telekabel Wien. Telekabel Wien became a borrower and guarantor under the
Tranche A Facility in December 1997. As of December 10, 1997, Telekabel Wien
had borrowed NLG245.0 million ($123.7 million as of September 30, 1997) under
the Tranche A Facility. Under the Tranche A Facility, Telekabel Wien's
guaranty is limited to those distributable profits of Telekabel Wien to which
Cable Networks Austria Holding B.V. (a wholly-owned subsidiary of UPC through
which UPC owns the Telekabel Group companies) is entitled. Under the Tranche A
Facility, the guarantee also is limited by an agreed amount excluded from the
distributable profits calculation. The other companies comprising the
Telekabel Group have given similar limited guarantees in connection with the
Tranche A Facility.
UPC UNCONSOLIDATED AFFILIATES
A2000. A2000 entered into an NLG90.0 million ($45.4 million as of September
30, 1997) Bank Facility Agreement (the "A2000 Facility") with ABN AMRO Bank
N.V. ("ABN") in January 1996. The A2000 Facility has a nine year term and
bears interest at AIBOR plus 0.75% for variable rate advances and, for a fixed
rate advance, a rate agreed between A2000 and the facility agent plus 0.75%.
The security package for the A2000 Facility includes, among other things, an
encumbrance over A2000's assets. Although ABN has not done so, under certain
circumstances, it may require the shareholders of A2000 to pledge their
respective share holdings. The A2000 Facility generally restricts the payment
of dividends and distributions. As of September 30, 1997, NLG90.0 million
($45.4 million as of September 30, 1997) was outstanding under the A2000
Facility.
KTA. In January 1996, ABN provided KTA with an NLG375.0 million ($189.3
million as of September 30, 1997) bank facility comprised of a nine-year term
loan facility (with a maximum loan amount of NLG250.0 million ($126.2 million
as of September 30, 1997)), a term construction loan facility (with a maximum
loan amount of NLG75.0 million ($37.9 million as of September 30, 1997)) and a
term working capital overdraft facility (with a maximum loan amount of NLG50.0
million ($25.2 million as of September 30, 1997)) (collectively, the "KTA
Facility"). The KTA Facility bears interest of (i) with respect to a variable
rate advance, AIBOR plus 0.75%, (ii) with respect to a fixed rate advance, an
amount agreed plus 0.75% and (iii) with respect to the working overdraft
facility, an interest rate equal to the "fictief promess disconto" (the short
term interest rate used by the Dutch National Bank in its relations with the
commercial banks) plus 1.0%. As of September 30, 1997, NLG250.0 million
($126.2 million as of September 30, 1997) was outstanding under the KTA
Facility.
KTH. In October 1996, KTH, a subsidiary of A2000, obtained an NLG45.0
million ($22.7 million as of September 30, 1997) bank facility comprised of
the following 10-year facilities: a term loan facility (with a maximum loan
amount of NLG26.0 million ($13.1 million as of September 30, 1997)), a
construction loan facility (with a maximum loan amount of NLG17.0 million
($8.6 million as of September 30, 1997)) and a working capital facility (with
a maximum loan amount of NLG2.0 million ($1.0 million as of September 30,
1997) (collectively, the "KTH Facility"). The KTH Facility bears interest of
(i) AIBOR plus 0.75% with respect to a variable rate advance, (ii) a rate
agreed plus 0.75%, with respect to a fixed rate advance and (iii) a rate equal
to the "fictief promess disconto" plus 1.0% with respect to an overdraft. The
KTH Facility is secured by, among other things, an encumbrance over KTH's
assets and a pledge by A2000 of its shares in KTH. The KTH Facility generally
restricts the payment of dividends and distributions depending on varying
debt-to-equity ratios. As of September 30, 1997, NLG26.0 million ($13.1
million as of September 30, 1997) was outstanding under the KTH Facility.
Melita. In September 1996 Melita executed an eight-year term bond facility
with ING for a maximum amount of Lm9.0 million ($22.8 million as of September
30, 1997) (the "Melita Facility"). The Melita Facility bears interest at a
rate of approximately 2.5% plus the cost to ING of funding any amount advanced
and is secured by, among other things, an encumbrance over Melita's assets, a
pledge of the shares of Melita held by
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Melita Partnership, Melita Cable Holdings Ltd. and UII, and a pledge of the
partnership interests in Melita Partnership. The Melita Facility generally
prohibits the payment of dividends and distributions. As of September 30,
1997, Lm7 million ($18.2 million as of September 30, 1997) was outstanding
under the Melita Facility.
Melita and Midland Bank P.L.C. are parties to a Lm500,000 Overdraft Facility
Agreement that is secured by a general hypothec on all of Melita's present and
future property, up to the principal amount of the loan.
PHL. In August 1996, Princes Holdings Limited ("PHL") and its subsidiaries
entered into a Facilities Agreement (including an Ir(Pounds)30.0 million
($43.8 million as of September 30, 1997) term loan facility and an
Ir(Pounds)10.0 million ($14.6 million as of September 30, 1997) revolving
credit facility) granted by the Bank of Ireland and others (the "PHL
Facility"). The PHL term loan facility is for a term of eight years and the
revolving credit facility is for a term of nine years. Both bear interest at a
rate which is the sum of (i) the defined margin, which varies in accordance
with net debt and operating cashflow, (ii) the defined Relevant Associated
Costs Rate and (iii) the Dublin interbank offered rate. The PHL Facility is
secured by, among other things, an encumbrance over all the assets of PHL and
its subsidiaries, a Shareholder "make-well" pursuant to which UPC, under
certain circumstances, may be required to contribute NLG6.2 million ($3.2
million as of September 30, 1997) to PHL, and guarantees of PHL's shareholders
and the subsidiaries of PHL. The PHL Facility generally prohibits dividends
and distributions. As of September 30, 1997, approximately Ir(Pounds)32
million ($46.7 million as of September 30, 1997) was outstanding under the PHL
Facility.
Tevel. Tevel is a party to two loan agreements dated December 4, 1990 and
January 5, 1992 with Bank Discount LeIsrael Ltd. and First International Bank,
respectively. A total of approximately NIS103.6 million is available under
these facilities, of which approximately NIS14.7 million ($4.2 million as of
September 30, 1997) was outstanding as of September 30, 1997.
OTHER (NON-UPC) UIH EUROPEAN AFFILIATES
In October 1997, Monor secured from Credit Lyonnais Bank Magyarorszag Rt., a
syndicated term credit facility in the amount of $50.0 million (the "Monor
Facility"). The proceeds of the bank facility will be used (i) to repay all
principal outstanding under the existing loan from the Overseas Private
Investment Corporation; (ii) to repay existing shareholder loans up to a
maximum of $14.0 million; and (iii) for working capital requirements. The
principal is repayable pursuant to an amortization schedule beginning June 30,
1999, and ending December 31, 2006. Interest is payable from the date of the
first advance at a rate equal to LIBOR plus 1.5%. The Monor Facility is
secured by all of the assets of Monor and a pledge of all of the shares of
stock of Monor issued to Monor Communications Group, Inc. Payment of dividends
or other payments to shareholders of related parties are restricted by the
Monor Facility unless certain conditions are met.
UAP AND AFFILIATES
UIH A/P. As of September 30, 1997, UIH A/P had outstanding a total of $302.1
million of 14% Senior Discount Notes due 2006 ("UIH A/P Notes"). Cash interest
will not commence to accrue on the UIH A/P Notes prior to May 15, 2001.
Commencing November 15, 2001, cash interest on the UIH A/P Notes will be
payable on November 15 and May 15 of each year at a rate of 14.75% per annum,
until such time as UIH A/P effects a UIH A/P Equity Sale, after which time the
accretion rate and the cash interest payable on the UIH A/P Notes will be 14%
per annum. The principal amount at maturity of the UIH A/P Notes is $488.0
million. The indenture governing the UIH A/P Notes restricts the ability of
UIH A/P to pay dividends.
Austar. In July 1997, Austar secured from a bank a syndicated senior secured
debt facility (the "Austar Bank Facility") in the amount of A$200.0 million
($145.2 million as of September 30, 1997). The proceeds of the Austar Bank
Facility will be used to finance the installation of equipment for new
subscribers and working capital needs. The Austar Bank Facility consists of
three sub-facilities: (i) an A$50.0 million working capital facility; (ii) an
A$60.0 million cash advance facility available upon the contribution of
additional equity to Austar on a 2:1 debt-to-equity basis; and (iii) an A$90.0
million term loan facility, which will be available on the basis
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of Austar having achieved minimum subscriber and operating cash flow levels.
The maximum amount of equity required in (ii) above would be A$30.0 million,
of which approximately A$19.4 million had been contributed as of September 30,
1997, and the remainder of which is to be contributed by UAP. The cash advance
and term loan facilities are fully repayable pursuant to an amortization
schedule beginning December 31, 2000 and ending June 30, 2004. As of September
30, 1997, Austar had drawn approximately A$87.0 million ($63.1 million as of
September 30, 1997) under the Austar Bank Facility, of which A$50.0 million
was used to repay a bridge financing facility. The Austar Bank Facility is
secured by all of the assets of Austar and a pledge of all of the shares of
CTV and STV held by the Company. Prior to December 31, 2000, the Austar Bank
Facility limits the ability of Austar to declare and pay dividends, make any
payments on any debentures or any other subordinated shareholder loans, or pay
any fees under management or technical assistance agreements with any related
party. After December 31, 2000, however, these restrictions would be lifted so
long as Austar is not in default under the Austar Bank Facility and there
exists an adequate ratio of excess cash flow to total outstanding debt.
Sun Cable. In October 1997, Sun Cable received a commitment from The
Toronto-Dominion Bank ("TD") pursuant to which TD has agreed to loan Sun Cable
up to $15.0 million under a Bridge Loan Facility (the "Sun Cable Facility").
Sun Cable expects to use the proceeds of the Sun Cable Facility to refinance
existing debt and other liabilities of Sun Cable and its subsidiaries
(excluding intercompany and shareholder loans and advances) prior to the
transfer of its assets to the planned joint venture with SkyCable. See
"Business--UIH Asia/Pacific Communications, Inc.--Philippines: Sun Cable." The
Sun Cable Facility will mature 360 days from the signing of the facility
agreement and may be extended, with TD's consent, for up to two additional 90
day periods upon payment by Sun Cable of 1.0% of the Sun Cable Facility amount
for the first extension and 1.5% of the Sun Cable Facility amount for the
second extension. The interest payable on the Sun Cable Facility is LIBOR plus
7.5% for the first 360 days, LIBOR plus 8.0% during the first 90 day extension
period and LIBOR plus 8.5% for the final 90 day extension period. The Sun
Cable Facility will be secured by a pledge of all existing and future assets
of Sun Cable. The Sun Cable Facility will also be secured by a pledge of all
of the shares of Sun Cable held by Sun Cable Holdings, Inc. ("SCHI") and UAP.
In addition, SCHI and UAP have agreed to guarantee, jointly and severally,
interest payable on the Sun Cable Facility. During the term of the Sun Cable
Facility, Sun Cable is prohibited from issuing any securities ranking senior
or pari passu in payment or liquidation to the Sun Cable Facility. In
addition, all payments under the Sun Cable Loan with UIH are subordinated to
payments due under the Sun Cable Facility.
UIHLA AND AFFILIATES
UIHLA. In April 1997, UIHLA and Toronto Dominion (Texas), Inc. ("TD
(Texas)") entered into a senior secured bridge loan facility (the "UIHLA Loan
Facility") in the amount of $125.0 million. In October 1997, UIHLA paid down
the loan and amended and restated the UIHLA Loan Facility. Currently, the
UIHLA Loan Facility is a $40.0 million, 12-month extendable revolving credit
facility (the "UIHLA Revolving Facility"), of which approximately $38.0
million was drawn down and outstanding as of November 30, 1997. The proceeds
of the loan were used (i) to make a distribution to UIH in the amount of $35.0
million (the "Permitted Distribution"), (ii) to make certain investments in
Brazil, and (iii) for general corporate purposes. UIHLA must repay the UIHLA
Revolving Facility on November 20, 1998 unless extended. The UIHLA Revolving
Facility may be extended in three month increments upon the payment of an
extension fee and the satisfaction of certain conditions precedent. In no
event may the maturity date be extended beyond 18 months from the closing. The
UIHLA Revolving Facility is secured by the security package that was in place
for the UIHLA Loan Facility, with the exception of security and collateral of
the Argentine cable properties that were released upon the sale of such
assets. This security package includes the assets and a pledge of the shares
of all of UIHLA's U.S. subsidiaries and its subsidiaries in Brazil and Peru.
The UIHLA Revolving Facility limits the ability of UIHLA to make acquisitions,
to declare and pay dividends, to make any payments on subordinated shareholder
loans, or to pay any fees under management or technical assistance agreements
with any related party; except that UIHLA may (i) make the Permitted
Distribution and (ii) repay head office operating expenses paid by UIH on
behalf of UIHLA not to exceed $500,000. The Company plans to use approximately
$25.0 million of the proceeds of the Offering to repay a portion of the UIHLA
Loan Facility indebtedness.
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VTR Hipercable. In August 1997, VTR Hipercable, ING and TD (Texas) entered
into a $142.9 million Senior Secured Amortizing Term Loan Facility (the
"Hipercable Facility"). The Hipercable Facility consists of (i) a five year,
$100.0 million term loan that bears interest at a rate equal to LIBOR plus an
additional 0.75% to 2.25% based on certain financial ratios, and (ii) a one
year $42.9 million facility that bears interest at a rate equal to LIBOR plus
0.75% used to finance the Chilean Central Bank reserve requirement with
respect to the term loan. The Hipercable Facility is secured by the assets of
Hipercable and its subsidiaries. The Hipercable Facility limits VTR
Hipercable's ability to pay dividends.
A subsidiary of VTR Hipercable is currently contemplating financing the
purchase of certain telecommunications equipment. The amount of the financing
has yet to be determined and, although the security for the financing is still
subject to negotiation, it may include a pledge of the assets of the
subsidiary and a guarantee of its shareholders, which are first tier
subsidiaries of VTR Hipercable.
UFC. In connection with the formation of UFC, the programming venture in
Latin America in which the Company has a 50% interest, UFC executed a demand
promissory note in the amount of approximately $1.5 million, payable to
International Family Entertainment, Inc. a Delaware corporation. In connection
with UIHLA's negotiations to purchase and resell to a new partner the
remaining 50% interest in UFC, UIHLA is negotiating a $2.0 million loan from
its potential partner.
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DESCRIPTION OF SENIOR NOTES
Set forth below is a summary of certain provisions of the Senior Notes. The
Senior Notes were issued pursuant to an indenture (the "Indenture") dated as
of February 5, 1998, by and between the Company and Firstar Bank of Minnesota
N.A., as trustee (the "Trustee"). The following summaries of certain
provisions of the Indenture are summaries only, do not purport to be complete
and are qualified in their entirety by reference to all of the provisions of
the Indenture. Capitalized terms used herein and not otherwise defined shall
have the meanings assigned to them in the Indenture. Wherever particular
provisions of the Indenture are referred to in this summary, such provisions
are incorporated by reference as a part of the statements made and such
statements are qualified in their entirety by such reference. A copy of the
Indenture is attached as an exhibit to the Registration Statement (as
defined).
GENERAL
The Senior Notes are general, senior, secured obligations of the Company,
limited in aggregate principal amount at maturity to $1,375,000,000 being
issued on the Issue Date, plus the amount of Senior Notes that may be issued
under clause (b) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," secured by the Collateral as set
forth below. The term Senior Notes refers to the $1,375,000,000 aggregate
principal amount at maturity issued on the Issue Date and such additional
Senior Notes. The Senior Notes rank senior in right of payment to all existing
and future subordinated indebtedness of the Company and pari passu in right of
payment with all existing and future senior obligations of the Company,
including the untendered Existing Notes. The Senior Notes, however, are
effectively subordinated to all existing and future Indebtedness and other
liabilities and commitments (including trade payables and lease obligations)
of the Company's Subsidiaries. See "Risk Factors--Holding Company Structure;
Limitations on Access to Cash Flow." The Senior Notes were issued only in
fully registered form, without coupons, in denominations of $l,000 and
integral multiples thereof. Copies of the indentures governing the terms of
1999 Notes (the "Existing Indentures") are available upon request of the
Company.
The Senior Notes mature on February 15, 2008. Interest payable in cash will
commence to accrue on February 15, 2003, and will be payable on each February
15 and August 15 thereafter until maturity, commencing on August 15, 2003. The
Senior Notes were issued at a substantial discount from their principal amount
at maturity, and the original issue discount on the Senior Notes accretes from
the date of issuance to February 15, 2003. Interest (and accretion of original
issue discount) will be calculated on the basis of a 360-day year consisting
of twelve 30-day months.
As of the date of this Prospectus, the Company's affiliated companies
designated as Subsidiaries and Restricted Affiliates for purposes of the
Indenture are listed on Annex A to this Prospectus and the Company's
subsidiaries designated as Unrestricted Subsidiaries for purposes of the
Indenture are listed on Annex B to this Prospectus. Certain of the Company's
other affiliated companies do not constitute Subsidiaries or Restricted
Affiliates under the Indenture and, therefore, are not subject to the
restrictions set forth in the Indenture, unless they are designated as
Subsidiaries or Restricted Affiliates. In addition, under certain
circumstances, the Company will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries and current or future Restricted
Affiliates no longer to be Restricted Affiliates or Subsidiaries. The term
"Subsidiaries" does not include "Unrestricted Subsidiaries," as defined.
Unrestricted Subsidiaries and controlled Affiliates that are not Subsidiaries
or Restricted Affiliates generally will not be subject to the restrictive
covenants set forth in the Indenture.
Principal of, premium, if any, interest and Liquidated Damages (as defined),
if any, on the Senior Notes will be payable, and the Senior Notes may be
presented for registration of transfer or exchange, at the office or agency of
the Company maintained for such purpose, which office or agency shall be
maintained in the Borough of Manhattan, The City of New York, except as set
forth below. Except as provided below, at the option of the Company, payment
of interest may be made by check mailed to the Holders of the Senior Notes at
the addresses set forth upon the registry books of the Company. No service
charge will be made for any registration of transfer
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or exchange of Senior Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. Until otherwise designated by the Company, the Company's office or
agency will be the corporate trust office of the Trustee presently located at
the office of the Trustee in the Borough of Manhattan, The City of New York.
