<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
F O R M 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-26264
TELE-COMMUNICATIONS INTERNATIONAL, INC.
-----------------------------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1289408
-------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5619 DTC Parkway
Englewood, Colorado 80111
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 267-5500
Indicate by check mark whether the Registrant has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports).
Yes X No
----- -----
Indicate by check mark whether the Registrant has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
The number of shares outstanding of Tele-Communications International,
Inc.'s common stock as of April 30, 1996, was:
Series A common stock - 106,960,873 shares; and
Series B common stock - 11,700,000 shares.
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
Assets
- - ------ ------------- ------------
amounts in thousands
<S> <C> <C>
Cash and cash equivalents (note 3) $ 78,851 133,109
Trade and other receivables, net 19,496 19,066
Film inventory and other prepaid expenses 53,941 49,165
Investment in TeleWest plc
("TeleWest") (note 7) 511,544 550,216
Investment in other affiliates, accounted
for under the equity method, and related
receivables (note 8) 365,598 354,133
Other investments (note 9) 64,476 83,839
Property and equipment, at cost:
Land 277 277
Distribution systems 124,358 118,705
Support equipment and buildings 29,604 29,321
---------- ---------
154,239 148,303
Less accumulated depreciation 38,630 35,314
---------- ---------
115,609 112,989
---------- ---------
Franchise costs and other intangible assets 583,139 583,862
Less accumulated amortization 35,848 29,030
---------- ---------
547,291 554,832
---------- ---------
Deferred financing costs and other assets,
net of amortization 14,701 6,062
---------- ---------
$1,771,507 1,863,411
========== =========
</TABLE>
(continued)
I-1
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
Liabilities and Stockholders' Equity amounts in thousands
- - ------------------------------------
<S> <C> <C>
Accounts payable $ 27,834 37,710
Accrued liabilities 46,026 40,774
Multithematiques Obligation (note 8) 65,745 65,876
Debt (note 10) 515,793 192,718
Deferred income tax liability 166,488 186,126
Other liabilities 7,904 6,500
---------- ---------
Total liabilities 829,790 529,704
---------- ---------
Minority interests in equity of subsidiaries 114,904 122,358
Stockholders' equity:
Preferred stock, $.01 par value
Authorized 10,000,000 shares; none issued -- --
Series A Common Stock, $1 par value
Authorized 300,000,000 shares; issued
106,487,500 shares in 1996 and 1995 106,488 106,488
Series B Common Stock, $1 par value
Authorized 12,000,000 shares; issued
11,700,000 shares in 1996 and 1995 11,700 11,700
Additional paid-in capital 1,177,271 1,177,271
Accumulated deficit (101,447) (75,036)
Cumulative foreign currency translation
adjustment (16,031) (8,550)
Unrealized holding losses for available-
for-sale securities (2,248) (152)
---------- ---------
1,175,733 1,211,721
Due from Tele-Communications, Inc.
("TCI") (note 12) (348,920) (372)
---------- ---------
Total stockholders' equity 826,813 1,211,349
---------- ---------
Commitments and contingencies
(notes 7, 8, 12, 13 and 14)
$1,771,507 1,863,411
========== =========
</TABLE>
See accompanying notes to financial statements.
I-2
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Statements Of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1996 1995
-------- -------
amounts in thousands
<S> <C> <C>
Revenue:
Cable $ 49,531 5,298
Programming 13,093 9,919
-------- -------
62,624 15,217
-------- -------
Operating costs and expenses:
Cable (note 12) 28,347 4,279
Programming 15,435 11,998
General and administrative:
Allocated from TCI (note 12) 719 460
Other 1,739 1,559
Adjustment to stock compensation:
Allocated from TCI (note 12) (909) (85)
Other 471 --
Depreciation and amortization 12,126 2,610
-------- -------
57,928 20,821
-------- -------
Operating income (loss) 4,696 (5,604)
Other income (expense):
Share of losses of TeleWest (note 7) (30,597) (12,286)
Share of losses of other affiliates (note 8) (17,965) (6,250)
Interest expense:
TCI (note 12) (188) --
Other (8,215) (317)
Interest income:
TCI (note 12) 2,214 --
Other 2,953 86
Minority interests' share of losses 4,208 2,613
Unrealized foreign currency transaction gains 1,304 1,479
Other, net (note 8) 4,440 116
-------- -------
(41,846) (14,559)
-------- -------
Loss before income taxes (37,150) (20,163)
Income tax benefit 10,739 5,399
-------- -------
Net loss $(26,411) (14,764)
======== =======
Net loss per common share (note 1):
Historical $ (.22) --
======== =======
Pro forma $ -- (.15)
======== =======
</TABLE>
See accompanying notes to financial statements.
I-3
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Statement Of Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Unrealized
Cumulative holding
foreign losses for
Common Stock Additional currency available- Total
Preferred -------------------- paid-in Accumulated translation for-sale Due from stockholders'
stock Series A Series B capital deficit adjustment securities TCI equity
----- -------- -------- ------- ------- ---------- ---------- --- ------
amounts in thousands
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ -- 106,488 11,700 1,177,271 (75,036) (8,550) (152) (372) 1,211,349
Net loss -- -- -- -- (26,411) -- -- -- (26,411)
Foreign currency
translation
adjustment -- -- -- -- -- (7,481) -- -- (7,481)
Unrealized holding
losses for available-
for-sale securities -- -- -- -- -- -- (2,096) -- (2,096)
Loan to TCI (note 12) -- -- -- -- -- -- -- (336,375) (336,375)
Other changes in due
from TCI (note 12) -- -- -- -- -- -- -- (12,173) (12,173)
----- ------- ------ --------- -------- ------- ------ -------- --------
Balance at March 31, 1996 $ -- 106,488 11,700 1,177,271 (101,447) (16,031) (2,248) (348,920) 826,813
===== ======= ====== ========= ======== ======= ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
I-4
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Statements Of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1996 1995
-------- --------
amounts in thousands
(see note 3)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(26,411) (14,764)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 12,126 2,610
Adjustment to stock compensation (438) (85)
Share of losses of TeleWest 30,597 12,286
Share of losses of other affiliates 17,965 6,250
Minority interests' share of losses (4,208) (2,613)
Unrealized foreign currency transaction gains (1,304) (1,479)
Deferred income tax benefit (14,236) (5,627)
Changes in operating assets and liabilities: --
Change in receivables (1,020) 6,504
Change in film inventory and other prepaid expenses (5,937) (7,766)
Change in deferred financing costs (9,495) --
Change in payables, accruals, other liabilities
and the cash intercompany account included
in due from TCI (12,510) 5,494
-------- -------
Net cash provided by (used in)
operating activities (14,871) 810
-------- -------
</TABLE>
(continued)
I-5
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Statements Of Cash Flows, continued
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1996 1995
-------- --------
amounts in thousands
(see note 3)
<S> <C> <C>
Cash flows from investing activities:
Investments in and loans to affiliates and others (19,371) (38,703)
Capital expended for property and equipment (8,991) (4,466)
Cash paid to purchase minority interest in IVS Cable
Holdings Limited (4,296) --
Other, net 2,940 (3,100)
--------- -------
Net cash used in investing activities (29,718) (46,269)
--------- -------
Cash flows from financing activities:
Issuance of debentures 345,000 --
Loan to TCI (336,375) --
Borrowings of debt 18,982 9,056
Repayments of debt (38,182) --
Contributions from minority interest owners 2,235 --
Contributions from TCI -- 43,449
--------- -------
Net cash provided by (used in) financing activities (8,340) 52,505
--------- -------
Effect of exchange rate changes on cash (1,329) 333
--------- -------
Net increase (decrease) in cash and cash equivalents (54,258) 7,379
Cash and cash equivalents:
Beginning of period 133,109 5,736
--------- -------
End of period $ 78,851 13,115
========= =======
</TABLE>
See accompanying notes to financial statements.
I-6
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
March 31, 1996
(unaudited)
(1) Basis of Presentation
---------------------
Tele-Communications International, Inc. ("TINTA"), a majority-owned
subsidiary of TCI, operates broadband cable television and telephony
distribution networks in, and provides diversified programming services to,
selected markets outside the United States.
Beginning in 1994, TCI restructured its assets into four distinct business
units. As part of that restructuring, during the fourth quarter of 1994 and
the first quarter of 1995, TCI contributed its indirect ownership interests
in substantially all of its international cable and telephony assets and
certain of its international programming assets to TINTA (the
"Contributions"). For purposes of this discussion, except to the extent the
context otherwise requires, the term the "Company" refers to (i) such
contributed ownership interests before the February 28, 1995 completion
date of the Contributions and (ii) TINTA and its direct and indirect
subsidiaries and affiliates on and after such completion date. Unless the
context indicates otherwise, references to "TCI" herein are to TCI and its
consolidated subsidiaries (other than the Company).
On July 18, 1995, TINTA completed its initial public offering (the "IPO"),
in which 20,000,000 shares of Series A Common Stock, $1 par value per share
("Series A Common Stock") were sold to the public for aggregate cash
consideration of $320.0 million, before deducting related expenses
(approximately $18.7 million). Giving effect to the IPO and to the July 28,
1995 issuance of 687,500 shares of Series A Common Stock as partial
consideration for an investment, the shares of TINTA's common stock owned
by TCI at March 31, 1996 represented approximately 82% of the aggregate
issued and outstanding common stock of TINTA and 91% of the aggregate
voting interest represented by such issued and outstanding stock.
(continued)
I-7
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
In connection with the IPO, TINTA amended and restated its Certificate of
Incorporation on July 12, 1995 to, among other things, (i) increase its
authorized capital stock and (ii) divide its common stock into two series. At
the same time, TINTA effected a reclassification pursuant to which the 1,000
shares of common stock held by TCI were reclassified and changed into 85,800,000
shares of Series A Common Stock and 11,700,000 shares of Series B Common Stock,
$1 par value per share ("Series B Common Stock"). The accompanying consolidated
balance sheets of the Company reflect the foregoing amendment and restatement of
TINTA's Certificate of Incorporation and to the related reclassification. The
pro forma net loss per share set forth in the accompanying combined statement of
operations for the three months ended March 31, 1995 assumes that the 97.5
million shares issued in connection with the above-described change in capital
structure were issued and outstanding since January 1, 1995. The historical loss
per common share for the three months ended March 31, 1996 was computed by
dividing the Company's net loss by the weighted average number of common shares
outstanding. Common stock equivalents were not included in the weighted average
shares outstanding because their inclusion would be anti-dilutive.
As further described in note 5, the Company acquired a 51% ownership
interest in Cablevision S.A. and certain affiliated companies ("Cablevision") on
April 25, 1995. Cablevision is engaged in the cable television business in
Buenos Aires, Argentina.
During the period covered by the accompanying financial statements, the
most significant entities that were reflected in the Company's financial
statements on a consolidated basis were engaged in (i) the multi-channel video
distribution business (the "cable" business) in Puerto Rico (the "Consolidated
Puerto Rico Entities"), in Buenos Aires, Argentina (since April 25, 1995) and in
the United Kingdom (through October 1995); and (ii) the distribution and
production of programming for multi-channel video distribution systems (the
"programming" business) in the UK and other parts of Europe through the
Company's majority voting interest in Flextech plc.
The Company maintained a 60.4% ownership interest in Flextech plc (together
with its consolidated subsidiaries, "Flextech") through May 1995, and since June
1995, the Company has maintained a 50.9% voting interest in Flextech.
Flextech's April 1996 issuance of additional non-voting shares resulted in a
decrease in the Company's ownership interest in Flextech's issued and
outstanding share capital from 48.8% to 46.5%. See notes 4 and 14.
(continued)
I-8
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
At March 31, 1996, Flextech's most significant consolidated subsidiaries
were comprised of its 100% ownership interests in Bravo Classic Movies Limited
("Bravo Ltd."), Starstream Limited ("Starstream") and United Artists
Entertainment (Programming) Limited ("UAEP"), and its 51% ownership interest in
Playboy TV UK/Benelux Limited ("PBTV"). Flextech maintained a 74.9% ownership
interest in Starstream through May 1995, and since June 1995, Flextech has
maintained a 100% ownership interest in Starstream. Bravo Ltd. owns "Bravo", a
provider of "classic" movies and programming. Starstream owns "TCC" (formerly
marketed as "The Children's Channel"), a provider of programming oriented to 3-
15 year old children. UAEP provides management services to various entities
engaged in the programming business. PBTV owns "Playboy TV," a provider of
adult entertainment.
The Company also consolidates Flextech's ownership interest in IVS Cable
Holdings Limited ("IVS"). IVS was engaged in the construction and operation of
cable television and telephony systems in the UK. Following the October 17,
1995 disposition of all but one of IVS's cable television subsidiaries, IVS has
not represented a significant component of the Company's results of operations
or financial position. See note 6.
Due to timing considerations, Cablevision and Flextech were included in the
Company's financial statements on a one-month time delay through the third
quarter of 1995. The Company eliminated such time delay from its December 31,
1995 financial statements. See note 2.
As further described in note 12, the accompanying statements of operations
separately present certain allocated corporate expenses of TCI. Although such
allocated corporate expenses are not necessarily indicative of the costs that
would have been incurred by the Company on a stand-alone basis, management
believes the allocated amounts are reasonable.
The accompanying interim financial statements are unaudited but, in the
opinion of management, reflect all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the results of such periods. The
results of operations for any interim period are not necessarily indicative of
results for the full year. These unaudited interim financial statements should
be read in conjunction with the Company's December 31, 1995 audited financial
statements and notes thereto.
(continued)
I-9
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
In March of 1995, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("Statement No. 121"), effective for fiscal years beginning after December 15,
1995. Statement No. 121 requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement No. 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Company adopted
Statement No. 121 effective January 1, 1996. Such adoption did not have a
significant effect on the financial position or results of operations of the
Company. In accordance with Statement No. 121, the Company periodically reviews
the carrying amount of its long-lived assets, franchise costs and certain other
assets to determine whether current events or circumstances warrant adjustments
to such carrying amounts. The Company considers historical and expected future
net operating losses to be its primary indicators of potential impairment.
Assets are grouped and evaluated for impairment at the lowest level for which
there are identifiable cash flows that are largely independent of the cash flows
of other groups of assets ("Assets"). The Company deems Assets to be impaired
if the Company is unable to recover the carrying value of its Assets over their
expected remaining useful life through a forecast of undiscounted future
operating cash flows directly related to the Assets. If Assets are deemed to be
impaired, the loss is measured as the amount by which the carrying amount of the
Assets exceeds their fair values. The Company generally measures fair value by
considering sales prices for similar assets or by discounting estimated future
cash flows. Considerable management judgment is necessary to estimate
discounted future cash flows. Accordingly, actual results could vary
significantly from such estimates.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Certain amounts have been reclassified for comparability with the 1996
presentation.
Unless otherwise indicated, convenience translations of foreign currencies
into U.S. dollars are calculated using the applicable spot rate at March 31,
1996.
(continued)
I-10
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(2) Elimination of Reporting Delay
------------------------------
Through the third quarter of 1995, the Company included Cablevision and
Flextech in its financial statements on a one-month time delay. The Company
eliminated such time delay from its December 31, 1995 financial statements.
As a result, the Company's consolidated statements of operations and cash
flows for the three months ended March 31, 1996 include Cablevision's and
Flextech's results of operations and cash flows for such three-month
period, and the Company's combined statements of operations and cash flows
for the three months ended March 31, 1995 includes Flextech's operating
results and cash flows for the three-month period ended February 28, 1995.
As described in greater detail under note 5, Cablevision was not acquired
until April 25, 1995.
(3) Supplemental Disclosures to Statements of Cash Flows
----------------------------------------------------
The Company's cash and cash equivalents are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
Denomination 1996 1995
------------ --------- ------------
<S> <C> <C> <C>
TINTA U.S. dollars $ 9,667 46,065
Subsidiaries:
Flextech UK pounds 66,360 85,163
Cablevision Argentine pesos 2,383 1,837
Consolidated Puerto Rico
Entities U.S. dollars 441 44
------- -------
$78,851 133,109
======= =======
</TABLE>
The cash and cash equivalent balances of Flextech and Cablevision are
available to be applied toward the respective liquidity requirements of
Flextech and Cablevision, and, with the exception of the repayment of
certain principal and interest owed to TINTA by Flextech, it is not
anticipated that any significant portion of such cash balances will be
distributed or otherwise made available to TINTA.
Cash paid for interest was $4.7 million during the three months ended March
31, 1996. Cash paid for interest during the three months ended March 31,
1995, and cash paid for income taxes during the three months ended March
31, 1996 and 1995, was not material.
For a description of certain non-cash activities, see notes 4, 8 and 12.
(continued)
I-11
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(4) Flextech
--------
At March 31, 1996, the Company owned 56,340,598 Flextech ordinary shares
(the "Flextech Ordinary Shares") representing 48.8% of the issued and
outstanding Flextech share capital and 50.9% of the aggregate voting
interests attributable to such Flextech share capital. Subsequent to March
31, 1996, the Company's ownership interest in Flextech decreased from 48.8%
to 46.5%. See note 14. Based upon the (Pounds)5.03 ($7.68) per share
closing price of the Flextech Ordinary Shares on the London Stock Exchange,
the Flextech Ordinary Shares owned by the Company had an aggregate market
value of (Pounds)283.4 million ($432.8 million) at March 29, 1996.
On June 5, 1995, Flextech completed the sale of newly issued Flextech
Ordinary Shares and newly issued convertible non-preferred shares
("Flextech Preferred Shares") to subsidiaries of Hallmark Cards
Incorporated ("Hallmark") (the "Hallmark Subscription") and U S WEST, Inc.
("U S WEST") (the "U S WEST Subscription"). The Flextech Preferred Shares
are convertible at the option of the holder into Flextech Ordinary Shares
on a one-for-one basis at any time after the Company ceases to own at least
50.01% of the voting interest attributable to Flextech's then outstanding
ordinary share capital. The Hallmark Subscription and the U S WEST
Subscription are collectively referred to herein as the "Flextech
Transactions."
Under the terms of the Hallmark Subscription, HC Crown Corp. ("Crown"), a
subsidiary of Hallmark, purchased 9,322,763 Flextech Ordinary Shares and
2,337,541 Flextech Preferred Shares in exchange for (Pounds)48.4 million
($77.2 million using the June 5, 1995 exchange rate) in cash. In connection
with the U S WEST Subscription, (i) U S WEST (UK), a subsidiary of U S
WEST, purchased 8,181,392 Flextech Ordinary Shares and 2,337,541 Flextech
Preferred Shares in exchange for 340,000 convertible redeemable preferred
shares of Thomson Directories Limited (the "TDL Securities") and (ii)
Flextech borrowed (Pounds)43.7 million ($69.7 million using the June 5,
1995 exchange rate) pursuant to a bank credit facility (the "Flextech Bank
Facility"). See notes 9 and 10. Under certain circumstances, U S WEST (UK)
and Crown have the right to require TINTA to purchase the Flextech Ordinary
Shares and the Flextech Preferred Shares acquired by U S WEST (UK) and
Crown pursuant to the Flextech Transactions. See note 13.
In June 1995, Flextech paid (Pounds)9.8 million ($15.3 million using the
applicable exchange rate) to acquire the 25.1% minority interest in
Starstream not already owned by Flextech. Such payment has been recorded as
an intangible asset due to the fact that the minority interests' cost basis
in Starstream had previously been reduced to zero. In connection with the
aforementioned acquisition of the 25.1% minority interest, Flextech also
paid (Pounds)5.3 million ($8.5 million using the applicable exchange rate)
to purchase Starstream's unsecured promissory notes.
Subsequent to March 31, 1996, Flextech completed certain acquisitions. See
note 14.
(continued)
I-12
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(5) Cablevision Acquisition
-----------------------
On April 25, 1995, the Company acquired a 51% ownership interest in
Cablevision for an adjusted purchase price of $282.0 million, before
liabilities assumed and subject to adjustment as further described below
(the "Cablevision Acquisition"). The purchase price was paid with cash
consideration of $195.2 million (including a previously paid $20 million
deposit and the Company's issuance of $86.8 million principal amount of
secured negotiable promissory notes (the "Cablevision Notes") payable to
the selling shareholders. See note 10. The Company has an option during the
two-year period ended April 25, 1997 to increase its ownership interest in
Cablevision to up to 80.0% at a cost per subscriber similar to the initial
purchase price, adjusted however for certain fluctuations in applicable
foreign currency exchange rates. In connection with the Cablevision
Acquisition, the Company (i) assumed Cablevision's liabilities on April 25,
1995 (approximately $118.6 million), (ii) borrowed $155.2 million from TCI
pursuant to a $200.0 million revolving credit facility between the Company
and TCI (the "TCI Credit Facility"), and (iii) received a $23.5 million
capital contribution from TCI. During the third quarter of 1995, the
Company used a portion of the proceeds from the IPO to repay the $155.2
million principal amount that was borrowed pursuant to the TCI Credit
Facility.
In accordance with the purchase method of accounting, the purchase price
has been allocated using the estimated fair values of the net assets
acquired and Cablevision has been included in the Company's financial
statements since the April 25, 1995 acquisition date. None of Cablevision's
net liabilities at the April 25, 1995 acquisition date, and none of
Cablevision's post-acquisition operating results have been allocated to
Cablevision's 49% minority interest because (i) the minority interest has
no obligation to provide any funding to Cablevision and (ii) Cablevision's
liabilities exceeded the minority interest's historical cost basis in
Cablevision's assets at March 31, 1996. To the extent that Cablevision's
post-acquisition net earnings (exclusive of the effects of purchase
accounting) cause the minority interest's historical cost basis in
Cablevision's net assets to become positive, the Company would begin to
allocate 49% of such net earnings to the minority interest. If the minority
interest's historical cost basis had been positive during the three months
ended March 31, 1996, the Company would have allocated $5.3 million of
Cablevision's net earnings (exclusive of the effective of purchase
accounting) to the minority interest.
(continued)
I-13
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Unaudited pro forma summarized operating results of the Company assuming
the Cablevision Acquisition had been consummated on January 1, 1995, are as
follows (amounts in thousands):
<TABLE>
<CAPTION>
Three months ended
March 31, 1995
------------------
<S> <C>
Revenue $ 56,204
--------
Net loss $(12,189)
--------
Pro forma net loss per common share $ (.13)
--------
</TABLE>
The foregoing unaudited pro forma information is based upon historical
results of operations and is not necessarily indicative of the results that
would have been obtained had the Cablevision Acquisition actually occurred
on January 1, 1995.
(6) IVS Subsidiary Sale
-------------------
On October 17, 1995, IVS completed the sale of a group of cable television
subsidiaries to an unaffiliated third party for aggregate cash proceeds of
(Pounds)62.6 million ($98.9 million using the applicable exchange rate)
(the "IVS Subsidiary Sale"). Following the IVS Subsidiary Sale, IVS's only
remaining cable television asset consisted of its 59.2% ownership interest
in Jersey Cable Limited ("Jersey"), which owns the cable television
franchise for the area of Jersey, Channel Islands. Flextech, which, at the
time, indirectly owned 91.7% of IVS, received (Pounds)59.3 million ($93.7
million using the applicable exchange rate) of the cash proceeds from the
IVS Subsidiary Sale. In connection with the IVS Subsidiary Sale, (i)
Flextech paid (Pounds)3.3 million ($5.0 million) (the majority of which was
not paid until 1996) to acquire the remaining minority interest in IVS that
was not already owned by Flextech (the "IVS Minority Interest Buyout"),
(ii) IVS received cash and notes receivable aggregating (Pounds)663,000
($1.0 million) as consideration for the sale of Flextech's ownership
interest in Jersey to the former minority interest owners of IVS (the
"Jersey Sale"), and (iii) IVS received (Pounds)643,000 ($982,000) in
repayment of Jersey's intercompany payable to IVS. Flextech's aggregate
$1.7 million loss (before deducting the minority interests' share) on the
Jersey Sale and the IVS Minority Interest Buyout was reflected as a
reduction of the $52.8 million non-operating gain (before deducting the
minority interests' share) that was recognized by the Company during the
fourth quarter of 1995 in connection with the IVS Subsidiary Sale. Other
than in connection with the repayment of certain principal and interest
owed to TINTA by Flextech, it is not anticipated that any significant
portion of Flextech's share of the cash proceeds from the IVS Subsidiary
Sale will be distributed or otherwise made available to TINTA.
