<PAGE>
UNITED STATES
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 September 30, 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 (1) 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) and (2) 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 October 31, 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>
September 30, December 31,
1996 1995
------------- ------------
Assets amounts in thousands
- - ------
<S> <C> <C>
Cash and cash equivalents (note 3) $ 29,898 133,109
Trade and other receivables, net 30,744 19,066
Film inventory and other prepaid 64,284 36,465
expenses
Investment in Telewest Communications
plc ("Telewest") (note 7) 458,837 550,216
Investment in other affiliates,
accounted for under the equity method,
and related receivables (note 8) 406,780 354,133
Other investments (note 9) 28,447 83,839
Property and equipment, at cost:
Land 285 277
Distribution systems 149,086 118,705
Support equipment and buildings 40,740 29,321
---------- ---------
190,111 148,303
Less accumulated depreciation 48,967 35,314
---------- ---------
141,144 112,989
---------- ---------
Franchise costs and other intangible
assets 618,038 583,862
Less accumulated amortization 51,463 29,030
---------- ---------
566,575 554,832
---------- ---------
Deferred financing costs and other
assets,net of amortization 14,173 6,062
---------- ---------
$1,740,882 1,850,711
========== =========
</TABLE>
(continued)
I-1
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------------- -------------
Liabilities and Stockholders' Equity amounts in thousands,
- - ------------------------------------ except share amounts
<S> <C> <C>
Accounts payable $ 35,464 25,010
Accrued liabilities 51,466 40,774
MultiThematiques Obligation (note 8) 67,197 65,876
Debt (note 10) 416,641 192,718
Deferred income tax liability 133,914 186,126
Other liabilities 14,210 6,500
---------- ---------
Total liabilities 718,892 517,004
---------- ---------
Minority interests in equity of 144,995 122,358
subsidiaries
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
106,960,873 and 106,487,500 shares in
1996 and 1995, respectively 106,961 106,488
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 1,186,788 1,177,271
Accumulated deficit (176,893) (75,036)
Cumulative foreign currency translation
adjustments (11,409) (8,550)
Unrealized holding losses for
available-for sale securities (3,625) (152)
---------- ---------
1,113,522 1,211,721
Due from Tele-Communications, Inc.
("TCI") (note 12) (236,527) (372)
---------- ---------
Total stockholders' equity 876,995 1,211,349
---------- ---------
Commitments and contingencies
(notes 7, 8, 12, l3 and 14)
$1,740,882 1,850,711
========== =========
</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 Nine months
ended ended
September 30, September 30,
-------------------- -------------------
1996 1995 1996 1995
---------- -------- --------- --------
<S> <C> <C> <C> <C>
amounts in thousands,
except per share amounts
Revenue:
Cable $ 51,539 50,339 152,280 91,359
Programming 31,700 11,746 67,593 31,735
-------- ------- -------- -------
83,239 62,085 219,873 123,094
-------- ------- -------- -------
Operating costs and expenses:
Cable (note 12) 33,204 29,560 92,594 56,771
Programming 38,329 16,072 82,863 40,954
Programming rights provision -- -- 8,706 --
General and administrative:
Allocated from TCI (note 12) 872 486 2,365 1,412
Other 2,050 1,983 6,994 4,726
Stock compensation:
Allocated from TCI (note 12) (815) 498 (1,773) 1,240
Other (796) -- (1,444) --
Depreciation and amortization 14,129 12,389 39,014 23,618
-------- ------- -------- -------
86,973 60,988 229,319 128,721
-------- ------- -------- -------
Operating income (loss) (3,734) 1,097 (9,446) (5,627)
Other income (expense):
Share of losses of Telewest (note 7) (29,003) (16,601) (99,206) (42,762)
Share of losses of other affiliates
(note 8) (17,961) (15,505) (54,797) (37,848)
Interest expense:
TCI (note 12) (188) (987) (563) (3,981)
Other (7,625) (6,517) (24,752) (11,339)
Interest income:
TCI (note 12) 3,865 -- 10,802 --
Other 1,625 5,627 5,885 6,053
Minority interests' share of losses 8,188 5,775 18,657 11,696
Foreign currency transaction gains
(losses) 661 (1,619) 4,110 (1,070)
Other, net (note 9) 681 255 5,018 508
-------- ------- -------- -------
(39,757) (29,572) (134,846) (78,743)
-------- ------- -------- -------
Loss before income taxes (43,491) (28,475) (144,292) (84,370)
Income tax benefit 12,222 11,622 42,435 21,209
-------- ------- -------- -------
Net loss $(31,269) (16,853) (101,857) (63,161)
======== ======= ======== =======
Net loss per common share (note 1)
Historical $(.26) -- (.86) --
======== ======= ======== =======
Pro forma $ (.15) (.61)
======== ======= ======== =======
See accompanying notes to financial statements.
</TABLE>
I-3
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Statement Of Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Cumulative
foreign
Additional currency
Preferred Common Stock paid-in Accumulated translation
-------------------
stock Series A Series B capital deficit adjustment
--------- -------- -------- --------- ----------- ------------
amounts in thousands
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ -- 106,488 11,700 1,177,271 (75,036) (8,550)
Net loss -- -- -- -- (101,857) --
Issuance of common stock -- 473 -- 9,517 -- --
Foreign currency
translation adjustment -- -- -- -- -- (2,859)
Unrealized holding
losses for available-
for-sale securities -- -- -- -- -- --
Net loan to TCI (note 12) -- -- -- -- -- --
Other changes in due
from TCT (note 12) -- -- -- -- -- --
--------- -------- -------- ---------- ---------- ---------
Balance at September 30, 1996 $ -- 106,961 11,700 1,186,788 (176,893) (11,409)
========= ======= ======= =========== =========== =========
Unrealized
holding
losses for
available- Total
for-sale Due from stockholders'
securities TCI equity
---------- ---------- ------------
Balance at January 1, 1996 (152) (372) 1,211,349
Net loss
Issuance of common stock -- -- (101,857)
Foreign currency -- -- 9,990
translation adjustment -- -- (2,859)
Unrealized holding
losses for available-
for-sale securities (3,473) -- (3,473)
Net loan to TCI (note 12) -- (235,059) (235,059)
Other changes in due
from TCT (note 12) -- (1,096) (1,096)
-------- --------- --------
Balance at September 30, 1996 (3,625) (236,527) 876,995
======== ========= ========
</TABLE>
See accompanying notes to financial statements.
I-4
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Statements Of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
amounts in thousands
(see note 3)
Cash flows from operating activities:
Net loss $ (101,857) (63,161)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 39,014 23,618
Programming rights provision 8,706 --
Stock compensation (3,217) 1,240
Share of losses of Telewest 99,206 42,762
Share of losses of other affiliates 54,797 37,848
Minority interests' share of losses (18,657) (11,696)
Unrealized foreign currency transaction (gains) losses (4,110) 351
Accretion of discount on MultiThematiques obligation 4,756 --
Deferred income tax benefit (48,899) (22,176)
Intercompany current federal income tax benefit (2,665) (990)
Changes in operating assets and liabilities, net of the
effect of acquisitions:
Change in receivables (6,058) 4,558
Change in film inventory and other prepaid expenses (15,508) (19,188)
Change in deferred financing costs (9,811) --
Change in payables, accruals, other liabilities and
the cash intercompany account included in due from TCI 8,777 26,620
---------- ----------
Net cash provided by operating activities $ 4,474 19,786
---------- ----------
</TABLE>
(continued)
I-5
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Statements Of Cash Flows, continued
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
amounts in thousands
(see note 3)
Cash flows from investing activities:
Investments in and loans to affiliates and others $ (122,104) (139,218)
Proceeds from sale of other investments 67,790 --
Cash invested in certificates of deposit (23,966) --
Cash received (paid) in connection with acquisitions, net 5,205 (170,309)
Capital expended for property and equipment (36,567) (44,686)
Cash paid to purchase minority interests (4,636) (24,735)
Other, net 4,965 1,516
---------- ----------
Net cash used in investing activities (109,313) (377,432)
---------- ----------
Cash flows from financing activities:
Issuance of debentures 345,000 --
Loan to TCI (336,375) --
Repayments received on loan to TCI 101,316 --
Borrowings of debt 78,802 303,627
Repayments of debt (200,897) (271,833)
Net proceeds from issuance of common stock 9,990 301,343
Contributions from minority interest owners 3,548 --
Cash proceeds from issuance of shares by Flextech plc -- 74,779
Contributions from TCI -- 95,678
---------- ----------
Net cash provided by financing activities 1,384 503,594
---------- ----------
Effect of exchange rate changes on cash and cash equivalents 244 (435)
---------- ----------
Net increase (decrease) in cash and
cash equivalents (103,211) 145,513
Cash and cash equivalents:
Beginning of period 133,109 5,736
---------- ----------
End of period $ 29,898 151,249
========== ==========
</TABLE>
See accompanying notes to financial statements.
I-6
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
September 30, 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). At September 30, 1996, TCI owned
approximately 83% 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 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 the related
reclassification. The pro forma net loss per share set forth in the
accompanying combined statements of operations for the three and nine
months ended September 30, 1995 was computed using historical losses and a
weighted average share number that reflects pro forma common shares
outstanding of 97,500,000 for the 1995 period ended on the July 18 closing
date of the IPO and actual weighted average shares outstanding for the
remainder of the 1995 periods. Accordingly, the weighted average number of
common shares used to compute pro forma net loss per share was 113.8
million and 103.0 million for the three and nine months ended September 30,
1995, respectively. The weighted average number of common shares used to
compute the historical net loss per share was 118.7 million and 118.5
million for the three and nine months ended September 30, 1996,
respectively. Common stock equivalents were not included in the weighted
average common shares outstanding because their inclusion would be anti-
dilutive.