SECURITY
The Senior Notes are secured by pledges of (i) all of the present and future
Equity Interests of UIPI and UIH Europe, direct wholly owned Restricted
Subsidiaries of the Company, and (ii) all intercompany notes of UIPI and UIH
Europe issued to the Company, if any (collectively, including any and all
proceeds therefrom, the "Collateral"). Neither UIPI nor UIH Europe are
permitted to be designated as an Unrestricted Subsidiary and, notwithstanding
anything herein or in the Indenture to the contrary, each will be prohibited
from incurring any Indebtedness other than permitted intercompany Indebtedness
to the Company. See "--Certain Covenants--Limitations on Subsidiary
Structure."
The Company and the Collateral Agent entered into the Pledge Agreement
providing for the pledge by the Company to the Collateral Agent, for the
benefit of Holders of the Senior Notes, of the Collateral. Such pledge secures
the payment and performance when due of all of the Obligations of the Company
under the Indenture and the Senior Notes as provided in the Pledge Agreement
and the Indenture.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture and the Pledge
Agreement, the Company is entitled to receive all cash dividends, interest and
other payments made upon or with respect to the Collateral and to exercise any
voting and other consensual rights pertaining to the Collateral. Upon the
occurrence and during the continuance of an Event of Default: (a) all rights
of the Company to exercise such voting or other consensual rights will cease,
and all such rights will become vested in the Collateral Agent for the benefit
of the Holders and, with respect to the UIPI Collateral, the holders of
untendered 1999 Notes outstanding under the Existing Indentures, who, to the
extent permitted by law, will have the sole right to exercise such voting and
other consensual rights; (b) all rights of the Company to receive all cash
dividends, interest and other payments made upon or with respect to the
Collateral will cease and such cash dividends, interest and other payments
will be required to be paid to the Collateral Agent for the benefit of the
Holders and, with respect to the UIPI Collateral, to or on behalf of holders
of the untendered 1999 Notes outstanding under the Existing Indentures,
provided, however, that the Company is entitled to receive such cash
dividends, interest and other payments from UIPI and UIH Europe that are
sufficient to permit the Company to satisfy its ordinary course operating
expenses whether or not an Event of Default shall have occurred; and (c) the
Collateral Agent, for the benefit of the Holders and, with respect to the UIPI
Collateral, the holders of untendered 1999 Notes outstanding under the
Existing Indentures may sell the Collateral or any part thereof in accordance
with the terms of the Pledge Agreement. All funds distributed under the Pledge
Agreement and received by the Collateral Agent and Trustee for the benefit of
the Holders of the Senior Notes will be distributed by the Trustee in
accordance with the provisions of the Pledge Agreement. Upon the occurrence
and during the continuance of an Event of Default, the Pledge Agreement
provides that all funds held by the Collateral Agent (including all proceeds
from the sale or any other realization upon the Collateral) will be applied
(after the payment of certain fees and expenses of the Collateral Agent) to
the payment of the Accreted Value of, and other obligations with respect to,
the Senior Notes that are outstanding under the Indenture and, with respect to
the UIPI Collateral, the untendered 1999 Notes outstanding under the Existing
Indentures.
The Pledge Agreement provides that it may be amended in compliance with the
terms and provisions of the Indenture. As a result, the Pledge Agreement
generally may be amended with the consent of two-thirds in aggregate principal
amount at maturity of the Senior Notes.
Under the terms of the Pledge Agreement, upon an Event of Default, the
Collateral Agent will determine the circumstances and manner in which the
Collateral will be disposed of, including, but not limited to, the
determination of whether to release all or any portion of the Collateral from
the Liens created by the Pledge
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Agreement and whether to foreclose on the Collateral following an Event of
Default. Upon the full and final payment and performance of all Obligations of
the Company under the Indenture and the Senior Notes, the Pledge Agreement
will terminate and the remaining Collateral will be released to the Company.
OPTIONAL REDEMPTION
The Company does not have the right to redeem any Senior Notes prior to
February 15, 2003 other than out of the Net Cash Proceeds from (a) a Public
Equity Offering or (b) an Asset Sale, as described in the two immediately
following paragraphs. The Senior Notes are redeemable for cash at the option
of the Company, in whole or in part, at any time on or after February 15,
2003, upon not less than 30 days nor more than 60 days notice to each holder
of Senior Notes, at the following redemption prices (expressed as percentages
of the then Accreted Value thereof) if redeemed during the 12-month period
commencing February 15, of the years indicated below, together with accrued
and unpaid interest and Liquidated Damages, if any, thereon to the Redemption
Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003............................................................ 105.375%
2004............................................................ 103.583%
2005............................................................ 101.792%
2006 and thereafter............................................. 100.000%
</TABLE>
Until February 15, 2001, upon a Public Equity Offering, up to 35% of the
maximum aggregate principal amount at maturity of the Senior Notes issued at
any time on or after the Issue Date pursuant to the Indenture may be redeemed
at the option of the Company within 90 days of such Public Equity Offering, on
not less than 30 days, but not more than 60 days, notice to each Holder of the
Senior Notes to be redeemed, with cash from the Net Cash Proceeds of such
Public Equity Offering, at a redemption price equal to 110.75% of the then
Accreted Value thereof, together with accrued and unpaid Liquidated Damages,
if any, to the Redemption Date; provided, however, that immediately following
such redemption not less than 65% of the maximum aggregate principal amount at
maturity of the Senior Notes issued at any time on or after the Issue Date
pursuant to the Indenture remains outstanding.
In addition, until February 15, 2001, upon an Asset Sale, up to 35% of the
maximum aggregate principal amount at maturity of the Senior Notes issued at
any time on or after the Issue Date pursuant to the Indenture may be redeemed
at the option of the Company within 90 days of such Asset Sale, on not less
than 30 days, but not more than 60 days, notice to each Holder of the Senior
Notes to be redeemed, with cash from the Net Cash Proceeds of such Asset Sale,
at a redemption price equal to 110.75% of the then Accreted Value thereof,
together with accrued and unpaid Liquidated Damages, if any, to the Redemption
Date; provided, however, that immediately following such redemption not less
than 65% of the maximum aggregate principal amount at maturity of the Senior
Notes issued at any time on or after the Issue Date pursuant to the Indenture
remains outstanding.
In the case of a partial redemption, the Trustee shall select the Senior
Notes or portions thereof for redemption on a pro rata basis, by lot or in
such other manner it deems appropriate and fair. The Senior Notes may be
redeemed in part in multiples of $1,000 principal amount at maturity only.
The Senior Notes do not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption to the Holder
of each Senior Note to be redeemed to such Holder's last address as then shown
upon the registry books of the Registrar. Any notice which relates to a Senior
Note to be redeemed in part only must state the portion of the principal
amount at maturity equal to the unredeemed portion thereof and must state that
on and after the date of redemption, upon surrender of such Senior Note, a new
Senior Note or Senior Notes in a principal amount at maturity equal to the
unredeemed portion thereof will be issued. On and after the Redemption Date,
the Accreted Value will cease to increase and, if applicable, interest will
cease to
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accrue, with respect to the Senior Notes, or portions thereof, called for
redemption, unless the Company defaults in the payment thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Repurchase of Senior Notes at the Option of the Holder Upon a Change of
Control
The Indenture provides that in the event that a Change of Control has
occurred, each holder of Senior Notes has the right, at such holder's option,
pursuant to an irrevocable and unconditional offer by the Company (the "Change
of Control Offer"), to require the Company to repurchase all or any part of
such holder's Senior Notes (provided that the principal amount at maturity of
such Senior Notes must be $1,000 or an integral multiple thereof) on a date
(the "Change of Control Purchase Date") that is no later than 40 Business Days
after the occurrence of such Change of Control, at a cash price equal to 101%
of the Accreted Value thereof at the Change of Control Purchase Date (the
"Change of Control Purchase Price"), together with accrued interest and
Liquidated Damages, if any, to the Change of Control Purchase Date. The Change
of Control Offer shall be made within 15 Business Days following a Change of
Control and shall remain open for 20 Business Days following its commencement
(the "Change of Control Offer Period").
"Change of Control" means (i) any merger or consolidation of the Company
with or into any Person or any sale, transfer or other conveyance, whether
direct or indirect, of all or substantially all of the assets of the Company,
on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transaction(s), any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable), other than the
Principals or their Related Parties or a group that is controlled by one or
more of the Principals, is or becomes the "beneficial owner," directly or
indirectly, of more than 50% of the total voting power in the aggregate
normally entitled to vote in the election of directors, managers, or trustees,
as applicable, of the transferee(s) or surviving entity or entities, (ii)
other than the Principals or their Related Parties or a group that is
controlled by one or more of the Principals, any "person" or "group" (as such
terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act,
whether or not applicable), is or becomes the "beneficial owner," directly or
indirectly, of more than 50% of the total voting power in the aggregate of all
classes of Capital Stock of the Company then outstanding normally entitled to
vote in the election of directors, or (iii) during any period of 12
consecutive months after the Issue Date, individuals who at the beginning of
any such 12-month period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved
by a vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office. A Person
will not be deemed to be a member of a "group" for purposes of this definition
solely by virtue of becoming party to an agreement with one or more Principals
or their Related Parties that requires such Person to vote the voting stock of
the Company in a manner specified by the Principals or their Related Parties.
"Principals" means Apollo Cable Partners, L.P., Apollo Advisors, L.P.,
Albert M. Carollo, Lawrence F. DeGeorge, Lawrence J. DeGeorge, William J.
Elsner, Lawrence Flinn, Jr., L. Flinn Jr. Family Partnership-I (so long as it
is controlled by Lawrence Flinn, Jr.), Joseph E. Giovanini, Clarice J.
Giovanini, Giovanini Investments, Ltd. (so long as it is controlled by Joseph
E. or Clarice J. Giovanini), Curtis Rochelle, Marian Rochelle, Rochelle
Investments, Ltd. (so long as it is controlled by Curtis or Marian Rochelle),
Gene W. Schneider, G. Schneider Holdings, Co. (so long as it is controlled by
Gene W. Schneider), Janet S. Schneider and Mark L. Schneider.
"Related Party" with respect to any Principal means (A) any controlling
stockholder or 80% (or more) owned Subsidiary of such Principal, or with
respect to each individual Principal, (i) family partnerships, corporations,
or other entities holding Equity Interests in the Company solely for the
benefit of such Principal or any of the Persons listed in (ii), (iii), (iv),
or (v) below, (ii) such Principal's spouse, (iii) such Principal's children,
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grandchildren, stepchildren, stepgrandchildren and their spouses, (iv) heirs,
legatees and devisees, and (v) trusts solely for the benefit of any of the
foregoing; or (B) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
an 80% or more controlling interest of which consist of such Principal and/or
such other Persons referred to in the immediately preceding clause (A).
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Senior Notes or portions thereof properly tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent cash
sufficient to pay the Change of Control Purchase Price (together with accrued
interest and Liquidated Damages, if any), of all Senior Notes so tendered and
(iii) deliver to the Trustee Senior Notes so accepted together with an
Officers' Certificate listing the Senior Notes or portions thereof being
purchased by the Company. The Paying Agent promptly will pay the Holders of
Senior Notes so accepted an amount equal to the Change of Control Purchase
Price (together with accrued interest and Liquidated Damages, if any), and the
Trustee promptly will authenticate and deliver to such Holders a new Senior
Note equal in principal amount at maturity to any unpurchased portion of the
Senior Note surrendered. Any Senior Notes not so accepted will be delivered
promptly by the Company to the Holders thereof. The Company publicly will
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Purchase Date.
The Change of Control purchase feature of the Senior Notes may make more
difficult or discourage a takeover of the Company, and, thus, the removal of
incumbent management.
The phrase "all or substantially all" of the assets of the Company will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or
substantially all" of the assets of the Company has occurred. In addition, no
assurances can be given that the Company will be able to acquire Senior Notes
tendered upon the occurrence of a Change of Control.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under
the Exchange Act and the rules thereunder and all other applicable Federal and
state securities laws. To the extent that the provisions of any applicable
laws, rules or regulations conflict with the provisions of this covenant,
compliance by the Company with such laws, rules or regulations shall not in
and of itself cause a breach of its obligations under this covenant.
Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock
The Indenture provides that, except as set forth below in this covenant, the
Company will not, and will not permit any of its Subsidiaries or Restricted
Affiliates to, directly or indirectly, issue, assume, guaranty, incur, become
directly or indirectly liable with respect to (including as a result of an
Acquisition), or otherwise become responsible for, contingently or otherwise
(individually and collectively, to "incur" or, as appropriate, an
"incurrence"), any Indebtedness or any Disqualified Capital Stock (including
Acquired Indebtedness), other than Permitted Indebtedness. Notwithstanding the
foregoing, if no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a pro forma
basis to, such incurrence of Indebtedness or Disqualified Capital Stock, then
(i) if on the date of such incurrence (the "Incurrence Date"), the
Consolidated Cash Flow Ratio of the Company for the Reference Period
immediately preceding the Incurrence Date, after giving effect on a pro forma
basis to such incurrence of such Indebtedness or Disqualified Capital Stock
and, to the extent set forth in the definition of Consolidated Cash Flow
Ratio, the use of proceeds thereof, would be no more than 6.5 to l.0 (the
"Debt Incurrence Ratio"), then the Company may incur Indebtedness or
Disqualified Capital Stock, provided such Indebtedness or Disqualified Capital
Stock matures after, and has no payment of cash or property (other than
payments in Qualified Capital Stock or in such Indebtedness or Disqualified
Capital Stock) scheduled on or prior to, February 15, 2003, and (ii) if on the
Incurrence Date either (1) the Consolidated Cash Flow Ratio of a Subsidiary or
Restricted Affiliate of the Company for the Reference Period immediately
preceding the Incurrence Date, after giving effect on a pro forma basis to
such incurrence of such Indebtedness or Disqualified Capital Stock and to the
extent set forth in the definition of Consolidated Cash Flow Ratio, the use of
proceeds thereof, would be no more than 7.0 to 1.0, or
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(2) the Consolidated Coverage Ratio of such Subsidiary or Restricted Affiliate
for the Reference Period immediately preceding the Incurrence Date, after
giving effect on a pro forma basis to such incurrence of such Indebtedness or
Disqualified Capital Stock and, to the extent set forth in the definition of
Consolidated Coverage Ratio, the use of proceeds thereof, would be no less
than 1.75 to 1.00, or (3) after giving effect on a pro forma basis to such
incurrence of such Indebtedness or Disqualified Capital Stock, and, to the
extent used to retire other Indebtedness or Disqualified Capital Stock, the
use of proceeds therefrom, the amount of Indebtedness and Disqualified Capital
Stock outstanding of such Subsidiary or Restricted Affiliate would not exceed
225% of the Consolidated Invested Equity Capital of such Subsidiary or
Restricted Affiliate, then, other than UIPI or UIH Europe, such Subsidiary or
Restricted Affiliate may incur such Indebtedness or Disqualified Capital
Stock, provided in the case of each of (ii)(1), (2) and (3) the net proceeds
therefrom are used in a Related Business of the Company or any affiliated
company of the Company, and, for the purposes of this clause (ii), other than
UIPI or UIH Europe, a Subsidiary or Restricted Affiliate may be a co-obligor
or guarantor on such Indebtedness or Disqualified Capital Stock of another
Subsidiary or Restricted Affiliate of the Company (A) if such Subsidiary or
Restricted Affiliate owns, either directly or indirectly through one or more
Subsidiaries or Restricted Affiliates of the Company, all or a portion of the
Equity Interests of the Subsidiary or Restricted Affiliate of the Company,
other than UIPI or UIH Europe, that incurred such Indebtedness or Disqualified
Capital Stock, or (B) if all or a portion of the Equity Interests of such
Subsidiary or Restricted Affiliate is owned either directly or indirectly
through one or more Subsidiaries or Restricted Affiliates of the Company by
the Subsidiary or Restricted Affiliate, other than UIPI and UIH Europe, that
incurred such Indebtedness or Disqualified Capital Stock or (C) if such
Subsidiary or Restricted Affiliate owns, either directly or indirectly through
one or more Subsidiaries or Restricted Affiliates of the Company, all or a
portion of the business that will use the proceeds of such Indebtedness.
In addition, the foregoing limitations do not apply to:
(a) the incurrence by the Company or, except for UIPI and UIH Europe, its
Subsidiaries and Restricted Affiliates of Indebtedness, provided that the
aggregate amount of such Indebtedness outstanding at any time pursuant to
this paragraph (a) (including any Indebtedness issued to refinance, replace
or refund such Indebtedness) shall not exceed $25 million;
(b) if no Event of Default shall have occurred and be continuing, the
incurrence by the Company of Indebtedness represented by additional Senior
Notes or other Indebtedness maturing on or after the Stated Maturity of the
Senior Notes in an aggregate principal amount at maturity equal in amount
sufficient to generate up to an aggregate of $75 million in gross proceeds;
and
(c) if no Event of Default shall have occurred and be continuing, the
incurrence by Subsidiaries or Restricted Affiliates of the Company of
Indebtedness pursuant to the Existing Agreements up to, but not in excess
of the maximum applicable amounts of Indebtedness available for borrowing
pursuant to the terms of each such Existing Agreement as in effect on the
date of the Indenture; provided that, in determining the maximum applicable
amounts available it shall be assumed that the Company satisfies any
applicable conditions to borrowing. See "Description of Other Debt."
Indebtedness or Disqualified Capital Stock of any Person that is outstanding
at the time such Person becomes a Subsidiary or Restricted Affiliate of the
Company (including upon designation of any subsidiary or other Person as a
Subsidiary or Restricted Affiliate) or is merged with or into or consolidated
with the Company or a Subsidiary or Restricted Affiliate of the Company shall
be deemed to have been incurred at the time such Person becomes such a
Subsidiary or Restricted Affiliate of the Company or is merged with or into or
consolidated with the Company or a Subsidiary or Restricted Affiliate of the
Company, as applicable.