(continued)
I-14
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(7) Investment in TeleWest
----------------------
At January 1, 1995, TCI and certain affiliates of U S WEST (the "U S WEST
Affiliates") each indirectly held approximately 36% of the ordinary shares
(assuming no conversion of the convertible preference shares) and
approximately 38% of the total outstanding ordinary and convertible
preference shares of TeleWest Communications plc ("Old TeleWest").
During the second quarter of 1995, the Old TeleWest shares owned by the
Company and the U S WEST Affiliates were contributed to TW Holdings, L.L.C.
("TW Holdings"), an entity in which the Company and the U S WEST Affiliates
each hold a 50% ownership interest.
On October 3, 1995, the merger of Old TeleWest and SBC CableComms (UK)
("SBCC") was consummated whereby a new entity, TeleWest plc ("TeleWest"),
acquired all of the outstanding share capital of Old TeleWest and SBCC (the
"SBCC Transaction"). The SBCC Transaction effectively resulted in the
conversion of the Company's 38% indirect ownership interest in Old
TeleWest into a 26.8% indirect ownership interest in TeleWest. As a result
of the SBCC Transaction, and the associated dilution of the Company's
ownership interest in TeleWest, the Company recognized a non-cash gain of
$164.9 million (before deducting estimated deferred income taxes of $57.7
million) during the fourth quarter of 1995. In connection with the SBCC
Transaction, TeleWest issued U.S. dollar denominated senior debentures
having an aggregate principle amount at maturity of $1.8 billion (the
"TeleWest Debentures"). As a result of such issuance, changes in the
exchange rate used to translate the U.S. dollar into the UK pound sterling
will cause TeleWest to experience realized and unrealized foreign currency
transaction gains and losses throughout the term of the TeleWest
Debentures, which mature in 2006 and 2007, if not redeemed earlier. During
the three months ended March 31, 1996, TeleWest experienced a $25.6 million
foreign currency transaction loss relating to the TeleWest Debentures.
At March 31, 1996, the Company, indirectly owned, through TW Holdings,
132,638,250 or 26.7% of the issued and outstanding non-voting TeleWest
convertible preference shares and 246,111,750 or 26.8% (assuming no
conversion of the TeleWest convertible preference shares) of the issued and
outstanding TeleWest ordinary shares. On March 29, 1996, the reported
closing price on the London Stock Exchange of TeleWest's ordinary shares
was (Pounds)1.42 ($2.17).
Certain portions (the "Guaranteed Portions") of TeleWest's bank credit
facilities (currently limited to (Pounds)138.9 million ($212.1 million))
are severally guaranteed by TCI Communications, Inc. (a subsidiary of TCI
that was not among the subsidiaries contributed by TCI to TINTA pursuant to
the Contributions) and U S WEST so that each party is liable for no more
than 50% of the aggregate amount guaranteed. TINTA has agreed to indemnify
TCI for any payments made by TCI Communications, Inc. pursuant to this and
certain other guarantees. At March 31, 1996, no borrowings were outstanding
pursuant to the Guaranteed Portions of TeleWest's bank credit facilities.
(continued)
I-15
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
The functional currency of TeleWest is the UK pound sterling. The average
exchange rate used to translate the Company's share of TeleWest's operating
results from UK pounds to U.S. dollars was 1.5362 to 1 and 1.5948 to 1
during the three months ended March 31, 1996 and 1995, respectively. The
spot rate used to translate the Company's share of TeleWest's net assets
from UK pounds to U.S. dollars was 1.5271 to 1 and 1.5530 to 1 at March 31,
1996 and December 31, 1995, respectively.
Summarized unaudited results of operations of TeleWest are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1996 (1) 1995
-------- ------
<S> <C> <C>
Revenue $ 100,099 42,152
Operating, selling, general and
administrative expenses (105,856) (49,979)
Depreciation and amortization (49,940) (19,905)
--------- -------
Operating loss (55,697) (27,732)
Interest income 10,471 4,789
Share of losses of affiliates (5,464) (3,861)
Interest expense (36,847) (1,561)
Foreign currency transaction loss (25,602) --
Other, net 2 (4,030)
--------- -------
Net loss $(113,137) (32,395)
========= =======
</TABLE>
(1) TeleWest's summarized unaudited results of operations for the three
months ended March 31, 1996 reflect the effects of the above-
described SBCC Transaction.
(8) Investments in Other Affiliates
-------------------------------
The Company's affiliates other than TeleWest that are accounted for using
the equity method (the "Other Affiliates") generally are engaged in the
cable and/or programming businesses in various foreign countries. Most of
the Other Affiliates have incurred net losses since their respective
inception dates. As such, substantially all of the Other Affiliates are
dependent upon external sources of financing and capital contributions in
order to meet their respective liquidity requirements.
In this regard, the Company is obligated to make further loans to or
investments in certain of the Other Affiliates. At March 31, 1996, the
aggregate U.S. dollar equivalent of the unfunded portion of such
commitments was $55.7 million, of which $17.9 million represented
commitments of Flextech.
(continued)
I-16
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
The Company and/or other subsidiaries of TCI (which were not among the
subsidiaries contributed to TINTA pursuant to the Contributions) have guaranteed
notes payable and other obligations of certain of the Other Affiliates (the
"Guaranteed Other Affiliate Obligations"). At March 31, 1996, the U.S. dollar
equivalent of the amounts borrowed pursuant to the Guaranteed Other Affiliate
Obligations aggregated $26.9 million, of which $17.0 million cannot be called
upon until September 30, 1996. Certain of the Guaranteed Other Affiliate
Obligations allow for additional borrowings in future periods. See note 12.
Certain of the Other Affiliates are general partnerships and any subsidiary
of the Company that is a general partner in a general partnership could be
liable, depending upon the applicable partnership law, for all debts of that
partnership to the extent liabilities of that partnership were to exceed its
assets.
Agreements governing the Company's investment in certain of the Other
Affiliates contain (i) buy-sell and other exit arrangements whereby the Company
could be required to purchase another investor's ownership interest and (ii)
performance guarantees whereby the Company and/or other subsidiaries of TCI
(which were not among the subsidiaries contributed to TINTA pursuant to the
Contributions) have guaranteed the performance of the Company's subsidiary that
directly holds the related investment. See note 12.
(continued)
I-17
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
The following table reflects the Company's carrying value (including
receivables) and share of earnings (losses) of the Other Affiliates (amounts in
thousands):
<TABLE>
<CAPTION>
Carrying value Share of earnings (losses)
----------------------------- ---------------------------
March 31, December 31, Three months ended March 31,
---------------------------
1996 1995 1996 1995
--------- ------------ ------ ------
<S> <C> <C> <C> <C>
Flextech Affiliates (a) $118,391 123,156 (4,493) (3,573)
Multithematiques S.A.
("Multithematiques") (b) 87,821 89,705 (1,044) --
Bresnan International Partners
(Chile), L.P. ("BIP Chile") (c) 57,473 59,286 (1,751) (643)
Torneos y Competencias S.A.
("Torneos") (d) 28,352 29,118 (770) --
United International
Investments ("UII") 25,378 26,293 (582) (1,093)
Jupiter Telecommunications
Co., Ltd. ("Jupiter") (e) 25,474 16,268 (2,086) (587)
Bresnan International Partners
(Poland), L.P. 16,226 16,739 (449) (109)
TeleWest Europe Group
("TeleWest Europe") (f) -- (16,800) -- 3,727
Asia Business News (Singapore)
PTE Ltd. 9,460 10,472 (2,369) (1,242)
DMX Europe N.V.
("DMX Europe") (g) 3,917 6,981 (3,064) (1,254)
Other (6,894) (7,085) (1,357) (1,476)
-------- -------- ------- -------
$365,598 354,133 (17,965) (6,250)
======== ======== ======= =======
</TABLE>
(a) Flextech Affiliates
At March 31, 1996, the "Flextech Affiliates" were comprised of European
Business News Partners (30%-owned by Flextech), HIT Entertainment plc
(28%-owned by Flextech), International Family Entertainment UK (39%-owned
by Flextech), Preview Investments B.V. ("Preview") (33%-owned by
Flextech), Scottish Television plc ("STV") (20%-owned by Flextech), UK
Gold Television Limited ("UKGL") (25%-owned by Flextech) and UK Living
Limited ("UKLL") (31%-owned by Flextech). Subsequent to March 31, 1996,
Flextech acquired the 61% ownership interest in International Family
Entertainment UK, which Flextech did not already own. See note 14.
(continued)
I-18
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(b) Multithematiques
On December 13, 1995, TINTA invested 123.1 million French francs ("FF")
($24.7 million at the applicable exchange rate) in Multithematiques, a
newly formed European programming company that is one-third-owned by each
of the Company and two French media companies, CANAL + S.A. ("Canal +") and
Generale d'Images S.A. ("GDI") (the "Multithematiques Transaction"). TINTA
also has agreed to contribute to Multithematiques FF105.0 million ($20.8
million), FF100.0 million ($19.8 million) and FF164.0 million ($32.4
million) no later than December 13, 1996, February 13, 1997 and December
13, 1997, respectively.
Whereas Canal + and GDI are not required to make additional contributions
on a pro rata basis, TINTA's obligation to make the above-described
additional FF369.1 million ($73.0 million) has been viewed as additional
consideration to be paid by TINTA to acquire its one-third interest in
Multithematiques. Accordingly, the U.S. dollar equivalent of the estimated
net present value of such future contributions (using a discount rate of
10%) has been reflected as a liability (the "Multithematiques Obligation")
in the accompanying balance sheets. As the Multithematiques Obligation is
denominated in French francs, the Company will experience realized and
unrealized foreign currency transaction gains and losses with respect to
the Multithematiques Obligation. During the first quarter of 1996, the
Company experienced a $1.7 million unrealized foreign currency transaction
gain with respect to the Multithematiques Obligation.
(continued)
I-19
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(c) BIP Chile
On February 7, 1996, BIP Chile's 50%-owned affiliate, Cordillera
Comunicaciones Limitada ("Cordillera"), and Compania de Telecomun-icaciones
de Chile S.A. ("CTC") (a subsidiary of the Spanish telephone company
Telefonica de Espana S.A.), entered into certain definitive agreements (the
"Chile Restructuring Agreements") that provide for, among other matters,
the contribution of all the cable subscribers within each party's cable
systems to a new Chilean company called Metropolis-Intercom S.A.
("Metropolis-Intercom"). Cordillera will own a 60% interest in Metropolis-
Intercom and CTC, Comercial Canelo S.A. and Empresa El Mercurio S.A.P. will
own jointly a combined 40% interest. The Chile Restructuring Agreements
also provide that all of the cable distribution assets excluding the
headends (the "Acquired Distribution Assets") of Cordillera will be sold to
CTC for estimated cash proceeds of approximately $130.0 million ($70.0
million of which already has been received by Cordillera), subject to
certain adjustments prior to closing. Subject to any applicable legal or
contractual restrictions, it is anticipated that some portion of BIP
Chile's 50% share of such cash proceeds may be used to reduce the amounts
owed by BIP Chile to TINTA pursuant to a subordinated loan agreement. The
parties anticipate finalizing the transactions contemplated by the Chile
Restructuring Agreements in May 1996. After the foregoing transactions are
consummated, CTC will (i) service 77 analog channels and any additional
channels required by Metropolis-Intercom, (ii) expand and operate the
Distribution Assets and (iii) provide technical service pursuant to a
services agreement. Under the Chile Restructuring Agreements, Cordillera,
BIP Chile and the Company have agreed not to compete with Metropolis-
Intercom and not to pursue telephone opportunities in Chile, and CTC has
agreed not to compete with Metropolis-Intercom and not to pursue cable-
related opportunities in Chile (other than through Metropolis-Intercom).
The Chile Restructuring Agreements contemplate that the aforementioned
service agreement will have a term of 30 years (with an option to renew)
and that the associated payments to CTC will reflect the number of channels
provided, the current market conditions and the agreed valuation of the
underlying assets.
(d) Torneos
Effective July 28, 1995, TINTA paid aggregate consideration of $30.0
million to acquire a 35% ownership interest in Torneos, an Argentine sports
programming production company, from the selling stockholders of Torneos
(the "Torneos Stockholders").
(continued)
I-20
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
On the second through the sixth anniversaries of the July 28, 1995 closing
date, the Torneos Stockholders will be eligible to receive additional
consideration, provided certain specified earnings goals are achieved. The
amount of any such additional consideration will not exceed $30.0 million
during such five-year period. Such additional consideration, if any, will
be paid on July 31, 2001. At TINTA's sole discretion, it may be paid in (i)
cash, (ii) shares of a series of Cablevision convertible preferred stock,
(iii) shares of Series A Common Stock (valued at the average of the closing
price for the immediately previous twenty trading days) or (iv) any
combination thereof.
Subsequent to March 31, 1996, TINTA contributed its 35% equity interest in
Torneos to a newly formed joint venture among TINTA, Liberty Media
Corporation (a wholly-owned subsidiary of TCI) ("Liberty"), and The News
Corporation Limited (an unaffiliated media company) ("News Corp."). See
note 14.
Subsequent to March 31, 1996, TINTA, Torneos and the two individual
stockholders of Torneos entered into an agreement whereby TINTA agreed,
among other matters, to acquire certain of Torneos' sports programming
rights. See note 14.
(e) Jupiter
On January 18, 1995, the Company and Sumitomo Corporation ("Sumitomo"), a
company incorporated in Japan, formed Jupiter for the purpose of owning and
operating cable television and telephony businesses in Japan and other
parts of Asia. The Company and Sumitomo own 40% and 60%, respectively, of
Jupiter. The functional currency of Jupiter is the Japanese yen ("(Yen)").
Through March 31, 1996, the Company had made aggregate contributions to
Jupiter of (Yen)3.38 billion ($34.2 million at the applicable exchange
rates). Based on the original business plan, the Company, at March 31 1996,
was obligated to make additional capital contributions to Jupiter in the
amount of (Yen)1.62 billion ($15.3 million), and to pay (Yen)200 million
($1.9 million) to Sumitomo by March 31, 1997. As a result of a number of
recent developments which management believes are favorable to Jupiter, the
Company and Sumitomo are in the process of revising the original business
plan to increase the rate at which Jupiter would acquire additional
franchises and develop its network. Management of the Company estimates
that if Jupiter's business plan is accelerated in the manner currently
under discussion, Jupiter will require additional funding over the
commitments of the Company and Sumitomo provided for in Jupiter's original
business plan, which additional funding may be significant. If Jupiter's
business plan is so accelerated, the Company anticipates that the
additional funding will be obtained through a combination of capital
contributions by the Company and Sumitomo, on a pro rata basis, and, to the
extent available on acceptable terms, debt financing by Jupiter.
(continued)
I-21
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(f) TeleWest Europe
U S WEST Cable Europe, Inc. ("U S WEST Europe"), an indirect wholly-owned
subsidiary of U S WEST, and the Company each own 50% of TeleWest Europe.
TeleWest Europe owns a 91.7% paid-in interest in United Communications
International ("UCI").
UCI is a general partnership between TeleWest Europe and United and
Phillips Communications B.V. ("UPC"). UCI owns (i) an effective economic
interest of 100% in NorKabelgruppen A/S ("NorKabel"), (ii) minority
interests in Swedish Cable and Dish AB and SCD Invest AB (collectively,
"Swedish Cable"), and (iii) joint venture interests in KabelKom Holding Co.
and KabelKom Management Co. (collectively, "KabelKom").
During the first quarter of 1996, the Company and U S WEST Europe entered
into an agreement to contribute additional capital to Swedish Cable and to
amend certain provisions of the TeleWest Europe joint venture agreement
which govern a dissolution of the TeleWest Europe joint venture upon a sale
of the assets of Norkabel, Swedish Cable and KabelKom. The partners agreed
to negotiate an amendment to the joint venture agreement that would (i)
eliminate any return to the Company in the event the proceeds from an asset
sale were not to exceed a specified threshold, (ii) create an alternative
preferential distribution allowing each partner to recoup its share of
payments to Swedish Cable under recent capital calls, and (iii) cancel the
Company's obligation to fund any negative capital account balance existing
after the final accounting of the joint venture. In light of the terms of
this agreement, the Company anticipates that it will not provide any
additional funding to TeleWest Europe that will not be returned to the
Company upon the liquidation or dissolution of TeleWest Europe.
In connection with the execution of the above-described agreement, the
Company and U S WEST Europe agreed to initiate a course of action designed
to result in the liquidation and dissolution of TeleWest Europe. In light
of the terms of the above-described agreement and the partners' agreement
to pursue the liquidation and dissolution of TeleWest Europe, the Company,
effective January 1, 1996, discontinued accounting for TeleWest Europe
using the equity method, and began accounting for TeleWest Europe as an
investment held for disposition. Accordingly, the Company's negative
investment in TeleWest Europe has been reclassified to "Other investments"
within the Company's March 31, 1996 consolidated balance sheet. See note 9.
During the first quarter of 1996, the Company received a $4.1 million
payment from UPC in satisfaction of the Company's receivable from Swedish
Cable that had been included in the Company's negative investment in
TeleWest Europe. Such payment has been included in "Other, net" in the
accompanying consolidated statement of operations for the three months
ended March 31, 1996.
(continued)
I-22
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(g) DMX Europe
At March 31, 1996, the Company owned 49% of the outstanding common stock of
DMX Europe. DMX, Inc. ("DMX"), a company which was approximately 14%-
owned by TCI at March 31, 1996, is the 51% owner of DMX Europe. Through
March 31, 1996, TCI-Euromusic, Inc. ("TCI-E"), an indirect wholly-owned
subsidiary of TINTA that was formed to hold the Company's 49% ownership
interest in DMX Europe, had loaned DMX Europe $24.4 million pursuant to a
financing agreement. At March 31, 1996, DMX owed TCI-E approximately
$200,000 pursuant to a separate promissory note.
In March 1996, the shareholders of DMX approved the merger of TCI-E
with and into DMX, with DMX as the surviving corporation ("the DMX
Merger"). In effecting the DMX Merger, the Company will exchange all of its
shares of TCI-E common stock for a number of newly issued shares of DMX
common stock.
Other
DTH Venture
On November 20, 1995, TINTA announced its intention to form a strategic
partnership with News Corp. and two of Latin America's leading media companies
for the purpose of developing and operating a direct-to-home satellite service
for the Latin American region (the "DTH Venture"). It is anticipated that TINTA
could be required to make significant cash contributions in connection with the
DTH Venture, although no assurance can be given as to when, if ever, such
venture may be formed.
(continued)
I-23
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Jupiter Programming Co., Ltd.
In February 1996, the Company and Sumitomo formed a joint venture that will
create Japan's first multi-channel programming company. The new company, which
is called Jupiter Programming Co., Ltd. ("JPC"), is owned equally (50/50) by the
Company and Sumitomo. Each of the Company and Sumitomo have made initial
contributions to JPC of (Yen)100 million ($944,000). Additionally, the Company
and Sumitomo will contribute their respective 18% and 82% ownership interests in
the Cable Soft Network to JPC. The Company will make an equalizing payment in
connection with the above-described contribution of the Cable Soft Network.
Summarized unaudited results of operations of the Other Affiliates for the
periods in which they were owned by the Company are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
Three months ended
March 31
--------------------
1996 1995
Combined Operations --------- --------
-------------------
<S> <C> <C>
Revenue $ 135,302 100,458
Operating, selling, general and
administrative expenses (146,552) (101,711)
Depreciation and amortization (10,830) (12,708)
--------- --------
Operating loss (22,080) (13,961)
Interest expense (9,765) (9,768)
Other, net 1,404 (6,034)
--------- --------
Net loss $ (30,441) (29,763)
========= ========
</TABLE>
(continued)
I-24
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(9) Other Investments
-----------------
The components of other investments are set forth below (amounts in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
TDL Securities (a) $ 66,663 67,794
TeleWest Europe (b) (15,214) --
Australis Media Limited
("Australis") (c) 3,113 6,012
Other 9,914 10,033
-------- -------
$ 64,476 83,839
======== =======
</TABLE>
(a) TDL Securities
The TDL Securities were acquired by Flextech in connection with the U S
WEST Subscription. Flextech's rights to require U S WEST (UK) to repurchase
the TDL Securities under a put/call agreement are pledged as security for
the Flextech Bank Facility. See notes 4 and 10.
(b) TeleWest Europe
Effective January 1, 1996, the Company discontinued accounting for TeleWest
Europe using the equity method, and began accounting for TeleWest Europe as
an investment held for disposition. Accordingly the Company's negative
investment in TeleWest Europe has been reclassified to "Other investments"
within the March 31, 1996 consolidated balance sheet. See note 8.
(c) Australis
The Company's investment in Australis includes (i) unsecured convertible
debentures having a principal amount of 8,400,000 Australian dollars ($6.6
million) and (ii) 875,000 ordinary shares. The convertible debentures,
which began trading publicly in Australia in 1995, are classified as
available-for-sale debt securities and carried at fair value. The ordinary
shares, which were issued to TINTA during the second quarter of 1995, are
classified as available-for-sale equity securities and carried at fair
value. At March 31, 1996, the Company's unrealized holding gain (loss) with
respect to the Australis convertible debentures and ordinary shares was
$(3.8 million) and $390,000, respectively.
(continued)
I-25
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(10) Debt
----
The components of debt are as follows (amounts in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
TINTA:
Debentures (a) $345,000 --
Cablevision Notes (b) 52,053 65,066
-------- --------
397,053 65,066
-------- --------
Subsidiaries:
Flextech
Flextech Bank Facility (c) 66,663 67,794
STV Bank Credit Facility (d) -- --
-------- --------
66,663 67,794
-------- --------
Cablevision
Bank loans (e) 50,554 58,166
Other 1,523 1,692
-------- --------
52,077 59,858
-------- --------
$515,793 192,718
======== ========
</TABLE>
(a) On February 8, 1996, TINTA received net cash proceeds of approximately
$336 million from the issuance of 4-1/2% Convertible Subordinated
Debentures (the "Debentures") due 2006 having an aggregate principal
amount of $345 million. The Debentures are convertible into shares of
Series A Common Stock at a price of $27.30 per share of Series A Common
Stock, subject to anti-dilution adjustments. Interest on the Debentures
will be payable on February 15 and August 15 of each year, commencing
August 15, 1996. The Debentures will be redeemable by TINTA in whole or
in part, at any time on or after February 15, 1999. Pending its use by
TINTA, the net proceeds from the sale of the Debentures were loaned to
TCI pursuant to an unsecured promissory note (the "TCI Note
Receivable"). See note 12.
(b) The Cablevision Notes are secured by the Company's pledge of the stock
representing its 51% interest in Cablevision. The Cablevision Notes
bear interest at 10% until May 1, 1996, when interest begins to accrue
at a bank's prime rate plus 1%, and are scheduled to be repaid in 12
equal monthly installments through March 31, 1997. See note 5.
(continued)
I-26
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(c) Represents the U.S. dollar equivalent of the aggregate outstanding
borrowings at March 31, 1996 ((Pounds)43.7 million) pursuant to the
Flextech Bank Facility. Flextech entered into the Flextech Bank
Facility in connection with the U S WEST Subscription. Borrowings
pursuant to the Flextech Bank Facility (i) mature on June 5, 1998, (ii)
are secured by Flextech's rights under a put/call agreement, which,
among other matters, require U S WEST (UK) to repurchase the TDL
Securities on June 5, 1998 and (iii) bear interest at a variable rate
(6.4% at March 31, 1996). See notes 4 and 9.
(d) Flextech entered into a second bank credit facility on August 30, 1995
(the "STV Bank Facility"). Borrowings pursuant to the STV Bank Facility
are secured by the ordinary shares of STV that are owned by Flextech,
and bear interest at variable rates. Subject to certain conditions, the
STV Bank Facility provides for borrowing availability through August
30, 1998 not to exceed the lesser of (i) (Pounds)28.0 million ($42.8
million) or (ii) 66.67% of the market value of the STV ordinary shares
that are pledged as security for the STV Bank Facility. See note 8.