During the periods 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"), and in Buenos Aires, Argentina (since
the April 25, 1995 acquisition of a 51% ownership interest in CableVision
S.A. and certain affiliated companies ("CableVision"), as further described
in note 4) 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 subsidiary, Flextech
plc.
The Company's ownership interest in the issued and outstanding share
capital of Flextech plc (together with its consolidated subsidiaries,
"Flextech") was 60.4% through May 1995, 48.8% from June 1995 through March
1996, and 46.5% from April 1996 through the present. The Company's voting
interest in Flextech was 60.4% through May 1995 and 50.9% from June 1995
through the present. See note 4.
(continued)
I-8
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
At September 30, 1996, Flextech's most significant consolidated
subsidiaries were comprised of its 100% ownership interests in Bravo
Classic Movies Limited ("Bravo Ltd."), Starstream Limited ("Starstream"),
Flextech Television Limited ("FTV"), Maidstone Broadcasting (formerly the
International Family Channel UK) ("the Family Channel") and TVS Television
Limited ("TVS") (acquired by Flextech in April 1996), and its 78.7%
interest in HSN Direct International Limited (acquired by Flextech in April
1996) and its 51% ownership interest in Playboy TV UK/Benelux Limited
(commenced operations in November 1995). 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. Prior to
the April 1996 transaction in which Flextech increased its ownership
interest in the Family Channel from 39% to 100%, Flextech accounted for its
investment in the Family Channel using the equity method of accounting.
Bravo Ltd. owns "Bravo", a provider of "classic" movies and programming.
Starstream owns "TCC" (formerly marketed as "The Children's Channel"), a
provider of children's programming. FTV provides management services to
various entities engaged in the programming business. Playboy TV UK/Benelux
("PBTV") owns "Playboy TV," a provider of adult entertainment. The Family
Channel owns "The Family Channel", a provider of family entertainment. TVS
owns Maidstone Studios Limited, a production facility. HSN Direct
International Limited ("HSN Direct") is engaged in the domestic and foreign
"infomercial" business. See note 4.
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
September 30, 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 and nine months ended September 30,
1996 include CableVision's and Flextech's results of operations and cash
flows for such periods, and the Company's combined statements of operations
and cash flows for the three and nine months ended September 30, 1995
include (i) Flextech's operating results and cash flows for the three and
nine months ended August 31, 1995, and (ii) CableVision's operating results
and cash flows for the three months ended September 30, 1995 and the period
following the April 25, 1995 acquisition date through September 30, 1995.
See note 4.
(3) Supplemental Disclosures to Statements of Cash Flows
----------------------------------------------------
The Company's cash and cash equivalents are as follows (amounts in
thousands):
September 30, December 31,
Denomination 1996 1995
------------- ------------- ------------
TINTA U.S. dollars $ 1,443 46,065
Subsidiaries:
Flextech UK pounds 27,944 85,163
CableVision Argentine pesos -- 1,837
Consolidated Puerto Rico
Entities U.S. dollars 511 44
------------- ------------
$ 29,898 133,109
============= ============
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 $19.0 million and $12.7 million during the nine
months ended September 30, 1996 and 1995, respectively. Cash paid for
income taxes was $8.9 million during the nine months ended September 30,
1996. Cash paid for income taxes was not material during the nine months
ended September 30, 1995.
(continued)
I-11
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Cash paid (received) for acquisitions is as follows (amounts in thousands):
Nine months ended
September 30,
---------------------
1996 1995
---------- ---------
Fair market value of assets acquired $ 65,182 542,638
Issuance of notes payable (1,000) (86,755)
Liabilities assumed (including deferred
income tax liabilities of $174.7 million in
1995) (26,164) (285,574)
Increase in minority interests in equity of
subsidiaries due to issuance of shares by
Flextech (43,223) --
---------- ---------
Cash paid (received) for acquisitions $ (5,205) 170,309
========== =========
For a description of certain other non-cash activities, see notes 4, 5, 8
and 12.
(4) Acquisitions
------------
(a) IFE
On April 22, 1996, Flextech acquired from International Family
Entertainment, Inc. ("IFE") (i) the 61% ownership interest in the
Family Channel, which Flextech did not already own and (ii) a 100%
ownership interest in TVS. Excluding liabilities assumed, the total
consideration paid by Flextech to acquire such ownership interests was
(Pounds)31.0 million ($47.8 million using the applicable exchange
rate), of which (Pounds)3.0 million ($4.5 million using the applicable
exchange rate) was paid in cash and the remaining balance was
satisfied by Flextech's issuance of 5,792,008 convertible non-
preference shares (the "IFE Consideration Shares"). In connection with
the above-described transactions (collectively, the "IFE
Acquisitions"), TINTA granted to IFE 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 ("Flextech Ordinary Shares") by that date. The put
price per IFE Consideration Share is the greater of (i) (Pounds)3.64
($5.70) or (ii) the market value of a Flextech Ordinary 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. As a result of the IFE Acquisitions, the Company's ownership
interest in Flextech's issued and outstanding share capital decreased
from 48.8% to 46.5%. Due primarily to the Company's contingent
purchase obligations under the above-described put option, the Company
recognized no gain in connection with the dilution of the Company's
ownership interest in Flextech that resulted from the issuance of the
IFE Consideration Shares. Accordingly, the full value ascribed to the
IFE Consideration Shares has been reflected as an increase to
"Minority interests in equity of subsidiaries" as set forth in the
accompanying September 30, 1996 consolidated balance sheet.
(continued)
I-12
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(b) HSN Acquisition
On April 10, 1996, Flextech made an initial capital contribution of
(Pounds)525,000 ($822,000) and assumed certain liabilities in
connection with the acquisition of an indirect controlling interest in
the "infomercial" business of HSN Direct from the Home Shopping
Network, Inc. and certain individuals (the "HSN Acquisition"). In
connection with the HSN Acquisition, Flextech loaned $4.9 million to
HSN Direct. In exchange for assuming 20% of Flextech's initial
capital contribution and the amounts loaned to HSN Direct, TINTA will
acquire a 20% indirect ownership interest in the acquired business.
(c) Starstream
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. See note 2.
(continued)
I-13
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
(d) CableVision
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
$20.0 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% 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 was 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 were
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 September
30, 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 nine months ended
September 30, 1996 and 1995, the Company would have allocated $12.9
million and $8.0 million, respectively, of CableVision's net earnings
(exclusive of the effect of purchase accounting) to the minority
interest.
(continued)
I-14
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Unaudited pro forma summarized operating results of the Company assuming
the IFE Acquisitions, HSN Acquisition, and CableVision Acquisition had
been consummated on January 1, 1995, are as follows (amounts in
thousands):
Nine months ended September 30,
---------------------------------
1996 1995
---------------- ---------------
Revenue $ 228,913 207,764
========= =======
Net loss $(103,968) (64,362)
========= =======
Pro forma net loss per
common share $ (.88) (.62)
========= =======
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 IFE Acquisitions, HSN Acquisition and
CableVision Acquisition actually occurred on January 1, 1995.
(5) Flextech
--------
At September 30, 1996, the Company owned 56,340,598 Flextech Ordinary
Shares representing 46.5% of the issued and outstanding Flextech share
capital and 50.9% of the aggregate voting interests attributable to such
Flextech share capital. Based upon the (Pounds)5.40 ($8.45) 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)304.0 million ($475.9 million) at September 30, 1996.
On June 5, 1995, Flextech completed the sale of newly issued Flextech
Ordinary Shares and newly issued convertible non-preference shares
("Flextech Non-Preference 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 Non-Preference
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." See note 2.
(continued)
I-15
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
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 Non-Preference Shares in exchange for (Pounds)48.4
million ($77.2 million using the applicable 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 Non-Preference 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 applicable exchange rate) pursuant to a bank credit facility (the
"Flextech Bank Facility"). During the third quarter of 1996, US West (UK)
purchased the TDL Securities and Flextech used the resulting proceeds to
repay in full all amounts borrowed pursuant to 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 Non-Preference Shares acquired by U S WEST (UK) and Crown
pursuant to the Flextech Transactions. See note 13.
(6) IVS Subsidiary Sale
-------------------
The Company consolidates Flextech's ownership interest in IVS Cable
Holdings Limited ("IVS"). Prior to the sale of its cable television
subsidiaries, IVS was engaged in the construction and operation of cable
television and telephony systems in the UK. 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 ($5.2 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 ($1.0 million) 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-16
<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 the predecessor of Telewest Communications Cable
Limited ("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 (formerly Telewest
plc), 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 principal 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 nine months ended September 30, 1996, Telewest experienced a
(Pounds)55.2 million ($84.6 million using the applicable exchange rate)
foreign currency transaction loss resulting from the translation of the
Telewest Debentures into UK pounds sterling and the adjustment of a foreign
currency option contract to market value.
At September 30, 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 September 30, 1996, the reported
closing price on the London Stock Exchange of Telewest's ordinary shares
was (Pounds)1.19 ($1.86).