Notwithstanding anything in the Indenture to the contrary, the Company is
not permitted to incur Indebtedness that is subordinated in right of payment
to any other Indebtedness of the Company unless such Indebtedness to be
incurred is also subordinated in right of payment to the Senior Notes at least
to the same extent and neither UIPI nor UIH Europe shall incur any
Indebtedness other than permitted intercompany Indebtedness to the Company.
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Limitation on Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries or Restricted Affiliates to, directly or indirectly, make any
Restricted Payment if, after giving effect to such Restricted Payment on a pro
forma basis, (1) a Default or an Event of Default shall have occurred and be
continuing, (2) the Company is not permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt Incurrence Ratio in clause (i) of
the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock," or (3) the aggregate amount of all Restricted
Payments made by the Company and its Subsidiaries and Restricted Affiliates,
including after giving effect to such proposed Restricted Payment, from and
after the Issue Date, would exceed the sum of (a) 50% of the aggregate
Consolidated Net Income of the Company for the period (taken as one accounting
period), commencing on the Issue Date, to and including the last day of the
fiscal quarter ended immediately prior to the date of each such calculation
for which internal financial statements are available (or, in the event
Consolidated Net Income for such period is a deficit, then minus 100% of such
deficit), plus (b) the aggregate Net Cash Proceeds received by the Company
from the sale of its Qualified Capital Stock (other than (i) to a Subsidiary
or Restricted Affiliate of the Company and (ii) to the extent applied in
connection with a Qualified Exchange), after the Issue Date, less (c) any
amounts applied to the uses set forth in clause (e) of the definition of
"Permitted Investment."
The foregoing clauses (2) and (3) of the immediately preceding paragraph,
however, will not prohibit (u) any dividend, distribution or payment of
interest on Disqualified Capital Stock permitted to be incurred under the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock," (v) open market repurchases of publicly traded shares of the
Company's common stock from Persons other than officers, employees, directors
or Affiliates of the Company, and repurchases (whether or not in the open
market) of such stock from the estate of any Principal or from a Related Party
of such Principal, in either case upon the death of such Principal, in an
aggregate amount not to exceed $15 million on and after the Issue Date, (w)
the retirement of the shares of the Series A Convertible Preferred Stock
outstanding on the Issue Date on its final redemption date and in accordance
with its terms as of the Issue Date, (x) any dividend, distribution or other
payment (other than a repurchase) by any Subsidiary or Restricted Affiliate of
the Company on its Equity Interests that is paid pro rata to all holders of
such Equity Interests, and any repurchase for Fair Market Value as determined
by the Board of Directors by any Subsidiary or Restricted Affiliate of the
Company of any of such Subsidiary's or Restricted Affiliate's Equity
Interests, (y) a Qualified Exchange, or (z) the payment of any dividend on
Qualified Capital Stock within 60 days after the date of its declaration if
such dividend could have been made on the date of such declaration in
compliance with the foregoing provisions. The full amount of any Restricted
Payment made pursuant to the foregoing clauses (v), (w) and (z) (but not
pursuant to clause (u), (x) or (y)) of the immediately preceding sentence,
however, will be deducted in the calculation of the aggregate amount of
Restricted Payments available to be made referred to in clause (3) of the
immediately preceding paragraph.
For purposes of this covenant, the amount of any Restricted Payment, if
other than in cash, shall be the Fair Market Value thereof, as determined in
good faith by the Board of Directors of the Company. Additionally, on the date
of each Restricted Payment, the Company shall deliver an Officers' Certificate
to the Trustee describing in reasonable detail the nature of such Restricted
Payment, stating the amount of such Restricted Payment, stating in reasonable
detail the provisions of the Indenture pursuant to which such Restricted
Payment was made and certifying that such Restricted Payment was made in
compliance with the terms of the Indenture.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, assume or suffer to exist
any consensual restriction on the ability of any Subsidiary of the Company to
pay dividends or make other distributions to or on behalf of, or to pay any
obligation to or on behalf of, or otherwise to transfer assets or property to
or on behalf of, or make or pay loans or advances to or on behalf of, the
Company or any Subsidiary of the Company, except (a) restrictions imposed by
the Senior Notes or the Indenture or by other Indebtedness of the Company
ranking pari passu with the Senior Notes, provided such restrictions are no
more restrictive than those imposed by the Indenture, (b) restrictions imposed
by
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applicable law, (c) existing restrictions under Indebtedness outstanding on
the Issue Date, (d) restrictions under any Acquired Indebtedness not incurred
in violation of the Indenture or any agreement relating to any property,
asset, or business acquired by the Company or any of its Subsidiaries, which
restrictions in each case existed at the time of acquisition, were not put in
place in connection with or in anticipation of such acquisition and are not
applicable to the Company or any of its Subsidiaries or Restricted Affiliates,
other than the Person or Persons acquired, or to any property, asset or
business, other than the property, assets and business so acquired, (e) any
such restriction or requirement imposed by Indebtedness or Disqualified
Capital Stock permitted to be incurred under the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock,"
provided such restriction or requirement is no more restrictive than that
imposed by the Indenture or any other instrument (including with respect to
such Indebtedness) entered into by the Company or a Subsidiary governing the
terms of a bona fide borrowing by the Company or a Subsidiary from a third
party commercial lender for valid business purposes, (f) restrictions with
respect solely to a Subsidiary of the Company imposed pursuant to a binding
agreement which has been entered into for the sale or disposition of all or
substantially all of the Equity Interests or assets of such Subsidiary,
provided such restrictions apply solely to the Equity Interests or assets of
such Subsidiary which are being sold, and (g) in connection with and pursuant
to permitted Refinancings, replacements of restrictions imposed pursuant to
clauses (a), (c) or (d) of this paragraph that are not more restrictive than
those being replaced and do not apply to the Company or any of its
Subsidiaries or Restricted Affiliates or assets other than the Persons or
assets that would have been covered by the restrictions in the Indebtedness so
refinanced. Notwithstanding the foregoing, neither (a) customary provisions
restricting subletting or assignment of any lease entered into in the ordinary
course of business, consistent with industry practice, nor (b) Liens permitted
under the terms of the Indenture shall in and of themselves be considered a
restriction on the ability of the applicable Subsidiary to transfer such
agreement or assets, as the case may be.
Limitations on Liens
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, grant, incur, or suffer to exist,
other than Permitted Liens, any Lien upon any of the property or assets of
UIPI or UIH Europe, whether now owned or hereafter acquired, or upon any
income or profits therefrom.
Notwithstanding anything in the Indenture to the contrary, the Company will
not and will not permit any of its Subsidiaries or Restricted Affiliates to,
directly or indirectly, grant, incur or suffer to exist any Lien other than
Permitted Liens (other than with respect to clause (a) (other than the Lien in
existence on the Issue Date on the Collateral in connection with the 1999
Notes) or clauses (d), (e), (g), (h) and (i) thereof) on the Collateral,
except (i) the Lien created by the Indenture for the benefit of the Holders of
the Senior Notes, (ii) Liens securing Indebtedness ranking on a parity with
the Senior Notes incurred in accordance with the Company's Debt Incurrence
Ratio pursuant to clause (i) of the first paragraph or clause (b), of the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock," and, (iii) in the case of the UIPI-related Collateral only,
the Existing Indentures as in effect on the Issue Date.
Limitations on Subsidiary Structure
Notwithstanding anything in the Indenture to the contrary, the Indenture
provides that the Company will not be allowed to make any Investment in any
Person, directly or indirectly, other than through UIPI or UIH Europe, which
together will be required to hold, directly or indirectly, all Investments
made by the Company or any of its Restricted Subsidiaries after the date of
the Indenture. The Indenture also provides (i) that, except as permitted by
clause (v) of this paragraph, each of UIPI and UIH Europe will at all times
continue to be a direct Wholly-Owned Subsidiary of the Company and that the
Company will not have any other direct subsidiaries other than the Retained
Assets, (ii) that neither UIPI nor UIH Europe will (although their
Subsidiaries and Restricted Affiliates may, to the extent permitted by the
covenant described above under the caption "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock") incur any
Indebtedness, except intercompany Indebtedness from UIPI or UIH Europe to the
Company that is pledged pursuant to the Pledge Agreement, or issue any
preferred stock, (iii) that UIH Europe (or, if UIH Europe is merged into UIPI
as permitted by clause (v) of this paragraph, UIPI) will be the direct
beneficial and record owner or all of the
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Company's direct and indirect interests in UPC other than those interests held
or reserved to be held (as of the Issue Date) through the foundation
administering UPC's employee equity incentive plan, (iv) that neither UIPI nor
UIH Europe will incur or suffer to exist any Lien, other than Permitted Liens,
on any of its assets or property, and (v) that neither UIH Europe nor UIPI
will consolidate or merge with or into any other Person (other than each
other) after the date that no 1999 Note is outstanding and provided that the
Trustee for the benefit of the Holders of the Senior Notes has a perfected
security interest in all of the Collateral and no other Person has any Lien on
the Collateral not permitted by the covenant "Limitation on Liens."
Limitation on Sale of Assets and Subsidiary Stock
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, in one or a series of related transactions, convey, sell,
transfer, assign or otherwise dispose of, directly or indirectly, any of its
property, business or assets (other than cash or Cash Equivalents), including
by merger or consolidation (in the case of a Subsidiary of the Company), and
including any sale or other transfer or issuance of any Equity Interests of
any Subsidiary of the Company, whether by the Company or a Subsidiary of
either or through the issuance, sale or transfer of Equity Interests by a
Subsidiary of the Company, and including any sale and leaseback transaction
(any of the foregoing, an "Asset Sale"), unless (l)(a) within 360 days after
the date of such Asset Sale, the Net Cash Proceeds therefrom (the "Asset Sale
Offer Amount") are applied (i) to the optional redemption of the Senior Notes
in accordance with the terms of the Indenture and other Indebtedness of the
Company ranking on a parity with the Senior Notes with similar provisions
requiring the Company to make an offer to purchase or to redeem such
Indebtedness with the proceeds of such asset sale, pro rata in proportion to
the respective Accreted Value (or principal amount and accrued interest in the
case of Indebtedness without an original issue discount) of the Senior Notes
and such other Indebtedness then outstanding, (ii) to the repurchase of the
Senior Notes and such other Indebtedness ranking on a parity with the Senior
Notes and having similar provisions requiring the Company to make an offer to
purchase or to redeem such Indebtedness with the proceeds of such asset sale
pursuant to an irrevocable, unconditional cash offer (pro rata in proportion
to the respective Accreted Value (or principal amount and accrued interest in
the case of Indebtedness without an original issue discount) of the Senior
Notes and such other Indebtedness then outstanding) to repurchase the Senior
Notes and such other Indebtedness (the "Asset Sale Offer") at a purchase price
of 100% of Accreted Value (the "Asset Sale Offer Price"), together with
accrued interest and Liquidated Damages, if any, to the date of payment, made
within 360 days of such Asset Sale, or (iii) to the repayment of Indebtedness
issued by a Subsidiary of the Company (in respect of which Indebtedness the
Company is not a direct or contingent obligor) if required by the terms of
such Indebtedness, or (b) within 360 days following such Asset Sale, the Asset
Sale Offer Amount is invested in fixed assets and property which in the good
faith reasonable judgment of the Board of Directors of the Company will be an
asset of, and constitute or be a part of a Related Business of, the Company or
such Subsidiary (if it continues to be a Subsidiary) immediately following
such transaction or is used to make Permitted Investments (other than Cash
Equivalents), (2) at least 85% of the consideration for such Asset Sale or
series of related Asset Sales consists of Cash or Cash Equivalents, and (3)
the Board of Directors of the Company determines, in good faith, that the
Company or such Subsidiary, as applicable, receives fair market value for such
Asset Sale.
The Indenture provides that an acquisition of Senior Notes pursuant to an
Asset Sale Offer may be deferred until the accumulated Net Cash Proceeds from
Asset Sales not applied to the uses set forth in any of clauses (l)(a)(i),
l(a)(iii) or l(b) above (the "Excess Proceeds") exceeds $20 million, provided
that, in the case of an Asset Sale by a Subsidiary that is not a Wholly-Owned
Subsidiary, only the Company's pro rata portion of such Net Cash Proceeds
shall constitute Net Cash Proceeds subject to the provisions of this covenant.
Each Asset Sale Offer shall remain open for 20 Business Days following its
commencement (the "Asset Sale Offer Period"). Upon expiration of the Asset
Sale Offer Period, the Company shall apply the Asset Sale Offer Amount, plus
an amount equal to accrued interest and Liquidated Damages, if any, to the
purchase of all Senior Notes and, if applicable, such other Indebtedness
ranking on a parity with the Senior Notes and with provisions requiring the
Company to make an offer to purchase or redeem such Indebtedness with the
proceeds of such asset sale properly tendered (on a pro rata basis if the
Asset Sale Offer Amount is insufficient to purchase all Senior Notes so
tendered) at the Asset Sale Offer Price (together with accrued interest and
Liquidated Damages,
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if any). To the extent that the aggregate amount of Senior Notes tendered
pursuant to an Asset Sale Offer is less than the Asset Sale Offer Amount, the
Company may use any remaining Net Cash Proceeds for general corporate purposes
as otherwise permitted by the Indenture and following each Asset Sale Offer
the Excess Proceeds amount shall be reset to zero. For purposes of clause (2)
above, total consideration received means the total consideration received for
such Asset Sales, minus the amount of (a) Indebtedness (other than
Subordinated Indebtedness) assumed by a transferee of such Asset Sale, (b)
Purchase Money Indebtedness secured solely by the assets sold and repaid upon
such Asset Sale or assumed by a transferee of such Asset Sale and (c) property
that within 30 days of such Asset Sale is converted into Cash or Cash
Equivalents (to the extent of such cash or Cash Equivalents received),
provided that, with respect to this clause (c), such cash or Cash Equivalents
so received shall be deemed to have been received on the date of such Asset
Sale and shall be applied in the manner and within the time specified by this
covenant pertaining to the proceeds from such Asset Sale.
Notwithstanding, and without complying with, the foregoing provisions of the
other paragraphs of this covenant:
(i) the Company and its Subsidiaries may, in the ordinary course of
business, (A) convey, sell, transfer, assign or otherwise dispose of
inventory acquired and held for resale in the ordinary course of business
and (B) liquidate Cash Equivalents;
(ii) the Company and its Subsidiaries may convey, sell, transfer, assign
or otherwise dispose of assets pursuant to and in accordance with the
covenant "Limitation on Merger, Sale or Consolidation";
(iii) the Company and its Subsidiaries may sell or dispose of damaged,
worn out or other obsolete personal property in the ordinary course of
business so long as such property is no longer necessary for the proper
conduct of the business of the Company or such Subsidiary, as applicable;
(iv) the Company and its Subsidiaries may convey, sell, transfer, assign
or otherwise dispose of assets to the Company or any of its Subsidiaries or
Restricted Affiliates;
(v) the Company and each of its Subsidiaries may surrender or waive
contract rights or settle, release or surrender of contract, tort or other
claims of any kind or grant Liens not prohibited by the Indenture;
(vi) the Company and its Subsidiaries may exchange all or a portion of
its property, businesses or assets for Permitted Investments or for
property, businesses or assets of a type used in a Related Business, or a
combination of any such Permitted Investments, property, businesses or
assets; provided that any Cash or Cash Equivalents received pursuant to any
such exchange shall be applied in the manner applicable to Net Cash
Proceeds from an Asset Sale as set forth pursuant to the provisions of the
immediately preceding paragraphs of this covenant; and provided, further,
that, in the case of a transaction exceeding $15 million of consideration
to any party thereto, the Company shall have obtained a favorable written
opinion by an independent financial advisor of national reputation as to
the fairness from a financial point of view to the Company or such
Subsidiary of the proposed transaction.
All Net Cash Proceeds from an Event of Loss shall be invested or used to
repurchase Senior Notes, all within the period and as otherwise provided above
in clause (1) of the first paragraph of this covenant.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules and regulations, including, if applicable, Regulation 14E of the
Exchange Act and the rules and regulations thereunder and all other applicable
Federal and state securities laws. To the extent that the provisions of any
applicable laws, rules or regulations conflict with the provisions of this
covenant, compliance by the Company or any of its subsidiaries with such laws,
rules or regulations shall not in and of itself cause a breach of its
obligations under such covenant.
Limitation on Transactions with Affiliates
The Indenture provides that neither the Company nor any of its Subsidiaries
are permitted on or after the Issue Date to enter into any contract,
agreement, arrangement or transaction with any Affiliate of the Company (an
"Affiliate Transaction"), or any series of related Affiliate Transactions,
other than Exempted Affiliate
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Transactions, (i) unless it is determined by the Board of Directors as
evidenced by a Board Resolution, that the terms of such Affiliate Transaction
are fair and reasonable to the Company, and no less favorable to the Company,
than could have been obtained in an arm's length transaction with a non-
Affiliate, (ii) if involving consideration to either party in excess of $1
million, unless such Affiliate Transaction(s) is evidenced by an Officers'
Certificate addressed and delivered to the Trustee certifying that such
Affiliate Transaction(s) has been approved by a majority of the members of the
Board of Directors that are disinterested in such transaction and (iii) if
involving consideration to either party in excess of $10 million, unless, in
addition, the Company, prior to the consummation thereof, obtains a written
favorable opinion as to the fairness of such transaction to the Company from a
financial point of view from an independent investment banking firm of
national reputation in the United States or, if pertaining to a matter for
which such investment banking firms do not customarily render such opinions,
an appraisal or valuation firm of national reputation in the United States.