(e) Represents Cablevision's bank debt, which is denominated in U.S.
dollars, and bears interest at fixed rates. Including value added tax,
the weighted average rate of Cablevision's bank debt at March 31, 1996
was 10.4%. Borrowings of approximately $40.4 million are secured by
credit card collections of subscriber fees and the remaining
outstanding balance is unsecured. Of the outstanding borrowings at
March 31, 1996, $35.1 million, $14.3 million and $1.2 million mature
during the remainder of 1996 and the years ended December 31, 1997 and
1998, respectively.
With the exception of the Debentures, which had a fair value of $329.5
million at March 31, 1996, the Company believes that the fair value and the
carrying value of the Company's debt were approximately equal at March 31,
1996.
(11) Income Taxes
------------
TINTA and its 80%-or-more-owned domestic subsidiaries (the "TINTA Tax
Group") are included in the consolidated federal and state income tax
returns of TCI. The Company's income taxes include those items in the
consolidated calculation applicable to the TINTA Tax Group ("intercompany
tax allocation") and any income taxes of TINTA's consolidated foreign or
domestic subsidiaries that are excluded from the consolidated federal and
state income tax returns of TCI. Intercompany tax allocation represents an
apportionment of tax expense or benefit (other than deferred taxes) among
subsidiaries of TCI in relation to their respective amounts of taxable
earnings or losses. The payable arising from the intercompany tax
allocation was recorded as an increase in equity through June 30, 1995.
Beginning with the July 1, 1995 implementation of the tax sharing agreement
among TINTA, TCI and certain other subsidiaries of TCI (the "Tax Sharing
Agreement"), the intercompany tax allocation has been included as a
component of "Due from TCI," as reflected in the accompanying consolidated
balance sheets.
(continued)
I-27
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
As described above, the Tax Sharing Agreement was implemented effective
July 1, 1995. The Tax Sharing Agreement formalizes certain of the elements of a
pre-existing tax sharing arrangement and contains additional provisions
regarding the allocation of certain consolidated income tax attributes and the
settlement procedures with respect to the intercompany allocation of current tax
attributes. The Tax Sharing Agreement encompasses U.S. federal, state, local
and foreign tax consequences and relies upon the U.S. Internal Revenue Code of
1986 as amended, and any applicable state, local and foreign tax law and related
regulations. Beginning on the July 1, 1995 effective date, TINTA is responsible
to TCI for its share of current consolidated income tax liabilities. TCI is
responsible to TINTA to the extent that the TINTA Tax Group's income tax
attributes generated after the effective date are utilized by TCI to reduce its
consolidated income tax liabilities. Accordingly, all tax attributes generated
by the TINTA Tax Group's operations after the effective date including, but not
limited to, net operating losses, tax credits, deferred intercompany gains, and
the tax basis of assets are inventoried and tracked for the entities comprising
the TINTA Tax Group. See note 12.
(continued)
I-28
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(12) Related Party Transactions
--------------------------
Due from TCI
Prior to April 25, 1995 (when TINTA borrowed $155.2 million under the TCI
Credit Facility to provide funding for the Cablevision Acquisition, as
described in note 5), the effects of transactions between the Company and
TCI (other than those involving the Company's deferred income taxes) were
reflected in equity. From April 25, 1995 through the July 18, 1995 closing
date of the IPO (see note 1), (i) cash advances from TCI that were used to
fund the Company's existing contractual commitments to make capital
contributions and loans to its affiliates were accounted for as adjustments
of the outstanding borrowings under the TCI Credit Facility and (ii) the
net effect of all remaining transactions between the Company and TCI (other
than those involving the Company's deferred income taxes) were accounted
for as a capital contribution from TCI. Following the July 18, 1995 IPO,
the effects of all transactions between the Company and TCI have been
reflected as intercompany payables or receivables to be settled (i) in the
case of certain non-cash income tax and stock compensation allocations (the
Non-Cash Intercompany Account"), at some future date (as described below),
(ii) in the case of amounts outstanding pursuant to the TCI Note Receivable
(see note 10), as mutually agreed from time to time by TCI and TINTA, and
(iii) in the case of all other intercompany transactions, within thirty
days following notification (the "Cash Intercompany Account"). Any amounts
within the Cash Intercompany Account that remain outstanding after such
thirty-day period generally are treated as adjustments of the outstanding
borrowings pursuant to the TCI Credit Facility. The components of "Due from
(to) TCI" are as follows (amounts in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
TCI Note Receivable (a) $336,375 --
TCI Credit Facility (b) -- --
Non-Cash Intercompany Account (c) 3,899 2,990
Cash Intercompany Account 8,646 (2,618)
-------- -------
$348,920 $ 372
======== =======
</TABLE>
(a) Amounts outstanding under the TCI Note Receivable bear interest at
variable rates based on TCI's weighted average cost of bank borrowings
of similar maturities (6.2% at March 31, 1996). Principal and interest
is due and payable as mutually agreed from time to time by TCI and
TINTA. During the three months ended March 31, 1996, interest income
related to the TCI Note Receivable aggregated $2.2 million.
(continued)
I-29
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(b) The TCI Credit Facility is a subordinated unsecured revolving credit
facility that provides for loans from TCI to the Company in an
aggregate outstanding principal amount of up to $200 million. From the
April 25, 1995 closing date of the Cablevision Acquisition through the
July 18, 1995 closing date of the IPO, TINTA used borrowings pursuant
to the TCI Credit Facility to provide a portion of the funding for the
Cablevision Acquisition and to fund the Company's existing contractual
commitments to make capital contributions and loans to its affiliates.
Subsequent to TINTA's July 18, 1995 receipt of the IPO proceeds, TINTA
used $184.6 million of such cash proceeds to repay the principal and
interest owed to TCI at July 18, 1995 pursuant to the TCI Credit
Facility. See notes 1 and 5.
Borrowings under the TCI Credit Facility, together with all accrued
interest thereon, will be payable in full on April 30, 2000. Prior to
April 30, 2000, borrowings repaid by TINTA under the TCI Credit
Facility will be available for reborrowing, subject to certain
conditions to borrowing. Borrowings under the TCI Credit Facility bear
interest at 13% per annum. If at any time TCI shall beneficially own
capital stock of TINTA representing less than a majority in voting
power of the outstanding shares of TINTA capital stock entitled to vote
for the election of directors, TCI may terminate its obligation to make
further loans under the TCI Credit Facility upon two business days
prior notice to TINTA. The principal of and interest on all outstanding
loans shall become due and payable on the first anniversary of the
receipt by TINTA of such notice. Upon the closing of the IPO, the
Company paid a $2.0 million commitment fee to TCI. Additionally, the
Company pays TCI an annual credit facility fee in an amount equal to
.375% of the unused borrowing availability under the TCI Credit
Facility.
(c) At March 31, 1996, the Non-Cash Intercompany Account was comprised of
$1.0 million due to TCI with respect to TINTA's share of TCI's
compensation liability arising from certain stock appreciation rights
and stock options (the "TCI Compensation Liability") and $4.9 million
due from TCI with respect to the allocation of current intercompany
income tax benefits pursuant to the Tax Sharing Agreement (the "TCI Tax
Receivable"). The TCI Compensation Liability, which represents TINTA's
share of TCI's stock compensation expense for periods subsequent to
July 18, 1995 (the date that the IPO was consummated), will be settled
in cash only to the extent that TCI is required to make cash payments
to satisfy the TCI Compensation Liability. The TCI Tax Receivable,
which represents TINTA's current intercompany income tax benefit for
periods subsequent to July 1, 1995 (the date that the Tax Sharing
Agreement was implemented), will be settled in cash only upon the
deconsolidation of TINTA for purposes of TCI's federal income tax
returns. See note 11. As described below, changes in the TCI
Compensation Liability have been included in the accompanying
statements of operations.
(continued)
I-30
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Other Related Party Transactions
Certain key employees of TINTA hold stock options with tandem stock
appreciation rights with respect to certain common stock of TCI. Estimates of
the compensation relating to the options and/or stock appreciation rights
granted to employees of TINTA have been recorded in the accompanying financial
statements, but are subject to future adjustments based upon the market value of
the underlying TCI common stock and, ultimately, on the final determination of
market value when the rights are exercised. Such estimates resulted in
decreases to International's share of TCI's stock compensation liability of
$909,000 and $85,000 during the three months ended March 31, 1996 and 1995,
respectively.
TCI allocates its corporate expenses to its business units based upon the
estimated cost of general and administrative services provided to the respective
divisions. The amounts allocated to the Company for the three months ended
March 31, 1996 and 1995 aggregated $719,000 and $460,000, respectively.
Following the completion of the IPO, such allocations were made pursuant to a
services agreement between TCI and TINTA.
The Consolidated Puerto Rico Entities purchase programming services from
another subsidiary of TCI. The charges, which approximate such TCI subsidiary's
cost and are based on the aggregate number of subscribers served by the
Consolidated Puerto Rico Entities, aggregated $1.1 million and $638,000 during
the three months ended March 31, 1996 and 1995, respectively. Through December
31, 1995, the Consolidated Puerto Rico Entities also had management arrangements
with certain subsidiaries of TCI whereby such subsidiaries' management provided
administrative services. As compensation for these services, the Consolidated
Puerto Rico Entities paid a monthly fee calculated on a per-subscriber basis.
Charges for such services were $136,000 during the three months ended March 31,
1995. The above-described programming and management fee charges are included in
"Operating costs and expenses - Cable" in the accompanying statements of
operations.
As further described in notes 7, 8 and 13, certain subsidiaries of TCI
(which were not among the subsidiaries contributed by TCI to TINTA pursuant to
the Contributions) have provided guarantees and other credit enhancements on the
Company's behalf. In this respect, the Company has entered into an
indemnification agreement with TCI whereby the Company will indemnify TCI for
any loss, claim or liability that TCI may incur by reason of certain guarantees
and credit enhancements made by TCI on TINTA's behalf.
(continued)
I-31
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Cablevision purchases programming services from certain affiliates. The
related charges generally are based upon the number of Cablevision's
subscribers that receive the respective services. During the three months
ended March 31, 1996, such charges aggregated $3.4 million. Additionally,
certain of Cablevision's general and administrative functions are provided
by affiliates. The related charges, which generally are based upon the
respective affiliate's cost of providing such functions, aggregated
$700,000 during the three months ended March 31, 1996. The above-described
programming and general and administrative charges are included in
"Operating costs and expenses - Cable" in the accompanying statements of
operations.
(13) Commitments and Contingencies
-----------------------------
Through April 25, 1995, the Company relied upon capital contributions from
TCI in order to meet a significant portion of its liquidity requirements.
Since April 25, 1995, TCI has made funds available to the Company primarily
through the TCI Credit Facility. Following the IPO, TCI has not and, it is
anticipated, will not make further capital contributions to the Company in
the future. Notwithstanding the cash proceeds received by the Company in
connection with the IPO and the sale of the Debentures, the Company
believes that it will continue to be dependent upon financing from TCI
and/or external sources in order to meet its liquidity requirements. There
is no assurance that any such sources of financing will be available on
terms acceptable to the Company.
The Company leases business offices, has entered into pole rental and
transponder lease agreements, and uses certain equipment under lease
arrangements. It is expected that in the normal course of business, leases
that expire generally will be renewed or replaced by leases on other
properties. Most of the Company's operating lease commitments relate to
transponder lease agreements that require payment in European Currency
Units.
Flextech has signed a production and output agreement with Hallmark
Entertainment, Inc., a subsidiary of Hallmark ("Hallmark Entertainment"),
whereby Hallmark Entertainment will, on behalf of Flextech, produce in
Europe for Flextech up to 30 made-for-television films and six animated
projects for use in both the UK and certain European territories. In
addition, Flextech has entered into an agreement to acquire UK television
rights to 70 made-for-television movies, 6 mini-series and four dramas
and/or comedy series from Hallmark Entertainment's U.S. network television
output through August 1996. The above-described programming (collectively,
the "Hallmark Programming") generally is scheduled to be delivered to
Flextech during the next three years. Through March 31, 1996, Hallmark
Programming with an aggregate contractual value of (Pounds)11.0 million
($16.8 million) has been delivered to Flextech. At March 31, 1996, it is
estimated that Flextech's remaining commitments to purchase Hallmark
Programming will range from (Pounds)8.9 million ($13.6 million) to
(Pounds)19.3 million ($29.5 million). Flextech also has agreed to purchase
certain programming from STV during the next three years. Flextech's
aggregate remaining obligations at March 31 1996 under such STV programming
agreements were expected to range from (Pounds)2.3 million ($3.5 million)
to (Pounds)7.3 million ($11.1 million).
(continued)
I-32
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
The Company has guaranteed the obligation of an affiliate (The Premium
Movie Partnership) to pay fees for the license to exhibit certain films through
2000. Although the aggregate amount of The Premium Movie Partnership's license
fee obligations is not currently estimable, the Company believes that the
aggregate payments pursuant to such obligations could be significant. If the
Company were to fail to fulfill its obligations under the guarantee, the
beneficiaries have the right to demand an aggregate payment from the Company of
approximately $67.0 million. In connection with this guarantee, the Company has
agreed to maintain a defined net worth (cash equivalents plus the fair value of
securities listed on an exchange less liabilities) of at least $150.0 million.
If the Company's net worth (as defined) were to fall below $150.0 million, TCI
has agreed to subordinate any intercompany amounts owed by the Company to TCI to
the Company's obligation pursuant to this guarantee.
For information concerning the Company's commitments and contingent liabilities
with respect to certain affiliates, see notes 7 and 8.
Certain of the agreements underlying the Flextech Transactions (see note 4)
provide that if the Flextech Preferred Shares do not become convertible by June
1, 1997, Crown and/or U S WEST (UK) can require the Company, at any time, to
purchase all of their Flextech Preferred Shares for a price equal to the then
current market price per share of the Flextech Ordinary Shares.
If at any time (i) the aggregate of the amount of Flextech securities held
by the Company and the remaining amount of Crown's and U S WEST (UK)'s interest
in Flextech acquired pursuant to the Hallmark Subscription and the U S WEST
Subscription exceeds 75% of Flextech's issued and outstanding share capital, or
(ii) subject to certain exceptions, the Flextech Ordinary Shares cease to be
admitted to trading on the Unlisted Securities Market of the London Stock
Exchange (or to be fully listed, following their admission to the Official List
of the London Stock Exchange) as a result of the exercise by the Company of any
of its rights as a Flextech shareholder, the Company shall be obligated to offer
to purchase from Crown and U S WEST (UK) any Flextech Ordinary Shares or
Flextech Preferred Shares held by them and which were originally acquired
pursuant to the Hallmark Subscription or the U S WEST Subscription, as
applicable. Under such circumstances, the offer price for such shares shall be
the higher of (i) the then current market price for the Flextech Ordinary Shares
and (ii) the highest price paid to any third party by the Company for any
Flextech Ordinary Shares or Flextech Preferred Shares during the preceding 12
month period.
In the event the Company is required to purchase any Flextech Preferred
Shares or Flextech Ordinary Shares, as described above, it may elect, subject to
certain limited exceptions, to pay the purchase price thereof in cash or in
shares of Series A Common Stock, or in certain securities of TCI.
(continued)
I-33
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Subsequent to March 31, 1996, TINTA assumed a similar put obligation with
respect to certain Flextech Preferred Shares that were issued in connection with
Flextech's acquisition of the 61% ownership interest in the International Family
Channel UK, which Flextech did not already own. See note 14.
In light of certain change of control provisions contained in the articles of
association of UKGL and UKLL, TCI has agreed to maintain an indirect voting
interest of at least 50.01% in a wholly-owned subsidiary of Flextech so long as
Flextech continues to hold its ownership interests in UKGL and UKLL. Under
Flextech's Articles of Association, if TINTA becomes obligated to purchase any
of the Flextech Preferred Shares (as described above) and fails to complete such
purchase within 12 months from the date such purchase is required to be
completed, such Flextech Preferred Shares shall become convertible into Flextech
Ordinary Shares whether or not TCI ceases to own at least 50.01% of the voting
interest attributable to Flextech's then outstanding ordinary share capital.
In connection with Flextech's August 1995 acquisition of a 33.3% ownership
interest in Preview, Flextech entered into a shareholders' agreement with
Infinity Investments B.V. ("Infinity"), the owner of the remaining 66.7%
interest in Preview, pursuant to which Flextech will have the right to require
Infinity to sell to Flextech (the "Call Option"), and Infinity will have the
right to require Flextech to purchase (the "Put Option"), Infinity's entire
interest in Preview at a price equal to a multiple of the average of Preview's
consolidated profit (before interest and taxes) for the fiscal years ended May
31, 1998, 1999 and 2000, subject to a maximum purchase price of NGL 100.0
million ($60.5 million) and a minimum purchase price of NGL 50.0 million ($30.2
million). The Call Option and the Put Option are exercisable at any time between
June 1, 2000 and December 31, 2000, subject to the approval of Flextech's
shareholders, if such approval is required under the Listing Rules of the London
Stock Exchange at the time of exercise. If the Put Option is exercised and
Flextech's shareholders do not give such approval, Flextech has agreed to pay
NGL 5.0 million ($3.0 million) to Infinity, though in this case, the last date
for exercise of the Call Option will be extended to December 31, 2002, and such
payment will be treated as a (Pounds)2.0 million ($3.1 million) payment on
account of the purchase price payable upon exercise of the Call Option.
Flextech has granted to certain employees under its 1992 stock option
schemes, options to purchase (i) approximately 535,000 Flextech Ordinary Shares
at a per share price of (Pounds)3.24 ($4.95) and (ii) approximately 300,000
Flextech Ordinary Shares at a per share price of (Pounds)3.775 ($5.76) (the
"Flextech Milestone Options"). The Flextech Milestone Options are exercisable
during various periods from 1997 to 2005, only if certain performance conditions
are satisfied. As none of the performance conditions have been satisfied,
Flextech has not yet recorded any compensation expense with respect to the
Flextech Milestone Options. The Company is unable to predict the extent, if
any, that compensation expense will be incurred with respect to the Flextech
Milestone Options.
(continued)
I-34
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
In July 1995, Flextech shareholders approved the adoption of a sharesave
scheme (the "Sharesave Scheme") and certain stock option schemes (the "1995
Stock Option Schemes") that, under certain circumstances, could cause
Flextech to record compensation expense. At March 31, 1996, 139,701
Flextech Ordinary Shares had been granted to employees under the Sharesave
Scheme and no options had been granted under the 1995 Stock Option Schemes.
Through March 31, 1996, compensation expense with respect to the Sharesave
Scheme and the 1995 Stock Option Schemes was not material.
(14) Subsequent Events
-----------------
HSN Direct Acquisition
On April 10, 1996, Flextech acquired an indirect controlling interest in
the "infomercial" business of the HSN Direct Joint Venture ("HSN Direct")
from the Home Shopping Network, Inc. ("HSN") and certain individuals (the
"HSN Managers"). Pursuant to the underlying agreement, Flextech acquired a
78.7% equity interest in a new UK Company ("HSN Newco") which acquired
certain assets of HSN Direct. Flextech also acquired a 78.7% partnership
interest in HSN Direct. HSN owns 15%, and the HSN Managers own the balance
of the equity of each of HSN Newco and HSN Direct. The initial capital
contributions of Flextech, HSN and the HSN Managers to HSN Newco were
(Pounds)525,000 ($802,000), (Pounds)100,000 ($153,000) and (Pounds)42,000
($64,000), respectively, and Flextech has committed to fund up to an
additional $13.2 million to HSN Newco. In exchange for assuming 20% of
Flextech's funding commitment and initial capital contribution, TINTA will
acquire a 20% ownership interest in the Flextech subsidiary that holds
Flextech's 78.7% ownership interest in HSN Newco, and a 20% ownership
interest in the separate Flextech subsidiary that holds Flextech's
partnership interest in HSN Direct.
Agreement to Acquire Torneos' Sports Rights
On April 19, 1996, TINTA, Torneos and the two individual shareholders of
Torneos entered into an agreement (the "TINTA/Torneos Sports Agreement")
whereby TINTA agreed to make minimum periodic payments from 1996 through
2004 aggregating $235.2 million to acquire certain rights and
considerations, including the exploitation rights to all sports rights
owned by Torneos with the exception of any rights which at that time had
been contractually committed to any third party. In particular, TINTA will
acquire worldwide distribution rights outside of Argentina for Clasico del
Domingo and worldwide distribution rights (excluding Buenos Aires) for
Futbol de Primera and Torneos de Verano (Summer Games). In addition, it
is the intention of TINTA and Torneos to form a joint venture company
(50/50) to be the exclusive agent and distributor of two sports channels
(to be formed by the Sports Venture) in Argentina, Bolivia, Paraguay and
Uruguay. The Company's obligations under the TINTA/Torneos Sports Agreement
are subject to the completion of TINTA's due diligence, which is expected
to occur in the second or third quarter of 1996.
(continued)
I-35
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
On May 8, 1996, Tele Red Imagen S.A. ("TRISA") filed for and was granted the
Argentine equivalent of a temporary restraining order ("TRO") with respect to
the portion of the TINTA/Torneos Sports Agreement dealing with Futbol de Primera
in the interior of Argentina. Torneos has filed a motion seeking to dismiss the
TRO. Torneos believes that TRISA's arguments are without merit and that the TRO
will be dismissed. However, TINTA has formally notified Torneos that it is
reserving all its right under the TINTA/Torneos Sports Agreement, including the
right to terminate such contract if the TRISA matter is not resolved to its
satisfaction.
As described below, TINTA has contributed its 35% interest in Torneos to
the Sports Venture. The parties anticipate that TINTA will also assign the
TINTA/Torneos Sports Agreement to the Sports Venture.
IFEI Acquisitions
On April 22, 1996, Flextech acquired from International Family Entertainment,
Inc. ("IFEI") (i) the 61% ownership interest in the International Family Channel
UK, which Flextech did not already own and (ii) a 100% ownership interest in TVS
Television Limited. The total consideration received by IFEI in exchange for
such ownership interests was (Pounds)30.5 million ($46.6 million), of which
(Pounds)3.0 million ($4.6 million) was paid in cash and the remaining balance
was satisfied by Flextech's issuance of 5,792,008 Flextech Preferred Shares (the
"IFE Consideration Shares") at a price per share of approximately (Pounds)4.75
($7.25). In connection with the above-described transactions (collectively, the
"IFE Acquisitions"), TINTA granted to IFEI the right to put the IFE
Consideration Shares to TINTA after June 1, 1997 if the IFE Consideration Shares
have not become convertible into Flextech Ordinary Shares by that date. The put
price is the greater of (i) (Pounds)3.64 ($5.56) per IFE Consideration Share or
(ii) the market value of an IFE Consideration Share at the time of the exercise
of the put option. TINTA has the option to satisfy the put option price in cash
or in shares of Series A Common Stock. Following the completion of the IFE
Acquisitions, TINTA indirectly owned 46.5% of the issued and outstanding
Flextech share capital and 50.9% of the aggregate voting interests attributable
to such Flextech share capital.
(continued)
I-36
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Sports Venture
Effective as of April 29, 1996, TINTA, Liberty and News Corp. formed a joint
venture (the "Sports Venture") to conduct a sports programming business on a
multinational basis, excluding the United States (other than Puerto Rico), the
United Kingdom, Asia (including Japan) and New Zealand. News Corp. owns a 50%
interest in the Sports Venture with the remaining 50% owned by a limited
liability company owned by TINTA and Liberty (the "TINTA/Liberty Venture").
TINTA's initial contribution included $49 million and its 35% equity interest in
Torneos (see note 8). It is anticipated that TINTA will make significant
additional cash contributions to the TINTA/Liberty Venture to fund the
operations of the Sports Venture. Liberty's initial contribution included its
interests in Latin American and Australian sports programming services and its
rights under various television sports programming agreements. News Corp.'s
initial contribution included its rights under various television sports
programming agreements and certain trademark rights. As a part of the formation
of the Sports Venture, the TINTA/Liberty Venture is entitled to receive from
News Corp. 7.5% of the outstanding stock of Star Television Limited. Upon the
delivery of such stock to the TINTA/Liberty Venture, which delivery is expected
to occur in June 1996, News Corp. is entitled to receive from the TINTA/Liberty
Venture $20 million and rights under various Asian sports programming
agreements. Star Television Limited operates a satellite-delivered television
platform in Asia.