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 1.5411 to 1 and 1.5898 to 1
during the nine months ended September 30, 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 1.5653 to 1 and 1.5530 to 1 at
September 30, 1996 and December 31, 1995, respectively.
(continued)
I-17
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Summarized unaudited results of operations of Telewest are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------
1996 (1) 1995
----------- ---------
<S> <C> <C>
Revenue $ 318,144 139,330
Operating, selling, general and
administrative expenses (326,693) (169,093)
Depreciation and amortization (159,643) (60,431)
--------- --------
Operating loss (168,192) (90,194)
Interest income 22,126 11,917
Share of losses of affiliates (17,626) (14,567)
Interest expense (120,515) (6,656)
Foreign currency transaction loss (84,632) (13,687)
Other, net (197) 17
--------- --------
Net loss $(369,036) (113,170)
========= ========
</TABLE>
_____________________
(1) Telewest's summarized unaudited results of operations for the nine
months ended September 30, 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.
The Company is contractually obligated to make further loans to or
investments in certain of the Other Affiliates. At September 30, 1996, the
aggregate U.S. dollar equivalent of the unfunded portion of such
commitments was $57.3 million, of which $13.9 million represented
commitments of Flextech.
The Company and/or other subsidiaries of TCI have guaranteed notes payable
and other obligations of certain of the Other Affiliates (the "Guaranteed
Obligations"). At September 30, 1996, the U.S. dollar equivalent of the
amounts borrowed pursuant to the Guaranteed Obligations aggregated $37.8
million. Certain of the Guaranteed Obligations allow for additional
borrowings in future periods. See note 12.
(continued)
I-18
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
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 have guaranteed the performance of the Company's
subsidiary that directly holds the related investment. See note 12.
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)
---------------------------- ---------------------------------
September 30, December 31, Nine months ended September 30,
---------------------------------
1996 1995 1996 1995
------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Flextech Affiliates (a) $117,068 123,156 (9,689) (10,539)
MultiThematiques S.A.
("MultiThematiques") (b) 84,365 89,705 (4,730) --
Liberty/TINTA LLC (c) 72,889 29,118 (3,733) (397)
Bresnan International Partners (Chile),
L.P. ("BIP Chile") (d) 43,530 59,286 (5,347) (3,290)
Jupiter Telecommunications Co., Ltd.
("Jupiter") (e) 33,506 16,268 (8,237) (4,563)
United International Investments 24,669 26,293 (270) (1,998)
Bresnan International Partners
(Poland), L.P. 20,137 16,739 (3,210) (511)
TeleWest Europe Group ("TeleWest
Europe") (note 9) -- (16,800) -- 1,359
Asia Business News (Singapore) PTE Ltd. 9,750 10,472 (7,039) (4,865)
DMX, Inc. ("DMX ") (f) -- 6,981 (7,188) (8,984)
Other 866 (7,085) (5,354) (4,060)
-------- ------- ------- -------
$406,780 354,133 (54,797) (37,848)
======== ======= ======= =======
</TABLE>
(continued)
I-19
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(a) Flextech Affiliates
At September 30, 1996, the "Flextech Affiliates" were comprised of
European Business News Partners (30%-owned by Flextech), HIT
Entertainment plc (23%-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). In April 1996, Flextech acquired the 61% interest in the
Family Channel, which Flextech did not already own. See note 4. Prior
to such acquisition, the "Flextech Affiliates" also included
Flextech's 39% interest in the Family Channel.
(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 ($20.3 million), FF100.0 million
($19.4 million) and FF164.0 million ($31.8 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 ($71.5 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
consolidated 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 nine months ended
September 30, 1996, the Company experienced a $3.4 million unrealized
foreign currency transaction gain with respect to the MultiThematiques
Obligation.
Subsequent to September 30, 1996, the Company entered into forward
currency contracts with respect to its MultiThematiques Obligation.
Such contracts expire on December 13, 1996 and February 13, 1997 and
allow the Company to purchase FF105 million and FF100 million at a
price of FF5.1385 per U.S. dollar and FF 5.1202 per U.S. dollar,
respectively.
(continued)
I-20
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(c) Liberty/TINTA LLC
Effective April 29, 1996, TINTA, Liberty Media Corporation ("Liberty")
and News Corp. formed a joint venture including a number of
partnerships or other entities under common ownership (the "Sports
Venture") to operate currently existing sports services in Latin
America and Australia and a variety of new sports services throughout
the world, excluding the United States and certain other defined
geographic areas. News Corp. owns a 50% interest in the Sports Venture
with the remaining 50% owned by Liberty/TINTA LLC, a limited liability
company owned by TINTA and Liberty (the "LLC"). As of September 30,
1996, TINTA had contributed to the LLC $49.0 million and its 35%
equity interest in Torneos y Competencias S.A. ("Torneos"), an
Argentinean sports programming production company, and Liberty had
contributed to the LLC its interests in Latin American and Australian
Sports programming services and its rights under various television
sports programming agreements. The LLC contributed the non-cash assets
contributed to it by TINTA and Liberty to the Sports Venture. News
Corp. contributed various international sports rights and certain
trademark rights in exchange for its 50% interest in the Sports
Venture. TINTA acquired its 35% ownership interest in Torneos from the
selling stockholders of Torneos (the "Torneos Stockholders") on July
28, 1995 for aggregate consideration of $30 million (exclusive of
certain contingent obligations to pay additional consideration, which
obligations were assumed by the Sports Venture). The carrying value
and the Company's share of earnings (losses) of Torneos prior to its
contribution to the LLC have been included with the LLC in the above
table.
TINTA is obligated to make additional cash contributions totaling
$29.0 million to the LLC to fund the operations of the Sports Venture.
As part of the formation of the Sports Venture, the LLC 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 LLC, which
delivery is expected to occur in 1997, News Corp. is entitled to
receive from the LLC $20.0 million and rights under various Asian
sports programming agreements. Star Television Limited operates a
satellite-delivered television platform in Asia.
On April 19, 1996, TINTA, Torneos and the Torneos Stockholders 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.
(continued)
I-21
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statments
The parties anticipate that TINTA will assign to the Sports Venture
the portions of the TINTA/Torneos Sports Agreement which fit within
the geographic area and business plan of the Sports Venture (the
"Sports Venture Rights"). The minimum periodic payments associated
with the Sports Venture Rights has not yet been determined. Pending
the assignment of the Sports Venture Rights to the Sports Venture,
News Corp. has agreed to reimburse the LLC for 50% of any payments
made with respect to the Sports Venture Rights. Through September 30,
1996, payments made under the TINTA/Torneos Sports Agreement totaled
$7.3 million. Such payments were made entirely by the LLC.
(d) 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 provided 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 owns a
60% interest in Metropolis-Intercom and CTC, Comercial Canelo S.A. and
Empresa El Mercurio S.A.P. own jointly a combined 40% interest. The
Chile Restructuring Agreements also provided that all of the cable
distribution assets excluding the headends (the "Acquired Distribution
Assets") of Cordillera be sold to CTC. In June 1996, the parties
finalized the transactions contemplated by the Chile Restructuring
Agreements and the Acquired Distribution Assets were sold to CTC for
cash proceeds of approximately $120 million ($104.9 million of which
has been received by Cordillera). 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. As a result of the foregoing transactions, 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.
(continued)
I-22
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(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 September 30, 1996, the Company had made aggregate
contributions to Jupiter of (Yen)5.0 billion ($49.7 million using the
applicable exchange rates). At September 30, 1996, the Company was
obligated to pay (Yen)200.0 million ($1.8 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, 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-23
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(f) DMX
Prior to May 1996, the Company owned 49% of the outstanding stock of
DMX Europe N.V. ("DMX Europe"). DMX owned the remaining 51% interest
in DMX Europe. TCI-Euromusic, Inc. ("TCI-E"), an indirect wholly-owned
subsidiary of TINTA, was formed to hold the Company's ownership
interest in DMX Europe. In May 1996, TCI-E merged with and into DMX,
with DMX as the surviving corporation ("the DMX Merger"). In effecting
the DMX Merger, the Company exchanged all of its shares of TCI-E
common stock for 10,841,624 shares or 18% of the then issued and
outstanding DMX common stock. Including shares of DMX common stock
owned by the Company, TCI owned 45% of the issued and outstanding DMX
common stock at September 30, 1996. In consideration of TCI's overall
percentage interest in DMX, the Company accounts for DMX using the
equity method. The Company's share of losses of DMX for the nine
months ended September 30, 1996 exceeded the Company's carrying value
of DMX. The Company recorded its share of losses for the nine months
ended September 30, 1996 only to the extent of its carrying value of
DMX as the Company has no obligation to provide any additional funding
to DMX. At September 30, 1996, the market value of the Company's
interest in DMX common stock was $20.3 million ($1.875 per share).
Other
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. As of September 30, 1996, the Company has made
contributions to JPC of (Yen)500 million ($4.7 million using the applicable
exchange rate). Additionally, the Company and Sumitomo contributed their
respective 18% and 82% ownership interests in the Cable Soft Network to JPC. The
Company made an equalizing payment in the amount of (Yen)444 million ($4.0
million using the applicable exchange rate) in connection with the above-
described contribution of the Cable Soft Network.
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. The
amount of Flextech's funding commitment to the joint venture has not yet been
determined.