Limitation on Merger, Sale or Consolidation
The Indenture provides that the Company may not consolidate with or merge
with or into another Person or, directly or indirectly, sell, lease, convey or
transfer all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions,
to another Person or group of affiliated Persons or adopt a Plan of
Liquidation, unless (i) either (a) the Company is the continuing entity or (b)
the resulting, surviving or transferee entity or, in the case of a Plan of
Liquidation, the entity which receives the greatest value from such Plan of
Liquidation is a corporation organized under the laws of the United States,
any state thereof or the District of Columbia and expressly assumes by
supplemental indenture all of the obligations of the Company in connection
with the Senior Notes and the Indenture; (ii) no Default or Event of Default
shall exist or shall occur immediately after giving effect on a pro forma
basis to such transaction; and (iii) immediately after giving effect to such
transaction on a pro forma basis, the consolidated resulting, surviving or
transferee entity or, in the case of a Plan of Liquidation, the entity which
receives the greatest value from such Plan of Liquidation would immediately
thereafter have a Debt Incurrence Ratio (as though such entity were the
Company) no greater than the Company's Debt Incurrence Ratio immediately prior
to such transaction.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company or consummation of a Plan of Liquidation in
accordance with the foregoing, the successor corporation formed by such
consolidation or into which the Company is merged or to which such transfer is
made or, in the case of a Plan of Liquidation, the entity which receives the
greatest value from such Plan of Liquidation shall succeed to, and be (except
in the case of a lease) substituted for, and may exercise every right and
power of, the Company under the Indenture with the same effect as if such
successor corporation had been named therein as the Company, and (except in
the case of a lease) the Company shall be released from the obligations under
the Senior Notes and the Indenture except with respect to any obligations that
arise from, or are related to, such transaction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries or Restricted Affiliates, the Company's interest in which
constitutes all or substantially all of the properties and assets of the
Company shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
Limitation on Lines of Business
The Indenture provides that neither the Company nor any of its Subsidiaries
or Restricted Affiliates shall directly or indirectly engage to any
substantial extent in any line or lines of business activity other than that
which, in the reasonable good faith judgment of the Board of Directors of the
Company, is a Related Business.
Limitation on Status as Investment Company
The Indenture prohibits the Company and its Subsidiaries and Restricted
Affiliates from being required to register as an "investment company" (as that
term is defined in the Investment Company Act of 1940, as amended), or from
otherwise becoming subject to regulation under the Investment Company Act.
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REPORTS
The Indenture provides that whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall deliver to the Trustee and to each Holder, and to prospective purchasers
of Senior Notes identified to the Company by Holders, (i) within 15 days after
it is or would have been (if it were subject to such reporting obligations)
required to file such with the Commission, annual and quarterly financial
statements substantially equivalent to financial statements that would have
been included in reports filed with the Commission, if the Company were
subject to the requirements of Section 13 or 15(d) of the Exchange Act,
including, with respect to annual information only, a report thereon by the
Company's certified independent public accountants as such would be required
in such reports to the Commission, and, in each case, together with a
management's discussion and analysis of financial condition and results of
operations which would be so required and, unless the Commission will not
accept such copies, file with the Commission the annual, quarterly and other
reports which it is or would have been required to file with the Commission
and (ii) any other information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default in the payment of any installment of interest when due
and the continuance of such default for 30 days; (ii) default in the payment
when due of the principal, Accreted Value (as applicable), or premium of the
Senior Notes, at maturity, upon acceleration, repurchase or otherwise; (iii)
failure by the Company or any of its Subsidiaries or Restricted Affiliates to
comply with provisions described above under the captions "Repurchase of
Senior Notes at the Option of the Holder Upon a Change of Control,"
"Limitation on Sales of Assets," "Limitation on Restricted Payments,"
"Limitation on Incurrence of Indebtedness and Issuance of Disqualified Capital
Stock," "Limitation on Merger, Sale or Consolidation" or "Limitations on
Subsidiary Structure;" (iv) failure by the Company for 60 days after notice to
comply with any of its other agreements in the Indenture or the Senior Notes;
(v) default under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $10 million or more; (vi) failure by
the Company or any of its Subsidiaries to pay final judgments aggregating in
excess of $10 million, which judgments are not paid, discharged or stayed for
a period of 60 days; and (vii) certain events of bankruptcy or insolvency with
respect to the Company or any of its Significant Subsidiaries; and (viii)
breach by the Company of any material representation or warranty set forth in
the Pledge Agreement, or default by the Company in the performance of any
covenant set forth in the Pledge Agreement, or repudiation by the Company of
its obligations under the Pledge Agreement or the unenforceability of any
material provision of the Pledge Agreement for any reason.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (vii), above, relating to the Company or any of
its Significant Subsidiaries,) then in every such case, unless the principal
of all of the Senior Notes shall have already become due and payable, either
the Trustee or the Holders of at least 25% in aggregate principal amount of
the Senior Notes then outstanding, by notice in writing to the Company (and to
the Trustee if given by Holders) (an "Acceleration Notice"), may declare all
principal, determined as set forth below, and accrued interest and Liquidated
Damages, if any, thereon to be due and payable immediately. If an Event of
Default specified in clause (vii), above, relating to the Company or any of
its Significant Subsidiaries occurs, all principal and accrued interest and
Liquidated Damages, if any, thereon will be immediately due and payable on all
outstanding Senior Notes without any declaration or other act on the
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part of Trustee or the Holders. The Holders of a majority in aggregate
principal amount of Senior Notes generally are authorized to rescind such
acceleration if all existing Events of Default, other than the non-payment of
the principal of, premium, if any, interest and Liquidated Damages, if any,
which have become due solely by such acceleration and except on default with
respect to any provision requiring a supermajority approval to amend, which
default may only be waived by such a supermajority, and have been cured or
waived.
The Holders of a majority in aggregate principal amount of the Senior Notes
at the time outstanding may waive on behalf of all the Holders any default,
except a default with respect to any provision requiring a supermajority
approval to amend, which default may only be waived by such a supermajority,
and except a default in the payment of principal of or interest on any Senior
Note not yet cured or a default with respect to any covenant or provision
which cannot be modified or amended without the consent of the Holder of each
outstanding Senior Note affected. Subject to the provisions of the Indenture
relating to the duties of the Trustee, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request,
order or direction of any of the Holders, unless such Holders have offered to
the Trustee reasonable security or indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the Senior Notes at the time outstanding will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may, at its option and at any time
prior to the Stated Maturity of the Senior Notes, elect to have its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented, and the
Indenture and the Pledge Agreement shall cease to be of further effect as to
all outstanding Senior Notes, except as to (i) rights of Holders to receive
payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, when such payments are due from the trust funds;
(ii) the Company's obligations with respect to such Senior Notes concerning
issuing temporary Senior Notes, registration of Senior Notes, mutilated,
destroyed, lost or stolen Senior Notes, and the maintenance of an office or
agency for payment and money for security payments held in trust; (iii) the
rights, powers, trust, duties, and immunities of the Trustee, and the
Company's obligations in connection therewith; and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to have the obligations of the Company released with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Senior Notes.
In the event Covenant Defeasance occurs, certain events (not including non-
payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Senior Notes, U.S. legal tender, U.S. Government
Obligations or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on such
Senior Notes on the stated date for payment thereof or on the redemption date
of such principal or installment of principal of, premium, if any, or interest
on such Senior Notes, and the holders of Senior Notes must have a valid,
perfected, exclusive security interest in such trust; (ii) in the case of
Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by the Internal Revenue Service, a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of counsel
shall confirm that, the holders of such Senior Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance,
the Company shall have delivered to the Trustee an opinion of counsel in the
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United States reasonably acceptable to such Trustee confirming that the
holders of such Senior Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will
be subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance had
not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance shall not result in a breach or violation of, or
constitute a default under the Indenture or any other material agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company shall
have delivered to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the holders
of such Senior Notes over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company or others; and (vii) the Company shall have delivered to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
the conditions precedent provided for in, in the case of the officers'
certificate, (i) through (vi) and, in the case of the opinion of counsel,
clauses (i), (with respect to the validity and perfection of the security
interest) (ii), (iii) and (v) of this paragraph have been complied with.
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of premium, if any,
and interest on the Senior Notes when due, then the obligations of the Company
under the Indenture and the Pledge Agreement will be revived and no such
defeasance will be deemed to have occurred.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company and the Trustee to
enter into a supplemental indenture for certain limited purposes without the
consent of the Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Senior Notes at the time
outstanding, the Company and the Trustee are permitted to amend or supplement
the Indenture or any supplemental indenture or modify the rights of the
Holders; provided that no such modification may, without the consent of
holders of at least 66 2/3% in aggregate principal amount of Senior Notes at
the time outstanding, modify the provisions (including the defined terms used
therein) of the covenant "Repurchase of Senior Notes at the Option of the
Holder upon a Change of Control" or release any Collateral from the Lien
created by the Indenture for the benefit of the Holders of the Senior Notes or
otherwise modify the security and collateral provisions of the Senior Notes,
the Indenture, or the Pledge Agreement in a manner adverse to the holders and
provided further, that no such modification may, without the consent of each
Holder affected thereby: (i) change the Stated Maturity on any Senior Note, or
reduce the principal amount thereof or the rate of accretion (or extend the
time for payment of interest, if any) thereon or any premium payable upon the
redemption at the option of the Company thereof, or change the place of
payment where, or the coin or currency in which, any Senior Note or any
premium or the interest, of any, thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption at the option of the Company,
on or after the Redemption Date), or reduce the Change of Control Purchase
Price or the Asset Sale Offer Price or alter the provisions (including the
defined terms used therein) regarding the right of the Company to redeem the
Senior Notes in a manner adverse to the Holders, or (ii) reduce the percentage
in principal amount of the outstanding Senior Notes, the consent of whose
Holders is required for any such amendment, supplemental indenture or waiver
provided for in the Indenture, or (iii) modify any of the waiver provisions,
except to increase any required percentage or to provide that certain other
provisions of the Indenture cannot be modified or waived without the consent
of the Holder of each outstanding Senior Note affected thereby or (iv) cause
the Senior Notes to become subordinate in right of payment to any other
Indebtedness.
NO PERSONAL LIABILITY OF STOCKHOLDERS, EMPLOYEES, OFFICERS, DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company or any
successor entity shall have any personal liability in respect of the
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obligations of the Company under the Indenture or the Senior Notes solely by
reason of his or its status as such stockholder, employee, officer or
director.
CERTAIN DEFINITIONS
"Accreted Value" means, as of any date of determination, the sum (rounded to
the nearest whole dollar) of (a) the initial offering price of each $1,000 in
principal amount at maturity of Senior Notes and (b) the portion of the excess
of the principal amount of Senior Notes over such initial offering price which
shall have been accreted thereon through such date, such amount to be so
accreted on a daily basis at the rate of 10 3/4% per annum compounded semi-
annually on each February 15 and August 15 from the date of issuance of the
Senior Notes through the date of determination. On and after February 15,
2003, the Accreted Value of each Senior Note shall be equal to its principal
amount at maturity.
"Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock of
any Person existing at the time such Person becomes a Subsidiary or Restricted
Affiliate of the Company, including by designation, or is merged or
consolidated into or with the Company or one of its Subsidiaries or Restricted
Affiliates.
"Acquisition" means the purchase or other acquisition of any Person or all
or substantially all the assets of any Person by any other Person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"Affiliate" means any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a Person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by
contract, or otherwise, provided that, with respect to ownership interest in
the Company and its Subsidiaries, a Beneficial Owner of 10% or more of the
total voting power normally entitled to vote in the election of directors,
managers or trustees, as applicable, shall for such purposes be deemed to
constitute control.
"Annualized Consolidated EBITDA" means Consolidated EBITDA multiplied by
two.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of the
products (a) of the number of years from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of
such security or instrument and (b) the amount of each such respective
principal (or redemption) payment by (ii) the sum of all such principal (or
redemption) payments.
"Beneficial Owner" or "beneficial owner" for purposes of the definition of
Change of Control and Affiliate has the meaning attributed to it in Rules 13d-
3 and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether
or not applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time.
"Board of Directors" or "Board" means, with respect to any Person, the board
of directors of such Person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the
power of the board of directors of such Person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this
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definition, the amount of such obligations at any date shall be the
capitalized amount of such obligations at such date, determined in accordance
with GAAP.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participation or other equivalents of or interests (however designated) in
stock issued by that corporation.
"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation
of any domestic commercial bank of recognized standing having capital and
surplus in excess of $500 million, (iii) commercial paper issued by others
rated at least A-2 or the equivalent thereof by Standard & Poor's Corporation
or at least P-2 or the equivalent thereof by Moody's Investors Service, Inc.,
and in the case of each of (i), (ii), and (iii) maturing within one year after
the date of acquisition, and (iv) Eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any domestic commercial bank having capital and surplus in excess of $500
million and a Keefe Bank Watch Rating of "B" or better, provided that with
respect to any Non-Domestic Person, Cash Equivalents shall also mean those
investments that are comparable to clauses (ii) and (iv) above in such
Person's country of organization or country where it conducts business
operations.
"Consolidated Cash Flow Ratio" of any Person on any date of determination
(the "Transaction Date") means the ratio, on a pro forma basis, of (a)
Consolidated Debt of such Person on the Transaction Date to (b) the aggregate
amount of Annualized Consolidated EBITDA of such Person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period; provided that for purposes of such calculation, (i)
Acquisitions which occurred during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date shall be assumed to
have occurred on the first day of the Reference Period, (ii) transactions
giving rise to the need to calculate the Consolidated Cash Flow Ratio shall be
assumed to have occurred on the first day of the Reference Period, and (iii)
the incurrence of any Indebtedness or issuance of any Disqualified Capital
Stock during the Reference Period or subsequent to the Reference Period and on
or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall
be assumed to have occurred on the first day of the Reference Period.
"Consolidated Coverage Ratio" of any Person on any date of determination
(the "Transaction Date") means the ratio, on a pro forma basis, of (a) the
aggregate amount of Consolidated EBITDA of such Person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to (b) the aggregate Consolidated Fixed Charges of such
Person (exclusive of amounts attributable to operations and businesses
permanently discontinued or disposed of, but only to the extent that the
obligations giving rise to such Consolidated Fixed Charges would no longer be
obligations contributing to such Person's Consolidated Fixed Charges
subsequent to the Transaction Date) during the Reference Period; provided that
for purposes of such calculation, (i) Acquisitions which occurred during the
Reference Period or subsequent to the Reference Period and on or prior to the
Transaction Date shall be assumed to have occurred on the first day of the
Reference Period, (ii) transactions giving rise to the need to calculate the
Consolidated Coverage Ratio shall be assumed to have occurred on the first day
of the Reference Period, (iii) the incurrence of any Indebtedness or issuance
of any Disqualified Capital Stock during the Reference Period or subsequent to
the Reference Period and on or prior to the Transaction Date (and the
application of the proceeds therefrom to the extent used to refinance or
retire other Indebtedness) shall be assumed to have occurred on the first day
of such Reference Period, and (iv) the Consolidated Fixed Charges of such
Person attributable to interest on any Indebtedness or dividends on any
Disqualified Capital Stock bearing a floating interest (or dividend) rate
shall be computed on a pro forma basis as if the average rate in effect from
the beginning of the Reference Period to the Transaction Date had been the
applicable rate for the entire period, unless such Person or any of its
Subsidiaries is a party to an Interest Swap
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or Hedging Obligation (which shall remain in effect for the 12-month period
immediately following the Transaction Date) that has the effect of fixing the
interest rate on the date of computation, in which case such rate (whether
higher or lower) shall be used.
"Consolidated Debt" means, with respect to any Person as of any date of
determination, the aggregate amount of Indebtedness and Disqualified Capital
Stock of such Person and its Subsidiaries outstanding as of such date of
determination, determined on a consolidated basis in accordance with GAAP.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
Consolidated Net Income of such Person for such period adjusted to add thereto
(to the extent deducted from net revenues in determining Consolidated Net
Income), without duplication, the sum of (i) Consolidated income tax expense,
(ii) Consolidated depreciation and amortization expense, and (iii)
Consolidated Fixed Charges, less the amount of all cash payments made by such
Person or any of its Subsidiaries during such period to the extent such
payments relate to non-cash charges that were added back in determining
Consolidated EBITDA for such period or any prior period.
"Consolidated Fixed Charges" of any Person means, for any period, the
aggregate amount (without duplication and determined in each case in
accordance with GAAP) of (a) interest expensed or capitalized, paid, accrued,
or scheduled to be paid or accrued (including, in accordance with the
following sentence, interest attributable to Capitalized Lease Obligations) of
such Person and its Consolidated Subsidiaries during such period, including
(i) original issue discount and non-cash interest payments or accruals on any
Indebtedness, (ii) the interest portion of all deferred payment obligations,
and (iii) all commissions, discounts and other fees and charges owed with
respect to bankers' acceptances and letters of credit financings and currency
and Interest Swap and Hedging Obligations, in each case to the extent
attributable to such period and (b) the amount of dividends accrued or payable
(or guaranteed) by such Person or any of its Consolidated Subsidiaries in
respect of Preferred Stock (other than by Subsidiaries of such Person to such
Person or such Person's Wholly Owned Subsidiaries). For purposes of this
definition, (x) interest on a Capitalized Lease Obligation shall be deemed to
accrue at an interest rate reasonably determined in good faith by the Company
to be the rate of interest implicit in such Capitalized Lease Obligation in
accordance with GAAP and (y) interest expense attributable to any Indebtedness
represented by the guaranty by such Person or a Subsidiary of such Person of
an obligation of another Person shall be deemed to be the interest expense
attributable to the Indebtedness guaranteed.
"Consolidated Invested Equity Capital" means, with respect to any Person as
of any date, the sum of the Invested Equity Capital of such Person as of such
date and, without duplication, the Invested Equity Capital of each of its
Subsidiaries and Restricted Affiliates as of such date. For purposes of
calculating the Consolidated Invested Equity Capital of any Person as of any
date, in order to avoid duplication, the Invested Equity Capital of a
Subsidiary or Restricted Affiliate of such Person shall not include any
amounts that would be included in the Consolidated Invested Equity Capital of
any equity owner of such Subsidiary or Restricted Affiliate, to the extent
that such amounts were utilized by such equity owner prior to such date to
permit the incurrence of Indebtedness pursuant to clause (ii)(3) of the first
paragraph of the covenant entitled "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock." For example, if a direct
Subsidiary of the Company has Consolidated Invested Equity Capital of $100 and
incurs $225 of such Indebtedness, then a direct or indirect Subsidiary (or a
Restricted Affiliate) of such Subsidiary will not be deemed to have any
Invested Equity Capital based on contributions or loans to it by such first
Subsidiary. In addition, the Invested Equity Capital of a Subsidiary or
Restricted Affiliate of a Person will never be considered to be greater than
the Invested Equity Capital of such Person, except as a result of
contributions of Invested Equity Capital to such Subsidiary or Restricted
Affiliate by third parties.