Certain Argentine sports rights that are expected to be assigned to the Sports
Venture are discussed above.
Issuance of Series A Common Stock to Canal +
On April 30, 1996, TINTA issued 473,373 shares of Series A Common Stock to
Canal + for an aggregate cash purchase price of $10.0 million.
Mundo Ole Joint Venture
In April 1996, Flextech entered into an agreement in principle with respect
to a joint venture with Sony Entertainment, Time Warner and Ole Investments LDC
("Ole") for the launch of "Mundo Ole," a digital satellite delivered channel
broadcast to Latin America and Brazil. Such agreement in principle proposes
that Flextech and Ole will enter into a 50/50 joint venture, which joint venture
will in turn hold 65% of the new channel, with the balance being held by HBO Ole
Partners, a joint venture between Sony Entertainment, Time Warner and Ole.
Flextech's maximum funding commitment, if the transaction were to proceed, would
be $14.0 million.
I-37
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Management's Discussion and Analysis of Financial Condition and
- - ---------------------------------------------------------------
Results of Operations
---------------------
General
- - -------
Beginning in 1994, TCI restructured its assets into four distinct business
units. As part of that restructuring, during the fourth quarter of 1994 and the
first quarter of 1995, TCI contributed its indirect ownership interests in
substantially all of its international cable and telephony assets and certain of
its international programming assets to TINTA. For purposes of this
discussion, except to the extent the context otherwise requires, the term the
"Company" refers to (i) such contributed ownership interests before the February
28, 1995 completion date of the Contributions and (ii) TINTA and its direct and
indirect subsidiaries and affiliates on and after the date that the
Contributions were completed. Unless the context indicates otherwise, references
to TCI herein are to TCI and its consolidated subsidiaries (other than the
Company). The following discussion and analysis should be read in conjunction
with the Company's financial statements, included elsewhere herein, and the
Management's Discussion and Analysis of Financial Condition and Results of
- - --------------------------------------------------------------------------
Operations included in the Company's Annual Report on Form 10-K for the year
- - ----------
ended December 31, 1995. With respect to trends, risks and uncertainties
affecting the Company's results of operations and financial condition, the
following discussion addresses only changes in such matters that have occurred
during 1996 through the date of this Quarterly Report on Form 10-Q.
As described in greater detail below, the Company reported net losses of
$(26.4 million) and $(14.8 million) during the three months ended March 31, 1996
and 1995, respectively. The Company expects to incur net losses for the
foreseeable future due, in part, to the relatively high level of depreciation
and amortization that is common to growth oriented companies operating within
the capital intensive telecommunications industry. Any improvements in the
Company's results of operations are largely dependent upon the ability of the
Company's operating subsidiaries and affiliates to increase their respective
subscriber bases. There can be no assurance that any such subscriber base
increases will occur.
A significant portion of the Company's operations are conducted through
corporations and partnerships in which the Company holds a 20%-50% ownership
interest. As the Company generally accounts for such ownership interests using
the equity method of accounting, the financial condition and results of
operations of such entities are not reflected on a consolidated basis within the
Company's financial statements.
(continued)
II-1
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
General (continued)
- - -------------------
On April 25, 1995, the Company acquired a 51% ownership interest in
Cablevision. In accordance with the purchase method of accounting, the purchase
price has been allocated using the estimated fair values of the net assets
acquired and Cablevision has been included in the Company's financial statements
since the April 25, 1995 acquisition date. At March 31, 1996, Cablevision owned
cable television systems serving approximately 436,000 basic subscribers. The
following table sets forth summary information with respect to Cablevision's
results of operations (as adjusted for the effects of purchase accounting) for
the three months ended March 31, 1996 (amounts in thousands):
<TABLE>
<S> <C> <C>
Revenue $ 43,379 100%
Operating costs and expenses before depreciation
and amortization (24,328) (56%)
-------- ---
Operating income before depreciation and amortization(1) 19,051 44%
Depreciation and amortization (9,198) (21%)
-------- ---
Operating income $ 9,853 23%
======== ===
</TABLE>
- - --------------------
(1) Operating income before depreciation and amortization ("Operating Cash
Flow") is a commonly used measure of value and borrowing capacity within
the cable and programming industries. Operating Cash Flow is not intended
to be a substitute for a measure of performance in accordance with
generally accepted accounting principles and should not be relied upon as
such.
Through the third quarter of 1995, the Company included Cablevision and
Flextech in its financial statements on a one-month time delay. The Company
eliminated such time delay from its December 31, 1995 financial statements. As a
result, the Company's consolidated statements of operations and cash flows for
the three months ended March 31, 1996 include Cablevision's and Flextech's
results of operations and cash flows for such three-month period, and the
Company's combined statements of operations and cash flows for the three months
ended March 31, 1995 includes Flextech's operating results and cash flows for
the three-month period ended February 28, 1995. As noted above, Cablevision was
not acquired until April 25, 1995.
The Cablevision Acquisition detracts from the period to period
comparability of revenue and expense amounts. See "Material Changes in Results
---------------------------
of Operations" below. Similarly, the Cablevision Acquisition and certain other
- - -------------
transactions have significantly impacted the Company's liquidity and capital
resources. See "Material Changes in Financial Condition" below.
---------------------------------------
(continued)
II-2
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Material Changes in Results of Operations
- - -----------------------------------------
Revenue
-------
Cable revenue increased $44.2 million or 835% during the three months ended
March 31, 1996, as compared to the corresponding prior year period. Such
increase is primarily attributable to the inclusion of Cablevision's operations
in the Company's 1996 results of operations, as described under "General" above.
-------
Programming revenue increased $3.2 million or 32% during the three months
ended March 31, 1996, as compared to the corresponding prior year period. The
majority of such increase is attributable to 35% and 11% increases in the
revenue generated by Bravo Ltd. and Starstream, respectively. Substantially all
of the increase in Bravo Ltd's revenue is attributable to a 21% gain in the
viewership of Bravo and to an increase in the revenue per viewer of Bravo. The
higher revenue per viewer of Bravo is primarily attributable to a price increase
in April 1995 and to increased advertising revenue. The increase in
Starstream's revenue is primarily attributable to an increase in the average
price received for TCC, as TCC's viewership was relatively constant during the
1996 and 1995 periods. In connection with Flextech's August 1995 acquisition of
an ownership interest in a programming service that has a target audience in
Holland similar to that of TCC, it was agreed that, effective January 1, 1996,
TCC would discontinue providing service to approximately 850,000 viewers in
Holland. The January 1, 1996 loss of such viewers in Holland largely offset the
viewership gains experienced by TCC through December 31, 1995. Approximately
$1.1 million of the remaining increase in programming revenue is attributable to
fees received pursuant to a management agreement, which commenced in mid-1995
and which expires in mid-1999 (if not earlier terminated).
Operating Costs and Expenses
----------------------------
Cable operating costs and expenses increased $24.1 million or 562% during
the three months ended March 31, 1996, as compared to the corresponding prior
year period. Such increase is primarily attributable to the inclusion of
Cablevision's operations in the Company's 1996 results of operations, as
described under "General" above.
-------
Cablevision and the Consolidated Puerto Rico Entities purchase programming
under contracts that expire at various dates in the future. No assurance can be
given that future contracts will contain terms as favorable as those contained
in the existing programming contracts of Cablevision and the Consolidated Puerto
Rico Entities.
(continued)
II-3
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Material Changes in Results of Operations (continued)
- - -----------------------------------------------------
Programming operating costs and expenses increased $3.4 million or 29%
during the three months ended March 31, 1996, as compared to the corresponding
prior year period. Approximately $1.9 million of such increase is attributable
to the inclusion in the 1996 period of the operating costs and expenses of
Playboy TV (a programming service that was launched in November 1995 by
Flextech's 51%-owned subsidiary, PBTV). The remaining increase is primarily a
result of increased programming costs. Such increased programming costs are
attributable to (i) the amortization of the cost of programming rights acquired
by Flextech in 1995 and 1996 pursuant to an agreement with Hallmark
Entertainment and (ii) the acquisition of higher quality programming for Bravo
and TCC as a part of Flextech's efforts to increase the viewership of such
services. In light of Flextech's obligations under certain programming rights
agreements with Hallmark Entertainment (as discussed above) and STV, it is
anticipated that Flextech's programming costs will continue to increase
significantly in future periods. For information concerning Flextech's
commitments pursuant to such programming rights agreements, see note 13 to the
accompanying financial statements.
TINTA incurred corporate general and administrative expenses of $2.5
million and $2.0 million during the three months ended March 31, 1996 and 1995,
of which $719,000 and $460,000, respectively, were allocated from TCI. General
and administrative allocations from TCI are generally based upon the estimated
cost of the services provided to the Company.
Estimated changes in (i) TINTA's stock compensation liability and (ii)
TINTA's share of TCI's stock compensation liability are reflected in the
Company's statements of operations. Estimated decreases in such compensation
liabilities aggregated $438,000 and $85,000 during the three months ended March
31, 1996 and 1995, respectively. Such estimated compensation liabilities are
subject to future adjustment based upon market value and, ultimately, upon the
final determination of the market value of the stock appreciation rights at the
time they are exercised.
The $9.5 million or 365% increase in depreciation and amortization expense
during the three months ended March 31, 1996, as compared to the corresponding
prior year period, is the result of increases in the Company's assets that are
subject to depreciation and amortization. The increases in such assets were
primarily attributable to the Cablevision Acquisition and capital expenditures.
(continued)
II-4
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Material Changes in Results of Operations (continued)
- - -----------------------------------------------------
Other Income and Expense
------------------------
TeleWest, which is currently constructing broadband cable television and
telephony networks in the UK, has incurred losses since its inception. It is
expected that the current construction requirements of TeleWest will be
substantially complete within the next five years. As described in note 7 to the
accompanying financial statements, the Company's indirect ownership interest in
TeleWest decreased from 38% to 26.8% in October 1995. Despite such decreased
ownership interest, the Company's share of TeleWest's net losses increased $18.3
million or 149% during the three months ended March 31, 1996, as compared to the
corresponding prior year period. In general, such increase is attributable to
the fact that increases in TeleWest's operating costs and expenses (including
depreciation and amortization) have exceeded increases in TeleWest's revenue.
The increase also includes the Company's share of certain effects of the SBCC
Transaction. In connection with the SBCC Transaction, TeleWest received net cash
proceeds of $1.2 billion upon the issuance of the TeleWest Debentures. In light
of the issuance of the TeleWest Debentures and TeleWest's use of purchase
accounting to account for the SBCC Transaction, TeleWest's depreciation,
amortization and interest expense were significantly higher in the first quarter
of 1996 as compared to the amounts incurred by Old TeleWest during the
corresponding prior year period. In addition, changes in the exchange rate used
to translate the U.S. dollar into the UK pound sterling caused TeleWest to
experience a $25.6 million foreign currency transaction loss during the first
quarter of 1996 with respect to the TeleWest Debentures. Although TeleWest has
entered into certain option arrangements to limit its exposure to foreign
currency transaction losses with respect to the TeleWest Debentures, it is
anticipated that TeleWest will continue to experience realized and unrealized
foreign currency transaction gains and losses throughout the term of the
TeleWest Debentures, which mature in 2006 and 2007, if not redeemed earlier.
The Company's share of the losses of its affiliates other than TeleWest
increased $11.7 million or 187% during the three months ended March 31, 1996, as
compared to the corresponding prior year period. A significant portion of such
increase is attributable to a $3.7 million change in the Company's share of
TeleWest Europe's operating results. As further described in note 8 to the
accompanying financial statements, the Company, effective January 1, 1996,
discontinued accounting for TeleWest Europe using the equity method, and began
accounting for TeleWest Europe as an investment held for disposition. The
Company's share of losses of affiliates that were acquired in 1995 also
contributed to the increase.
(continued)
II-5
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Material Changes in Results of Operations (continued)
- - -----------------------------------------------------
The minority interests' share of net losses was $4.2 million and $2.6
million during the three months ended March 31, 1996 and 1995, respectively.
None of Cablevision's $65.0 million of net liabilities at the April 25, 1995
acquisition date, and none of Cablevision's post-acquisition operating results
have been allocated to Cablevision's 49% minority interest because (i) the
Cablevision minority interest has no obligation to provide any funding to
Cablevision and (ii) the minority interest continued to have a negative
historical cost basis in Cablevision's net assets at March 31, 1996. To the
extent that Cablevision's post-acquisition net earnings (exclusive of the
effects of purchase accounting) cause the minority interest's historical cost
basis in Cablevision's net assets to become positive, the Company would begin to
allocate 49% of such net earnings to the minority interest. If the minority
interest's historical cost basis had been positive during the three months ended
March 31, 1996, the Company would have allocated $5.3 million of Cablevision's
net earnings (exclusive of the effects of purchase accounting) to the minority
interest.
The Company recognized unrealized foreign currency transaction gains of
$1.3 million and $1.5 million during the three months ended March 31, 1996 and
1995, respectively. The 1996 amount includes a $1.7 million unrealized gain
with respect to the remeasurement into the U.S. dollar of the French franc
denominated Multithematiques Obligation, and the 1995 amount includes a $1.3
million unrealized gain with respect to the remeasurement into the U.S. dollar
of the UK pound denominated intercompany debt owed by Flextech to an indirect
subsidiary of TINTA.
Income Taxes
------------
The Company's income tax benefit was $10.7 million and $5.4 million during
the three months ended March 31, 1996 and 1995, respectively. The effective tax
rates associated with such benefits were 29% and 27%, respectively. A Tax
Sharing Agreement among TINTA, TCI and certain other subsidiaries of TCI was
implemented effective July 1, 1995. The Tax Sharing Agreement formalizes
certain elements of a pre-existing tax sharing arrangement and contains
additional provisions regarding the allocations of certain consolidated income
tax attributes and the settlement procedures with respect to the intercompany
allocation of current tax attributes. For additional information, see note 11
to the accompanying financial statements.
Material Changes in Financial Condition
- - ---------------------------------------
On July 18, 1995, TINTA completed the IPO in which 20,000,000 shares of
TINTA's Series A Common Stock were sold to the public for net proceeds of
approximately $301.3 million. Prior to the IPO, the Company had relied upon
capital contributions from TCI in order to meet most of the Company's liquidity
requirements. Since April 25, 1995, TCI has made funds available to the Company
primarily through the TCI Credit Facility, and, since the IPO, TCI has not made,
and it is anticipated will not make, further capital contributions to the
Company in the future.
(continued)
II-6
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Material Changes in Financial Condition (continued)
- - ---------------------------------------------------
The Company's operating activities provided (used) cash of $(14.9 million)
and $810,000 during the three months ended March 31, 1996 and 1995,
respectively. Although the operating activities of Cablevision (which became a
51% owned subsidiary of TINTA on April 25, 1995) and the Consolidated Puerto
Rico Entities historically have generated positive cash flow, the Company
believes that the operating activities of TINTA will continue to produce net
cash flow deficits for the foreseeable future. Furthermore, because the
Company's assets consist primarily of ownership interests in foreign
subsidiaries and affiliates, the repatriation of any cash provided by such
subsidiaries' and affiliates' operating activities in the form of dividends,
loans or other payments is subject to, among other things, exchange rate
fluctuations, tax laws and other economic considerations, as well as applicable
statutory and contractual restrictions. Moreover, the cash balances of the
Company's foreign subsidiaries are generally intended to be applied towards the
respective liquidity requirements of such foreign subsidiaries, and, other than
in connection with the repayment of certain principal and interest owed to TINTA
by Flextech, it is not presently anticipated that any significant portion of
such cash balances will be distributed or otherwise made available to TINTA.
Accordingly, there can be no assurance that the Company will have access to any
cash generated by its foreign operating subsidiaries and affiliates. In this
regard, $68.7 million of the Company's cash balances were held by foreign
subsidiaries at March 31, 1996.
During the three months ended March 31, 1996 and 1995, cash used by the
Company's investing activities aggregated $29.7 million and $46.3 million,
respectively, of which $19.4 million and $38.7 million, respectively, was used
by the Company to fund investments in, and loans to, affiliates.
(continued)
II-7
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Material Changes in Financial Condition (continued)
- - ---------------------------------------------------
The Company expects that it will continue to have significant cash
requirements with respect to its investing activities. In this regard the
Company, as of March 31, 1996, is contractually obligated to make loans or
capital contributions to its affiliates as follows:
<TABLE>
<CAPTION>
Commitment U.S. dollar
amount at equivalent at
March 31, March 31,
Affiliate Currency 1996 1996
- - --------- -------- ---------- ---------
amounts in thousands
<S> <C> <C> <C>
Jupiter Japanese yen ("(Yen)") (Yen) 1,620,000(1) $15,292
Flextech Affiliates UK pounds sterling ("(Pounds)") (Pounds) 11,720(2) 17,898
BIP Chile U.S. dollar $8,990(3) 8,990
Bresnan International
Partners (Poland), L.P.
("BIP Poland") U.S. dollar $ 7,000(4) 7,000
Other Various 6,513
-------
$55,693
=======
</TABLE>
_______________
(1) Represents the Company's aggregate unfunded obligations to make capital
contributions and certain other payments with respect to Jupiter through
March 31, 1997. The Company and Sumitomo currently are discussing an
increase in the funding requirements of Jupiter beyond the amounts
reflected in the foregoing table. See note 8 to the accompanying financial
statements.
(2) Represents 100% of Flextech's aggregate unfunded obligations to provide
debt and equity financing to certain of its affiliates.
(3) Represents the Company's aggregate unfunded obligations to provide debt and
equity financing to BIP Chile.
(4) Represents the Company's aggregate unfunded obligations to provide debt and
equity financing to BIP Poland.
The $65.7 million U.S. dollar equivalent of the estimated net present value
of the additional capital contributions that TINTA is required to make to
Multithematiques through December 1997 has not been reflected in the foregoing
table since such amount has been reflected as a liability in the Company's March
31, 1996 consolidated balance sheet. See note 8 to the accompanying financial
statements for additional information concerning the Multithematiques
Obligation.
(continued)
II-8
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Material Changes in Financial Condition (continued)
- - ---------------------------------------------------
The Company believes that it will be required to fund most of the foregoing
commitments during the period ended December 31, 1997. In addition, the Company
believes that its actual future cash requirements, including cash requirements
in connection with the funding of capital expenditures and operating activities
of its affiliates, will exceed the amounts that the Company currently is
contractually obligated to fund. The Company is not able to more precisely
predict the timing or amount of the future funding requirements of its
affiliates because such future cash requirements are dependent upon a variety of
factors.
Although TeleWest has required significant amounts of capital in order to
fund its construction program and operating losses, the Company has not provided
any funding to TeleWest since the November 1994 consummation of the TeleWest
IPO. As described in note 7 to the accompanying financial statements, the SBCC
Transaction was completed on October 3, 1995. In connection therewith, TeleWest
received $1.2 billion in net cash proceeds from the issuance of the TeleWest
Debentures. TeleWest used approximately $251.0 million of such proceeds to repay
outstanding borrowings pursuant to a SBCC loan facility that has been
terminated. The remaining proceeds will be available to satisfy TeleWest's
existing and future cash requirements. It is not anticipated that any portion of
such remaining proceeds will be distributed or otherwise made available to
TINTA. Although the Company has indemnified another subsidiary of TCI with
respect to such TCI subsidiary's guarantee of certain portions of TeleWest's
bank credit facilities (which portions had not been borrowed by TeleWest at
March 31, 1996), the Company has no present intention to make any significant
additional capital contributions or loans to TeleWest in order to assist
TeleWest in meeting its existing liquidity requirements. For additional
information with respect to this guarantee, see note 7 to the accompanying
financial statements.
As further described under note 8 to the accompanying financial statements,
the Company has guaranteed borrowings of, and has certain other contingent
liabilities with respect to, the Other Affiliates.
The Company's significant commitments under certain lease and programming
agreements and its significant contingent liabilities with respect to certain
share repurchase arrangements, guarantees, investments and other matters are
described under notes 7, 8, 13 and 14 to the accompanying financial statements.
During the year ended December 31, 1995, Cablevision (from April 25, 1995
through December 31, 1995), Flextech and the Consolidated Puerto Rico Entities
accounted for $21.4 million, $28.7 million (of which $23.0 million was
attributable to IVS) and $7.8 million, respectively, of the Company's aggregate
capital expenditures of $57.9 million. Although the Company expects that the
future capital expenditure requirements of Cablevision, Flextech (exclusive of
IVS) and the Consolidated Puerto Rico Entities will equal or exceed historical
levels, the Company currently believes that the internally generated funds and
other sources of liquidity of such entities generally will be sufficient to
satisfy the foreseeable capital expenditure requirements of such entities.
(continued)
II-9
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Material Changes in Financial Condition (continued)
- - ---------------------------------------------------
During the year ended December 31, 1995, the Company consummated the
Cablevision Acquisition, the Flextech Transactions, the IVS Subsidiary Sale, the
Multithematiques Transaction and certain other transactions. For information
concerning the effects of such transactions on the Company's liquidity and
capital resources, see notes 4, 5, 6, 8, 10 and 13 to the accompanying financial
statements.
On February 7, 1996, Cordillera and CTC entered into the Chile
Restructuring Agreements. It is anticipated that some portion of BIP Chile's
50% share of the cash proceeds generated by the transactions contemplated by the
Chile Restructuring Agreements may be used to reduce the amounts owed by BIP
Chile to TINTA pursuant to a subordinated loan agreement. For additional
information, see note 8 to the accompanying financial statements.
On February 8, 1996, the Company received net cash proceeds of
approximately $336 million from the issuance of the Debentures. Pending its use
by TINTA, the net proceeds from the sale of the Debentures have been loaned to
TCI pursuant to an unsecured promissory note. For additional information, see
notes 10 and 12 to the accompanying financial statements.
In February 1996, the Company and Sumitomo formed JPC. In connection
therewith, the Company and Sumitomo will contribute their respective 18% and 82%
ownership interests in the Cable Soft Network to JPC. The Company will make an
equalizing payment in connection with the above-described contribution of the
Cable Soft Network. See note 8 to the accompanying financial statements.
Subsequent to March 31, 1996, Flextech acquired (i) a controlling interest
in the "infomercial" business of HSN Direct and (ii) consummated the IFEI
Acquisitions. In connection with the IFEI Acquisitions, TINTA assumed certain
put obligations. For additional information concerning the effects of such
transactions on the Company's liquidity and capital resources, see note 14 to
the accompanying financial statements.
On April 19, 1996, TINTA, Torneos and the two individual shareholders of
Torneos entered into an agreement whereby TINTA agreed to make minimum periodic
payments from 1996 through 2004 aggregating $235.2 million to acquire certain
rights and considerations, including the exploitation rights to all sports
rights owned by Torneos with the exception of any rights which at that time had
been contractually committed to any third party. As described under note 14 to
the accompanying financial statements, TINTA has contributed its 35% interest in
Torneos to the Sports Venture. The parties anticipate that TINTA will also
assign this agreement to the Sports Venture. For additional information, see
note 14 to the accompanying financial statements.
(continued)
II-10
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Material Changes in Financial Condition (continued)
- - ---------------------------------------------------
Effective as of April 29, 1996, TINTA, Liberty and News Corp. formed a
joint venture (the "Sports Venture") to conduct a sports programming business on
a multinational basis, excluding the United States (other than Puerto Rico), the
United Kingdom, Asia (including Japan) and New Zealand. News Corp. owns a 50%
interest in the Sports Venture with the remaining 50% owned by a limited
liability company owned by TINTA and Liberty (the "TINTA/Liberty Venture").
TINTA's initial contribution included $49 million and its 35% equity interest in
Torneos. It is anticipated that TINTA will make significant additional cash
contributions to the TINTA/Liberty Venture to fund the operations of the Sports
Venture. For additional information, see notes 8 and 14 to the accompanying
financial statements.