(continued)
I-24
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Summarized unaudited results of operations of the Other Affiliates by
geographic region for the periods in which they were owned by the Company
are as follows (amounts in thousands):
<TABLE>
<CAPTION>
Nine months ended September 30, 1996
---------------------------------------------------------------------
Latin
America and
Asia and the
Europe Australia Caribbean Total
------- --------- --------- -----
Combined Operations
- - -------------------
<S> <C> <C> <C> <C>
Revenue $ 258,681 116,642 28,199 403,522
Operating, selling, general and
administrative expenses (272,591) (128,535) (36,305) (437,431)
Depreciation and amortization (8,040) (22,978) (2,796) (33,814)
--------- -------- ------- --------
Operating loss (21,950) (34,871) (10,902) (67,723)
Interest expense (11,405) (8,656) (9,463) (29,524)
Other, net (7,673) (1,832) (5,354) (14,859)
--------- -------- ------- --------
Net loss $ (41,028) (45,359) (25,719) (112,106)
========= ======== ======= ========
Nine months ended September 30, 1996
---------------------------------------------------------------------
Latin
America and
Asia and the
Europe Australia Caribbean Total
------- --------- --------- -----
Combined Operations
- - -------------------
Revenue $ 252,648 60,534 12,820 326,002
Operating, selling, general and
administrative expenses (249,367) (79,692) (8,739) (337,798)
Depreciation and amortization (35,940) (4,937) (3,924) (44,801)
--------- -------- ------- --------
Operating income (loss) (32,659) (24,095) 157 (56,597)
Interest expense (17,998) (6,614) (7,472) (32,084)
Other, net 995 (1,059) (1,375) (1,439)
--------- -------- ------- --------
Net loss $(49,662) (31,768) (8,690) (90,120)
========= ======== ======= ========
(continued)
</TABLE>
I-25
<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>
September 30, December 31,
1996 1995
-------------- ------------
<S> <C> <C>
TDL Securities (a) $ -- 67,794
Certificates of deposit (b) 23,966 --
DTH Ventures (c) 13,379 --
TeleWest Europe (d) (14,531) --
Other 5,633 16,045
-------- ------
$ 28,447 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 were
pledged as security for the Flextech Bank Facility. On July 8, 1996,
US WEST (UK) purchased the TDL Securities at a price per share of
(Pounds)128.39 ($200.97). See notes 5 and 10.
(b) Certificates of Deposit
During the second quarter of 1996 Bravo Ltd. invested its excess
cash in certificates of deposit with a weighted average interest
rate of 6.22% and with maturities of up to one year.
(c) DTH Ventures
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.
TINTA has also agreed to form similar partnerships with News Corp.
and local media companies in the North American (primarily Mexico)
and Brazilian regions. The Latin American, North American and
Brazilian partnerships are collectively referred to as the "DTH
Ventures". Through September 30, 1996, TINTA had contributed $13.4
million to the DTH Ventures. It is anticipated that TINTA could be
required to make cash contributions totaling $55 million over the
next three years in connection with the DTH Ventures.
(continued)
I-26
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(d) 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 owned 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 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 September 30, 1996
consolidated balance sheet.
On September 27, 1996, TeleWest Europe sold to UPC its interest in UCI
for an aggregate purchase price of $30 million. Subsequent to
September 30, 1996, the Company received a cash distribution of $2.6
million and recognized a gain of $13 million in connection with the
dissolution of TeleWest Europe.
(continued)
I-27
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
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 nine months ended September 30, 1996.
(10) Debt
----
The components of debt are as follows (amounts in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
TINTA:
<S> <C> <C>
Debentures (a) $345,000 --
CableVision Notes (b) 26,027 65,066
-------- -------
371,027 65,066
-------- -------
Subsidiaries:
Flextech
Flextech Bank Facility (c) -- 67,794
STV Bank Credit Facility (d) -- --
Other 1,000 --
-------- -------
1,000 67,794
-------- -------
CableVision
Bank loans (e) 43,438 58,166
Other 1,176 1,692
-------- -------
44,614 59,858
-------- -------
$416,641 192,718
======== =======
</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 is payable on February 15 and August 15 of each year,
commencing August 15, 1996. The Debentures may 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
bore interest at 10% until May 1, 1996, when interest began to accrue
at a bank's prime rate plus 1% (9.25% at September 30, 1996). The
CableVision Notes are scheduled to be repaid in equal monthly
installments through March 31, 1997. See note 4.
(continued)
I-28
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(c) Flextech entered into the Flextech Bank Facility in connection with
the U S WEST Subscription. Borrowings pursuant to the Flextech Bank
Facility were secured by Flextech's rights under a put/call agreement,
which, among other matters, provided that Flextech had the right to
require U S WEST (UK) to repurchase the TDL Securities. On July 8,
1996, US WEST (UK) purchased the TDL Securities. Flextech used the
sales proceeds from such purchase to repay in full amounts borrowed
under the Flextech Bank Facility. See notes 5 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
million ($43.8 million) or (ii) 66.67% of the market value of the STV
ordinary shares that are pledged as security for the STV Bank
Facility. Flextech is also required to make quarterly payments with
respect to an annual commitment fee of 3/8% of unborrowed funds. 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 September
30, 1996 was 7.65%. Of the outstanding borrowings at September 30,
1996, $19.1 million and $24.3 million mature during the remainder of
1996 and the year ended December 31, 1997, respectively.
With the exception of the Debentures, which had a fair value of $280.3
million at September 30, 1996, the Company believes that the fair value and
the carrying value of the Company's debt were approximately equal at
September 30, 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-29
<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 bases of assets are inventoried and tracked
for the entities comprising the TINTA Tax Group. In connection with the
implementation of the Tax Sharing Agreement, TINTA recorded a decrease to
its deferred income tax liability and an increase to its additional paid-
in capital of $12.5 million. See note 12.
(continued)
I-30
<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 4), 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):
September 30, December 31,
1996 1995
-------------- -------------
TCI Note Receivable (a) $235,059 --
TCI Credit Facility (b) -- --
Non-Cash Intercompany Account (c) 7,428 2,990
Cash Intercompany Account (5,960) (2,618)
-------------- -------------
$236,527 372
============== =============
(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 September 30, 1996).
Principal and interest is due and payable as mutually agreed from
time to time by TCI and TINTA. During the nine months ended September
30, 1996, interest income related to the TCI Note Receivable
aggregated $10.8 million.
(continued)
I-31
<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 4.
Borrowings under the TCI Credit Facility, together with all accrued
interest thereon, will be payable in full on April 25, 2000. Prior to
April 25, 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 million commitment fee to TCI.
Additionally, the TCI Credit Facility requires an annual credit
facility fee in an amount equal to 3/8% of the unused borrowing
availability under such facility.
(c) At September 30, 1996, the Non-Cash Intercompany Account was comprised
of $119,000 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 $7.5 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-32
<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 increases (decreases) to TINTA's share of TCI's stock
compensation liability of $(1.8 million) and $1.2 million during the nine
months ended September 30, 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 nine
months ended September 30, 1996 and 1995 aggregated $2.4 million and $1.4
million, 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 a
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 $3.4 million and $2.5 million
during the nine months ended September 30, 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
$493,000 during the nine months ended September 30, 1995. The above-
described programming and management fee charges are included in "Operating
costs and expenses - Cable" in the accompanying statements of operations.
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 nine months
ended September 30, 1996 and 1995, such charges aggregated $9.0 million and
$3.1 million, respectively. 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 $3.1 million and $1.2 million during
the nine months ended September 30, 1996 and 1995, respectively. The
above-described programming and general and administrative charges are
included in "Operating costs and expenses - Cable" in the accompanying
statements of operations.
(continued)
I-33
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
As further described in notes 7, 8 and 13, certain subsidiaries of TCI 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 the Company's behalf.
(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 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
entered into an agreement to acquire UK television rights to 70 made-for-
television movies, 6 mini-series and four other series from Hallmark
Entertainment's U.S. network television production output (collectively,
the "Hallmark Programming"). Through September 30, 1996, Hallmark
Programming with an aggregate contractual value of (Pounds)18.0 million
($28.2 million) has been delivered to Flextech. At September 30, 1996, it
is estimated that Flextech's remaining commitments to purchase Hallmark
Programming will be (Pounds)3.7 million ($5.8 million). Flextech also has
agreed to purchase certain programming from STV during the next two years.
Flextech's aggregate remaining obligations at September 30, 1996 under such
STV programming agreements were expected to range from (Pounds)2.3 million
($3.6 million) to (Pounds)7.3 million ($11.4 million).
(continued)
I-34
<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 $58.0 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, 8 and 9.
Certain of the agreements underlying the Flextech Transactions (see note 5)
provide that if the Flextech Non-Preference Shares do not become
convertible into Flextech ordinary shares by June 1, 1997, Crown and/or U S
WEST (UK) can require the Company, at any time, to purchase all of their
Flextech Non-Preference Shares for a price equal to the then current market
price per share of the Flextech Ordinary Shares.
(continued)
I-35
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
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 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 Non-Preference 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 Non-
Preference Shares during the preceding 12 month period.
In the event the Company is required to purchase any Flextech Non-
Preference 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.
TINTA assumed a similar put obligation with respect to certain Flextech
Non-Preference Shares that were issued in connection with Flextech's
acquisition of the 61% ownership interest in the Family Channel, which
Flextech did not already own. See note 4.
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 Non-Preference 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 Non-Preference 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.
(continued)
I-36
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
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 million ($58.5 million) and a minimum purchase
price of NGL 50 million ($29.2 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 million ($2.9
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 million ($3.1 million) payment on account of
the purchase price payable upon exercise of the Call Option.