"Consolidated Net Income" means, with respect to any Person for any period,
the net income (or loss) of such Person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication): (a) all gains (but not losses) which are
either extraordinary (as determined in accordance with GAAP) or are
nonrecurring (including any gain from the sale or other disposition of assets
outside the
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ordinary course of business or from the issuance or sale of any capital
stock), (b) the net income, if positive, of any Person, other than a
Consolidated Subsidiary, in which such Person or any of its Consolidated
Subsidiaries has an interest, except to the extent of the amount of any
dividends or distributions actually paid in cash to such Person or a
Consolidated Subsidiary of such Person during such period, but in any case not
in excess of such Person's pro rata share of such Person's net income for such
period, (c) the net income or loss of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition,
(d) the net income, if positive, of any of such Person's Consolidated
Subsidiaries to the extent that the declaration or payment of dividends or
similar distributions is not at the time permitted by operation of the terms
of its charter or bylaws or any other agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such
Consolidated Subsidiary other than the Indenture.
"Consolidated Subsidiary" means, for any Person, each Subsidiary of such
Person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting
purposes with the financial statements of such Person in accordance with GAAP.
"Consolidation" means, with respect to any Person, the consolidation of the
accounts of the Subsidiaries of such Person with those of such Person, all in
accordance with GAAP; provided that "consolidation" will not include
consolidation of the accounts of any other Person other than a Subsidiary of
such Person with such Person. The term "Consolidated or Consolidated" has a
correlative meaning to the foregoing.
"Disqualified Capital Stock" means (a) except as set forth in (b), with
respect to any Person, Equity Interests of such Person that, by its terms or
by the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time or
both would be, required to be redeemed or repurchased (including at the option
of the holder thereof) by such Person or any of its Subsidiaries, in whole or
in part, on or prior to 91 days following the Stated Maturity of the Senior
Notes and (b) with respect to any Subsidiary or Restricted Affiliate of the
Company, any Equity Interests of such Subsidiary or Restricted Affiliate other
than (i) any common equity with no preference, privileges, or redemption or
repayment provisions or (ii) preferred stock convertible into such common
equity of such Subsidiary or Restricted Affiliate with no payment of dividends
or liquidation preference due or payable thereon on or prior to 91 days
following the Stated Maturity of the Senior Notes and the proceeds of which
are used directly or indirectly in the business of such Subsidiary or
Restricted Affiliate.
"Equity Interest" of any Person means any shares, interests, participation
or other equivalents (however designated) in such Person's equity, and shall
in any event include any Capital Stock issued by, or partnership or membership
interests in, such Person.
"Event of Loss" means, with respect to any property or asset, any (i) loss,
destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"Exempted Affiliate Transaction" means (i) Restricted Payments comprised of
pro rata dividends paid in cash on any class of Capital Stock and made in
compliance with the Indenture, (ii) transactions, at arms-length and as so set
forth in a Board Resolution, between or among holders of any Equity Interest
of any Subsidiary of the Company and such Subsidiary, so long as such holder
is not otherwise an Affiliate of the Company, (iii) transactions between or
among the Company, and its Subsidiaries and Restricted Affiliates, and (iv)
the Company or any of its Subsidiaries entering into or performing any
employment agreement, stock option agreement or other agreement relating to
the terms of employment, compensation or termination of employment in the
ordinary course of business and consistent with the past practice of the
Company or such Subsidiary.
"Existing Agreements" means (i) any and all instruments, as in effect on the
Issue Date, between the Company or any of its Subsidiaries or Restricted
Affiliates and a commercial lending institution or institutions, which makes
borrowing of funds available to the Company or any such Subsidiary or
Restricted Affiliate from such institution or institutions, and shall include
the Sun Cable Facility with terms substantially similar to those
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described in "Description of Other Indebtedness--UAP and Affiliates--Sun
Cable," and (ii) any replacements of the instruments in clause (i) entered
into by the respective Subsidiary or Restricted Affiliate that was party to
the instrument so replaced or their respective successors and a commercial
lending institution or institutions for an amount up to the maximum amount of
the instrument so replaced.
"Fair Market Value" means, with respect to any asset or property, the price
which would be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States as in effect on the Issue Date.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness. The amount of any Guarantee shall be equal to the maximum
potential liability in respect of the Guarantee, even if less than the
Indebtedness supported by such Guarantee.
"Indebtedness" of any Person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of such Person, to the extent such
liabilities and obligations would appear as a liability upon the consolidated
balance sheet of such Person in accordance with GAAP, (i) in respect of
borrowed money (whether or not the recourse of the lender is to the whole of
the assets of such Person or only to a portion thereof), (ii) evidenced by
bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except (other than accounts payable or other obligations to trade creditors
which have remained unpaid for greater than 60 days past their original due
date) those incurred in the ordinary course of its business that would
constitute ordinarily a trade payable to trade creditors; (b) all liabilities
and obligations, contingent or otherwise, of such Persons (iv) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (v)
relating to any Capitalized Lease Obligation, or (vi) evidenced by a letter of
credit or a reimbursement obligation of such Person with respect to any letter
of credit (other than obligations with respect to letters of credit securing
obligations (other than obligations described in (i) through (iii) above)
entered into in the ordinary course of business of such Person to the extent
such letters of credit are not drawn upon); (c) all net obligations of such
Person under Interest Swap and Hedging Obligations; (d) all liabilities and
obligations of others of the kind described in the preceding clause (a), (b)
or (c) that such Person has guaranteed or that is otherwise its legal
liability or which are secured by any assets or property of such Person; (e)
any and all deferrals, renewals, extensions, refinancing and refundings
(whether direct or indirect) of, or amendments, modifications or supplements
to, any liability of the kind described in any of the preceding clauses (a),
(b), (c) or (d), or this clause (e), whether or not between or among the same
parties; and (f) all Disqualified Capital Stock of such Person (measured at
the greater of its voluntary or involuntary maximum fixed repurchase price
plus accrued and unpaid dividends). For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of
such Disqualified Capital Stock as if such Disqualified Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by,
the Fair Market Value of such Disqualified Capital Stock, such Fair Market
Value to be determined in good faith by the Board of Directors of the Company.
"Interest Swap and Hedging Obligation" means any obligation of any Person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such Person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or
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floating rate of interest on a stated notional amount in exchange for periodic
payments made by such Person calculated by applying a fixed or floating rate
of interest on the same notional amount.
"Invested Equity Capital" means, with respect to any Person as of any date,
without duplication, the sum of (i) the total dollar amount contributed in
cash plus the value of all property contributed (valued at Fair Market Value
at the time of contribution, determined in good faith by the Board of
Directors) to such Person since the date of its creation in the form of common
equity, plus, (ii) the total dollar amount contributed in cash plus the value
of all property contributed (valued at Fair Market Value at the time of
contribution, determined in good faith by the Board of Directors) to such
Person since the date of creation by the holders of its common equity (and
their Affiliates) in consideration of the issuance of preferred equity or
Indebtedness, on a basis that is substantially proportionate to their common
equity interests (with any disproportionately large equity interests received
by the Company, a Restricted Affiliate, or a Subsidiary relative to their
respective contributions being ignored for this purpose), plus, (iii) the
total dollar amount contributed in cash plus the value of all property
contributed (valued at Fair Market Value at the time of contribution,
determined in good faith by the Board of Directors) to such Person since the
date of its creation by the Company or a Wholly Owned Subsidiary of the
Company in consideration of the issuance of preferred equity or Indebtedness,
less (iv) the value of all interest, returns in respect of Indebtedness,
dividends and other distributions (in whatever form and however designated,
valued at Fair Market Value as determined in good faith by the Board of
Directors) made by such Person since the date of its creation to the holders
of its common equity (and their Affiliates), provided that in no event shall
the aggregate amount of interest, dividends and other distributions made to
any holder of common equity of a Person (or its Affiliates) operate to reduce
the Invested Equity Capital of such Person by more than the total
contributions to such Person (per clauses (i) through (iii) above) by such
equity holder (and its Affiliates) and less (v) the total amount of
Investments (measured as of the date made but without giving effect to any
proration) made by such Person pursuant to clause (e) of the definition
Permitted Investments since the date of the Indenture that are outstanding as
of such date.
"Investment" by any Person in any other Person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise)
by such Person (whether for cash, property, services, securities or otherwise)
of capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such
other Person or any agreement to make any such acquisition; (b) the making by
such Person of any deposit with, or advance, loan or other extension of credit
to, such other Person (including the purchase of property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such other Person) or any commitment to make any such
advance, loan or extension (but excluding accounts receivable, endorsements
for collection or deposits arising in the ordinary course of business); (c)
other than guarantees of Indebtedness, of the Company or any Subsidiary to the
extent permitted by the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," or the definition of Permitted
Indebtedness the entering into by such Person of any guarantee of, or other
credit support or contingent obligation with respect to, Indebtedness or other
liability of such other Person; (d) the making of any capital contribution by
such Person to such other Person; and (e) the designation by the Board of
Directors of the Company of any Person to be an Unrestricted Subsidiary or no
longer to be a Restricted Affiliate (and not thence to be a Subsidiary). The
Company shall be deemed to make an Investment in an amount equal to the Fair
Market Value of its Pro Rata Share of any Subsidiary or Restricted Affiliate
(or, if neither the Company nor any of its Subsidiaries has therefore made an
Investment in such subsidiary or affiliate, in an amount equal to its Pro Rata
Share of the Investments being made), at the time that such Subsidiary or
Restricted Affiliate is designated an Unrestricted Subsidiary or no longer to
be a Restricted Affiliate (and not thence to be a Subsidiary). Any property
transferred to an Unrestricted Subsidiary or such other Person from the
Company and the Company's Pro Rata Share of the property transferred by a
Subsidiary or Restricted Affiliate of the Company to such Person shall be
deemed an Investment valued at its Fair Market Value at the time of such
transfer.
"Issue Date" means the date of first issuance of the Senior Notes under the
Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable,
now owned or hereafter acquired.
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"Liquidated Damages" shall have the meaning set forth in the Registration
Rights Agreement.
"Net Cash Proceeds" means the aggregate amount of Cash or Cash Equivalents
received by the Company in the case of a sale of Qualified Capital Stock and
by the Company and its Subsidiaries in respect of an Asset Sale plus, in the
case of an issuance of Qualified Capital Stock upon any exercise, exchange or
conversion of securities (including options, warrants, rights and convertible
or exchangeable debt) of the Company that were issued for cash on or after the
Issue Date, the amount of cash originally received by the Company upon the
issuance of such securities (including options, warrants, rights and
convertible or exchangeable debt) less, in each case, the sum of all payments,
fees, commissions and (in the case of Asset Sales, reasonable and customary)
expenses (including, without limitation, the fees and expenses of legal
counsel and investment banking fees and expenses) incurred in connection with
such Asset Sale or sale of Qualified Capital Stock, and, in the case of an
Asset Sale only, less the amount (estimated reasonably and in good faith by
the Company) of income, franchise, sales and other applicable taxes required
to be paid by the Company or any of its respective Subsidiaries in connection
with such Asset Sale.
"Permitted Indebtedness" means any of the following:
(a) that the Company may incur Indebtedness whose terms are governed by
the Indenture up to the amounts specified therein as of the date thereof;
(b) that the Company and the Subsidiaries and Restricted Affiliates, as
applicable, may incur Refinancing Indebtedness with respect to any
Indebtedness or Disqualified Capital Stock, as applicable, described in
clause (a) of this definition, incurred pursuant to the second sentence or
clauses (b) or (c), of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," or which is outstanding on
the Issue Date;
(c) the Company and the Subsidiaries and Restricted Affiliates may incur
Indebtedness solely in respect of bankers acceptances, letters of credit
and performance bonds (to the extent that such incurrence does not result
in the incurrence of any obligation to repay any obligation relating to
borrowed money of others), all in the ordinary course of business in
accordance with customary industry practices, in amounts and for the
purposes customary in the Company's industry;
(d) the Company may incur Indebtedness to any Subsidiary or Restricted
Affiliate, and any Subsidiary or Restricted Affiliate of the Company may
incur Indebtedness to any other Subsidiary or Restricted Affiliate of the
Company, or to the Company; provided that, in the case of Indebtedness of
the Company, such obligations shall be unsecured and subordinated in all
respects to the Company's obligations pursuant to the Senior Notes and the
date of any event that causes such Subsidiary or Restricted Affiliate no
longer to be a Subsidiary or Restricted Affiliate shall be an Incurrence
Date;
(e) issuances of preferred stock or Indebtedness by a Subsidiary or a
Restricted Affiliate of the Company to the holders (or their Affiliates) of
the common equity of such Subsidiary or Restricted Affiliate on a basis
that is substantially proportionate to their common equity interests (with
any disproportionately large equity interests received by the Company, a
Subsidiary of the Company or a Restricted Affiliate of the Company relative
to their respective contributions being ignored for this purpose); and
(f) Guarantees by the Company or a Subsidiary of the Company of up to $15
million in principal amount of Indebtedness of the Company's Subsidiaries
or Restricted Affiliates at any one time outstanding and related accrued
interest.
"Permitted Investment" means Investments in (a) any of the Senior Notes; (b)
Cash Equivalents; (c) intercompany notes to the extent permitted under clause
(d) of the definition of "Permitted Indebtedness," (d) Investments in any
Person if as a result of such Investment such Person becomes a Subsidiary or
Restricted Affiliate of the Company or is merged with or into Company or a
Subsidiary or Restricted Affiliate of the Company, so long as the surviving
entity is the Company or a Subsidiary or Restricted Affiliate of the Company
and (e) other Investments, provided that, after giving pro forma effect to
each such Investment, the aggregate amount of all such Investments made on and
after the Issue Date that are outstanding (after giving effect to any
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such Investments that are returned to the Company or the Subsidiary or
Restricted Affiliate that made such prior Investment, without restriction, in
cash on or prior to the date of any such calculation) at any time does not
exceed the sum of (i) $100 million, plus (ii) the Net Cash Proceeds received
by the Company from the sale (other than (A) to any Subsidiary or Restricted
Affiliate of the Company, (B) to the extent used to effect a Qualified
Exchange, or (C) to make Restricted Payments) of its Qualified Capital Stock
after the Issue Date, minus (iii) the amount of any payments made (other than
pursuant to a Qualified Exchange) in connection with the retirement of the
Series A Convertible Preferred Stock, plus (iv) net proceeds received from The
Wharf (Holdings) Limited ("Wharf Holdings") or any of its affiliates due to
the wrongful acts, as determined in a final judgement of a court of competent
jurisdiction, or pursuant to a contractual settlement of claims, in either
case no longer subject to appeal or review, of Wharf Holdings or any of its
affiliates, and plus (v) to the extent that any Unrestricted Subsidiary or
Affiliate is properly designated as a Subsidiary or Restricted Affiliate in
accordance with the terms of the Indenture, an amount equal to the Fair Market
Value of the Company's Pro Rata Share of such properly designated Subsidiary
or Restricted Affiliate. For purposes of clause (e), the amount of an
Investment made by a Subsidiary, other than a Wholly-Owned Subsidiary, or a
Restricted Affiliate, shall be deemed to equal the total amount of such
Investment multiplied by the Company's Pro Rata Share in such Person making
the Investment.
"Permitted Lien" means (a) Liens existing on the Issue Date; (b) Liens
imposed by governmental authorities for taxes, assessments or other charges
not yet subject to penalty or which are being contested in good faith and by
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the company in accordance with GAAP; (c) statutory
liens of carriers, warehousemen, mechanics, materialmen, landlords, repairmen
or other like Liens arising by operation of law in the ordinary course of
business provided that (i) the underlying obligations are not overdue for a
period of more than 30 days, or (ii) such Liens are being contested in good
faith and by appropriate proceedings and adequate reserves with respect
thereto are maintained on the books of the Company in accordance with GAAP;
(d) Liens securing the performance of bids, trade contracts (other than
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business; (e) easements, rights-of-way, zoning, similar
restrictions and other similar encumbrances or title defects which, singly or
in the aggregate, do not in any case materially detract from the value of the
property, subject thereto (as such property is used by the Company or any of
its Subsidiaries) or interfere with the ordinary conduct of the business of
the Company or any of its Subsidiaries; (f) Liens arising by operation of law
in connection with judgments, only to the extent, for an amount and for a
period not resulting in an Event of Default with respect thereto; (g) pledges
or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security legislation; (h) leases or subleases granted to other Persons in the
ordinary course of business not materially interfering with the conduct of the
business of the Company or any of its Subsidiaries or materially detracting
from the value of the relative assets of the Company or any Subsidiary; and
(i) Liens arising from precautionary Uniform Commercial Code financing
statement filings regarding operating leases entered into by the Company or
any of its Subsidiaries in the ordinary course of business.
"Pro Rata Share" means that portion of an Investment that corresponds to the
Company's direct or indirect percentage interest in the profits of the Person
in whom such Investment was made or, in the case of a transfer of property,
the direct or indirect percentage interest in the profits of the Person making
such Investment (which would be 100% in the case of any Investments made by
the Company directly). The Pro Rata Share of an Investment as of any date
shall be determined in good faith by the Company's Board of Directors.
"Public Equity Offering" means a primary underwritten public offering and
sale, after the Issue Date, of Qualified Capital Stock of the Company
registered pursuant to the Securities Act for Net Cash Proceeds (after
commissions, discounts, fees and expenses) to the Company of at least $20
million.
"Purchase Money Indebtedness" means any Indebtedness of such Person to any
seller or other Person incurred solely to finance the acquisition (including
in the case of a Capitalized Lease Obligation, the lease) of any after-
acquired real or personal tangible property which, in the reasonable good
faith judgment of the Board
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of Directors of the Company, is directly related to a Related Business of such
Person and which is incurred concurrently with such acquisition and is secured
only by the assets so financed.