On April 30, 1996, TINTA issued 473,373 shares of Series A Common Stock to
Canal + for an aggregate cash purchase price of $10.0 million.
In April 1996, Flextech entered into an agreement in principle with respect
to a joint venture with Sony Entertainment, Time Warner and Ole Investments LDC
("Ole") for the launch of "Mundo Ole" a digital satellite delivered channel
broadcast to Latin America and Brazil. Flextech's maximum funding commitment, if
the transaction were to proceed, would be $14.0 million. For additional
information, see note 14 to the accompanying financial statements.
At March 31, 1996, $69.2 million of the Company's $78.9 million of cash and
cash equivalents were held by its subsidiaries. Exclusive of amounts held by its
subsidiaries, TINTA held cash and cash equivalents of $9.7 million at March 31,
1996. TINTA believes that such cash and cash equivalents, the net cash proceeds
from the sale of the Debentures (which net cash proceeds have been loaned to TCI
as described above), borrowing availability pursuant to the TCI Credit Facility
and any funds generated by the operating or financing activities of TINTA's
operating subsidiaries and affiliates will be sufficient for the next year to
(i) fund the Company's existing capital contribution and lending commitments to
its affiliates and (ii) fund the Company's working capital, debt service and
capital expenditure requirements. Although TINTA's ability to obtain dividends
or advances from certain of its operating subsidiaries and affiliates is
limited, TINTA's liquidity requirements with respect to its operating
subsidiaries and affiliates are reduced to the extent that such operating
subsidiaries and affiliates are able to generate funds through their respective
operating or financing activities. To the extent that the Company seeks to make
significant acquisitions or is required to meet significant future liquidity
requirements in addition to those described above, the Company anticipates that
it will need to obtain additional debt or equity financing. Other events could
occur involving TINTA, including required payments under certain share
repurchase, guarantee and indemnification agreements, that could require TINTA
to obtain significant additional funds. No assurance can be given, however, that
TINTA or its subsidiaries or affiliates will be able to obtain additional
financing on terms acceptable to them, or at all.
II-11
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
- - ------- ------------------
There were no new material legal proceedings during the quarter
ended March 31, 1996 to which the Company or any of its
consolidated subsidiaries is a party or which any of its property
is subject, except as follows:
Alan Robinson v. TCI/U S WEST Cable Communications, Inc.; TeleWest
------------------------------------------------------------------
Communications PLC; Tele-Communications, Inc.; U S WEST, Inc.;
--------------------------------------------------------------
Stephen Davidson; Gary Bryson; Kleinwort Benson; and Kleinwort
--------------------------------------------------------------
Benson of North America.
-----------------------
On April 19, 1996, this action was filed in the United States
District Court, Austin District of Texas, Western Division, Case
No. A 95 CA 833 JN. The complaint was amended on or about April 19,
1996. The allegations in the amended complaint pertain to the
plaintiff's ownership of shares of stock in United Artist
Communications London South PLC and communications with the
defendants concerning the purchase of such stock by certain of the
defendants. Plaintiff's claims against the defendants are for: 10b-
5 securities violations; breach of fiduciary duty; negligence and
gross negligence; fraud; constructive trust; constructive trust
(unjust enrichment); constructive trust (violation of fair
dealing); civil conspiracy; tortious interference with contract;
breach of third-party contract by Kleinwort-Benson; recision of
contract for failure of consideration and restitution; cancellation
of contract for mutual mistake; and racketeering influenced and
corrupt organizations claim. Plaintiff seeks actual damages of $9
million, consequential damages of an additional $9 million, and
punitive damages in the amount of $27 million.
The complaint was initially received on January 5, 1996. The
amended complaint was served on April 22, 1996. The defendants
intend to contest this action. Based upon the facts available,
management believes that, although no assurance can be given as to
the outcome of this action, the ultimate disposition should not
have a material effect upon the financial condition of the Company.
Item 6. Exhibits and Reports on Form 8-K.
- - ------ ---------------------------------
(a) Exhibits
10 - Material Contracts
10.1 Shareholders Agreement in relation to Flextech
plc dated March 20, 1996 between
International Family Entertainment, Inc. and
Tele-Communications International, Inc.
10.2 English translation of Shareholders Agreement
dated February 7, 1996 between Cordillera
Comunicationes Limitada and others, and
Invercom S.A. and others.
27 - Financial Data Schedule
(b) Reports on Form 8-K filed during quarter ended March 31,
1996 - none
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Date: May 14, 1996 By: /s/ Fred A. Vierra
--------------------------------------
Fred A. Vierra
Chief Executive Officer
Date: May 14, 1996 By: /s/ Graham Hollis
--------------------------------------
Graham Hollis
Vice President and
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
II-13
<PAGE>
Exhibit 10.1
DATED 20 MARCH 1996
INTERNATIONAL FAMILY ENTERTAINMENT, INC
-and-
TELE-COMMUNICATIONS INTERNATIONAL, INC
---------------
SHAREHOLDERS AGREEMENT
in relation to
FLEXTECH p.l.c.
---------------
<PAGE>
THIS AGREEMENT is made as of the 20th day of March 1996
BETWEEN
(1) INTERNATIONAL FAMILY ENTERTAINMENT, INC. a Delaware Corporation ("IFE");
and
(2) TELE-COMMUNICATIONS INTERNATIONAL, INC. a Delaware corporation ("TCI");
WHEREAS:
(A) United Artists European Holdings Limited (registered in England and Wales
under no. 2514318), which is a wholly-owned subsidiary of TCI, has the
interest in the share capital of Flextech p.l.c. (registered in England
under No. 2688441) ("Flextech") details of which are set out in Part 1 of
Schedule 1 hereto.
(B) Certain members of the IFE Group (as hereinafter defined) are proposing
under the terms of two Sale and Purchase Agreements dated of even date
herewith (together the "SALE AGREEMENTS") to acquire the interest in
Flextech's share capital details of which are set out in Part 2 of Schedule
1 hereto and intend to acquire such interest in reliance on amongst other
things, the undertakings and agreements given or made by TCI under this
agreement.
(C) The parties are entering into this agreement for the purposes of recording
certain matters which they have agreed with respect to the ownership of
shares in Flextech.
<PAGE>
2
NOW IT IS HEREBY AGREED as follows:
1. DEFINITIONS
(1) In this Agreement, unless the context otherwise requires, the following
terms have the following meanings:
"AFFILIATE" means, in relation to a party (the "RELEVANT PARTY"), any person
directly or indirectly controlling or controlled by or under common control with
the relevant party; "CONTROL" when used with respect to any person, means the
direct or indirect ownership of securities in issue of such person carrying more
than 50 per cent. of all voting rights; the terms "CONTROLLING" and "CONTROLLED"
have corresponding meanings; "VOTING RIGHTS" means the right to vote at general
meetings on all or substantially all matters; and "VOTING SECURITIES" shall be
construed accordingly herein. For the purposes of this definition, shares
and/or voting rights held by a person as a nominee for another person shall be
deemed to be shares and/or voting rights held by that other person;
"ARTICLES" means the articles of association of Flextech (as the same may
subsequently be amended from time to time);
"BOARD" means the board of Directors in a meeting duly constituted;
"BUSINESS DAY" means a day other than a Saturday, Sunday or public holiday in
the United Kingdom or the States of Virginia or Colorado;
"CITY CODE" means the City Code on Takeovers and Mergers as amended from time to
time;
"COMPANIES ACT" means the Companies Act 1985 of Great Britain;
<PAGE>
3
"CONSIDERATION SHARES" means together the "Consideration Shares" as defined in
both Sale Agreements except that it shall include any Ordinary Shares issued on
any conversion of any of the Convertible Shares referred to in those definitions
in the Sale Agreements;
"CONVERTIBLE SHARES" means the Convertible Non-Preferred Shares of 10p each (or
such other nominal amount into which they may be consolidated or split) in the
capital of Flextech, having the rights and subject to the restrictions set out
in the Articles;
"DIRECTOR" means a director of Flextech;
"FLEXTECH CIRCULAR" means the circular sent by Flextech to its shareholders
dated 12th May 1995;
"IFE GROUP" means IFE and each of its Affiliates;
"LONDON STOCK EXCHANGE" means London Stock Exchange Limited;
"NASDAQ" means the Nasdaq National Market System;
"ORDINARY SHARES" means ordinary shares of 10p each (or such other nominal
amount into which they may be consolidated or split) in the capital of
Flextech, having the rights and subject to the restrictions set out in the
Articles;
"REGISTRATION RIGHTS AGREEMENT" means, in relation to any Stock issued pursuant
to Clause 3, an agreement in substantially the form of that annexed hereto as
Annexure "A" and initialled by (or on behalf of) the parties for identification;
"SHAREHOLDER" means each of TCI and IFE;
<PAGE>
4
"SHARES" means any shares in the capital of Flextech outstanding from time to
time;
"STOCK" or "TCI STOCK" means voting Common Stock of TCI which at the time of
any issue to IFE (or to such other person as it may request) in accordance with
this Agreement satisfies all of the following requirements:-
(i) at least 10 per cent. of the total issued and outstanding shares of such
class of Common Stock is held by persons none of whom (including any
Affiliates of such person):
(a) holds or is interested in 5 per cent. or more of the shares of such Common
Stock; or
(b) is a director of (or is entitled to appoint or nominate a director of), or
is involved (or is entitled to be involved) in any way in the management
of, the issuer of such Common Stock (or any Affiliate thereof) (or is an
associate (for the purposes of Rule 126.2 under the Securities Exchange Act
of 1934) of any such director or person);
(ii) the aggregate Market Price (as defined in Clause 3.1(b)) of all such Common
Stock as is held by the persons referred to in (i) above (whether or not
the percentage of such Common Stock held by such persons is the minimum 10
per cent referred to above or a greater percentage), is not less than
US$100 million (and, for the purposes of this requirement, where such
Market Price is denominated in pounds sterling, the US dollar equivalent
thereof shall be determined by reference to the rate for conversion of
pounds sterling into US dollars (published by the Financial Times under the
table "Exchange Cross Rates" (or such other table as may replace it for the
purposes of quoting spot exchange rates of major banks) on the relevant
day); and
<PAGE>
5
(iii) such Common Stock constitutes the largest class (by total number of
shares issued and outstanding) of voting Common Stock of the
relevant issuer as shall have previously been offered to the public
and be listed on any national securities exchange in the US
(including Nasdaq) or be admitted to the Official List of the London
Stock Exchange.
"TCI GROUP" means TCI, TC Inc and each of their respective Affiliates;
"TC INC" means Tele-Communications, Inc a corporation incorporated under the
laws of the State of Delaware, USA and having its principal office at Terrace
Tower 11, 5619 DTC Parkway, Englewood, Colorado 80111, USA (or any successor
corporation thereof); and
"CROWN", "HALLMARK SUBSCRIPTION AGREEMENT", "SUBSCRIPTIONS", "US WEST UK" AND
"US WEST SUBSCRIPTION AGREEMENT" each has the meaning attributed thereto in the
Flextech Circular.
(2) For the purposes of this Agreement a person shall be deemed to be
interested in Shares or other securities if it is interested in those
Shares or other securities for the purposes of Part VI of the Companies
Act, disregarding for this purpose sections 204, 205, 206 and 209 thereof,
and whether or not the number of Shares in which such person is interested
shall constitute a notifiable interest for the purposes of section 198 of
the Companies Act.
(3) The expression "person" herein includes any person, firm or company or
group of persons or any unincorporated body.
(4) The headings in this Agreement do not affect its interpretation.
<PAGE>
6
(5) Any reference, express or implied, to an enactment includes references to:
(a) that enactment as amended, extended or applied by or under any other
enactment before or after this Agreement;
(b) any enactment which that enactment re-enacts (with or without
modification); and
(c) any subordinate legislation made (before or after this Agreement) under
that enactment, as amended, extended or applied as described in paragraph
(a) above or under any enactment within paragraph (b) above.
(6) Except where the context requires otherwise, references to Clauses and to
Schedules are to clauses of or schedules to this Agreement and references
to sub-clauses are to sub-clauses of the Clause in which the reference
appears.
(7) Except where the context requires otherwise words denoting the singular
number include the plural number and vice versa, words denoting the
masculine gender include the feminine gender and words denoting persons
include companies.
(8) Where any obligation pursuant to this Agreement is expressed to be
undertaken or assumed by any Shareholder, such obligation shall be
construed as requiring the Shareholder concerned to exercise all rights and
powers of control over the affairs of any other person which that
Shareholder is able to exercise (whether directly or indirectly) in order
to secure performance of such obligation.
2. TAG ALONG RIGHTS
2.1 Subject to Clause 2.3, if any member of the TCI Group:
<PAGE>
7
(a) proposes to dispose of any Shares (or any interest in any Shares) to
any person other than another member of the TCI Group; or
(b) which holds (or has any interest in) any Shares (a "TCI Vendor") is to
cease to be an Affiliate of TCI,
(the Shares disposed of either directly pursuant to Clause 2.1(a) or indirectly
pursuant to Clause 2.1(b) by virtue of a TCI Vendor ceasing to be an Affiliate
of TCI, being hereinafter referred to as the "SALE SHARES"), TCI shall
forthwith give written notice to IFE of such proposed disposal (a "DISPOSAL
NOTICE") and where such disposal would constitute a Triggering Disposal (as
defined below) IFE may by notice in writing served on TCI within 10 Business
Days of receipt of a Disposal Notice (in the case of disposals pursuant to
Clause 2.1(a)) and within 10 Business Days of agreement or certification of an
Equivalent Price (in the case of disposals pursuant to Clause 2.1(b)) require
TCI either to procure that the acquirer of the Sale Shares (or of shares or
interests in the TCI Vendor, as the case may be) offers or, at the option of
TCI, to offer itself to purchase from IFE an Equivalent Proportion (or such
lesser proportion, if any, as IFE may wish to sell) of the Consideration
Shares (to be selected by IFE) held by members of the IFE Group at an Equivalent
Price and at the same time as the Sale Shares are disposed of or, as the case
may be, the TCI Vendor ceases to be an Affiliate of TCI.
For the purposes of this clause the creation of any security over Shares (as
opposed to the realisation of such security) shall not constitute, by itself, a
disposal of such Shares and an agreement to dispose of any Shares shall not, by
itself, constitute a disposal of such Shares but completion or closing of any
disposal pursuant to such agreement shall constitute a disposal and accordingly
prior to any such disposal taking place, TCI shall take the action required by
the preceding provisions of this clause in relation to such disposal.
<PAGE>
8
2.2 (a) A "DISPOSAL NOTICE" shall include certified details of the number of
Sale Shares proposed to be disposed of, whether directly or
indirectly, pursuant to Clauses 2.1(a) or (b) and, where it is given
in relation to a Triggering Disposal, the Equivalent Price in respect
of such Sale Shares.
(b) An "EQUIVALENT PROPORTION" shall mean that proportion of the total
number of Consideration Shares held or beneficially owned by members of
the IFE Group as is, at the relevant time, equal to the proportion which
the number of Sale Shares proposed to be disposed of (whether directly
or indirectly) (less any of such Sale Shares the disposal of which, if
there were no others, would not constitute a Triggering Disposal
hereunder) bears to the total number of Shares held or beneficially
owned by members of the TCI Group immediately prior to such disposal.
(c) An "EQUIVALENT PRICE" shall mean:
(i) in the case of a disposal pursuant to Clause 2.1(a) the same price
per Share as that to be received by the member of the TCI Group
proposing to make the relevant disposal (and, where any of such
consideration is not to be satisfied by the payment of a monetary
amount, such consideration shall be such amount as (subject to
Clause 7.2(a)) TCI and IFE reasonably consider to be the monetary
value thereof); and
(ii) in the case of a disposal pursuant to Clause 2.1(b) a price per
Share equal to an amount which TCI and IFE reasonably consider to
be equal to the monetary value of that part of the consideration
which is proposed to be payable in respect of the acquisition of
Shares (or interest in Shares) in the TCI Vendor resulting in such
TCI Vendor ceasing to be an Affiliate of TCI as referred to in
Clause 2.1(b) and which is attributable to the TCI Vendor's
interest in the Sale Shares.
<PAGE>
9
Subject and without prejudice to Clause 7.2(a), if TCI and IFE are unable
to agree the relevant amount pursuant to Clause 2.2(c)(i) or Clause
2.2(c)(ii) within 10 Business Days of service of a Disposal Notice in
relation to a Triggering Disposal either such party shall be entitled to
refer the determination of the same to an independent, internationally
recognised investment bank (the "EXPERT") agreed upon by TCI and IFE who
shall determine its opinion of the fair market value of such Shares (the
"CERTIFIED PRICE"). Subject as aforesaid, if TCI and IFE are unable to
agree upon the identity of the Expert within a period of 10 days after
expiry of the 10 Business Day period referred to above then the Expert
shall be appointed by the President for the time being of the International
Chamber of Commerce. TCI and IFE shall procure that there is retained so as
to be made available to the Expert such information as it reasonably
requires in order to determine the Certified Price. The Expert shall be
deemed to be acting as an expert and not an arbitrator and its decision
shall be final and binding on the parties. The cost of obtaining the
Expert's certificate shall be borne by the parties equally.
(d) A "TRIGGERING DISPOSAL" means any disposal of Shares whether directly
and/or indirectly pursuant to Clause 2.1(a) and/or (b) respectively, where
the number of Shares proposed to be disposed of, when aggregated with the
number of any Shares previously disposed of directly and/or indirectly
pursuant to Clause 2.1, would exceed 5,634,060. Provided that if at any
time hereafter any Shares are consolidated or sub-divided or issued with a
nominal value which is greater or lesser than 10p per Share, then the
number of Shares referred to in this definition in respect of which there
have not been any disposals, directly or indirectly, pursuant to Clause 2.1
shall be reduced or increased accordingly and if any doubt arises as to the
adjustment to be made to such number a certificate of the auditors for the
time being of the Company as to what such adjustment should be shall be
conclusive and binding on the parties hereunder (the intention of the
parties being that any such consolidation or sub-division or issue of
Shares with such greater
<PAGE>
10
or lesser nominal value should not increase or decrease the effective
amount of Share capital the disposal of which would qualify as a Triggering
Disposal hereunder).
2.3 This sub-clause applies where under any provision of any of the laws of the
United Kingdom, or under any rules of the City Code or the London Stock
Exchange, any third party is required to make a general offer to acquire at
least the same percentage of IFE's holding (directly or indirectly) of Shares as
it is offering to acquire from any member of the TCI Group and at the same price
per Share as it is offering to the TCI Group. Such third party's offer and
acquisition of such percentage (or, at the option of IFE, lesser percentage (if
any)) of IFE's holding of Shares, in accordance with the terms of the relevant
provision or rules, shall be treated as satisfying pro tanto the obligations of
TCI under this clause with respect to the purchase or sale of a proportion of
the Equivalent Proportion of Shares held by members of the IFE Group which is
equal to the proportion of IFE's holding of Shares which such third party so
offers to acquire.
3. CONVERTIBLE SHARE PUT OPTIONS
3.1 (a) If the Convertible Shares have not become convertible into fully paid
Ordinary Shares in accordance with the Articles by 1st June 1997, IFE shall be
entitled at any time and from time to time thereafter to serve a written notice
(the "Final Put Notice") on TCI requiring TCI to purchase all or part of the
Convertible Shares comprised in the Consideration Shares held by any member of
the IFE Group, at the Final Put Price (as defined below), in which event such
purchase shall take place for cash, save that TCI may elect for IFE to take TCI
Stock instead of cash. TCI shall tender notice of its election to IFE within 5
business days thereafter. If TCI has not responded within 5 days, IFE shall
retransmit the Final Put Notice to TCI, and if TCI still has not responded two
days after the second transmission, TCI will be deemed irrebuttably to have
elected to pay the purchase price in cash.
<PAGE>
11
If TCI elects to pay the purchase price in TCI Stock, at IFE's option either:-
(i) such purchase shall be in exchange for the issue to IFE (or to such other
Affiliate of IFE as IFE may request) by TCI of fully paid restricted
shares of TCI Stock having an aggregate Value at least equal to the Final
Put Price (the "First Choice"); or
(ii) half the Convertible Shares to which the Final Put Notice relates shall be
purchased by TCI at the Final Put Price (as defined below) in exchange for
the issue to IFE (or to such other Affiliate of IFE as IFE may request)
by TCI of fully paid restricted shares of TCI Stock having an aggregate
Value at least equal to the Final Put Price and the other half of such
Convertible Shares shall be converted into Ordinary Shares in accordance
with the Articles (the "Second Choice").
IFE shall give written notice to TCI within five Business Days of IFE's receipt
of notice of TCI's election of whether IFE elects the First Choice or the Second
Choice.
Completion of the foregoing shall take place on the fifth Business Day following
service of the Final Put Notice or, if IFE is entitled to elect for either the
First Choice or Second Choice, on the fifth Business Day following the date on
which IFE elects for the First Choice or the Second Choice, subject to paragraph
(c) below.
(b) For the purposes of this clause:
"FINAL PUT PRICE" shall mean the greater of (First) a price equal to
(Pounds)3.64 per Convertible Share and (Second) the aggregate Market Price of
the number of Ordinary Shares into which the number of all Convertible Shares
held by any
<PAGE>
12
member of the IFE Group would have been converted if such conversion had taken
place, in accordance with the Articles, on the date on which the relevant Final
Put Notice is served;
"MARKET PRICE" shall mean the average of the daily market prices for the 20
consecutive trading days immediately preceding the fifth Business Day following
the date on which the relevant Final Put Notice is served and "daily market
price" shall mean in respect of any date the middle market quotation for
Ordinary Shares as derived from the daily official list of the London Stock
Exchange for such day provided that if the Ordinary Shares shall not be listed
on the London Stock Exchange as at the date of service of the Final Put Notice,
the Market Price shall be the fair value per Ordinary Share (in pounds sterling)
as determined by an Expert appointed in accordance with Clause 2.2(c) except
where the Ordinary Shares are only admitted to trading on the Unlisted
Securities Market (or the Alternative Investment Market) of the London Stock
Exchange, in which case Market Price shall mean the average of the daily market
prices for the 20 consecutive trading days immediately preceding the fifth
Business Day following the date on which the relevant Final Put Notice is served
where "daily market price" shall mean the average of the prices for the Ordinary
Shares as recorded in such daily official list for business done in the Ordinary
Shares, such average being weighted by reference to the volumes at which any
such business was done where such volumes are also recorded in the daily
official list; and
"VALUE" means the pounds sterling equivalent of the Average Market Price of
the Stock, where "Average Market Price" shall mean the average of the daily
market prices for the 20 consecutive trading days immediately preceding the
fifth Business Day following the date on which the relevant Final Put Notice is
served and "daily market price" shall mean in respect of any date the last
reported sale price on the relevant day on the principal United States
securities exchange on which the relevant Stock is listed, or, in the case of
Stock which is listed on
<PAGE>
13
the London Stock Exchange, the middle market quotation for the Stock as derived
from the daily official list of the London Stock Exchange for the relevant day
and "pounds sterling equivalent" shall be determined by reference to the rate of
conversion of US dollars into pounds sterling published in the Financial Times
under the table "Exchange Cross Rates" (or such other table as may replace it
for the purpose of quoting spot exchange rates of major banks) on the relevant
day.
(c) Completion of the sale of the Convertible Shares shall take place on
the applicable date referred to in paragraph (a) above or so soon thereafter as
any determination by an Expert of the fair value per Ordinary Share (for the
purposes of the above definition of Market Price) is completed) at the offices
of Flextech whereupon, if neither the First Choice nor the Second Choice
applies:
(i) IFE shall procure the delivery to TCI of duly executed stock transfer
forms (executed in favour of TCI (or such other person as it may
request)) in respect of the Convertible Shares, together with the Share
certificates in respect thereof (or an indemnity in terms reasonably
acceptable to TCI in lieu thereof); and
(ii) TCI shall procure the unconditional and irrevocable credit to the bank
account specified by IFE in the relevant Final Put Notice of the total
Final Put Price in respect of all the Convertible Shares;
(iii) If the First Choice applies, IFE shall comply with paragraph (i) above
and TCI shall procure the unconditional allotment and issue to IFE (or
to such other person as it may request) of the fully paid restricted
TCI Stock in satisfaction of the Final Put Price, such Stock to be
issued on terms that all stamp duties, capital duties and such other
duties or taxes payable in respect of the allotment or issue thereof
(and the issue of certificates in respect thereof) shall be borne by
TCI and that as from the effectiveness
<PAGE>
14
of a Registration Statement relating thereto under the Securities Act
1933 and subject to the effectiveness of any legend required by Clause
6, the restricted TCI Stock will be listed and capable of being dealt
in or traded by any member of the IFE Group on the principal securities
exchange on which other securities of the same class as the Stock are
currently listed.