As previously reported, TINTA has adopted the Tele-Communications
International, Inc. 1995 Stock Plan (the "1995 Plan"). In addition, on
April 11, 1996, the Board of Directors of TINTA adopted a stock option plan
for the Company's directors (the "Director Plan"). The Director Plan
provides for grants to be made of options to purchase a maximum of one
million shares of Series A Common Stock. Under the Director Plan, each of
the Company's five directors who were not employees of the Company or any
subsidiary of the Company as of April 11, 1996 has been granted an option
to purchase 50,000 shares of Series A Common Stock. The options vest evenly
over a five year period. At September 30, 1996 there were 1,642,000 shares
of Series A Common Stock reserved for issuance pursuant to grants under the
1995 Plan and the Director Plan.
Flextech has granted to certain employees under its 1992 and 1995 stock
option schemes, options to purchase approximately (i) 535,000 Flextech
Ordinary Shares at a per share price of (Pounds)3.24 ($5.07), (ii) 460,000
Flextech Ordinary Shares at a price per share of (Pounds)5.03 ($7.87),
(iii) 150,000 Flextech Ordinary Shares at a price per share of
(Pounds)3.775 ($5.91) and (iv) 15,000 Flextech Ordinary Shares at a price
per share of (Pounds)5.06 ($7.92) (the "Flextech Milestone Options"). The
Flextech Milestone Options are exercisable during various periods from 1997
to 2006, 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.
In July 1995, Flextech shareholders approved the adoption of a sharesave
scheme (the "Sharesave Scheme") that, under certain circumstances, could
cause Flextech to record compensation expense. At September 30, 1996,
approximately 210,000 Flextech Ordinary Shares had been granted to
employees under the Sharesave Scheme. Through September 30, 1996,
compensation expense with respect to the Sharesave Scheme was not material.
(continued)
I-37
<PAGE>
TELE-COMMUNICATIONS INTERNAITONAL, INC.
(See note 1)
Notes to Financial Statements
(14) Subsequent Event
----------------
On October 1, 1996 CableVision acquired 99.99% of the issued and
outstanding capital stock of Oeste Cable Color S.A. ("OCC") for a
preliminary purchase price of $109 million. Cash consideration of $44
million was paid at closing. An additional cash payment of $22 million is
due on December 1, 1996 and the remaining purchase price will be satisfied
by CableVision's issuance of $43 million principal amount of secured
negotiable promissory notes (the "OCC Notes"). The OCC Notes will be
repaid in 21 consecutive equal monthly installments commencing on January
10, 1997 and will accrue interest at a bank's prime rate at the date of
closing, plus one percent. The OCC Notes are secured by the pledge of 51%
of the stock of OCC. OCC serves approximately 90,000 basic subscribers in
the west of Greater Buenos Aires, Argentina.
I-38
<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
- - -------
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
$101.9 million and $63.2 million during the nine months ended September 30, 1996
and 1995, respectively. Such net losses are 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.
On April 22, 1996, Flextech acquired from IFE (i) the 61% ownership interest
in the Family Channel, which Flextech did not already own and (ii) a 100%
ownership interest in TVS. On April 10, 1996, Flextech acquired an indirect
controlling interest in the "infomercial" business of HSN Direct. For a more
detailed description of these transactions, see note 4 to the accompanying
financial statements. The Family Channel, TVS and HSN Direct have been included
in the Company's financial statements since their respective dates of
acquisition. Flextech's 51%-owned subsidiary, PBTV, commenced operations in
November 1995 with the launch of Playboy TV. The following table sets forth
summary information with respect to the results of operations for the Family
Channel, TVS and HSN Direct (as adjusted for the effects of purchase accounting)
from the respective acquisition dates through September 30, 1996 and for PBTV
from January 1, 1996 through September 30, 1996 (amounts in thousands):
Revenue $ 28,328
Operating costs and expenses (35,190)
Depreciation and amortization (2,232)
--------
Operating loss $ (9,094)
========
(continued)
I-39
<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 September 30, 1996, CableVision
owned cable television systems serving approximately 464,000 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 indicated periods (amounts in thousands):
<TABLE>
<CAPTION>
April 25, 1995
Nine months ended through
September 30, 1996 September 30, 1995
-------------------- --------------------
<S> <C> <C> <C> <C>
Revenue $133,323 100 % $ 74,435 100 %
Operating costs and expenses
before depreciation and
amortization (79,239) (59)% (41,406) (56) %
-------- ---- -------- -----
Operating income before depreciation
and amortization(1) 54,084 41 % 33,029 44 %
Depreciation and amortization (27,831) (21)% (15,143) (20) %
-------- ---- -------- -----
Operating income $ 26,253 20 % $ 17,886 24 %
======== ==== ======== =====
</TABLE>
__________________
(1) Operating income before depreciation and amortization ("Operating Cash
Flow") is a commonly used measure of value and borrowing capacity.
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 and nine months ended September 30, 1996 include CableVision's and
Flextech's results of operations and cash flows for such periods, and the
Company's combined statements of operations and cash flows for the three and
nine months ended September 30, 1995 include (i) Flextech's operating results
and cash flows for the three and nine months ended August 31, 1995, and (ii)
CableVision's operating results and cash flows for the three months ended
September 30, 1995 and the period following the April 25, 1995 acquisition date
through September 30, 1995. See note 4 to the accompanying financial
statements.
The IFE Acquisitions, HSN Acquisition, CableVision Acquisition and the
launch of Playboy TV detract from the period to period comparability of revenue
and expense amounts. See "Material Changes in Results of Operations" below.
-------------------------------------------
Similarly, these acquisitions and certain other transactions have also impacted
the Company's liquidity and capital resources. See note 4 to the accompanying
financial statements, and "Material Changes in Financial Condition" below.
-----------------------------------------
(continued)
I-40
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Material Changes in Results of Operations
- - -----------------------------------------
Revenue
-------
Cable revenue increased $60.9 million or 67% during the nine months ended
September 30, 1996, as compared to the corresponding prior year period. Such
increase is primarily attributable to the effect of the CableVision Acquisition,
as described under "General" above, and a 7% increase in CableVision's average
-------
number of basic subscribers, which was partially offset by a decrease in rates
resulting from promotional packages offered in response to increasing
competition. See related discussion. An increase in the revenue of the
Consolidated Puerto Rico Entities accounted for the remaining increase in cable
revenue. Such increase is due primarily to a 7% increase in basic subscribers
of the Consolidated Puerto Rico Entities.
The areas serviced by CableVision are also serviced by other cable providers.
During the second quarter of 1996 one of these cable providers began offering
cable services at rates substantially below that charged by CableVision.
Although CableVision has offered promotional packages in response to such
competition, the Company cannot otherwise predict the impact competition will
have on CableVision's result of operations.
Programming revenue increased $35.9 million or 113% during the nine months
ended September 30, 1996, as compared to the corresponding prior year period. A
significant portion of such increase is attributable to the inclusion of the
Family Channel, HSN Direct, PBTV and TVS in the Company's results of operations,
as described under "General" above. Additionally, 31% and 16% increases in the
-------
revenue generated by Bravo Ltd. and Starstream, respectively, contributed to
such increase. Substantially all of the increase in Bravo Ltd's revenue is
attributable to a 25% 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 1996 and to increased
advertising revenue. The increase in Starstream's revenue is primarily
attributable to an increase in the average price received for TCC and a 3% gain
in viewership from 1995 to 1996. 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.
Operating Costs and Expenses
----------------------------
Cable operating costs and expenses increased $35.8 million or 63% during the
nine months ended September 30, 1996, as compared to the corresponding prior
year period. Such increase is primarily attributable to the effect of the
CableVision Acquisition, as described under "General" above, and an increase in
-------
CableVision's programming costs. Such increased programming costs are
attributable to a higher number of subscribers and an increase in rates due to
the renewal of certain programming agreements as further described below. An
increase in the operating costs and expenses of the Consolidated Puerto Rico
Entities accounted for the remaining increase in cable operating costs and
expenses.
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)
I-41
<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 $41.9 million or 102%
during the nine months ended September 30, 1996, as compared to the
corresponding prior year period. Such increase is attributable to (i) the
inclusion of the Family Channel, HSN Direct, PBTV and TVS in the Company's 1996
results of operations, as described under "General" above, and (ii) increased
-------
programming costs. Increases in 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 part of
Flextech's efforts to increase the viewership of such services. It is
anticipated that the amortization of the costs associated with the programming
delivered by Hallmark Entertainment and STV will represent a significant
component of programming costs and expenses in future periods. For information
concerning Flextech's commitments pursuant to such programming rights
agreements, see note 13 to the accompanying financial statements.
During the second quarter of 1996, the Company revised its estimate of future
revenue to be earned from certain programming rights. As a result of such
revisions, the Company has recorded an adjustment of $8.7 million to reduce the
carrying value of the affected programming rights.
TINTA incurred corporate general and administrative expenses of $9.4 million
and $6.1 million during the nine months ended September 30, 1996 and 1995, of
which $2.4 million and $1.4 million, 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. Corporate general and
administrative expenses represented 4% and 5% of revenue for the nine months
ended September 30, 1996 and 1995, respectively.
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 increases (decreases) in such compensation
liabilities aggregated $(3.2 million) and $1.2 million during the nine months
ended September 30, 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 $15.4 million or 65% increase in depreciation and amortization expense
during the nine months ended September 30, 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 acquisitions and capital expenditures.