"Qualified Capital Stock" means any Equity Interest of the Company that is
not Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness (in the case
of such Indebtedness, that was issued on or after the Issue Date) of the
Company with the Net Cash Proceeds received by the Company from the
substantially concurrent sale of Qualified Capital Stock or any exchange of
Qualified Capital Stock for any Capital Stock or Indebtedness of the Company
issued on or after the Issue Date.
"Reference Period" with regard to any Person means the two full fiscal
quarters (or such lesser period during which such Person has been in
existence) ended immediately preceding any date upon which any determination
is to be made pursuant to the terms of the Senior Notes or the Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or
(b) constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount (or, if
issued with an original issue discount, an original accreted value, determined
in accordance with GAAP) or, in the case of Disqualified Capital Stock,
liquidation preference, not to exceed (after deduction of reasonable and
customary fees and expenses incurred in connection with the Refinancing and
the payment of any premium in accordance with the terms of the Indebtedness or
Disqualified Capital Stock being refinanced, without regard to any
modification thereof made in connection with or in contemplation of such
refinancing) the lesser of (i) the principal amount or, in the case of
Disqualified Capital Stock, liquidation preference, of the Indebtedness or
Disqualified Capital Stock so Refinanced and (ii) if such Indebtedness being
Refinanced was issued with an original issue discount, the accreted value
thereof (as determined in accordance with GAAP) at the time of such
Refinancing; provided that (A) such Refinancing Indebtedness of any Subsidiary
or Restricted Affiliate of the Company shall only be used to Refinance
outstanding Indebtedness or Disqualified Capital Stock, as the case may be, of
such Subsidiary or Restricted Affiliate, (B) such Refinancing Indebtedness
shall (x) not have an Average Life shorter than the Indebtedness or
Disqualified Capital Stock to be so refinanced at the time of such Refinancing
and (y) in all respects, be no less subordinated or junior, if applicable, to
the rights of Holders of the Senior Notes than was the Indebtedness or
Disqualified Capital Stock to be refinanced and (C) such Refinancing
Indebtedness shall have a final installment of principal (or redemption
payment) scheduled to come due no earlier than the final scheduled maturity of
the Indebtedness or Disqualified Capital Stock to be so refinanced.
"Related Business" means any business in which the Company, its Subsidiaries
or affiliated companies are engaged, as of the date of the Indenture or,
directly or indirectly, (i) that consists primarily of, or is related to,
operating, acquiring, developing and constructing multi-channel television
systems, programming services, wire-based or "wireless" telephony services and
related services, (ii) that uses existing or future technology for the
transmission and delivery of programming, voice or other data or (iii) that
supports or is incidental to any business listed in clause (i) or (ii).
"Restricted Affiliate" means any Person that has been designated in a Board
Resolution as a Restricted Affiliate based on a determination by the Board of
Directors that the Company has, directly or indirectly, the requisite control
over such Person to prevent it from incurring any Indebtedness, issuing any
preferred stock, making any dividend, distribution, repurchase, retirement, or
payment with respect to its Capital Stock (except on a pro rata basis with
respect to all holders of its Capital Stock), or otherwise taking any action
at any time in contravention of any of the provisions of the Indenture
described above under the captions "Limitation on Incurrence of Indebtedness
and Issuance of Disqualified Capital Stock," "Limitation on Restricted
Payments" and "Limitations on Subsidiary Structure" that are applicable to
Restricted Affiliates. The Company will be required to deliver an Officers'
Certificate to the Trustee, including a copy of the Board Resolution, upon
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designating any Person as a Restricted Affiliate. The Board of Directors may
designate a Restricted Affiliate no longer to be a Restricted Affiliate,
provided that no Default or Event of Default will occur as a consequence
thereof and that such redesignation shall be an Investment treated as having
been made as set forth in the last sentence of the definition of "Investment."
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than Permitted Investments.
"Restricted Payment" means, with respect to any Person, (a) the declaration
or payment of any dividend or other distribution in respect of Equity
Interests of such Person or any parent or Subsidiary or Restricted Affiliate
of such Person, (b) any payment on account of the purchase, redemption or
other acquisition or retirement for value of Equity Interests of such Person
or any Subsidiary or Restricted Affiliate or parent of such Person, (c) other
than with the proceeds from the substantially concurrent sale of, or in
exchange for, Refinancing Indebtedness any purchase, redemption, or other
acquisition or retirement for value of, any payment in respect of any
amendment of the terms of or any defeasance of, any Subordinated Indebtedness,
directly or indirectly, by such Person or a parent or Subsidiary or Restricted
Affiliate of such Person prior to the scheduled maturity, any scheduled
repayment of principal, or scheduled sinking fund payment, as the case may be,
of such Indebtedness and (d) any Restricted Investment by such Person;
provided, however, that the term "Restricted Payment" does not include (i) any
dividend, distribution or other payment on or with respect to Equity Interests
of an issuer to the extent payable solely in shares of Qualified Capital Stock
of such issuer, or (ii) any dividend, distribution or other payment to, or
Investment in, the Company or any of its Subsidiaries or Restricted Affiliates
by the Company or any of its Subsidiaries or Restricted Affiliates.
"Retained Assets" means the Company's ownership and other interests in the
Persons that comprise the Teleport St. Petersburg operating company.
"Series A Convertible Preferred Stock" means the 170,513 shares of the
Company's Series A Convertible Preferred Stock outstanding on the Issue Date.
"Significant Subsidiary" shall have the meaning provided under Regulation S-
X of the Securities Act, as in effect on the Issue Date.
"Stated Maturity," when used with respect to any Senior Note, means February
15, 2008.
"Subordinated Indebtedness" means Indebtedness of the Company that is
subordinated in right of payment by its terms or the terms of any document or
instrument or instrument relating thereto to the Senior Notes, in any respect
or has a stated maturity on (except for the Senior Notes and any other
Indebtedness incurred pursuant to clause (b) of the second paragraph of the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock") or after the Stated Maturity.
"Subsidiary," with respect to any Person, means (i) a corporation a majority
of whose Equity Interests with voting power, under ordinary circumstances, to
elect directors is at the time, directly or indirectly, owned by such Person,
by such Person and one or more Subsidiaries of such Person or by one or more
Subsidiaries of such Person, (ii) any other Person (other than a corporation)
in which such Person, one or more Subsidiaries of such Person, or such Person
and one or more Subsidiaries of such Person, directly or indirectly, at the
date of determination thereof has at least majority ownership interest, or
(iii) a partnership in which such Person or a Subsidiary of such Person is, at
the time, the managing general partner. Notwithstanding the foregoing, an
Unrestricted Subsidiary shall not be a Subsidiary of the Company or of any
Subsidiary of the Company. Unless the context requires otherwise, Subsidiary
means each direct and indirect Subsidiary of the Company.
"Unrestricted Subsidiary" means (a) those subsidiaries of the Company listed
on Annex B attached hereto, and (b) any subsidiary of the Company that does
not own any Equity Interests of, or own or hold any Lien on any property of,
the Company or any other Subsidiary of the Company and that is designated as
an Unrestricted
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Subsidiary by the Board of Directors of the Company; provided that (i) such
subsidiary shall not engage, to any substantial extent, in any line or lines
of business activity other than a Related Business, and (ii) after giving pro
forma effect to such designation would there exist a Default or Event of
Default. The Board of Directors of the Company may designate any Unrestricted
Subsidiary to be a Subsidiary, provided, that no Default or Event of Default
will occur as a consequence thereof. Each such designation shall be evidenced
by filing with the Trustee a certified copy of the resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
"U.S. Government Obligations" means direct non-callable obligations of, or
noncallable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"Wholly-Owned Subsidiary" means a Subsidiary at least 99% of the Equity
Interests of which are owned by the Company or one or more Wholly Owned
Subsidiaries of the Company.
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The Senior Notes sold to Qualified Institutional Buyers initially were in
the form of registered global notes without interest coupons (collectively,
the "U.S. Global Notes"). Upon issuance, the U.S. Global Notes were deposited
with the Trustee, as custodian for The Depository Trust Company ("DTC"), in
New York, New York, and registered in the name of DTC or its nominee, in each
case for credit to the accounts of DTC's Direct and Indirect Participants (as
defined below). The Senior Notes being offered and sold in offshore
transactions in reliance on Regulation S initially were in the form of one or
more temporary, registered, global book-entry notes without interest coupons
(the "Reg S Temporary Global Notes"). The Reg S Temporary Global Notes will be
deposited with the Trustee, as custodian for the DTC, in New York, New York,
and registered in the name of a nominee of DTC (a "Nominee") for credit to the
accounts of Indirect Participants at the Euroclear System ("Euroclear") and
Cedel Bank, societe anonyme ("CEDEL"). During the 40-day period commencing on
the day after the later of the date hereof and the original Issue Date (as
defined) of the Senior Notes (the "40-Day Restricted Period"), beneficial
interests in the Reg S Temporary Global Note may be held only through
Euroclear or CEDEL, and, pursuant to DTC's procedures, Indirect Participants
that hold a beneficial interest in the Reg S Temporary Global Note will not be
able to transfer such interest to a person that takes delivery thereof in the
form of an interest in the U.S. Global Notes. Within a reasonable time after
the expiration of the 40-Day Restricted Period, the Reg S Temporary Global
Notes will be exchanged for one or more permanent global notes (the "Reg S
Permanent Global Notes"; collectively with the Reg S Temporary Global Notes,
the "Reg S Global Notes") upon delivery to DTC of certification of compliance
with the transfer restrictions applicable to the Senior Notes and pursuant to
Regulation S as provided in the Indenture. After the 40 Day Restricted Period,
(i) beneficial interests in the Reg S Permanent Global Notes may be
transferred to a person that takes delivery in the form of an interest in the
U.S. Global Notes and (ii) beneficial interests in the U.S. Global Notes may
be transferred to a person that takes delivery in the form of an interest in
the Reg S Permanent Global Notes, provided, in each case, that the
certification requirements described below are complied with. See "Transfers
of Interests in One Global Note for Interests in Another Global Note." All
registered global notes are referred to herein collectively "Global Notes."
Beneficial interests in all Global Notes and all Certificated Notes (as
described below), if any, are subject to certain restrictions on transfer and
bear a restrictive legend as described under "Notices to Investors." In
addition, transfer of beneficial interests in any Global Notes are subject to
the applicable rules and procedures of DTC and its Direct or Indirect
Participants (including, if applicable, those of Euroclear and CEDEL), which
may change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be
exchanged for the Senior Notes in certificated form in certain limited
circumstances. See "--Transfer of Interests in Global Notes for Certificated
Notes."
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Initially, the Trustee will act as Paying Agent and Registrar. The Senior
Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITARY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through
electronic book-entry changes in accounts of Participants. The Direct
Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations, including Euroclear and CEDEL. Access to DTC's system is also
available to other entities that clear through or maintain a direct or
indirect, custodial relationship with a Direct Participant, (collectively, the
"Indirect Participants"). DTC may hold securities beneficially owned by other
persons only through the Direct Participants or Indirect Participants and such
other persons' ownership interest and transfer of ownership interest will be
recorded only on the records of the Direct Participant and/or Indirect
Participant, and not on the records maintained by DTC.
DTC has also advised the Company that, pursuant to DTC's procedures, (i)
upon deposit of the Global Notes, DTC will credit the accounts of the Direct
Participants designated by the Initial Purchasers with portions of the
principal amount at maturity of the Global Notes allocated by the Initial
Purchasers to such Direct Participants, and (ii) DTC will maintain records of
the ownership interests of such Direct Participants in the Global Notes and
the transfer of ownership interests by and among Direct Participants. DTC will
not maintain records of the ownership interests of, or the transfer of
ownership interests by and between, Indirect Participants or other owners of
beneficial interests in the Global Notes. Direct Participants and Indirect
Participants must maintain their own records of the ownership interests of,
and the transfer of ownership interests by and between, Indirect Participants
and other owners of beneficial interests in the Global Notes.
Investors in the U.S. Global Notes may hold their interests therein directly
through DTC if they are Direct Participants or indirectly through
organizations that are Direct Participants in DTC. Investors in the Reg S
Temporary Global Notes may hold their interests therein directly through
Euroclear or CEDEL or indirectly through organizations that are participants
in Euroclear or CEDEL. After a reasonable period after the expiration of the
40-Day Restricted Period (but not earlier), investors may also hold interests
in the Reg S Permanent Global Notes through organizations other than Euroclear
and CEDEL that are Direct Participants in the DTC system. Morgan Guaranty
Trust Company of New York, Brussels office is the operator and depository of
Euroclear and Citibank, N.A. is the operator and depository of CEDEL (each a
"Nominee" of Euroclear and CEDEL, respectively). Therefore, they will each be
recorded on DTC's records as the holders of all ownership interests held by
them on behalf of Euroclear and CEDEL, respectively. Euroclear and CEDEL will
maintain on their records the ownership interests, and transfers of ownership
interests by and between, their own customer's securities accounts. DTC will
not maintain records of the ownership interests of, or the transfer of
ownership interests by and between, customers of Euroclear or CEDEL. All
ownership interests in any Global Notes, including those of customers'
securities accounts held through Euroclear of CEDEL, may be subject to the
procedures and requirements of DTC.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form, of securities that they own. This may limit
or curtail the ability to transfer beneficial interests in a Global Note to
such persons. Because DTC can act only on behalf of Direct Participants, which
in turn act on behalf of Indirect Participants and others, the ability of a
person having a beneficial interest in a Global Note to pledge such interest
to persons or entities that are not Direct Participants in DTC, or to
otherwise take actions in respect of such interests, may be affected by the
lack of physical certificates evidencing such interests. For certain other
restrictions on the transferability of the Senior Notes, see "--Reg S
Temporary and Reg S Permanent Global Notes" and "--Transfers of Interests in
Global Notes for Certificated Notes."
EXCEPT AS DESCRIBED IN "TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR
CERTIFICATED NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL
NOT HAVE SENIOR NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE
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PHYSICAL DELIVERY OF SENIOR NOTES IN CERTIFICATED FORM AND WILL NOT BE
CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR
ANY PURPOSE.
Under the terms of the Indenture, the Company and the Trustee treat the
persons in whose names the Senior Notes are registered (including Senior Notes
represented by Global Notes) as the owners thereof for the purpose of
receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal, premium, Liquidated Damages, if any, and interest on
Global Notes registered in the name of DTC or its nominee are payable by the
Trustee to DTC or its nominee as the registered holder under the Indenture.
Consequently, neither the Company, the Trustee nor any agent of the Company or
the Trustee has or will have any responsibility or liability for (i) any
aspect of DTC's records or any Direct Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interests in the Global Notes or for maintaining, supervising or reviewing any
of DTC's records or any Direct Participant's or Indirect Participant's records
relating to the beneficial ownership interests in any Global Note or (ii) any
other matter relating to the actions and practices of DTC or any of its Direct
Participants or Indirect Participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
Senior Notes is to credit the accounts of the relevant Direct Participants
with such payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to
the beneficial owners of the Senior Notes will be governed by standing
instructions and customary practices between them and will not be the
responsibility of DTC, the Trustee or the Company. Neither the Company nor the
Trustee will be liable for any delay by DTC or its Direct Participants or
Indirect Participants in identifying the beneficial owners of the Senior
Notes, and the Company and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee as the registered
owner of the Senior Notes for all purposes.
The Global Notes trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect
Participants who hold an interest in the Senior Notes through Euroclear or
CEDEL) who hold an interest through a Direct Participant will be effected in
accordance with the procedures of such Direct Participant but generally will
settle in immediately available funds. Transfers between and among Indirect
Participants who hold interest in the Notes through Euroclear and CEDEL will
be effected in the ordinary way in accordance with their respective rules and
operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Senior Notes described herein, cross-market transfers between Direct
Participants in DTC, on the one hand, and Indirect Participants who hold
interests in the Senior Notes through Euroclear or CEDEL, on the other hand,
will be effected by Euroclear or CEDEL's respective Nominee through DTC in
accordance with DTC's rules on behalf of Euroclear or CEDEL; however, delivery
of instructions relating to crossmarket transactions must be made directly to
Euroclear or CEDEL, as the case may be, by the counterparty in accordance with
the rules and procedures of Euroclear or CEDEL and within their established
deadlines (Brussels time for Euroclear and UK time for CEDEL). Indirect
Participants who hold interest in the Senior Notes through Euroclear or CEDEL
may not deliver instructions directly to Euroclear's or CEDEL's Nominee.
Euroclear or CEDEL will, if the transaction meets its settlement
requirements, deliver instructions to its respective Nominee to deliver or
receive interests on Euroclear's or CEDEL's behalf in the relevant Global Note
in DTC, and make or receive payment in accordance with normal procedures for
same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the Senior Notes through Euroclear or
CEDEL purchasing an interest in a Global Note from a Direct Participant in DTC
will be credited, and any such crediting will be reported to Euroclear or
CEDEL, during the European business day immediately following the settlement
date of DTC in New York. Although recorded in DTC's accounting records as of
DTC's settlement date in New York, Euroclear and CEDEL customers will not have
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access to the cash amount credited to their accounts as a result of a sale of
an interest in Reg S Permanent Global Note to a DTC Participant until the
European business day for Euroclear or CEDEL immediately following DTC's
settlement date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Senior Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect to such portion of the aggregate principal amount of the
Senior Notes as to which such Direct Participant or Direct Participants has or
have given such direction. However, if there is an Event of Default under the
Senior Notes, DTC reserves the right to exchange the Global Notes (without the
direction of one or more of its Direct Participants) for legended Senior Notes
in certificated form, and to distribute such certificated forms of Senior
Notes to its Direct Participants. See "Transfers of Interests in Global Notes
for Certificated Notes."
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to
facilitate transfers of interests in the Regulation S Permanent Global Notes
and in the U.S. Global Notes among Direct Participants, Euroclear and CEDEL,
they are under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Company, the Initial Purchasers or the Trustee will have any responsibility
for the performance by DTC, Euroclear or CEDEL or their respective Direct or
Indirect Participants of their respective obligations under the rules and
procedures governing their operations.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that the Company
believes to be reliable, but neither the Company nor the Initial Purchasers
take any responsibility for the accuracy thereof.