(vi) If the Second Choice applies, IFE shall comply with paragraph (i)
above in respect of half the Convertible Shares to which the Final Put
Notice relates and TCI shall comply with paragraph (iii) above in
respect of the Final Put Price attributable thereto.
4. FURTHER PUT OPTION
4.1 TCI undertakes to IFE that if at any time:
(a) whether as a result of subscription for any Shares or otherwise the
aggregate of
(i) the percentage of all the issued and outstanding Shares which is held
by any member of the TCI Group or in which any such member has any interest; and
(ii) the initial US WEST/CROWN/IFE interest (as defined below)
exceeds 75 per cent; or
(b) any member(s) of the TCI Group exercise any rights which it is or they
are able to exercise (whether directly or indirectly and whether at any
shareholder meeting or by means of any directions given to any Director(s)
appointed by it, which are acted upon by such Director(s)) in favour of any
action to be taken by Flextech leading to its Ordinary Shares ceasing to be
admitted to trading on the
<PAGE>
15
Unlisted Securities Market of the London Stock Exchange, (except only where this
is in connection with their admission to the Official List of the Stock
Exchange), or having been admitted to such Official List, leading to its
Ordinary Shares ceasing to be included in the Official List, except where the
same is required by Flextech's financial position or by the London Stock
Exchange (but, in the latter case, not where this is as a result of any action
or omission which has occurred with the consent, support or approval of any
member of the TCI Group in circumstances where, with appropriate professional
advice, it would be reasonable to expect that the London Stock Exchange would
take the relevant action which it has taken),
TCI shall thereupon offer in writing to purchase or acquire from the IFE Group
all Consideration Shares in Flextech (or any interest therein) held by any
member of the IFE Group (the "IFE Shares") at the Purchase price (as defined
below). Such offer shall be open for acceptance for seven Business Days and, if
accepted, completion of the purchase or acquisition of the IFE Shares shall take
place at the offices of Flextech on the third Business Day following any such
acceptance, whereupon:
(i) IFE shall procure the delivery to TCI (or to such other person as it
may request) of duly executed stock transfer forms in respect of all the IFE
Shares, together with the Share certificates in respect thereof (or an indemnity
in terms reasonably acceptable to TCI in lieu thereof); and
(ii) TCI shall procure the unconditional and irrevocable credit to the bank
account specified by IFE in connection with any notification to TCI of
acceptance of the relevant TCI offer, of the aggregate Purchase Price for all
the IFE Shares in pounds sterling.
4.2 For the purposes of Clause 4.1
<PAGE>
16
"INITIAL US WEST/CROWN/IFE INTEREST" shall mean that percentage of the
total issued and (from time to time) outstanding Shares as is represented by the
the actual number of Shares acquired by US WEST UK and Crown pursuant to the
Subscriptions and still held by US WEST UK (or any of its Affiliates) and/or
Crown (or any of its Affiliates) together with the actual number of
Consideration Shares still held by IFE (or any of its Affiliates); and
"PURCHASE PRICE" shall mean the higher of
(i) the highest price paid (or agreed to be paid) by any member of the TCI
Group (other than to IFE pursuant to Clauses 2 or 3 above or to Crown pursuant
to Clauses 2 or 3 of the Hallmark Subscription Agreement or to US WEST UK
pursuant to Clauses 2 or 3 of the US WEST Subscription Agreement for any
Ordinary or Convertible Shares at any time during the twelve months ending with
(and including) the date (the "Offer Date") on which TCI becomes under an
obligation to make the offer to IFE referred to in Clause 4.1; and
(ii) the Market Price per Ordinary Share determined as referred to in
Clause 3.1(b) but on the basis that a reference to the Offer Date is substituted
for the references therein to the date of service of the Final Put Notice.
4.3 TCI agrees to procure the provision to IFE of all such information
(including, without limitation, auditor's certificates) as IFE may reasonably
require for the purposes of satisfying itself that any Purchase Price has been
properly determined by TCI in accordance with the requirements of this
Agreement.
5. EFFECTIVE DATE
This Agreement shall become effective on the date on which the Sale Agreements
are completed in accordance with their respective terms.
<PAGE>
17
6. REGISTRATION RIGHTS AGREEMENTS
If in accordance with Clause 3.1(a) any Final Put Price which becomes payable
by TCI hereunder is satisfied by the allotment and issue of any TCI Stock, TCI
shall promptly execute and deliver to IFE and IFE shall promptly execute and
deliver to TCI, a Registration Rights Agreement with respect to such TCI Stock.
IFE shall not offer or sell any TCI Stock obtained hereunder in the absence of
any effective registration statement with respect thereto under the Securities
Act of 1933, or the availability of an exemption from the registration
requirements thereunder, and shall comply with all obligations of US federal and
state law relating thereto to the extent applicable. Certificates representing
TCI Stock issued hereunder shall be stamped with an appropriate legend to the
extent necessary to comply with applicable US federal and state law.
7. US WEST AND CROWN SHAREHOLDER AGREEMENTS
7.1 TCI warrants that TCI has entered into agreements with Crown and US WEST
on similar terms to this Agreement (the "other agreements") and TCI undertakes
to IFE not to agree to any variation in the terms of either or both or the other
agreements (whether by way of waiver or modification of any of their terms or
otherwise) without giving to IFE reasonable notice of any such variation and a
reasonable opportunity to consider the same and, if IFE so elects, to
incorporate the same variation, mutatis mutandis in this Agreement at the same
time as it is incorporated or made to the other agreement(s).
7.2 (a) Where each of IFE, Crown and US WEST would be entitled to exercise any
rights under Clause 2.1 of this Agreement or the other agreements following any
Triggering Disposal, the parties agree that, so as to ensure that the Equivalent
Price falling to be determined for the purposes of each such clause is the same
for all of IFE, Crown and US WEST under this Agreement and the other agreements,
Crown and US WEST shall be invited to participate in any discussions or
negotiations between the parties with respect to the determination of such
<PAGE>
18
Equivalent Price including, without limitation, the appointment of any Expert
pursuant to Clause 2.2(c). TCI further agrees to procure that IFE is similarly
invited to participate in any such discussions or negotiations which take place
between TCI and/or US WEST and/or Crown pursuant to the other agreements;
(b) Where any TCI Stock is issued pursuant to Clause 3.1, TCI agrees that
the same class of Stock (satisfying the requirements of this Agreement) shall
be issued to IFE as any TCI Stock issued to US WEST or Crown on any exercise by
them of their rights under any equivalent provision of the other agreements
within the period of 60 days preceding the date of service of IFE's Final Put
Notice and that any TCI Stock which fails to be issued to US WEST or Crown in
respect of any exercise by them of their rights under the provisions of the
other agreements in the period of 60 days following completion of the sale of
Convertible Shares by IFE following the service of any Final Put Notice by it
shall be of the same class as any TCI Stock which was issued to IFE (or to such
other person as it requested) pursuant to Clause 3.1.
(c) TCI agrees to give immediate notice to IFE of any receipt by TCI of any
First Put Notice or Final Put Notice (in each case as defined in the other
agreements) from US WEST or Crown.
8. WAIVER OF RIGHTS
No waiver by a Shareholder of any failure or failures by any other party to
perform any provision of this Agreement shall operate or be construed as a
waiver in respect of any other or further failure whether of a like or different
character.
<PAGE>
19
9. AMENDMENTS
This Agreement may be amended only by an instrument in writing signed by duly
authorised representatives of each of the parties.
10. INVALIDITY
If any of the provisions of this Agreement is or becomes invalid, illegal or
unenforceable the validity, legality or enforceability of the remaining
provisions shall not in any way be affected or impaired. Notwithstanding the
foregoing, the parties shall thereupon negotiate in good faith in order to agree
the terms of a mutually satisfactory provision, achieving so nearly as possible
the same commercial effect, to be substituted for the provision so found to be
invalid, illegal or unenforceable.
11. NO PARTNERSHIP OR AGENCY
11.1 Nothing in this Agreement (or any of the arrangements contemplated hereby)
shall be deemed to constitute a partnership between the Shareholders nor, save
as may be expressly set out herein, constitute either Shareholder the agent of
the other Shareholder for any purpose.
11.2 In addition, unless otherwise agreed in writing between the Shareholders,
neither of them shall enter into contracts with third parties as agent for the
other Shareholder nor shall either Shareholder describe itself as agent as
aforesaid or in any way hold itself out as being an agent as aforesaid.
12. ANNOUNCEMENTS
Except as may be required by law or the rules of any stock exchange or
governmental or other regulatory authority, whether or not having the force of
law, no announcement or
<PAGE>
20
circular in connection with the subject matter of this Agreement shall be made
or issued by or on behalf of one party without the prior written approval of
the other party, such approval not to be unreasonably withheld or delayed.
13. NOTICES
Any notice or other communication to be given hereunder shall either be sent by
facsimile transmission (provided that the notice sent by such facsimile
transmission shall be confirmed by a telephone call to IFE or TCI (as the case
may be) within one Business Day before and after the sending of the notice by
facsimile transmission and provided further that any failure so to confirm by
telephone call such notice shall not invalidate the same) as follows:
(a) IFE
Address: 2877 Guardian Lane,
Virginia Beach
Virginia 23452
Telephone: 804 459 6010
Facsimile: 804 459 6421
FAO: Timothy B. Robertson, President and CEO
Copy to:-
Louis A Isakoff
(b) TCI
Address: Terrace Tower 11
5619 DTC Parkway
Englewood
<PAGE>
21
Colorado 80111
USA
Fax No: 001 303 488 3242
Tel No: 001 303 267 4827
Addressed for the Personal General Counsel (presently Steve
attention of: Brett) and Chief Executive Officer
(presently Fred Vierra)
13.2 The parties may change the address or fax number or the name of the person
for whose attention notices are to be addressed by serving a notice on the other
in accordance with this Clause 13.
13.3 All notices given in accordance with Clause 13.1 shall be deemed to have
been served at the time of transmission of the relevant facsimile of the notice;
PROVIDED that where such transmission occurs after 5.00 p.m. on a Business Day
or on a day which is not a Business Day, service shall be deemed to occur at
9.00 a.m. on the next following Business Day. References to time in this clause
are to local time in the country of the addressee.
13.4 In proving such service, it shall be sufficient to prove that the
facsimile transmission was made after obtaining in person or by telephone
appropriate evidence of the capacity of the addressee to receive the same, as
the case may be.
13.5 All sales by IFE hereunder shall be as beneficial owner free from
encumbrances and cum dividends.
<PAGE>
22
14. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the State of Delaware.
The parties hereby irrevocably submit to the non-exclusive jurisdiction of the
Courts of the State of Delaware.
15. NO ASSIGNMENT
No party may assign any of its rights or obligations in respect of this
Agreement in whole or in part save that IFE may assign such rights and
obligations to any Affiliate thereof (or any successor corporation thereof).
16. COUNTERPARTS
This agreement may be executed in two or more counterparts each signed by one or
more of the parties hereto and such counterparts shall together constitute one
agreement.
17. CONDITION
This Agreement shall be conditional upon TCI obtaining board approval of the
arrangements contemplated herein.
IN WITNESS whereof this Agreement has been signed by the duly authorised
representatives of the parties hereto the day and year first before written.
<PAGE>
23
THE SCHEDULE REFERRED TO IN RECITALS (A) AND (B)
PART 1
(DETAILS OF TCI'S INTEREST IN FLEXTECH)
56,340,598 ORDINARY SHARES
<PAGE>
24
PART 2
(DETAILS OF IFE'S PROPOSED INTEREST IN FLEXTECH)
5,792,008 CONVERTIBLE SHARES
<PAGE>
25
SIGNED by )
)
for and on behalf of ) [SIGNATURE APPEARS HERE]
INTERNATIONAL FAMILY )
ENTERTAINMENT, INC. )
SIGNED by )
)
for and on behalf of ) [SIGNATURE APPEARS HERE]
TELE-COMMUNICATIONS )
INTERNATIONAL, INC )
<PAGE>
Exhibit 10.2
SHAREHOLDERS AGREEMENT
INTERCOM AND OTHERS
CORDILLERA AND OTHERS
In Santiago, Chile on February 7, 1996, between the companies hereinafter
described it is agree to sign an agreement by which the rules, rights and
obligations are set covering their relationships concerning the corporations
called "METROPOLIS-INTERCOM HOLDING S.A." and "METROPOLIS-INTERCOM S.A.":
1) Mr. Claudio Garcia Swears, in the name and representation, as it shall be
evidenced, of Comunicaciones Intercom S.A. (hereinafter "INTERCOM"), a
corporation existing and incorporated under the laws of the Republic of Chile,
domiciled at Avenida Manquehue street No.520 in the municipality of Las Condes;
2) Ms. Maria Isabel Diaz Velasco and Mr. Ismael Mena Gatica in the name and
representation, as it shall be evidenced, of Cordillera Comunicaciones Limitada
(hereinafter "CORDILLERA"), a limited partnership existing under the laws of the
Republic of Chile, domiciled at Hendaya street No.60, 15 floor, in the
municipality of Las Condes;
3) Mr. Jacinto Diaz Sanchez in the name and representation, as it shall be
evidenced, of Invercom S.A. (hereinafter "INVERCOM"), a
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corporation existing and incorporated under the laws of the Republic of Chile,
domiciled at Apoquindo Avenue, N(Degrees) 4499, 11th. floor, in the municipality
of Las Condes;
4) Mr. Ricardo Claro Valdes and Mr. Baltazar Sanchez Guzman, acting jointly with
Mr. Carlos Court Astaburuaga and Mr. Max Letelier Bomchil, all in the name and
representation, as it shall be evidenced, of Cordillera Comunicaciones Holding
Limitada, (hereinafter "CCHL"), a limited partnership existing under the laws of
the Republic of Chile, domiciled at Hendaya street No.60, 15 floor, in the
municipality of Las Condes;
5) Ms. Maria Isabel Diaz Velasco in the name and representation, as it shall be
evidenced, of Bresnan International Partners, Comunicaciones de Chile Uno
Limitada (hereinafter "BIP"), a limited partnership existing under the laws of
the Republic of Chile, domiciled at Bombero Ossa 1010, oficina 401, in the
municipality of Santiago;
6) Mr. Ismael Mena Gatica in the name and representation, as it shall be
evidenced, of CristalChile Comunicaciones S.A. (hereinafter "CRISTALCHILE"), a
corporation existing and organized d under the laws of the Republic of Chile,
domiciled at Hendaya street No.60, 15 floor, in the municipality of Las Condes;
2
<PAGE>
7) Mr. Cristobal Philippi Irarrazaval, in the name and representation, as it
shall be evidenced, of Metropolis-Intercom Holding S.A. (hereinafter the
"HOLDING"), a corporation existing and organized under the laws of the Republic
of Chile, domiciled at Manquehue Norte N(Degrees) 520, in the municipality of
Las Condes.
SECTION I
BACKGROUND AND DEFINITIONS
FIRST CLAUSE: BACKGROUND.
- - ------------
The following facts are stated for the record:
1.1. That INTERCOM and CORDILLERA have incorporated a closed corporation called
Metropolis-Intercom Holding S.A. (the "HOLDING"), organized and existing
under the laws of the Republic of Chile whose objectives are to carry out
all kind of investments in legal entities and companies of all kinds, such
corporations, partnerships or of any other kind, whose objectives are
activities, directly or indirectly related to: A) cable television, B)
satellite television; C)MDS and/or MMDS television, D) video and/or
entertainment businesses; E) interactive services, F) all services which
are complementary or of added value to the main activities comprised in the
concept of multimedia. Within the said objective shall be included the
following services that are hereinafter mentioned for exemplary purposes:
One) the basic cable television services and premium channel services, the
so called "near
3
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video on demand", "video on demand", "pay per view", interactive game
services, interactive video; Two) VBI data transmission, or others; Three)
"telemarketing", "direct sales" and other marketing activities through
telecommunication means; Four) data base handling and management; Five)
tele-education services; Six) information services; Seven) audio-text
services; Eight) "homeshopping"; Nine) analogical and digital video and/or
audio signals transmission and retransmission; Ten) Internet services and
access to computer networks in general; Eleven) sale and rental of
equipments related to the objective of the corporation; Twelve) satellite
"uplink"; Thirteen) installation and monitoring of alarms; Fourteen)
electronic navigation services related to video and/or entertainment
content; Fifteen) data [informatica] and management services; Sixteen) "fax
distribution" and other mail distribution services, including the direct
mail; Seventeen) "interconnection"; Eighteen) home banking; and, Nineteen)
production, distribution and intermediation of audio and video programs.
Among this objectives are activities directly or indirectly related to
those set forth under letter A) to letter F) above and, consequently, among
others, the other services indicated under numer One) to Nineteen) above,
in the manner in which they are currently provided aswell as in their
future developments and applications.
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1.2. That INTERCOM with 4 shares, CORDILLERA with 6 shares and the HOLDING with
990 shares are the only shareholders of the close corporation called
METROPOLIS-INTERCOM S.A. (Hereinafter the "COMPANY"), organized and
existing under the laws of the Republic of Chile, whose objectives are
activities, directly or indirectly related to: A) cable television, B)
satellite television; C)MDS and/or MMDS television, D) video and/or
entertainment businesses; E) interactive services, F) all services which
are complementary or of added value to the main activities comprised in the
concept of multimedia. Within the said objective shall be included the
following services that are hereinafter mentioned for exemplary purposes:
One) the basic cable television services and premium channel services, the
so called "near video on demand", "video on demand", "pay per view",
interactive game services, interactive video; Two) VBI data transmission,
or others; Three) "telemarketing", "direct sales" and other marketing
activities through telecommunication means; Four) data base handling and
management; Five) tele-education services; Six) information services;
Seven) audio-text services; Eight) "homeshopping"; Nine) analogical and
digital video and/or audio signals transmission and retransmission; Ten)
Internet services and access to computer networks in general; Eleven) sale
and rental of equipments related to the objective of the corporation;
Twelve) satellite "uplink"; Thirteen) installation and monitoring of
alarms; Fourteen) electronic
5
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navigation services related to video and/or entertainment content; Fifteen)
data [informatica] and management services; Sixteen) "fax distribution" and
other mail distribution services, including the direct mail; Seventeen)
"interconnection"; Eighteen) home banking; and, Nineteen) production,
distribution and intermediation of audio and video programs. Among this
objectives are activities directly or indirectly related to those set forth
under letter A) to letter F) above and, consequently, among others, the
other services indicated under numer One) to Nineteen) above, in the manner
in which they are currently provided as well as in their future
developments and applications.
1.3. That all of the shares issued by INTERCOM are held by INVERCOM, except for
5 shares, 4 of which are held by CTC and the other by EL MERCURIO. CTC, at
its turn, owns 75% of the shares issued by INVERCOM and EL MERCURIO owns
the remaining 25%
1.4. That 98% of the capital of CORDILLERA is owned by CCHL and of the
remaining 2%, 1% is held by BIP and 1% is held by CRISTALCHILE. BRESNAN and
CRISTALCHILE are, at their turn, equal partners in CCHL since its
formation, and
1.5. That 99,99% of the shares issued by CRISTALCHILE are held by CRISTALERIAS
and the remaining 0.01% are held by Servicios y Consultorias Hendaya S.A.;
6
<PAGE>
1.6. That 99% of the partnership interests in BIP are owned by BRESNAN and the
remaining 1% is owned by Bresnan Holdings Chile, Inc.; and being BRESNAN
and Bresnan Holdings Chile, Inc. controlled by Tele-Communications
International Inc.
SECOND CLAUSE: DEFINITIONS.
- - -------------
For the purposes of this agreement, the following terms shall have the meanings
stated in each case:
"SHARES": Any shares representing capital in the Holding and in
Corporation including any options, rights or instruments to
acquire Shares.
"BRESNAN": Is the company called "Bresnan International Partners (Chile),
L.P. (hereinafter "BRESNAN") a limited partnership organized and
existing under the laws of the State of Delaware, United States
of America, with domicile at the N(Degrees) 709 of Westchester
Avenue, White Plains, New York, N.Y.10.604.
"SALE CONTRACT":
The document signed by the parties on this date evidencing the
sale between CTC and CORDILLERA in respect of the networks and
other assets mentioned therein.
"SIGNAL
TRANSMISSION
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AND CONNECTION
MAINTENANCE
CONTRACT":
The document signed on this date between the Corporation and CTC
by which CTC has agreed to provide the Corporation with
telecommunications signals transportation services and the
maintenance of networks and drops under the terms stated therein.
"CRISTALERIAS":
Is the company called Cristalerias de Chile S.A. (hereinafter
"CRISTALERIAS"), a corporation organized and existing under the
laws of the Republic of Chile, with domicile at Hendaya street
N(Degrees) 60, floor 15, in the municipality of Las Condes.
"CTC": Is the company called Compania de Telecomunicaciones de Chile
S.A. (hereinafter "CTC"), a corporation organized and existing
under the laws of the Republic of Chile, with domicile at San
Martin street N(Degrees) 50, floor 15, in the municipality of
Santiago.
"BANKING BUSINESS
DAY": Any day that banks are open to the public in Chile and in the
city of New York, United States of America.
8
<PAGE>
"DOLLAR OR US$":
The dollar of the United States of America.
"EL MERCURIO": Is the company called Empresa El Mercurio S.A.P. and the company
Comercial Canelo S.A. (hereinafter "EL MERCURIO") both
corporations organized and existing under the laws of the
Republic of Chile, both domiciled in Santa Maria avenue,
N(Degrees) 5542, in the municipality of Santiago, which are
jointly and severally bound in relation to the obligations that
are established in their regard herein.
"GAAP-CHI": Are the accounting principles generally accepted and consistently
applied in the Republic of Chile.
"GAAP-USA": Are the accounting principles generally accepted and consistently
applied in the United States of America.
"HOLDING": Is the company called "Metropolis-Intercom Holding S.A."
constituted by public deed of this date.
"OBJECTIVES": Are the objectives of the Holding and the Corporation set out in
paragraph 1.1. and 1.2 of the First clause.
"PARTY": Is any of the signatory parties considered individually.
"PARTIES": Are all the signatory parties considered jointly.
"HOLDING IN
OTHER COMPANIES":
9
<PAGE>
Are any shares or partnership interests in INVERCOM, INTERCOM,
CORDILLERA, CCHL, CRISTALCHILE, BIP and BRESNAN and CRISTALERIAS
including any options, rights or instruments for acquiring these
shares or rights.
"PESOS OR CH$":
The legal currency of the Republic of Chile.
"BUSINESS
PLAN": Is the budget and operative plan covering a period of five
years, that is reconsidered once a year and that shall be
presented to the Board together with the annual budget.
"ANNUAL BUDGET":
The annual operational budget of the Holding and the Corporation
that should be presented for the approval of the board of the
Holding and of the Corporation, no later than November 1st. of
each calendar year.
"CORPORATION": Is the operating company called "Metropolis-Intercom S.A."
incorporated by public deed of this date.
"RELATED COMPANY":
With respect to a "Party", any individual or entity that directly
or indirectly controls, is controlled by or is subject to common
control with that
10
<PAGE>
"Party". Notwithstanding the foregoing, it is understood that a
person controls another when:
a. it holds 10% or more of the capital of another company or if
the latter has its capital divided into shares a 10% or more
of its shares, or
b. it has the right to appoint one or more directors or
administrators or in any other way decisively influence the
administration, whether under its bylaws or under a contract
signed with it, its partners, shareholders, directors,
executives or administrators, as the case may be, or in any
other way.