(continued)
I-42
<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 $56.4
million or 132% during the nine months ended September 30, 1996, as compared to
the corresponding prior year period. In general, such increase is attributable
to higher amounts of depreciation, amortization and interest expense. Included
in the increase are 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 nine
months of 1996 as compared to the amounts incurred by Old Telewest during the
corresponding prior year period. In addition, Telewest experienced a
(Pounds)55.2 million ($84.6 million using the applicable exchange rate) foreign
currency transaction loss during 1996 which resulted from the translation of the
Telewest Debentures into UK pounds sterling and the adjustment of a foreign
currency option contract to market value. 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 the Other Affiliates increased $16.9
million or 45% during the nine months ended September 30, 1996, as compared to
the corresponding prior year period. The majority of such increase is
attributable to (i) increased losses of certain of its affiliates in 1996, (ii)
the Company's share of losses of affiliates that were acquired subsequent to
September 30, 1995, and (iii) a $1.4 million change in the Company's share of
Telewest Europe's operating results. As further described in note 9 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. For
additional information concerning the Other Affiliates, see note 8 to the
accompanying financial statements.
The minority interests' share of net losses was $18.7 million and $11.7
million during the nine months ended September 30, 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 September 30, 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 nine months ended
September 30, 1996 and 1995, the Company would have allocated $12.9 million and
$8.0 million, respectively, of CableVision's net earnings (exclusive of the
effects of purchase accounting) to the minority interest.
(continued)
I-43
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Material Changes in Results of Operations (continued)
- - -----------------------------------------------------
The Company recognized foreign currency transaction gains (losses) of $4.1
million and $(1.1 million) during the nine months ended September 30, 1996 and
1995, respectively. The 1996 amount includes a $3.4 million unrealized gain
with respect to the remeasurement into the U.S. dollar of the French franc
denominated MultiThematiques Obligation. Foreign currency transaction losses of
$719,000 were realized by the Company in connection with Flextech's August 1995
repayments of a portion of intercompany debt owed by Flextech to an indirect
subsidiary of TINTA.
Income Taxes
------------
The Company's income tax benefit was $42.4 million and $21.2 million during
the nine months ended September 30, 1996 and 1995, 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.
The Company's operating activities provided cash of $4.5 million and $19.8
million during the nine months ended September 30, 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 produce net cash flow deficits in 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, $27.9 million of the
Company's cash balances were held by foreign subsidiaries at September 30, 1996.
(continued)
I-44
<PAGE>
TELE-COMMUNICATONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Material Changes in Financial Condition (continued)
- - ---------------------------------------------------
During the nine months ended September 30, 1996 and 1995, cash used by the
Company's investing activities aggregated $109.3 million and $377.4 million,
respectively. Such amounts include $122.1 million and $139.2 million,
respectively, which were used by the Company to fund investments in, and loans
to, affiliates. See the statements of cash flows included in the accompanying
financial statements.
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 September 30, 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
September 30, September 30,
Affiliate Currency 1996 1996
- - --------- -------- ------------- -------------
<S> <C> <C> <C>
amounts in thousands
Liberty/TINTA LLC (1) U.S. dollar $ 29,000 $29,000
Flextech Affiliates (2) UK pounds sterling
("(Pounds)") (Pounds) 8,902 13,934
BIP Chile (3) U.S. dollar $ 8,990 8,990
Other Various 5,357
-------
$57,281
=======
- - ---------------
</TABLE>
(1) Represents the Company's aggregate unfunded obligations to make additional
capital contributions. See below and note 8 to the accompanying financial
statements.
(2) Represents 100% of Flextech's aggregate unfunded obligations to provide
debt and equity financing to the Flextech Affiliates.
(3) Represents the Company's aggregate unfunded obligations to provide equity
financing to BIP Chile.
At September 30, 1996, the Company and Sumitomo had satisfied substantially
all of the contractual funding requirements with respect to Jupiter. The
Company and Sumitomo are currently discussing the need to provide additional
funding to Jupiter. See note 8 to the accompanying financial statements.
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. TINTA has also agreed to form similar
partnerships with News Corp and local media companies in the North American
(primarily Mexico) and Brazilian regions. The Latin American, North American
and Brazilian partnerships are collectively referred to as the "DTH Ventures".
Through September 30, 1996, TINTA had contributed $13.4 million to the DTH
Ventures. It is anticipated that TINTA could be required to make cash
contributions totaling $55 million over the next three years in connection with
the DTH Ventures.
The $67.2 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
September 30, 1996 consolidated balance sheet. See note 8 to the accompanying
financial statements for additional information concerning the MultiThematiques
Obligation.
(continued)
I-45
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Material Changes in Financial Condition (continued)
- - ---------------------------------------------------
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 1994. 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.
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 8 and 13 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. 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)
I-46
<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 associated with 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 contributed their respective 18% and 82%
ownership interests in the Cable Soft Network to JPC. The Company made an
equalizing payment in the amount of (Yen)444 million ($4.0 million using the
applicable exchange rate) in connection with the above-described contribution of
the Cable Soft Network. See note 8 to the accompanying financial statements.
In April 1996, Flextech acquired (i) a controlling interest in the
"infomercial" business of HSN Direct and (ii) consummated the IFE Acquisitions.
In connection with the IFE 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 4 to the accompanying
financial statements.
TINTA, Liberty and News Corp. formed the Sports Venture to conduct a sports
programming business on a multinational basis, excluding the United States and
certain other defined geographic areas. News Corp. owns a 50% interest in the
Sports Venture with the remaining 50% owned by the LLC. TINTA contributed to
the LLC $49.0 million and its 35% equity interest in Torneos. Liberty
contributed to the LLC its interests in Latin American and Australian sports
programming services and its rights under various television sports programming
agreements. The LLC contributed the non-cash assets contributed to it by TINTA
and Liberty to the Sports Venture. TINTA is obligated to make an additional
cash contribution of $29.0 million to the LLC to fund the operations of the
Sports Venture. For additional information, see note 8 to the accompanying
financial statements.
(continued)
I-47
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Material Changes in Financial Condition (continued)
- - ---------------------------------------------------
On April 19, 1996, TINTA, Torneos and the Torneos Stockholders 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. The parties anticipate that TINTA
will assign to the Sports Venture the portions of this agreement which fit
within the geographic area and business plan of the Sports Venture. The minimum
periodic payments associated with the Sports Venture Rights has not yet been
determined. Pending the assignment of the Sports Venture Rights to the Sports
Venture, News Corp. has agreed to reimburse the LLC for 50% of any payments made
with respect to the Sports Venture Rights. Through September 30, 1996 the
payments made under the TINTA/Torneos Sports Agreement totaled $7.3 million.
Such payments were made entirely by the LLC. For additional information, see
note 8 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 million.
In April 1996, Flextech entered into an agreement in principle with respect
to a joint venture with Sony Entertainment, Time Warner and Ole for the launch
of "Mundo Ole" a digital satellite delivered channel broadcast to Latin America
and Brazil. The amount of Flextech's funding commitment to the joint venture has
not yet been determined. For additional information, see note 8 to the
accompanying financial statements.
On July 8, 1996, US WEST (UK) purchased the TDL Securities at a price per
share of (Pounds)128.39 ($200.97). Flextech used the sales proceeds from such
purchase to repay in full amounts borrowed under the Flextech Bank Facility. See
notes 9 and 10 to the accompanying financial statements.
On October 1, 1996 CableVision acquired 99.99% of the issued and
outstanding capital stock of OCC for a preliminary purchase price of $109
million. Cash consideration of $44 million was paid at closing. An additional
cash payment of $22 million is due on December 1, 1996 and the remaining
purchase price will be satisfied by CableVision's issuance of the OCC Notes. For
additional information, see note 14 to the accompanying financial statements.
(continued)
I-48
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1 to the accompanying financial statements)
Material Changes in Financial Condition (continued)
- - ---------------------------------------------------
At September 30, 1996, $28.5 million of the Company's $29.9 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 $1.4 million at
September 30, 1996. TINTA believes that such cash and cash equivalents, the net
cash proceeds from the sale of the Debentures (a portion of which 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.
I-49
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
- - ------- ------------------
There were no new material legal proceedings or material developments
in previously reported legal proceedings during the quarter ended
September 30, 1996 to which the Company or any of its consolidated
subsidiaries is a party or which any of its property is subject.
Item 4. Submission of Matter to a Vote of Security Holders.
- - ------- ---------------------------------------------------
At the Annual Meeting of Stockholders held on September 9, 1996, the
following matters were voted upon by the stockholders of Tele-
Communications International, Inc.:
1. The election of Tomiici Akiyama to the Board of Directors by 99.9%
of the votes cast at such meeting (114,769,182 for; 100,335
withheld), the election of Jerome H. Kern to the Board of
Directors by 99.7% of the votes cast at such meeting (114,556,182
for; 313,335 withheld) and the election of Adam N. Singer to the
Board of Directors by 99.9% of the votes cast at such meeting
(114,721,102 for 148,415 withheld). Election of directors required
a plurality of the votes of the outstanding shares of Tele-
Communications International, Inc. Series A Common Stock and Tele-
Communications International, Inc. Series B Common Stock, voting
as a single class. Additionally, subsequent to the meeting,
Messrs. Paul A. Gould, Pierre Lescure, John C. Malone and Fred A.