REG S TEMPORARY AND REG S PERMANENT GLOBAL NOTES
An Indirect Participant who holds an interest in the Reg S Temporary Global
Notes through Euroclear or CEDEL must provide Euroclear or CEDEL, as the case
may be, with a certificate in the form required by the Indenture certifying
that such Indirect Participant is either not a U.S. Person (as defined below)
or has purchased such interests in a transaction that is exempt from the
registration requirements under the Securities Act, and Euroclear or CEDEL, as
the case may be, must provide to the Trustee (or the Paying Agent, if other
than the Trustee) a certificate in the form required by the Indenture prior to
(i) the payment of interest or principal with respect to such Indirect
Participant's beneficial interests in such Reg S Temporary Global Notes or
(ii) any exchange of such beneficial interest for beneficial interests in Reg
S Permanent Global Notes.
"U.S. Person" means (i) any individual resident in the United States, (ii)
any partnership or corporation organized or incorporated under the laws of the
United States, (iii) any estate of which an executor or administrator is a
U.S. Person (other than an estate governed by foreign law and of which at
least one executor or administrator is a non-U.S. Person who has sole or
shared investment discretion with respect to its asset(s), (iv) any trust of
which any trustee is a U.S. Person (other than a trust of which at least one
trustee is a non-U.S. Person who has sole or shared investment discretion with
respect to its assets and no beneficiary of the trust (and no settlor if the
trust is revocable) is a U.S. Person), (v) any agency or branch of a foreign
entity located in the United States, (vi) any non-discretionary or similar
account (other than an estate of trust) held by a dealer or
other fiduciary for the benefit or account of a U.S. Person, (vii) any
discretionary or similar account (other than an estate or trust) held by a
dealer or other fiduciary organized, incorporated or (if an individual)
resident in the United States (other than such an account held for the benefit
or account of a non-U.S. Person, (viii) any partnership or corporation
organized or incorporated under the laws of a foreign jurisdiction and formed
by a U.S. Person principally for the purpose of investing in securities not
registered under the Securities Act (unless it is organized or incorporated
and owned, by accredited investors within the meaning of Rule 501(a) under the
Securities Act who are not natural persons, estates or trusts); provided,
however, that the term "U.S. Person" shall not include (A) a branch or agency
of a U.S. Person that is located and operating outside the United States for
valid business purposes as a locally regulated branch or agency engaged in the
banking or insurance business, (B) any employee benefit plan established and
administered in accordance with the law, customary practices and
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documentation of a foreign country and (C) the international organizations set
forth in Section 902(o)(7) of Regulation S under the Securities Act and any
other similar international organizations, and their agencies, affiliates and
pension plans.
TRANSFERS OF INTERESTS IN ONE GLOBAL NOTE FOR INTERESTS IN ANOTHER GLOBAL NOTE
Prior to the expiration of the 40-Day Restricted Period, an Indirect
Participant who holds an interest in the Reg S Temporary Global Note through
Euroclear or CEDEL is not permitted to transfer its interest to a U.S. Person
who takes delivery in the form of an interest in U.S. Global Notes. After the
expiration of the 40-Day Restricted Period, an Indirect Participant who holds
an interest in Reg S Permanent Global Notes will be permitted to transfer its
interest to a U.S. Person who takes delivery in the form of an interest in
U.S. Global Notes only upon receipt by the Trustee of a written certification
from the transferor to the effect that such transfer is being made in
accordance with the restrictions on transfer set forth under "--Notice to
Investors" and set forth in the legend printed on the Reg S Permanent Global
Notes.
Prior to the expiration of the 40-Day Restricted Period, a Direct or
Indirect Participant who holds an interest in the U.S. Global Note is not
permitted to transfer its interests to any person that takes delivery thereof
in the form of an interest in the Reg S Temporary Global Notes. After the
expiration of the 40-Day Restricted Period, a Direct or Indirect Participant
who holds an interest in U.S. Global Notes may transfer its interests to a
person who takes delivery in the form of an interest in Reg S Permanent Global
Notes only upon receipt by the Trustee of a written certification from the
transferor to the effect that such transfer is being made in accordance with
Rule 904 of Regulation S.
Transfers involving an exchange of a beneficial interest in Reg S Global
Notes for a beneficial interest in U.S Global Notes or vice versa will be
effected by DTC by means of an instruction originated by the Trustee through
DTC/Deposit Withdraw at Custodian (DWAC) system. Accordingly, in connection
with such transfer, appropriate adjustments will be made to reflect a decrease
in the principal amount at maturity of the one Global Note and a corresponding
increase in the principal amount at maturity of the other Global Note, as
applicable. Any beneficial interest in the one Global Note that is transferred
to a person who takes delivery in the form of the other Global Note will, upon
transfer, cease to be an interest in such first Global Note and become an
interest in such other Global Note and, accordingly, will thereafter be
subject to all transfer restrictions and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such
an interest.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive Senior Notes in
registered, certificated form without interest coupons ("Certified Notes") if
(i) DTC (x) notifies the Company that it is unwilling or unable to continue as
depositary for the Global Notes and the Company thereupon fails to appoint a
successor depositary within 90 days or (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Certificated
Notes or (iii) there shall have occurred and be continuing a Default or an
Event of Default with respect to the Senior Notes. In any such case, the
Company will notify the Trustee in writing that, upon surrender by the Direct
and Indirect Participants of their interest in such Global Note, Certificated
Notes will be issued to each person that such Direct and Indirect Participants
and the DTC identify as being the beneficial owner of the related Senior
Notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by
such Direct Participant (for itself or on behalf of an Indirect
Participant), to the Trustee in accordance with customary DTC procedures.
Certificated Notes delivered in exchange for any beneficial interest in any
Global Note will be registered in the names, and issued in any approved
denominations, requested by DTC on behalf of such Direct or Indirect
Participants (in accordance with DTC's customary procedures).
In all cases described herein, such Certificated Notes will bear the
restrictive legend referred to in "Notice to Investors," unless the Company
determines otherwise in compliance with applicable law.
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Neither the Company nor the Trustee will be liable for any delay by the
holder of the Global Notes or the DTC in identifying the beneficial owners of
Senior Notes, and the Company and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the holder of the Global
Note or the DTC for all purposes.
TRANSFERS OF CERTIFICATED NOTES FOR INTERESTS IN GLOBAL NOTES
Certificated Notes may only be transferred if the transferor first delivers
to the Trustee a written certificate (and in certain circumstances, an opinion
of counsel) confirming that, in connection with such transfer, it has complied
with the restrictions on transfer described under "--Notice to Investors."
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Senior Notes
represented by the Global Notes (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of
immediately available same day funds to the accounts specified by the holder
of interests in such Global Note. With respect to Certificated Notes, the
Company will make all payments of principal, premium, if any, interest and
Liquidated Damages, if any, by wire transfer of immediately available same day
funds to the accounts specified by the holders thereof or, if no such account
is specified, by mailing a check to each such holder's registered address. The
Company expects that secondary trading in the Certificated Notes will also be
settled in immediately available funds.
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CERTAIN U.S. INCOME TAX CONSIDERATIONS
The following is a general discussion of certain of the expected United
States federal income tax consequences applicable to holders of the Old Notes
who purchase the Old Notes pursuant to the Offering, exchange the Old Notes
for the New Notes pursuant to the Exchange Offer and hold the Old Notes and
will hold the New Notes as capital assets (referred to herein as the
"Holders"). It is intended only as a descriptive summary and does not purport
to be a complete technical analysis or listing of all potential tax effects to
holders of the Senior Notes. The Company has received an opinion from its
counsel, Holme Roberts & Owen LLP, that the following describes the material
United States federal income tax consequences expected to result to the
Holders, subject to the conditions and limitations described herein. The
discussion is based on the current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the applicable Treasury Regulations
("Regulations") and public administrative and judicial interpretations of the
Code and Regulations, all of which are subject to change, which changes could
be applied retroactively. This discussion is also based on the information
included in this Prospectus and the related documents, and on certain
representations from the Company as to factual matters. This discussion does
not cover all aspects of federal taxation that may be relevant to, or the
actual tax effect that any of the matters described herein will have on,
particular Holders and does not address state, local and foreign tax
consequences.
The Company has not sought and will not seek any rulings from the Internal
Revenue Service (the "Service") with respect to the Senior Notes. There can be
no assurance that the Service will not take a different position concerning
the tax consequences of the exchange of Old Notes for New Notes or the
ownership or disposition of New Notes or that the Service's position would not
be sustained by a court.
The tax consequences to a Holder may vary depending on the Holder's
particular situation or status. Holders subject to special rules under the
Code (including insurance companies, tax-exempt organizations, mutual funds,
retirement plans, financial institutions, dealers in securities or foreign
currency, persons that hold the Senior Notes as part of a "straddle" or as a
"hedge" against currency risk or in connection with a conversion transaction,
persons that have a functional currency other than the U.S. dollar, investors
in pass-through entities and foreign entities and individuals) may be subject
to special rules not discussed below.
As used in this discussion, the term "U.S. Holder" means a Holder that, for
United States federal income tax purposes, is (i) a citizen or resident of the
United States, (ii) a corporation, partnership, or other entity created or
organized in or under the laws of the United States or of any State, (iii) an
estate the income of which is subject to United States federal income tax,
regardless of its source or (iv) a trust if (a) a court within the United
States is able to exercise primary supervision over the administration of the
trust and (b) one or more United States persons have the authority to control
all substantial decisions of the trust. The term "Non-U.S. Holder" means a
Holder that is, for United States federal income tax purposes, not a U.S.
Holder.
THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH PURCHASER IS EXPECTED
AND URGED TO CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO
SUCH PURCHASER OF EXCHANGING OLD NOTES FOR NEW NOTES AND OF HOLDING AND
DISPOSING OF THE NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ALL
STATE, LOCAL OR FOREIGN TAX LAWS, AND POSSIBLE CHANGES IN FEDERAL INCOME TAX
LAW SINCE THE DATE OF THIS PROSPECTUS.
EXCHANGE OF NOTES
Although there is no direct authority as to whether the exchange of the Old
Notes for the New Notes pursuant to the Exchange Offer will be treated as a
taxable exchange for United States federal income tax purposes, it is the
opinion of Holme Roberts & Owen LLP, counsel to the Company, that based on its
analysis of applicable law, the exchange should not be treated as a taxable
exchange for United States federal income tax purposes. Accordingly, a U.S.
Holder should not recognize gain or loss upon the exchange of Old Notes for
New Notes and, upon such exchange, should have the same adjusted tax basis in
and holding period for the New Notes as it had in the Old Notes immediately
prior to the exchange.
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ORIGINAL ISSUE DISCOUNT
The New Notes will have substantial original issue discount for United
States federal income tax purposes. As a result, a U.S. Holder who acquires a
New Note generally will be required to include original issue discount in
gross income as it accrues for United States federal income tax purposes
regardless of the U.S. Holder's regular method of tax accounting. Therefore,
inclusion in gross income will take place in advance of the receipt of cash
payments on the New Notes.
The amount of original issue discount with respect to each Senior Note will
be the excess of the "stated redemption price at maturity" of such Senior Note
over its "issue price." The "stated redemption price at maturity" of each
Senior Note will include all payments, whether denominated as principal or
interest, required to be made thereunder through and including maturity. The
"issue price" of a New Note should be the same as the issue price of the Old
Notes, which is equal to the first price at which a substantial amount of the
Old Notes were sold to the public for money (excluding sales to underwriters,
placement agents or wholesalers, etc., acting in an underwriting capacity).
Each U.S. Holder will be required to include in gross income an amount equal
to the sum of the "daily portions" of the original issue discount on the
Senior Note for all days during the taxable year in which such holder holds
the Senior Note. The daily portions of original issue discount will be
determined by allocating to each day during an accrual period (generally a
six-month period or shorter period from the date of original issue) a ratable
portion of the original issue discount attributable to that accrual period.
The amount of the original issue discount attributable to each full accrual
period will be equal to the product of the "adjusted issue price" of the
Senior Note (at the beginning of the accrual period) and the "yield to
maturity" of the Senior Notes (taking into account the length of the
particular accrual period). The adjusted issue price of a Senior Note at the
beginning of an accrual period is the original issue price of the Senior Note
plus the aggregate amount of original issue discount that has accrued in all
prior accrual periods less any payments (other than payments not taken into
account in determining the stated redemption price) made on the Senior Note.
The yield to maturity is the discount rate that, when used in computing the
present value of all principal and interest payments to be made on the Senior
Note, produces an amount equal to its issue price.
The Company is required to furnish certain information to the Service
regarding the original issue discount amounts. The Company will furnish
annually to record holders of the Senior Notes, information with respect to
original issue discount accruing during the calendar year, as well as interest
paid during that year. This information will be based upon the adjusted issue
price of the debt instrument as if the holder were the original holder of the
debt instrument. The Company will classify the Senior Notes as debt under
section 385 of the Code.
The foregoing does not discuss special rules that may affect the treatment
of purchasers who acquired the Old Notes (or who may acquire the New Notes) at
a price that differs from the adjusted issue price of the Senior Notes at the
time of acquisition, including those provisions of the Code relating to the
treatment of "market discount," "acquisition premium" and "amortizable bond
premium." Noteholders should consult their tax advisers regarding these
matters.
EFFECT OF LIQUIDATED DAMAGES ON ORIGINAL ISSUE DISCOUNT
The Company intends to treat the Liquidated Damages contingency described in
"Exchange Offer" as a remote contingency for purposes of computing original
issue discount. If Liquidated Damages are triggered, then the additional
interest will be includible in income when such payment is made.
SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION
In general, a U.S. Holder will recognize gain or loss upon the sale,
retirement or other taxable disposition of the Senior Notes measured by the
difference between the amount of cash and fair market value of property
received (except to the extent attributable to accrued interest not previously
taken into account) in exchange therefor and the U.S. Holder's adjusted tax
basis for the Senior Notes. Capital gains tax rates for some taxpayers have
been modified by recent legislation. Please consult your tax advisor regarding
the applicability of such modifications.
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The exchange of Old Notes for New Notes in the Exchange Offer should not
constitute a taxable event to the Holders. See "Exchange Offer; Registration
Rights." With respect to tax matters relating to legal defeasance and covenant
defeasance in certain circumstances, see "Description of Securities--
Description of the Senior Notes--Defeasance."
BACKUP WITHHOLDING
The backup withholding rules require a payor to deduct and withhold a tax
amount if (i) the payee fails to furnish a taxpayer identification number
("TIN") to the payor, (ii) the Service notifies the payor that the TIN
furnished by the payee is incorrect, (iii) the payee has failed to report
properly the receipt of a "reportable payment" and the Service has notified
the payor that withholding is required, or (iv) there has been a failure of
the payee to certify under the penalty of perjury that a payee is not subject
to withholding under Section 3406 of the Code. If any one of the events
discussed above occurs, the Company, its paying agent or other withholding
agent will be required to withhold a tax equal to 31% of any "reportable
payment" which includes gross proceeds from the sale of, interest actually
paid on, and original issue discount with respect to the Senior Notes, and
amounts paid through brokers in retirement of securities. Any amount withheld
from a payment to a U.S. Holder under the backup withholding rules will be
allowed as a refund or credit against such U.S. Holder's United States federal
income tax, provided that the required information is furnished to the
Service. Certain U.S. Holders (including, among others, corporations and
certain tax-exempt organizations) are not subject to the backup withholding
information reporting requirements.
EMPLOYEE BENEFIT PLANS
Prior to exchanging an Old Note for a New Note, a prospective Holder who is
a fiduciary with respect to an "employee benefit plan" as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), must comply with the fiduciary responsibility requirements of
ERISA, including the prudency and diversification requirements, in making a
decision to exchange an Old Note for a New Note. In addition, such plans,
together with plans described in Section 4975(e)(1) of the Code, must consider
the prohibited transaction provisions of ERISA and the Code and determine that
the Company is not a "disqualified person" (as defined in the Code) or a
"party in interest" (as defined in ERISA) with respect to such plan or that an
exemption from the prohibited transaction provisions of ERISA or the Code is
available.
NON-U.S. HOLDERS
Payments of interest and accruals of original issue discount on the Senior
Notes will generally be exempt from United States federal income tax,
including withholding tax, if paid to a Non-U.S. Holder; provided that (i) the
Non-U.S. Holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote and (ii) the Non-U.S. Holder is not engaged in a trade or business in the
United States in which the interest on the Senior Notes is effectively
connected with such trade or business.
A Non-U.S. Holder will not be subject to United States federal income or
withholding tax on gain realized on the sale or other disposition of the
Senior Notes unless (i) such gain is effectively connected with the conduct by
the Non-U.S. Holder of a trade or business within the United States or, if a
treaty applies, generally attributable to the United States permanent
establishment maintained by the Non-U.S. Holder, or (ii) in the case of gain
realized by an individual Non-U.S. Holder, the individual is present in the
United States for at least 183 days in the taxable year of the disposition and
certain other conditions are met.
Recently promulgated Regulations (the "New Regulations"), could affect the
procedures to be followed by Non-U.S. Holders and payors of interest and sale
proceeds in complying with the United States federal withholding, backup
withholding, and information reporting rules, and the availability of any
exemption therefrom. The New Regulations are not currently effective, but will
generally be effective for payments made after December 31, 1998. Each Non-
U.S. Holder is strongly urged to consult its tax advisor regarding the effect
of the New Regulations.
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The foregoing discussion with respect to Non-U.S. Holders does not purport
to address all tax consequences applicable to Non-U.S. Holders. All Non-U.S.
Holders are urged and expected to consult their own tax advisors as to the tax
consequences of this investment, including the applicability and effect of
foreign, state, or local tax laws.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company acknowledges and each holder, other than a
broker-dealer, must acknowledge that it is not engaged in, does not intend to
engage in, and has no arrangement or understanding with any person to
participate in a distribution of New Notes. The Company has agreed that
starting on the Expiration Date and ending on the close of business on the
180th day following the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer other than commissions or concessions
of any brokers or dealers and will indemnify the holders of the Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Senior Notes will be passed upon for the Company by
Holme Roberts & Owen LLP, Denver, Colorado.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference into this Prospectus from the Company's Form 10-K Annual Report,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto. In that report, that firm
states that (i) with respect to the year ended February 28, 1997, it did not
audit the combined financial statements of Tele Cable de Morelos S.A. de C.V.