"SUBSIDIARY
COMPANY": A company as defined in Article 86 of Law 18,046 covering
Corporations or that amending or replacing it.
"PARENT
COMPANY": A company as defined in Article 86 of Law 18,046 covering
Corporations or that amending or replacing it.
"TCI": Is the company called Tele-Communications International,
Inc., organized and existing under the laws of the State of
Delaware, United States of America, domiciled at the
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DTC Park Way No. 5619, Englewood, Colorado, 80111.
"EXCHANGE RATE":
The value of the Dollar as advised by the Central Bank of
Chile in accordance with number 6 of Chapter I of Section I
of the Exchange Control Regulations of the Central Bank of
Chile or that which may replace it.
"UNIDAD DE FOMENTO"
OR "UF": The monetary adjustment index calculated and published by
the Central Bank of Chile in accordance with the last
transitory article of Law 18,840. In the absence of that
index, the adjustment index reflecting the percentage change
in the CPI shall be used, as published by the National
Institute of Statistics of the Republic of Chile or the
entity replacing it.
SECTION II
RESTRICTIONS ON TRANSFERRING AND GRANTING OF PLEDGES OVER SHARES
THIRD CLAUSE: PROHIBITIONS ON TRANSFERS.
- - -------------
3.1. INTERCOM and CORDILLERA and any of the permitted assignees may not
transfer the "Shares" to third parties except where (i) the preferential rights
set forth in this Agreement have been fully respected prior to the transfer or
(ii) it is a "Permitted
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<PAGE>
Transfer" as defined in the Sixth clause of this Shareholders Agreement. In any
event transfers of "Shares" owned by INTERCOM and CORDILLERA and any permitted
assignee shall necessarily and simultaneously include all the "Shares" owned at
the time of the transfer, even though these transactions may be perfected by
more than one contract or with more than one purchaser, as regulated below.
3.2. "Holdings in Other Companies" shall be subject to the same limitations and
prohibitions.
FOURTH CLAUSE: PROHIBITION ON GRANTING LIENS OVER THE "SHARES" OR "HOLDINGS IN
- - --------------
OTHER COMPANIES".
4.1 None of the "Parties" may perform acts or sign contracts that pledge the
"Shares" or "Holdings in Other Companies". Consequently, by this act, the
"Parties" mutually agree an absolute prohibition on performing any act or
signing any contract whose purpose is to create collateral such as pledges or
any other lien, encumbrance, prohibition or rights in favour of third parties,
as well as any other impediment or restriction that may affect or embarrass the
free use, benefit and disposal over the "Shares" or "Holdings in Other
Companies", without the prior consent in writing by the corresponding "Party".
4.2 Should the "Shares" or "Holdings in Other Companies" be subject for any
reason of embargoes or other judicial or similar pre-judicial measures, the
"Party" holding those "Shares" or "Holdings
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<PAGE>
in Other Companies" shall adopt all actions required to obtain the release of
the embargoe or other measures or substitute it with other equivalent
guarantees.
FIFTH CLAUSE: PREFERENCE IN THE ACQUISITION OF THE "SHARES" OR "HOLDINGS IN
- - -------------
OTHER COMPANIES".
5.1. Other than in the case of a "Permitted Transfer" pursuant clause Sixth, by
this act, the "Parties" hereby mutually and irrevocably confer among themselves
a preferential right for the acquisition of the "Shares". This preferential
right shall subsist for the term in which this Agreement is in force and it is
also applicable to the transfer of "Holdings in Other Companies".
For the material compliance and exercise of the right set forth in this
paragraph, it shall be understood that "Offerors" and "Addressees" be those
persons stated below in each case and the rights and obligations arising from
the respective offer (the "Offer") shall correspond to them in the proportions
stated, also case by case.
5.1.1. If the Offeror were CORDILLERA and the Offer refers to the "Shares",
the Offer shall be made to INTERCOM. In this case the Offer shall
always also include the 6 shares owned by CORDILLERA in the
Corporation.
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<PAGE>
5.1.2. If the Offeror were INTERCOM and the Offer refers to the "Shares", the
Offer shall be made to CORDILLERA. In this case the Offer shall always
also include the 4 shares owned by INTERCOM in the Corporation.
5.1.3. If the Offeror were INVERCOM and the Offer refers to shares issued by
INTERCOM, the Offer shall be made to CCHL. Together with this Offer,
CTC and EL MERCURIO shall offer the shares they own in INTERCOM to the
same Addressee.
5.1.4. If the Offeror were EL MERCURIO and the Offer refers to shares issued
by INVERCOM, the Offer shall be made to CTC and shall include the
share in INTERCOM held by EL MERCURIO. Together with this Offer,
INTERCOM shall offer to CORDILLERA an option to buy 4% of the "Shares"
in the same terms and conditions contemplated in the Offer made by EL
MERCURIO to CTC. However, the transfer of the 4% of the Shares owned
by INTERCOM shall be subject to the condition precedent consisting in
the actual transfer by EL MERCURIO of the shares of INVERCOM included
in the Offer to CTC.
5.1.5. If the Offeror were CTC and the Offer refers to shares issued by
INVERCOM, CTC shall first give notice of its decision to sell to EL
MERCURIO which within a term of ten days shall give notice in writting
of its decision to whether (a) sell its shares in INVERCOM at the same
price and on the same conditions offered by CTC, simultanously
15
<PAGE>
with CTC; (b) to reserve its right to acquire 1/7 of the shares issued
by INVERCOM offered by CTC; or ( c) to choose neither the alternative
described in letter a) nor the alternative described in letter b), but
rather to maintain the number of shares currently in its possession.
If nothing is said within that term it shall be irrevocably understood
that it has choosed the alternative of letter c) above. Upon CTC's
reception of the notice from EL MERCURIO or upon expiration of the ten
days term that EL MERCURIO has to give such notice without doing so:
(i) had EL MERCURIO choosen the alternative of letter a), CTC shall
offer to CCHL all of its shares issued by INVERCOM together an offer
from EL MERCURIO of all of its shares in INVERCOM; (ii) had EL
MERCURIO choosen the alternative of letter b), CTC shall offer to CCHL
and to EL MERCURIO all of its shares in INTERCOM in the ratio of
6/7ths for CCHL 1/7th to EL MERCURIO; or (iii) had EL MERCURIO choosen
or should it be understood having done so, the alternative of letter
c), CTC shall offer to CCHL all of its shares in INVERCOM. IF CCHL
does not accept in a pure and simple manner the
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<PAGE>
Offer made according to the agreed upon procedure, CTC shall be free
to sell its shares under the terms set forth under paragraph 5.3 with
independance of EL MERCURIO. The Parties state for the record that if
CCHL does not accept in a pure and simple manner the Offer that has
been made to it following the procedure agreed upon in the paragraph
(i), EL MERCURIO shall not be authorized to sell its shares to third
parties without given prior full compliance with the procedure set
forth under paragraph 5.1.4 of this clause.
Together with that Offer CTC shall offer to same Addressees the shares
that it holds in INTERCOM. The same rule shall be applicable to EL
MERCURIO in the case that it chooses to also sell its shares in
INVERCOM.
5.1.6. If the Offeror were CCHL and the Offer refers to partnership interests
in CORDILLERA, the Offer shall be made to INVERCOM. Together with this
Offer, CRISTALCHILE and BIP shall offer the partnership interests they
own in CORDILLERA to the same Addressee.
5.1.7. If the Offeror were BIP and the Offer refers to partnership interests
in CCHL, the Offer shall be made to CRISTALCHILE and it shall include
partnership interests that BIP owns in CORDILLERA under the terms and
conditions set forth in the partnership agreement of CCHL in force as
of the date of this document.
5.1.8. If the Offeror were CRISTALCHILE and the Offer refers to partnership
interests in CCHL, the Offer shall be made to BIP and shall include
the partnership interests owned by CRISTALCHILE in CORDILLERA under
the terms and conditions set forth in the partnership agreement of
CCHL in force as of the date of this document.
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<PAGE>
5.1.9. If the Offeror were BRESNAN and the Offer refers to partnership
interests in BIP, the Offer shall be made to CRISTALERIAS in the terms
and conditions set forth in the partnership agreement of CCHL in force
as of the date of this document, which may acquire them itself or
through CRISTALCHILE. Together with this Offer, "Bresnan Holdings
Chile Inc." shall offer to the same Addressee the partnership
interests owned in BIP.
5.1.10. If the Offeror were CRISTALERIAS and the Offer refers to shares in
CRISTALCHILE, the Offer shall be made to BRESNAN, in the terms and
conditions set forth in the partnership agreement of CCHL in force as
of the date of this document which may acquire them by itself or
through BIP. Together with this Offer, "Servicios y Consultorias
Hendaya S.A." shall offer to the same Addreesee the shares it holds in
CRISTALCHILE.
5.1.11. If the Offer were TCI and the Offer refers to partnership interests in
BRESNAN, the Offer shall be made to CRISTALERIAS, in the terms and
conditions set forth in the partnership agreement of CCHL in force as
of the date of this document, whcih sall acquire them by itself or
through CRISTALCHILE.
5.1.12 In the case referred to in 5.1.4. above, should CTC not accept - the
whole or a part- of the Offer made by EL MERCURIO, the preference for
acquiring the shares in
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<PAGE>
INVERCOM and INTERCOM will be transfered to CCHL. For these purposes,
once the term that CTC has to accept the Offer made by EL MERCURIO has
elapsed, EL MERCURIO will make an Offer to CCHL under the same terms
and conditions contained in the Offer made by EL MERCURIO to CTC
pursuant to paragraph 5.2. of this Fifth clause.
In the cases referred to in 5.1.7., 5.1.8., 5.1.9., 5.1.10 and 5.1.11.
above, the respective Addreessees do not accept the Offer made
pursuant to such paragraphs, the preference for acquiring the
respective partnership interests or shares shall pass to CTC and EL
MERCURIO in the ratio of 3/4ths to the former and 1/4th to the latter,
or in the other ration which corresponds according to their share
holdings held in INVERCOM at the time of the Offer. For these
purposes, once the term for the original Addressees to accept the
Offer has expired, BIP, CRISTALCHILE, CRISTALERIAS, BRESNAN O TCI as
the case may, shall make an Offer to CTC and EL MERCURIO in the same
terms and conditions of the Offer made to the original Addressees, in
accordance with the procedure contemplated in paragraph 5.2. of this
Fifth clause.
5.1.13. Should in any of the above cases any of the Addressees refrain from
exercising its proportional rights in the Offer, or rejects them,
under the terms and conditions stipulated below, then these
proportional rights shall
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<PAGE>
automatically devolve upon the other Beneficiary stated in each
specific case.
5.2. Consequently, any of the "Parties" wishing to dispose of "Shares" or
"Holdings in Other Companies" ("the Offeror") shall previously offer them for
sale to the other corresponding "Party" as set forth in paragraph 5.1. above in
the proportions stated case by case in that paragraph, and then proceed in the
following manner:
5.2.1. The Offer may only be for the whole of the "Shares" or the whole of
"Holdings in Other Companies" which the Offeror owns, notwithstanding
the provisions of the Sixth clause of this Shareholders Agreement. In
the case of a "Permitted Transfer" as provided in the Sixth Clause to
one or more "Parent Company" or "Subsidiary Company" of a "Party", a
disposal that such "Parent Company" or "Subsidiary Company" wishes to
undertake in the future shall take place jointly and simoultaneously
with the other purchasing "Parent Companies" or "Subsidiary
Companies", so as the object of the sale is all of the the "Shares" or
the "Holdings in Other Companies".
5.2.2. The Offeror shall make its sale offer in writing (the "Offer") and
simultaneously to all the Addressees, offering them the "Shares" or
"Holdings in Other Companies" for acceptance within a term of 30 days
("Option Period") indicating the price and other elements
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<PAGE>
necessary for the Offer to be complete. In any event, the Offer shall
state that the price be payable in cash.
5.2.3. During the "Option Period", each of the Addressees shall be able at
its option to (i) accept the Offer, or (ii) reject it. The Offer will
be deemed to be rejected if nothing is expressed during the Option
Period.
5.2.4. Acceptance of the Offer by each Beneficiary shall be pure and simple
and communicated in writing to the Offeror within the "Option Period".
5.2.5. In its acceptance each Beneficiary shall state the date on which the
sale should be granted and perfected. This date may not be later than
60 days following the expiry of the "Option Period".
5.2.6. (i) Should one of the Addressees reject the Offer in the corresponding
proportion the Offeror shall certify this fact immediately and advise
it in writing to the other Beneficiary who might have accepted the
original Offer and would have the right to increase its rights
according to paragraph 5.1.13. Such communication shall be sent no
later than five days following the expiry of the "Option Period". The
Offeror in that communication shall extend to that Beneficiary the
Offer made to the previous Beneficiary on identical terms and
conditions.
(ii) That other Beneficiary in turn shall have a term of 10 days as
from the date of the above-mentioned communication from the Offeror to
give its pure and
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<PAGE>
simple acceptance of the new Offer in writing to the Offeror in the
proportion corresponding to the Addressee that had rejected it.
Together with its acceptance the Addresse shall indicate the date in
which to perfect the sale both in respect of the "Shares" or "Holdings
in Other Companies" comprised in the original Offer and those in the
new Offer. That date may not in any case be later than 60 days
following the expiry of the Option Period.
(iii) If no decision is expressed during the 10-day period mentioned
in (ii) above, it shall be understood that the additional offer has
been rejected, and consequently the whole Offer.
5.2.7. The sale or sales of the "Shares" or "Holdings in Other Companies"
shall be completed and perfected simultaneously within 60 days of the
expiry of the Option Period, on the following dates according to the
distinction indicated as follows:
a) If there were no additional devolved rights:
(i) if there were just one Addressee on the date proposed by it.
(ii) if there were two or more Addressees, on the latest date proposed
by them, being the Offeror obligated to inform in writing such date to
the Addressees.
b) If there were additional devolved rights, on the date stated by the
Addressee on accepting the new Offer made
22
<PAGE>
under the arrangement agreed in paragraph 5.2.6. of this Fifth clause.
5.2.8. In the event that on the date on which the sale or sales should be
signed according to paragraph 5.2.7. above, one of the Addressees
accepting the Offer does not appear to sign it and/or does not pay the
price at that time, the following rules shall apply:
i) The Offeror shall communicate the fact in the same act or not later
than 24 hours thereafter to the other Addressee who also accepted the
Offer, making a new Offer regarding the "Shares" or "Holdings in Other
Companies" not acquired by the Beneficiary in default and on the same
terms and conditions as made to the latter. The other Addressee shall
have 10 days from the date of communication of the new Offer to give
its acceptance or rejection of it. Meanwhile, the term for signing the
sale of the "Shares" or "Holdings in Other Companies" whose
acquisition was accepted by this Addressee, shall be suspended.
(ii) If such Addressee accepts the new Offer made according to (i)
above, the sale of and payment for the "Shares" of the "Holdings in
Other Companies" comprised in the original Offer and in the new Offer
shall take place within 10 days from the date of communication of the
acceptance.
23
<PAGE>
(iii) If nothing is expressed by such Addressee during the 10 days
term indicated in (i) above, it shall be understood that the
additional offer has been rejected, and consequently the whole Offer.
(iv) The Offeror and the complying Addressee may demand damages from
the defaulting Addressee caused by the default as provided in the
Sixteenth clause.
5.3. The Offeror shall be free to sell the "Shares" or "Holdings in Other
Companies" in the following cases:
a) Should the Addressees do not accept purely and simply the "Offer" made
to them under the procedure agreed in this Fifth clause.
b) If following the acceptance of the Offer by the Addressees the transfer
has not been perfected due to causes imputable to one or more Addressees,
such as failure to pay the price and the second devolved rights
contemplated in paragraph 5.2.8. of this Fifth clause had not operated.
c) Should the Offer not be accepted in its entirety by the Addressees
whether in the exercise of their own preferential right or by virtue of the
devolved right contemplated in this Fifth clause.
5.4. In all cases the transference to third parties shall meet the following
copulative conditions:
a) That the economic terms of the sale to the third party are equal to or
higher than those included in the Offer. Any of the "Parties" may require
the information and evidence it
24
<PAGE>
considers necessary from the Offeror to check compliance with this
condition.
b) That the transfer refers to the whole of the "Shares" or "Holdings in
Other Companies".
c) That the third party sale is completed and perfected within 180 days as
from the communication of the original Offer to the Addressees. On the
expiry of that term without the perfecting of the third party transfer of
the "Shares" or the "Holdings in Other Companies", the "Party" wishing to
dispose of them shall renew the procedure contemplated in this Fifth
clause.
5.5. The "Parties" may make Offers in accordance with the procedure indicated
in this clause as often as they wish.
5.6. The "Party" acquiring the whole of the "Shares" or "Holdings in Other
Companies" from another "Party" under the right of first refusal provided for in
this clause may acquire the Shares for itself or through a "Subsidiary Company"
it designates. If the acquisition refers to only a portion of the "Shares" or
"Holdings in Other Companies" it must necessarily acquire them for itself.
5.7. All the communications referred to in this clause shall become effective
in the form and moment set out in the Twentyth clause of this Shareholders
Agreement.
SIXTH CLAUSE: "Permitted Transfers". The rules set out in the above Fifth
- - -------------
clause shall not apply to the following cases:
25
<PAGE>
6.1. If the disposal of the "Shares" or "Holdings in Other Companies" is made
with the consent of the Parties. Such consent shall be given in writing.
The "Parties" hereby authorize CTC and EL MERCURIO to transfer to INVERCOM
the shares they hold in INTERCOM.
6.2. If the disposal is made to a "Subsidiary Company" or a "Parent Company" of
a "Party".
6.3. In any of the cases mentioned in paragraphs 6.1. and 6.2. above, the
transfer of the "Shares" or "Holdings in Other Companies" shall only be
good as against the other Parties provided the following conditions are
met:
a) The purchaser adheres to and accepts in writing the terms and
conditions of this instrument.
b) The transferror is committed severally in writing with the purchaser to
comply with each and every obligation contemplated in this Shareholders
Agreement.
c) That the necessary instruments are executed so that the shares or
ownership rights in the company acquired remain subject to the right of
first refusal to acquire them conferred in paragraph 5.1. of the Fifth
clause on the same terms that were applicable to the transferror.
SEVENTH CLAUSE: Special notice on the certificates covering the "Shares" and
- - ---------------
duty to control.
7.1. The "Parties" are committed in this act to instruct the Corporation to
ensure that the certificates of all the "Shares"
26
<PAGE>
issued by the Corporation during the life of this Shareholders Agreement shall
bear, in addition to the appropriate legal or statutory information, the
following notice: "The shares represented by this certificate are subject to the
prohibitions on disposals and other restrictions referred to in the Shareholders
Agreement signed by CORDILLERA, INTERCOM and others on February 7, 1996, an
authorized copy of which is available at the offices of the Corporation and is
recorded in the Shareholders Register. No transfer of any share represented by
this certificate shall be valid unless carried out in accordance with the terms
of the said Shareholders Agreement".
7.2. The manager of the Corporation or his deputy may not register any transfer
of "Shares" without previously having sufficiently checked that the obligations
and limitations contained in this Shareholders Agreement have been observed and
is liable for damages to the affected party that any lack of control shall
cause.
SECTION III
CORPORATE PRINCIPLES, PROHIBITIONS ON COMPETITION
AND SEEKING BUSINESS
EIGHTH CLAUSE: COMPETITION AND BUSINESS DEVELOPMENT.
- - --------------
8.1 In view of the agreements in force under the agreements dated October 19,
1995, the "Parties" confirm that they will respect the basic businesses of the
"Corporation" and "CTC" and not interfere directly or indirectly in them and
mutually agree that given
27
<PAGE>
technical and comercial change, etc., in this businesses there are and will be
numerous products that could be provided by both.
With respect to those kind of products and services related to the complementary
services mentioned in letter F) of the "Objectives of the By-Laws of the
"Corporation" as well as those stated as examples in numbers Two) and
Eighteenth) of those "Objectives" and their future developments and
applications, and in general new telecommunicatons businesses other than basic
businesses of the "Corporation" and "CTC" and its future developments or
applications, it is seriously intended to develop these through the
"Corporation" without this affecting the development by "CTC" of products and
services within its area of competence. If this were not feasible or reasonably
convenient for "CTC", a different and mutually convenient formula shall be
sought to the "Corporation" and "CTC", whether by means of another company
formed by the "Corporation" and "CTC" or through another form of complementary
agreement between both that allows the products and services intended to be
developed to reach the customer universe of the "Corporation" and "CTC" in
accordance with the agreements established.
If following negotiations in good faith in the above terms is not possible to
reach an agreement both the "Corporation" and "Cordillera" jointly with a third
party and "CTC" and or "El Mercurio" whether or not in partnership with a third
party may
28
<PAGE>
freely compete. In this case "Cordillera" and or "Cordillera" jointly with a
third party may use any of the trade names of the "Corporation", have access to
the list of customers of the "Corporation" and use its the resources, having to
pay only the incremental costs that this implies. In this way it shall not have
to pay for the licenses, for rights to the trade name, nor for the customer
list. It may also have access to the present or new "CTC's network on equal
terms to those agreed between "CTC" and the "Corporation" for the corresponding
kind of services.
In the case of video-telephone services, both parties promise to develop
agreements within their areas of competence.
Any agreement the "Corporation" may reach with "CTC" may be made with "CTC" or
its Related Companies.
The "Parties" acknowledge that the current partners of CORDILLERA, directly or
through other companies are currently producing and intermediating all kinds of
programming so that this business shall not be subject to the procedure
contemplated here. They also acknowledge that the current partners in
CORDILLERA, "CTC" and or "El Mercurio", directly or through other companies are
carrying out or may carry out activities related to businesses or services
called DTH (Direct to Home) and DBS (Direct Broadcast Satellite).
29
<PAGE>
8.2. If one "Party" or a "Subsidiary Company" or a "Parent Company" of such
"Party" conveys the "Shares" or the "Holdings in other Companies" to another
"Party" or to third parties, neither such "Party" nor such "Subsidiary Company"
nor "Parent Company" may develop businesses related to the "Objectives" for the
period of two years as from the day of conveyance to the other "Party" or third
parties. If the one conveying "Shares" or the "Holdings in other Companies" is
"Cordillera" or its direct or indirect partners they may also not build the
basic businesses of "CTC" and the future developments and applications thereof
for such period of time inside the territory of the Republic of Chile.
NINTH CLAUSE: This clause has no content and it has been maintained only for
purposes of maintaining the general numeration of this document.
SECTION IV
----------
ADMINISTRATION OF THE HOLDING AND THE CORPORATION
-------------------------------------------------
TENTH CLAUSE: Principles for Managing the Corporation.
- - ------------ ---------------------------------------
The Parties signing this document agree to execute and respect the acts
necessary for the Holding and the Corporation to be administered in accordance
with the following principles:
30
<PAGE>
a. The administration of the Corporation shall be carried out considering
the interests of the Holding and the Corporation and not those of one
or more shareholders in particular.
b. Commercial transactions between its shareholders, related companies as
defined in Article 100 of Law 18,045 and the Related Party of these
shall meet conditions of equity similar to those normally prevailing
in the market.
c. The Parties and their Related Parties shall make reasonable commercial
efforts for the Holding and the Corporation to benefit from their
negotiation powers in the acquisition of any goods or services of
value to the them, Corporation provided this does not imply the
renunciation of rights under contracts already exectued by the Parties
and their Related Parties or a default or a greater encumbrance in the
execution of those contracts.
ELEVENTH CLAUSE: ADMINISTRATION OF THE HOLDING AND THE CORPORATION.The board of
- - ----------------
the Holding and Corporation shall composed of 10 titular and 10 alternate
directors who shall remain in their positions for the time established in the
bylaws and shall be appointed by the shareholders meeting.
31
<PAGE>
11.1. Appointment of Directors. The parties signing this document agree that of
-------------------------
the 10 titular and 10 alternate directors composing the boards of the Holding
and the Corporation, 6 titular and 6 alternate directors shall be appointed and
elected by CORDILLERA and 4 titular and 4 alternate directors shall be appointed
and elected by INTERCOM.