Vierra continued to serve as members of the Board of Directors
subject to re-election over staggered three year terms.
2. To consider and vote upon a proposal to approve the Tele-
Communications International, Inc. 1995 Stock Incentive Plan. Such
proposal required the affirmative vote of a majority of the
combined voting power of the outstanding shares of Tele-
Communications International, Inc. Series A Common Stock and Tele-
Communications International, Inc. Series B Common Stock, voting
as a single class (216,615,401 votes for, 3,474,241 votes against
and 79,875 abstentions), and a majority of the combined number of
shares of Tele-Communications International Inc. Series A Common
Stock and Tele-Communications International, Inc. Series B Common
Stock, voting as a single class (111,315,401 votes for,
3,474,241 votes against and 79,875 abstentions).
3. To consider and vote upon a proposal to approve the Tele-
Communications International, Inc. 1996 Non-employee Director
Stock Option Plan. Such proposal required the affirmative vote of
a majority of the combined voting power of the outstanding shares
of Tele-Communications International, Inc. Series A Common Stock
and Tele-Communications International, Inc. Series B Common Stock,
voting as a single class (218,106,582 votes for, 1,981,960 votes
against and 80,975 abstentions), and a majority of the combined
number of shares of Tele-Communications International, Inc. Series
A Common Stock and Tele-Communications International, Inc. Series
B Common Stock, voting as a single class (112,806,582 votes for,
1,981,960 votes against and 80,975 abstentions).
II-1
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Item 6. Exhibits and Reports on Form 8-K.
- - ------- ---------------------------------
(a) Exhibits
10 - Material Contracts
10.1 - Stock Purchase Agreement by and among Eduardo
Eurnekian and Natalio Wende owners of Oeste Cable
Color S.A. and CableVision S.A.
10.2 - Deed of Guarantee and Indemnity and Subordination by
Independent Newspapers, plc, Tele-Communications
International, Inc., and United and Philips
Communications, B.V. as Guarantors in favour of the
Governor and Company of the Bank of Ireland.
27 - Financial Data Schedule
(b) Reports on Form 8-K filed during quarter ended September 30,
1996 - none
II-2
<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: November 14, 1996 By: /s/ Fred A. Vierra
---------------------------------------
Fred A. Vierra
Chief Executive Officer
Date: November 14, 1996 By: /s/ Graham Hollis
---------------------------------------
Graham Hollis
Vice President and
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
II-3
<PAGE>
-1-
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement" as herein defined), is
entered into as of this 1st day of October, 1996 by and among Eduardo Eurnekian
and Natalio Wende (collectively, the "Stockholders", and individually, a
"Stockholder" as herein defined) owners of all the shares and votes of the
Common Stock (the "Common Stock") of Oeste Cable Color S.A. (face value $ 100
per share) an Argentine Corporation (Sociedad Anonima) (the "Company" as defined
hereinafter), and Cablevision S.A. an Argentine corporation ("Buyer").
RECITALS
--------
A. The Stockholders and certain additional stockholders (Stockholders and
additional stockholders, "the Sellers") executed on April 25th, 1995 with TCI
International Holdings, Inc. (now Tele-Communications International, Inc.)
("TINTA") an amended and restated stock purchase agreement (the "Amended and
Restated Stock Purchase Agreement") for the acquisition of 51% of the capital
stock of Buyer, Construred S.A. and Univent's S.A. and the 10,20% of Televisora
Belgrano S.A., with an option for the acquisition of an additional 29% (the
"Option").
B. Pursuant to the Amended and Restated Stock Purchase Agreement TINTA was
granted the right to acquire 51% of the Company and an option to acquire an
additional 29% in the Company.
C. On May 23, 1996 TINTA notified Sellers of its exercise of its right to
acquire 51% of the Company.
D. Buyer and Sellers have agreed that the exercise of TINTA's right will be
accomplished by Buyer's purchasing 100% of the issued and outstanding capital
stock of OCC (except 1 share) and that said additional share be owned jointly by
TINTA and Eduardo Eurnekian by holding 51% and 49% of said share, respectively.
Such 51% interest in such one additional share will be transferred to
<PAGE>
-2-
TINTA at no additional cost and pursuant to this Agreement. For the sole purpose
its ownership of such one share, TINTA will also execute this Agreement.
E. The Stockholders own all the issued and outstanding shares of the
Company which represent one hundred per cent (100%) of the Common Stock and
votes (the "Shares").
F. Buyers desire to purchase the Shares from the Stockholders and
Stockholders desire to transfer the shares to Buyers, in accordance with the
terms of this Agreement. The transfer of the additional share referred to in
Recital D. above is also included in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein the parties hereto agree as
follows:
DEFINITIONS
- - -----------
For purposes of this Agreement, the following terms shall have the following
meanings:
"Agreement": this Stock Purchase Agreement and its exhibits and schedules.
"Assets": All properties, privileges, rights, interests and claims, real and
personal, tangible and intangible, of every type and description that are owned,
leased, held, used or useful in the Company Business in which Stockholders or
Company have any right, title or interest or in which Stockholders or Company
have acquired any right, title or interest on or before the Closing Date,
including Governmental Permits, Company Contracts, Equipment and Real Property
except as provided in Exhibit 1.
"Balance Sheet Date": shall mean the date of August 31, 1996.
"Base Purchase Price": shall be that defined in Section 1.2.
"Basic Services": the transmission of cable television programming sold to
Company subscribers as a package, for which subscribers pay a fixed monthly fee
to Company. Basic Services does not include pay per view such as "Clasico del
Domingo" or the like.
<PAGE>
-3-
"Closing": means the consummation of the transactions contemplated by this
Agreement, the date of which is referred to as the Closing Date.
"Closing Date": meaning the day hereof, provided that the Conditions Precedent
referred to in Articles IV and V are met or waived, or such other date as the
parties mutually agree.
"COMFER": meaning the Comite Federal de Radiodifusion of Argentina.
"COMFER Approval": shall mean all necessary authorizations, or consents from
COMFER required to consummate the transactions contemplated by this Agreement
and/or the obligations assumed and/or provisions contained herein.
"Company": meaning Oeste Cable Color S.A..
"Company Contracts": All contracts and agreements, other than Governmental
Permits, pertaining to ownership, operation and maintenance of the Assets or the
Company Business.
"Company Business": meaning the operation of a complete cable television
reception and distribution System located in the cities of Ramos Mejia,
Ciudadela, Villa Luzuriaga, Haedo, Moron, Castelar, Ituzaingo, Villa Tesei,
Hurlingham, Ciudad Jardin, Caseros, Villa Bosch, Martin Coronado, Merlo, San
Antonio de Padua, San Andres, San Martin and Palomar, all in the Province of
Buenos Aires.
"EBS": For the purposes of determining the Base Purchase Price and the
adjustments to the same, the Stockholders and the Buyer define EBS's as the
number derived by dividing (a) the total income in pesos received by the
Company for Basic Services and recurring monthly charges for additional outlets
during August, 1996, including all payments for more than one period for such
charges if paid in such month, by (b) U.S.$ 29,75. Notice is made that there is
no V.A.T. applicable in relation to the income in pesos and that the same will
not be considered in relation to the definition established herein and will
therefore not be included in the calculation of "total income in pesos". Within
90 days as from Closing Date the amount of EBS will be adjusted as of the
Closing Date for the sole purpose of including in the calculation of the Base
Purchase Price only those subscribers whose Basic Services were installed before
Closing and who have paid their first regularly scheduled billing for Basic
Services after the Closing, and excluding from the said calculation only all
those subscribers who as of the Closing Date had paid their first Basic Service
billing and who had not paid their second Basic Service billing after the
Closing Date.
<PAGE>
-4-
"Encumbrances": any mortgage, lien, security interest, security agreement,
conditional sale or other title retention agreement, limitation, pledge, option,
charge, assessment, restrictive agreement, restriction, encumbrance, adverse
interest, restriction on transfer or any exception to or defect in title or
other ownership interest (including reservations, rights of way, possibilities
of reverter, encroachments, easements, rights of entry, restrictive covenants,
leases and licenses).
"Equipment": all electronic devices, trunk and distribution coaxial and optical
fiber cable, amplifiers, power supplies, conduit, vaults and pedestals,
grounding and pole hardware, subscriber's devices (including converters,
encoders, decoders, transformers behind television sets and fittings), headend
hardware (including origination, earth stations, transmission and distribution
system), test equipment, vehicles and other tangible personal property owned,
leased, used or held for use in the Company Business, except as provided in
Exhibit 1.
"Environmental Laws": any Legal Requirement relating to pollution or protection
of public health, safety or welfare or the environment, including those relating
to emissions, discharges, releases or threatened releases of Hazardous
Substances into environment (including ambient air, surface water, ground water
or land), or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling or Hazardous
Substances.
"GAAP": generally accepted accounting principles in force in the Argentine
Republic as from time to time.
"Governmental Authorities": (i) The Republic of Argentina, (ii) any state,
territory or possession of the Republic of Argentina and any political
subdivision thereof (including counties, municipalities and the like), (iii)
any foreign (as to the Republic of Argentina) sovereign entity and any political
subdivision thereof or (iv) any agency, authority or instrumentality of any of
the foregoing, including any court, tribunal, department, bureau, commission or
board, including, but not limited to, the COMFER.
"Governmental Permits": all franchises, approvals, authorizations, permits,
licenses, easements, registrations, qualifications, leases, variances and
similar rights obtained from any Governmental Authority.