("Megapo"), as of and for the year ended December 31, 1996, (ii) with respect
to the year ended
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February 29, 1996, it did not audit the financial statements of XYZ
Entertainment Pty. Ltd. ("XYZ"), Megapo, Monor Communications Group, Inc.
("Monor"), Cabodinamica TV Cabo Sao Paulo S.A. ("Net Sao Paulo"), or Telefenua
S.A. ("Telefenua") as of and for the year ended December 31, 1995, and (iii)
with respect to the year ended February 28, 1995, it did not audit the
financial statements of United International Investments ("UII") or Net Sao
Paulo as of and for the year ended December 31, 1994, investments of the
Company which are reflected in its consolidated financial statements using the
equity method of accounting (with respect to XYZ, Megapo, Monor, Net Sao Paulo
and UII) or consolidated (with respect to Telefenua). Instead, its report with
regard to those entities is based on the reports of other auditors, namely
Coopers & Lybrand (with respect to Telefenua and Monor) Deloitte Touche
Tohmatsu (with respect to XYZ), Price Waterhouse (with respect to Net Sao
Paulo), Price Waterhouse LLP (with respect to UII) and Galaz, Gomez, Morfino,
Chavero, Yamazaki (with respect to Megapo). The report referred to above has
been included in and incorporated by reference herein in reliance upon the
authority of said firm.
The consolidated financial statements of United International Properties,
Inc. incorporated by reference into this Prospectus from the Company's Form
10-K Annual Report, have been audited by Arthur Andersen LLP, independent
auditors, as indicated in their report with respect thereto. In that report,
that firm states that (i) with respect to the year ended February 28, 1997, it
did not audit the combined financial statements of Tele Cable de Morelos S.A.
de C.V. ("Megapo"), as of and for the year ended December 31, 1996, and (ii)
with respect to the year ended February 29, 1996, it did not audit the
financial statements of XYZ Entertainment Pty. Ltd. ("XYZ"), Megapo, Monor
Communications Group, Inc. ("Monor"), Cabodinamica TV Cabo Sao Paulo S.A.
("Net Sao Paulo"), or Telefenua S.A. ("Telefenua") as of and for the year
ended December 31, 1995, investments which are reflected in its consolidated
financial statements using the equity method of accounting (with respect to
XYZ, Megapo, Monor and Net Sao Paulo) or consolidated (with respect to
Telefenua). Instead, its report with regard to those entities is based on the
reports of other auditors, namely Coopers & Lybrand (with respect to Telefenua
and Monor) Deloitte Touche Tohmatsu (with respect to XYZ), Price Waterhouse
(with respect to Net Sao Paulo) and Galaz, Gomez, Morfino, Chavero, Yamazaki
(with respect to Megapo). The report referred to above has been incorporated
by reference herein in reliance upon the authority of said firm.
The consolidated financial statements as of and for the year ended December
31, 1996 of United and Philips Communications B.V. (now known as United Pan-
Europe Communications N.V.) incorporated by reference into this Prospectus
from the Company's Form 10-K Annual Report, have been audited by Arthur
Andersen & Co., independent auditors, as indicated in their report with
respect thereto, and are included in and incorporated by reference herein upon
the authority of said firm.
The Consolidated financial statements as of December 31, 1995 and for the
period from inception (July 13, 1995) to December 31, 1995 of United and
Philips Communications B.V. incorporated by reference into this Prospectus
from the Company's Form 10-K Annual Report have been jointly audited by Arthur
Andersen & Co. and KPMG Accountants N.V., independent public accountants, as
indicated in their report with respect thereto and are included in and
incorporated by reference herein upon the authority of said firms.
The financial statements of Joint Venture, Inc. incorporated by reference
into this Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
incorporated by reference in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission, a Registration Statement on Form
S-4 under the Securities Act, with respect to the securities offered hereby
(the "Registration Statement"). This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
securities offered hereby reference is made 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's principal
131
<PAGE>
office at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
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.
The Company files reports under Section 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"). Such reports filed by the Company can be
inspected at, and copies thereof may be obtained, at the above-listed public
reference facilities of the Commission.
* * *
The Company intends to furnish holders of the Senior Notes with annual
reports containing audited financial statements and quarterly reports for the
first three quarters of each fiscal year containing unaudited interim
financial information.
INCORPORATION BY REFERENCE
The following documents have been filed with the Commission (File No. 0-
21974) and are incorporated in this Prospectus by reference and made a part
hereof:
1. The Company's Annual Report on Form 10-K for the year ended February 28,
1997.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended May
31, August 31 and November 30, 1997.
3. The Company's Current Reports on Form 8-K dated September 10, October 7,
October 17 (as amended by Form 8-K/A filed November 14, 1997), December
11, 1997 and February 5, 1998.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, after the date of this Prospectus and
prior to the termination of the Offering, shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the dates of
filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this Prospectus shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference in this Prospectus modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon such person's written or oral request, a copy of
any and all of the information that has been incorporated by reference in this
Prospectus (not including exhibits to such information unless such exhibits
are specifically incorporated by reference into such information). Any such
request should be directed to United International Holdings, Inc., Manager of
Financial Reporting, 4643 South Ulster Street, Suite 1300, Denver, Colorado,
80237 (telephone number 303-770-4001).
132
<PAGE>
ANNEX A TO PROSPECTUS
SUBSIDIARIES AND RESTRICTED AFFILIATES OF THE ISSUER
I. UIH EUROPE AND COMPANIES HELD THROUGH UIH EUROPE
A. SUBSIDIARIES
Belmarken Holding B.V.
Cable Network Brabant Holding B.V.
Cable Network Zuid-Oost Brabant Holding B.V.
Cable Networks Austria Holding B.V.
Cable Networks Netherlands Holding B.V.
Control Cable Ventures SRL
Janco Multicom A/S
Kabel Net Brno A.S.
Kabel Net Holding A.S.
Kabeltel s.r.o.
Kabeltelevisie Eindhoven N.V.
Kabeltelevisie Son en Breugel B.V.
MediaReseaux Marne S.A.
MediaReseaux S.A.
Multicanal Holdings SRL
Radio Public N.V./S.A.
Slovatel s.r.o
Telekabel Graz GmbH
Telekabel Klagenfurt GmbH
Telekabel Wien GmbH
Telekabel-Fernsehnetz Region Baden Betriebs-GmbH
Telekabel-Fernsehnetz Wiener Neustadt Neunkirchen Betriebs-GmbH
Trnavatel s.r.o.
UIH Europe, Inc.
UIH Romania, Inc.
UIH Romania Ventures, Inc.
United Pan-Europe Communications N.V.
B. RESTRICTED AFFILIATES
Ceska Programova Spolecnost s.r.o.
II. UIPI AND COMPANIES HELD THROUGH UIPI
A. SUBSIDIARIES
Auldana Beach Pty Ltd.
Austar Entertainment Pty Ltd.
Austar Retail Pty Ltd.
Austar Satellite Pty Ltd.
Austar Services Pty Ltd.
Cable Star S.A.
Carryton Pty Ltd.
CTV Pty Ltd.
Dovevale Pty Ltd.
A-1
<PAGE>
<TABLE>
<S> <C>
Grovern Pty Ltd.
Jacolyn Pty Ltd.
Keansburg Pty Ltd.
Kidillia Pty Ltd.
Lystervale Pty Ltd.
Maxi-Vu Pty Ltd.
Minorite Pty Ltd.
Orloff Pty Ltd.
Palara Vale Pty Ltd.
Plator Holding B.V.
Saturn Communications Limited
Selectra Pty Ltd.
STV Pty Limited
T.V. Cable, S.R. Ltda.
Tara Television Limited
Tara Television Global Ltd.
Tara Television (UK) Limited
UIH Argentina, Inc.
UIH Asia Investment Co.
UIH Asia, Ltd.
UIH Asia/Pacific Communications, Inc.
UIH Austar, Inc.
UIH Austar Transponder, Inc.
UIH Australia Holdings, Inc.
UIH Australia/Pacific Finance, Inc.
UIH Australia/Pacific, Inc.
UIH Brazil, Inc.
UIH Canada, Inc.
UIH Chile, Inc.
UIH China Holdings, Inc.
UIH do Brasil Tecnologia Ltda.
UIH El Salvador, Inc.
UIH GTS, Inc.
UIH Hunan, Inc.
UIH Hungary, Inc.
UIH Iberian Programming, Inc.
UIH Latin America, Inc.
UIH Latin America Programming, Inc.
UIH Management, Inc.
UIH Mexico, Inc.
UIH Mexico Resources, Inc.
UIH Mexico Ventures, Inc.
UIH Middle East, Inc.
UIH New Zealand Holdings, Inc.
UIH Peru, Inc.
UIH Peru, S.A.
UIH Philippines Holdings, Inc.
UIH Programming, Inc.
UIH Programming-Malta Ltd.
UIH-SFCC Holdings, L.P.
UIH-SFCC II, Inc.
UIH-SFCC L.P.
UIH Taiwan, Inc.
</TABLE>
A-2
<PAGE>
UIH U.K. Programming, Inc.
UIH UK, Inc.
UIH Venezuela, Inc.
UIH XYZ Holdings, Inc.
UIHLA Holdings, Inc.
UIHLA Management, Inc.
UIHLA Ventures, Inc.
United International Holdings Argentina, S.A.
United International Properties, Inc.
United Wireless, Inc.
United Wireless Pty Limited
Vermint Grove Pty Ltd.
Vinatech Pty Ltd.
Windytide Pty Ltd.
Xtek Bay Pty Ltd.
Yanover Pty Ltd.
B. RESTRICTED AFFILIATES
Cablevision S.A.
Century United Programming Ventures Pty Limited
Chippawa Pty Ltd.
Cuemamu, S.A. De C.V.
Grupa Telecable de Mexico, S.A. de C.V.
Hunan International Telecommunications Company Limited
Ibercom, Inc.
Iberian Programming Services C.V.
Ilona Investments Pty Ltd.
Inversiones UIH Latin America Limitada
MCG Management, Inc.
Megacomm M. Servicios, S.A. de C.V.
Monor Telfon Tarasag Rt.
Monor Communications Group, Inc.
Multicanel TPS, S.A.
Nidlo B.V.
Plator Holding, B.V.
Red de Television y Servicios Por Cable S.A.
Societe Francaise des Communications et du Cable S.A.
Spanish Program Services, C.V.
Telecable de Chilpancingo, S.A. de C.V.
Telecable de Morelos, S.A. de C.V.
Telecable Mexicano, S.A. de C.V.
Telefenua S.A.
Television Universidad de Talcia S.A.
TV Max Constitucion Limitada
TV Show Brasil, S/A
TV Cabo e Comunicacoes de Jundiai, S A
United Family Communications, LLC
Vision por Cable de Oaxaca, S.A. de C.V.
VTR Galaxy de Chile S.A.
VTR Hipercable, S.A.
VTR Telefonica S.A.
VTR Cable Express S.A.
VTR Cable Express (Chile) S.A.
XYZ Entertainment Pty Limited
A-3
<PAGE>
ANNEX B TO PROSPECTUS
UNRESTRICTED SUBSIDIARIES OF THE ISSUER
I. SUBSIDIARIES HELD THROUGH UIH EUROPE
<TABLE>
<S> <C>
Binan Investment B.V.
Intercabo Atlantico - Communicacoes por Cabo S.A.
Intercabo Capital - Communicacoes por Cabo S.A.
Intercabo Centro - Televisao por Cabo S.A.
Intercabo Norte - Communicacoes por Cabo S.A.
Intercabo Sul - Communicacoes por Cabo S.A.
Intercabo Televisao por Cabo S.A.
Melita Cable TV PLC
Melita Partnership
Stipdon Investments B.V.
Tishdoret Achzakot Ltd.
UCI Enterprises, Inc.
UIH Bulgaria, Inc.
UIH Portugal, Inc.
UIH Slovakia, Inc.
UIH Spain, Inc.
UIH Turkey, Inc.
UII - Ireland Limited Liability Company
UII - Ireland Ltd.
United International Investments
UPC Intermediates B.V.
UPC Kft
</TABLE>
II. SUBSIDIARIES HELD THROUGH UIPI
<TABLE>
<S> <C>
UIH AML, Inc.
UIH Brazil, SP, Inc.
UIH Communication, Inc.
UIM Aircraft, Inc.
</TABLE>
B-1
<PAGE>
[UIH EUROPE PHOTO APPEARS HERE]
[UIH ASIA/PACIFIC PHOTO APPEARS HERE]
[UIH LATIN AMERICA PHOTO APPEARS HERE]
[LOGO OF UNITED INTERNATIONAL HOLDINGS, INC. APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY THE SENIOR NOTES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 22
Exchange Offer............................................................
Use of Proceeds........................................................... 35
Capitalization............................................................ 36
Selected Consolidated Financial Data...................................... 38
Pro Forma Consolidated Condensed Financial Information of the Company..... 40
Management's Discussion and Analysis of Financial Condition............... 45
Business.................................................................. 49
Corporate Organizational Structure........................................ 83
Regulation................................................................ 86
Description of Other Debt................................................. 91
Description of Senior Notes............................................... 97
Certain U.S. Income Tax Considerations.................................... 127
Plan of Distribution...................................................... 130
Legal Matters............................................................. 130
Experts................................................................... 130
Additional Information.................................................... 131
Incorporation by Reference................................................ 132
Index to Financial Statements............................................. F-1
Subsidiaries and Restricted Affiliates of the Issuer...................... A-1
Unrestricted Subsidiaries of the Issuer................................... B-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$1,375,000,000
[LOGO OF UNITED INTERNATIONAL HOLDINGS]
10 3/4% SENIOR SECURED DISCOUNT NOTES DUE 2008, SERIES B
-----------
PROSPECTUS
-----------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
4.1 Indenture dated as of February 5, 1998, between the Company and Firstar
Bank of Minnesota, N.A. (the "1998 Indenture").*
4.2 The form of New Note is included as Exhibit A-2 to the 1998 Indenture.
5.1 Opinion of Holme Roberts & Owen LLP as to the legality of the Senior
Notes.*
8.1 Opinion of Holme Roberts & Owen LLP as to certain other matters.*
12.1 Statement re: Ratio of Earnings to Fixed Charges.*
23.1 Consent of Independent Public Accountants--Arthur Andersen LLP (United
International Holdings, Inc.).*
23.2 Consent of Independent Public Accountants--Arthur Andersen LLP (United
International Properties, Inc.).*
23.3 Consent of Independent Public Accountants--Arthur Andersen & Co.
(United and Philips Communications B.V.) (for year ended December 31,
1996).*
23.4 Consent of Independent Public Accountants--Arthur Andersen & Co.
(United and Philips Communications B.V.) (for year ended December 31,
1995).*
23.5 Consent of Independent Public Accountants--KPMG Accountants N.V.
(United and Philips Communications B.V.) (for year ended December 31,
1995).*
23.6 Consent of Independent Auditors--Deloitte Touche Tohmatsu (XYZ
Entertainment Pty Ltd.).*
23.7 Consent of Independent Auditors--Galaz, Gomez Morfin, Chavero,
Yamazaki, S.C. (Tele Cable de Morelos, S.A. de C.V.).*
23.8 Consent of Independent Accountants--Coopers & Lybrand L.L.P. (Monor
Communications Group, Inc.).*
23.9 Consent of Independent Accountants--Price Waterhouse (Cabodinamica TV
Cabo Sao Paulo S.A.).*
23.10 Consent of Independent Auditors--Coopers & Lybrand (Telefenua S.A.).*
23.11 Consent of Independent Accountants--Price Waterhouse LLP (United
International Investments).*
23.11A Consent of Independent Public Accountants--Arthur Andersen LLP (Joint
Venture, Inc.).
23.12 The consent of Holme Roberts & Owen LLP is included in Exhibit 5.1.
24.1 Powers of Attorney.*
25.1 Statement of Eligibility of the Trustee.*
</TABLE>
- ---------------------
* Previously filed.
II-1
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-4 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF DENVER, STATE OF COLORADO, ON THIS 10TH DAY OF
MARCH, 1998.
United International Holdings, Inc.,
A Delaware corporation
/s/ J. Timothy Bryan
By: __________________________________
J. TIMOTHY BRYAN,
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.
TITLE/POSITION HELD
WITH THE REGISTRANT
SIGNATURE DATE
* Chairman of the
- ------------------------------------ Board and Chief March 10, 1998
GENE W. SCHNEIDER Executive Officer
* Executive Vice
- ------------------------------------ President and March 10, 1998
MARK L. SCHNEIDER Director
/s/ J. Timothy Bryan Chief Financial
- ------------------------------------ Officer March 10, 1998
J. TIMOTHY BRYAN
* Director
- ------------------------------------ March 10, 1998
ALBERT M. CAROLLO
* Director
- ------------------------------------ March 10, 1998
LAWRENCE F. DEGEORGE
* Director
- ------------------------------------ March 10, 1998
LAWRENCE J. DEGEORGE
* Director
- ------------------------------------ March 10, 1998
WILLIAM J. ELSNER
* Director
- ------------------------------------ March 10, 1998
JOSEPH E. GIOVANINI
* Director
- ------------------------------------ March 10, 1998
ANTONY P. RESSLER
* Director
- ------------------------------------ March 10, 1998
CURTIS W. ROCHELLE
* Director
- ------------------------------------ March 10, 1998
BRUCE H. SPECTOR
* Controller
- ------------------------------------ (Principal March 10, 1998
VALERIE L. COVER Accounting
Officer)
/s/ J. Timothy Bryan
- ------------------------------------
BY: J. TIMOTHY BRYAN,
Attorney-In-Fact
II-2
<PAGE>
EXHIBIT 23.11A
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated May 26, 1997,
included in United International Holdings, Inc. Form 8-K dated February 5, 1998
related to the financial statements of Joint Venture, Inc. and to all references
to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 9, 1998