For the fullfillment of the foregoing, the Holding shall instruct its
representatives in order that in the respective shareholder meeting the
appointment of the directors of the Corporation is made given compliance with
the agreements contained in this paragraph.
The right of each party to appoint the number of directors indicated above has
been agreed taking into account their present share holdings. However, the
parties agree that should EL MERCURIO dispose of its shares in INVERCOM and CTC
reduce its indirect interest in the Holding to 36%, INTERCOM shall retain its
right to appoint and elect 4 titular and 4 alternate directors in the Board of
Directors of the Corporation and of the Holding, for which CORDILLERA and the
Holding shall provide the share support required therefor.
The parties agree that the appointment and acting of the liquidators of the
Holding and of the Corporation shall be subject to the rules provided for in
this clause eleven, as they are applicable.
32
<PAGE>
11.2. Director vacancy. If for any reason a vacancy for a titular or his
-----------------
respective alternate director arises, the board shall proceed to appoint a
replacement, appointing for this purpose the person(s) proposed by the
shareholder with the right to appoint them, and the renewal of the whole of the
Board of Directos shall be made in the next shareholders meeting to be held by
the Holding or the Corporation.
11.3. Attendance quorum. Board meetings of the Holding and the Corporation
------------------
shall be held with the attendance of, at least, the absolute majority of the
directors, that is 6 directors, except for meetings called to resolve on any of
the matters indicated in paragraph 11.5. below which shall always require the
attendance of at least 8 titular directors or their respective alternates.
11.4. Voting quorum. Except for decisions on matters indicated in paragraph
--------------
11.5 below which shall require, as already explained, the favourable vote of at
least 8 titular directors or their respective alternates, resolutions of the
board of directors of the Holding and of the Corporation shall be passed with
the favourable vote of at least the absolute majority of the directors of the
Corporation, that is 6 directors.
11.5. Qualified quorum. Notwithstanding the qualified quorums provided in the
-----------------
by-laws of the Holding and of the Corporation, the Board meetings to consider
any of the following matters shall
33
<PAGE>
require the assistance and assenting vote of at least 8 directors for their
resolution:
a. The acquisition of assets of over US$5,000,000 in one calendar year
and the disposal of assets of over US$1,000,000 in one calendar year,
at the Exchange Rate in effect on the day the respective transaction
is made, in both cases provided they are not contemplated in the
Business Plan and Annual Budget;
b. Direct and indirect borrowing not contemplated in the Business Plan
and Annual Budget that exceeds US$7,500,000 outstanding at any one
time, at the Exchange Rate in effect on the date the respective
transaction is made.
c. Approval and amendment of the Business Plan and Annual Budget, and in
the event that either of them is not approved within 40 days from the
date on which they were presented for the approval of the board, for
which a meeting will be noticed for the term mentioned, the Annual
Budget for the previous year shall continue, adjusted according to the
change in the CPI as determined by the National Statistics Institute
of the Republic of Chile or the entity replacing it. However, if a 40
day period is elapsed commencing on the date in which the documents
were submitted for approval of the Board, and
34
<PAGE>
being in effect the Annual Budget of the previous year adjusted, there
is still a disagreement, the directores appointed by CORDILLERA shall
have the right to go to the arbitrator within the following 60 days,
in order that such arbitrator, in view of the technical and economic
reports that considere appropiate, decides if, for the calendar year
in dispute is more convenient to maintain the adjusted Annual Budget
of the previous year, or approve the Business Plan and Annual Budged
submitted for the approval of the Board. If the arbitrator decides
that is more convenient the Business Plan and Annual Budged submitted
for the approval of the Board, this shall be informed inmediately in a
Board of Directors specially called for that purpose and in such
meeting the Board of Directors, with the favourable vote of only the
absolute mayority of the Directors, that is 6 directors, shall freely
decide the approval or amendment of the Business Plan and Annual
Budged submitted for approval.
d. Commercial transactions and agreements with related persons to the
Corporation as defined in Article 100 of Law 18,045, except for
transactions to be executed between the Corporation or the Holding and
CTC and/or its related persons as defined in Article 100 of Law 18,045
which shall require the assenting vote of just the absolute majority
of the board.
35
<PAGE>
e. The execution of programming contracts not contemplated in the
Business Plan and Annual Budget for an amount of over US$2,000,000 in
each case, at the Exchange Rate in effect at the time the respective
transaction is carried out.
f. The construction of networks and the execution of contracts for
providing transportation services, except in the cases contemplated in
paragraph 11.6 of this Clause eleven.
11.6. Exceptions to the rule in paragraph 11.5. However, and notwithstanding
-----------------------------------------
the exception established in letter c), para. 11.5, in the matters indicated
below, only the assenting vote of the absolute majority of the directors shall
be required, that is 6 directors:
(i) to demand compliance with the Signal Transmission and Connection
Maintenance Agreement as well as any other contract executed or that may be
executed among the Holding or the Corporation and CTC, its Related Parties
and related persons as defined in Article 100 of Law 18.045, to amend them
or in any way enforce their rights under them.
(ii) to construct by its own or through third parties the networks whose
construction has been requested by the
36
<PAGE>
Corporation to CTC, in accordance with the Signal Transmission and
Connection Maintenance Agreement, as well as to make or hire increases in
capacity or new services in such networks, and CTC has refused or it is
understood to have refused in accordance with the procedure contemplated in
the Signal Transmission and Connection Maintenance Agreement.
(iii) to execute contracts for transportation or for rental, agree
increases in capacity and new services, and execute maintenance contracts
with third parties, when previously requested by the Corporation of CTC
under the Signal Transmission and Connection Maintenance Agreement and CTC
has refused or it is understood to have refused.
(iv) approve the acts and contracts necessary for and conducive to
implementing or financing the decisions taken in accordance with this
paragraph 11.6 including naturally, the related with the acquisitions of
assets, indebtedness, approval and amendment of the Business Plan and
Annual Budget.
TWELFTH CLAUSE: SHAREHOLDERS MEETINGS. Notwithstanding that the by-laws of the
- - ---------------
Holding and the Corporation requires a lower quorum, INTERCOM shall be obligated
to grant its approval for resolution of the Shareholders Meetings that have been
proposed under resolutions of the Board of Directors adopted with the favourable
vote of the Directors appointed by CORDILLERA and the
37
<PAGE>
purpose of which are increases of capital or the issuance of bonds or debentures
convertible into shares or the amendment of the line of businesses of the
"Holding" and/or the Corporation, in the amount required so as the Holding
and/or the Corporation may contract with third parties or undertake in its own
account one or more of the acts and contracts referred to under letters (ii) and
(iii) of the para. 11.6. In the said resolution of the Board it shall be
ackowledge the occurrence of one of the cases referred to in this clause.
SECTION V
---------
ACCOUNTING STANDARDS, FINANCIAL STATEMENT
------------------------------------------
AND REGISTRATION OF THE CORPORATION IN THE SECURITIES REGISTRY.
---------------------------------------------------------------
THIRTEENTH CLAUSE: ACCOUNTING AND FINANCIAL STATEMENTS.
- - ------------------
13.1. General accounting. The Holding and the Corporation shall maintain its
-------------------
accounting, books and registers in accordance with legal and regulatory
standards applying to open corporations, which shall be examined by external
auditors appointed annually by the shareholders meeting from among
internationally recognized firms.
13.2. Special accounting. In addition to the accounting system referred to in
-------------------
paragraph 13.1., at the first board meeting held after the signing of this
document, special accounting standards
38
<PAGE>
and systems shall be adopted as required by the parties provided they do not
damage the Holding and/or Corporation.
13.3. Financial statements. The Holding and the Corporation shall prepare its
---------------------
financial statements in accordance with GAAP-CHI and GAAP-USA. The financial
statement prepared in accordance with GAAP-USA shall be presented (i) within 15
days following the end of each calendar month, (ii) within 21 days following
each quarter and (iii) within 45 days following the end of each calendar year.
The financial statements referred to in (iii) above shall be audited.
FOURTEENTH CLAUSE: REGISTRATION OF THE HOLDING IN THE SECURITIES REGISTER OF
- - ------------------
THE SUPERINTENDENCY OF SECURITIES AND INSURANCE. The parties shall analize the
convenience that the shares are registered, offered and exchanged in the Stock
Exchanges. In no case, the foregoing shall be deemed or imply authorization for
a partner to sell its shares in the Holding in an Stock Exchange, with this
regard or non compliance of the transfer restrictions and first refusal
procedure for the acquisition of the Shares set forth in this instrument.
SECTION VI
----------
APPLICATION AND TERM, LIQUIDATION, PENALTIES AND ARBITRATION
------------------------------------------------------------
FIFTEENTH CLAUSE: APPLICATION AND TERM.
- - -----------------
39
<PAGE>
15.1. This agreement shall have the same term of the Holding and the
Corporation. The third party that, pursuant to the provisions of clause fifth
and sixth of this agreement, acquires Shares or Holdings in Other Companies,
owned by one of the Parties, shall simoultaneously with the respective
acquisition confirm in writting its acceptance to the terms and obligations
contained in this document. In the absence of the foregoing such transference
shall not be registered in the respective shareholders record.
SIXTEENTH CLAUSE: PENALTIES.
- - -----------------
16.1 The default by any of the Parties on the obligations arising for each
thereof under clauses third, fourth number 1, fifth, sixth, eighth and eleventh
of this Agreement that is considered material, shall empower the Party or
Parties who consider their rights impaired by the default, to alternatively and
at their discresion, request specific performance of the respective obligation
or voidance of the act or contract that gives rise to the default. In both
cases, it shall be entitle, in addition, to (a) damages compensation that the
parties liquidate in amount of $100,000,000.-, in the event that the defaulting
party is any of INTERCOM, CORDILLERA, INVERCOM, CCHL, BIP, CRISTALCHILE,
HOLDING, CTC, BRESNAN, CRISTALERIAS or TCI and $30,000,000 in the event that the
defaulting party is EL MERCURIO. However, nothing shall prevent the claiming
party from request only such penalty nor for that, if the damages were larger
that such penalty, to claim also or only
40
<PAGE>
the compensation of such damages, or scuh compensation jointly with the specific
performance or a claim to void the act or contract give rise to default.
16.2 If the breach by any of the Parties on the obligations arising for each
thereof under this Agreement is not qualify as material the party or parties who
deem that the rights are impaired by such default shall be entitle to request
specific performance of the respective obligation or voidance of the act or
contract causing such default, plus, in each case, damage compensation.
16.3 Non of the provisions of this clause, prevents the excersise by the Party
or Parties affected by the total or parcial default hereof, of the other rights
conferred thereupon by this same instrument or conferrred thereupon by the by-
laws of the Holding and the Corporation, by the agreements reached during the
negotiations between the Parties, established in the Sales Contract, the Signal
Transmission and Connection Maintainance Agreement or in the law.
SEVENTEENTH CLAUSE:
- - -------------------
All the agreements reached between the Parties by virtue of the negotiations,
established in the Sales Contract, the Signal Transmission and Connection
Maintainance Agreement, the by-laws of
41
<PAGE>
the Holding and of the Corporation and this agreement, are considered as a
indissoluble whole and part of a same negotiation.
EIGHTEENTH CLAUSE: PRECEDENCE IN THE CASE OF DISPUTES.
- - ------------------
The stipulations contained in this Shareholders Agreement are binding for the
"Parties". Should a dispute arise between this Shareholders Agreement and the
bylaws, the provisions of this Shareholders Agreement shall prevail.
NINETEENTH CLAUSE: ARBITRATION.
- - -----------------
19.1. Any differences, difficulties or conflicts arising between the Parties
for any reason or in any circumstance, directly or indirectly related to this
Shareholders Agreement or one or more of its clauses, and especially but without
any limitation, those relating to its effects, enforceability, application,
interpretation, compliance, non compliance, validity or invalidity, nullity or
resolution, existence or non-existence, or the powers of the arbitrator
appointed, shall be resolved by an arbitrator in equity ("Arbitro Arbitrador")
who shall give judgment in the one instance and there shall be no appeal against
his judgments except for complaint proceedings.
42
<PAGE>
19.2. The Parties renounce in this act all forms of recourse they might have
had against the resolutions of the arbitrator.
19.3. For this purpose, the Parties and other signatories to this Shareholders
Agreement mutually appoint Mr. Samuel Lira Ovalle as Arbitro Arbitrador in the
first place. In the event that he cannot or does not wish to accept the
position, the parties mutually appoint Mr. Eugenio Valenzuela Somarriva; in the
event that he cannot or does not wish to accept the position, the parties
appoint Mr. Sergio Urrejola Monckeberg; In the event that he cannot or does not
wish to accept the position, the parties mutually appoint Mr. Juan Achurra
Larrain; in the event that he cannot or does not wish to accept the position,
the parties appoint Mr. Alberto Pulido Cruz.
In the event none of the arbitrators appointed accept the position, the Parties
and other signatories to this Shareholders Agreement shall appoint the
arbitrator by mutual consent and in the event of their reaching no agreement,
the appointment shall be made by the sitting judge of the civil court of
Santiago municipality from among persons who have acted as lawyer members of the
Supreme Court of Justice for a period of no less than three years. Moreover in
this case, the arbitrator appointed by the court shall be an arbitrator in
equity (Arbitro Arbitrador) concerning procedure and an arbitrator in law, his
judgments being subject to all forms of recourse available under the law.
43
<PAGE>
SECTION VII
-----------
NOTIFICATIONS, REGISTRATION OF THE AGREEMENT, TERMS,
-----------------------------------------------------
APPLICABLE LAW AND DOMICILE
---------------------------
TWENTIETH CLAUSE: NOTIFICATIONS.
- - -----------------
20.1. Any notification, communication, request, instruction or other document
that may or should be delivered by one party to another other, by the technical
commissions of the parties or by the arbitrator to the parties under this
agreement, shall be in writing in one of the following manners:
a) shall be delivered personally (with receipt confirmed by the signature of the
addressee), or
b) shall be sent by telex (with the corresponding confirmation of receipt or
answerback), or
c) shall be sent by fax (with receipt confirmed by the addressee by fax or
telex), or
d) shall be sent through a notary public using private mail and applying the
following procedure:
i) The notary shall previously send to the addressee a fax containing the
communication and indicating in that fax that
44
<PAGE>
the communication is sent on the same date by private mail, but not
requiring the confirmation of receipt of the fax. In a document of the same
date, the notary shall certify having sent that fax or its having been
impossible to send that communication by fax and the reasons for it.
ii) Once carried out the above, the notary shall send the communication to
the addressee by private mail accompanied by a copy of the document
containing the certification of the sending of the fax referred to above,
or of the impossibility of being able to do so if that be the case.
Consequently, in order to perfect the notification referred to in this
letter d), it shall be sufficient that the communication be sent by private mail
through a notary public who should include the certification mentioned.
20.2. If the notification, communication, request, instruction or document is
addressed by one party to another, it shall be sent to the domicile or fax or
telex number of the other party. In any event, communications sent to the
domicile the parties have communicated between them in the manners set out in
paragraph 20.1. above, shall be valid.
20.3. Notifications shall be considered as having been received, in the case of
personal delivery, upon delivery; in the
45
<PAGE>
case of private mail sent through a notary, five days after the sending; in the
case of telex or fax, the following banking business day after the sending.
20.4. Nothing expressed herein shall affect verbal notification in order to
inform the other party under this agreement when it is necessary to make urgent
notifications. However, such verbal notification shall be followed immediately
by confirmation in writing so that the notification shall only be understood to
be made by one of the ways foreseen in the preceding paragraphs.
20.55. For the purpose of the communications, in this act the Parties appoints
as representatives the following persons and in the following conditions:
a) If the communications are made to:
INTERCOM: Claudio Garcia Swears
Avenida Apoquindo No. 4499
Comuna de Las Condes, Santiago, Chile
Phone: (56 2) 691 25 67
Fax: (56 2) 206 58 33
b) If the communications are made to:
46
<PAGE>
CORDILLERA: Maria Isabel Diaz Velasco
Bombero Adolfo Ossa 1010 oficina 401
Comuna de Santiago, Santiago, Chile
Phone: ( 56 2 ) 699 59 49
Fax: ( 56 2 ) 695 20 30
and
Juan Antonio Alvarez Avendano
Hendaya 60, piso 14,
Comuna de Las Condes, Santiago, Chile
Phone: ( 56 2 ) 330 7000
Fax: ( 56 2 ) 331 5153
c) If the communications are made to:
INVERCOM: Jacinto Diaz Sanchez
Avenida Apoquindo No. 4499
Comuna de Las Condes, Santiago, Chile
Phone: (56 2) 206 56 25
Fax: (56 2) 206 56 56
d) If the communications are made to:
CCHL: Baltazar Sanchez Guzman
Hendaya No. 60, piso 15
Comuna de Las Condes, Santiago, Chile
Phone:( 56 2 ) 331 54 40
47
<PAGE>
Fax: ( 56 2 ) 331 54 30
and
Max Letelier Bomchil
Bombero Adolfo Ossa 1010 oficina 401
Comuna de Santiago, Santiago, Chile
Telefono: ( 56 2 ) 699 59 49
Fax: ( 56 2 ) 695 20 30
e) If the communications are made to:
BIP: Maria Isabel Diaz Velasco
Bombero Adolfo Ossa 1010 oficina 401
Comuna de Santiago, Santiago, Chile
Phone: ( 56 2 ) 699 59 49
Fax: ( 56 2 ) 695 20 30
f) If the communications are made to:
CRISTALCHILE: Ismael Mena Gatica
Hendaya 60, piso 15
Comuna de Las Condes, Santiago, Chile
Phone:( 56 2 ) 331 54 40
Fax: ( 56 2 ) 331 54 30
48
<PAGE>
g) If the communications are made to:
METROPOLIS - INTERCOM
HOLDING S.A.:
Cristobal Philippi Irarrazaval
Avenida Manquehue Sur, 520, piso 2
Comuna de Las Condes, Santiago, Chile
Phone:( 56 2 ) 224 51 50
Fax: ( 56 2 ) 224 58 30
With copy to:
Maria Isabel Diaz Velasco
Bombero Adolfo Ossa 1010 oficina 401
Comuna de Santiago, Santiago, Chile
Phone:( 56 2 ) 699 59 49
Fax: ( 56 2 ) 695 20 30
and
Juan Antonio Alvarez Avendano
Hendaya 60, piso 14,
Las Condes, Santiago, Chile
Phone:( 56 2 ) 330 7000
Fax: ( 56 2 ) 331 5153
h) If the communications are made to:
49
<PAGE>
BRESNAN: Jeffrey DeMond
709 Westchester Avenue
White Plains, New York, 10.604
Estados Unidos de America
Phone: 1 - 914 - 993 66 00
Fax: 1 - 914 - 993 66 01
i) If the communications are made to:
CRISTALERIAS: Cirilo Elton Gonzalez
Hendaya 60, piso 2
Comuna de Las Condes, Santiago, Chile
Phone: (56 2 ) 246 88 55
j) If the communications are made to:
CTC: Jacinto Diaz Sanchez
Avenida Apoquindo N(Degrees) 4499
Comuna de Las Condes, Santiago, Chile
Phone: (56 2) 206 56 25
Fax (56 2) 206 56 56
k) If the communications are made to:
EL MERCURIO: _________________________
50
<PAGE>
_________________________
Phone _________________________
Fax _________________________
l) If the communications are made to:
TCI: Fred A. Vierra
Terrace Tower II
5.619 DTC Parkway, Englewood,
Colorado 80.111 - 3.000
Estados Unidos de America
Phone: 1 - 303 - 267 52 16
Fax: 1 - 303 - 488 32 00
m) If the communications are made to:
SERVICIOS Y CONSULTORIAS
HENDAYA S.A.: Cirilo Elton Gonzalez
Hendaya 60, piso 2
Comuna de Las Condes, Santiago, Chile
Phone: ( 56 2 ) 246 88 55
Fax: ( 56 2 ) 246 88 00
51
<PAGE>
n) If the communications are made to:
BRESNAN HOLDINGS
CHILE INC: Jeffrey DeMond
709 Westchester Avenue
White plains, New York, 10.604
Estados Unidos de America
Phone: 1 - 914 - 993 66 00
Fax: 1 - 914 - 993 66 01
20.5. The parties may change the name of the persons who have to be notified on
their behalf and their respective addresses and fax and telex numbers, always
provided the notification is duly sent to the other party or parties in
accordance with this clause.
TWENTIETH-ONE CLAUSE: CUSTODY OF THIS SHAREHOLDERS AGREEMENT.
- - ---------------------
A copy of this Shareholders Agreement shall be held available to interested
third parties by the Corporation and shall be annotated in its Shareholders
Register in accordance with Article 14 of Law 18,046.
TWENTIETH-TWO CLAUSE: TERMS. The terms referred to in this Shareholders
- - ---------------------
Agreement are consecutive days except where expressly stated to the contrary. In
each ocassion that this Shareholders Agreement established that a certain
conduct or action must be
52
<PAGE>
completed within a certain period of time as from a certain notification or
notice, it shall be understood that (i) that term starts to run as from midnight
on the day on which a comunications is considere to be received pursuant to the
provisions of clause 20, para. 20.3 and (ii) that if such term should elapsed on
a day that is not a Banking Business Day the term shall run until the following
Banking Business Day.
TWENTIETH-THREE CLAUSE: APPLICABLE LAW. This Shareholders Agreement shall be
- - ----------------------
governed by the laws of the Republic of Chile.
TWENTIETH-FOUR CLAUSE: LANGUAGE. It is stated for the record that this Agreement
- - ----------------------
is executed in the Spanish language and a translation has been made thereof to
English. The parties expressly agree that the text in Spanish shall prevail for
all legal purp
TWENTIETH-FIVE CLAUSE: DOMICILE AND OTHER MATTERS. For all purposes of this
- - ----------------------
Shareholders Agreement, domicile is fixed in the municipality of Santiago.
TWENTIETH-SIX CLAUSE: It is stated for the record that this Shareholders
- - --------------------
Agreement, jointly with the Sales Contract, the Signal Transmission and
Connection Maintainance Agreement, the by-laws of the Holding and the
Corporation, and any other document executed by the Parties, contained all
agreements of the parties in relation
53
<PAGE>
with the businesses to which such documents are referred, and therefore, the
Parties declare that all the obligations that may arrise of all agreement,
verbal or by written, that they have adopted with respect to such businesses,
are complete fullfilled.
TWENTIETH-SEVEN CLAUSE: POWERS OF ATTORNEY AND LEGAL CAPACITY REPRESENTATIONS.
- - ----------------------
27.1 Each of the appearing parties in this document, declares the following:
a) That the companies by them represented, has approved the execution of this
Shareholders Agreement and that they have been granted with enough powers of
attorney to legally execute it in its name and representation.
b) That this Shareholders Agreement has been duly and validly agreed upon and it
is the source of legally, valid, and enforceable obligations for their
principals, enforceable according to its terms.
c) That the execution of this Shareholders Agreement by their principal and the
fullfilment of the obligations contained thereof are valid pursuant to the by-
laws and powers of attorneys and shall not infringe or default and shall not be
in conflict with any
54
<PAGE>
provision of the by-laws or any other rule or provision nor will have as a
result the anticipated expiration of any obligation.
27.2 POWERS OF ATTORNEYS OF THE APPEARING PARTIES: [____]
_______________
55
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 78,851
<SECURITIES> 0
<RECEIVABLES> 19,496
<ALLOWANCES> 0
<INVENTORY> 53,941
<CURRENT-ASSETS> 0
<PP&E> 154,239
<DEPRECIATION> 38,630
<TOTAL-ASSETS> 1,771,507
<CURRENT-LIABILITIES> 0
<BONDS> 515,793
0
0
<COMMON> 118,188
<OTHER-SE> 708,625
<TOTAL-LIABILITY-AND-EQUITY> 1,771,507
<SALES> 0
<TOTAL-REVENUES> 62,624
<CGS> 0
<TOTAL-COSTS> 43,782
<OTHER-EXPENSES> 14,146
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,403
<INCOME-PRETAX> (37,150)
<INCOME-TAX> 10,739
<INCOME-CONTINUING> (26,411)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,411)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