"Hazardous Substances": any pollutant, contaminant, chemical, industrial, toxic,
hazardous or noxious substance or waste which is regulated by law 24.051 or any
other Argentine Regulation or by any Governmental Authority, including (a) any
petroleum or petroleum compounds (refined or crude), flammable substances,
explosives, radioactive materials or any other materials or pollutants which
pose a
<PAGE>
-5-
hazard or potential hazard to the Real Property or to Persons in or about the
Real Property or cause the Real Property to be in violation of any laws,
regulations or ordinances of federal, state or applicable local governments, (b)
asbestos or any asbestos-containing material of any kind or character, (c)
polychlorinated biphenyls, (d) any materials or substances designated as
"hazardous substances" pursuant to Governmental Authorities regulation, (e)
"chemical substance", "new chemical substance" or "hazardous chemical substance
or mixture" pursuant to Governmental Authorities regulation, (f) "hazardous
substances" pursuant to Governmental Authorities regulation, and (g) "hazardous
waste" pursuant to Governmental Authorities regulation.
"Legal Requirements": any statute, ordinance, code, law, rule, regulation, order
or other requirement, standard or procedure enacted, adopted or applied by any
Governmental Authority, including judicial decisions applying common or civil
law or interpreting any other Legal Requirement.
"Liabilities": those items classified as liabilities on the Company's balance
sheet or in the Financial Statements prepared in accordance with GAAP on the
Closing Date or Balance Sheet Date, as the context requires.
"Persons": any natural person, corporation, partnership, trust, unincorporated
organization, association, limited liability company, Governmental Authority or
other entity.
"Real Property": all Assets consisting of realty, including appurtenances,
improvements and fixtures located on such realty, and any other interests in
real property, including fee interests (if any) in Company's offices and headend
sites and leasehold interests and easements, except as provided in Exhibit 1.
"Required Consents": all franchises, licenses, approvals and consents required
under Governmental Permits, Company Contracts or otherwise for (a) Stockholders
to transfer the Shares and control of the Company Business to Buyer, (b) Buyer
to con duct the Company Business and to own the Shares and to own, lease, use
and operate the Company Business and Assets at the places and in the manner in
which the Company Business is conducted as of the Closing Date, and (c) the
Company to assume and perform the Governmental Permits and the Company Contracts
after the Closing Date.
"Shares": meaning one hundred percent (100%) of the issued and outstanding
Common Stock and voting rights of the Company.
"Stockholders": means Mr. Eduardo Eurnekian and Mr. Natalio Wende as record and
beneficial owners of the Shares.
<PAGE>
-6-
"Subscriber": any Person who receives the Company's Basic Services.
"System": a complete cable television reception and distribution system operated
in the conduct of the Company Business, consisting of subscriber drops and
associated electronic and other equipment, and which is, or is capable of being
without modification, operated as an independent system without interconnections
to other systems. The Company's System is a single system which is
interconnected and served jointly by its own headend and Buyer's headend.
ARTICLE I
PURCHASE AND SALE OF THE SHARES
-------------------------------
SECTION 1.1. Purchase and Sale of the Shares. Upon the terms and subject to
-------------------------------
the conditions set forth in this Agreement, the Stockholders sell the Shares to
Buyers and Buyers purchase the Shares from the Stockholders. At the Closing,
provided that the Conditions Precedent indicated in Articles IV and V have been
met: a) the Stock holders deliver to Buyers such documents representing the
Shares, with duly executed stock powers attached, as may be appropriate, in
proper form for transfer, with appropriate transfer stamps, if any, affixed and
any other document or instrument which may be necessary in order to vest Buyers
with good and exclusive title to the Shares (except with respect to the jointly
owned Share referred to in Recital D above), and (b) Buyer delivers cash
denominated in US Dollars and negotiable and endorsable promissory notes, in
payment of the Base Purchase Price (as hereinafter defined) pursuant to
Sections 1.2, 1.3 and 1.4.
SECTION 1.2 Base Purchase Price. In consideration of (i) the covenants,
-------------------
representations and warranties made by Stockholders in this Agreement, and (ii)
the EBS's (as defined herein) which the Stockholders represent that the Company
had on August 31, 1996, Buyer will pay to Stockholders an amount equal to U$S
1500 times the number of EBS's at Closing, minus all Liabilities to be deducted
as provided in Section 1.4.1. (the "Base Purchase Price"), subject to adjustment
as provided in Sections 1.3, and 1.4. as follows, provided that Stockholders
comply with the duties assumed under this Agreement. The parties agree that, as
of August 31, 1996, the EBS number was 76,994 and Liabilities were seven million
three hundred seventy thousand four hundred fifty three U.S. dollars (U$S
7,370,453). Therefore, the Base Purchase Price will be one hundred nine million
forty six thousand eight hundred ninety-two U.S. dollars (U$S 109,046,892).
a) With a Base Purchase Price of U$S 109,046,892 at the Closing (as defined
herein) and provided that the Conditions Precedent indicated in Articles IV
<PAGE>
-7-
and V have been met, Buyer shall deliver to Stockholders: (i) at Closing US$
43,734,090 and on December 1, 1996 US$ 22,064,326 by wire transfer of readily
available funds to the account which Stockholders shall indicate, and (ii) the
balance of US$ 43,248,476 will be paid in 21 consecutive monthly installments
maturing on the tenth day of each month, or the following working day if the
tenth day were not a working day, commencing on January 10, 1997. The first
installment will provide for payment of US$ 2,059,451.23 and all interest
accrued from December 1, 1996 through January 10, 1997, and minus all applicable
withholding for taxes. The following twenty (20) installments will provide for a
payment of U$S 2,059,451.23 (the "Promissory Notes"). Installments representing
this debt will be documented through twenty one (21) negotiable and endorsable
Promissory Notes issued by Buyer. Each of the Promissory Notes shall have an
original principal amount of US$ 2,059,451.23. Amounts due under the said
Promissory Notes will accrue interest at the Bank of New York Prime Rate at
Closing, plus an extra one percent (1%) as from their date of issuance per
annum. All payments will be made net of applicable withholding for taxes. Said
rate will be adjusted on October 10, 1997, to the Bank of New York Prime Rate
which prevails on that date, plus one percent (1%) per annum. For these
purposes, the prime rate for the first year will be the Bank of New York prime
rate on Closing Date. Stockholders acknowledge that the Promissory Notes may not
be sold in a "public offering". These Promissory Notes will be construed and
interpreted under the laws of the state of New York, United States of America.
Stockholders undertake the duty of negotiating said Promissory Notes only with
banking institutions or "accredited investors" as defined in Regulation D under
the United States Securities Act of 1933, as amended. At Closing, Stockholders
will designate two bank accounts (one of which must be in the United States of
America) to which Buyer may remit payments under the Promissory Notes. Buyer may
remit scheduled payments to either account as it so choses, subject to further
instructions from Stockholders as long as one of the accounts is in the United
States of America. The Promissory Notes will be issued in accordance with the
terms of this Section as pertinent. Stockholders will provide Buyer with written
instructions in relation to the Stockholders-beneficiaries in whose favor the
Promissory Notes must be issued, and the names of the Persons or banking
institutions authorized to receive payments. Buyer has the unrestricted rights
to prepay the Promissory Notes without penalty, together with accrued interest
through the dates of pre-payments, anticipated payment to which the Stockholders
irrevocably agree.
Payment of these Promissory Notes are not subject to any condition and any
Liabilities of the Stockholders which may represent the obligation of paying
amounts of money to Buyer, will not authorize Buyer to carry out any act tending
to non-payment, or to restrict, delay, reduce or limit amounts which are payable
under the Promissory Notes.
<PAGE>
-8-
1.2.2 If COMFER Approval has not been obtained within 90 days as of the
Closing Date the Buyer may -at its exclusive choice- either (a) terminate the
Agreement, leaving in favor of Stockholders the monies indicated in 1.2 (a) (i)
above in full and final compensation; or (b) extend for up to an additional 180
days the term to obtain COMFER Approval and comply with all conditions in
Article V in which case if COMFER Approval is not obtained and all conditions
are not complied with by the end of the extended period, Stockholders will
refund to Buyer immediately all the Base Purchase Price in whatever form paid,
including all cash paid at Closing, any amounts paid under the Promissory Notes,
except if COMFER Approval is not obtained by reasons directly attributable to
Buyer. Upon termination of this Agreement pursuant to this Section, (i) Buyer
will immediately return the Shares to Stockholders. If COMFER Approval is
obtained and all conditions in Article V are complied with prior to the end of
such 180 day extension, parties will proceed with this Agreement and payments
pursuant to Section 1.2 will be made.
SECTION 1.3 Adjustments to Base Purchase Price. The Base Purchase Price
----------------------------------
will be adjusted as follows:
1.3.1 Stockholders represent that on August 31, 1996, the Company had at
least 76,994 EBS's. Should there be fewer EBS's on September 30, 1996, the Base
Purchase Price will be reduced by an amount equal to U.S.$ 1,500 multiplied by
one hundred percent (100%) of the positive difference between (a) 76,994 and (b)
the number of EBS's as of September 30, 1996. If on September 30, 1996, there
are greater than 76,994 EBS's, the Base Purchase Price will be increased in the
same man ner.
SECTION 1.4 Determination of Adjustments. Preliminary and final adjustments
----------------------------
to the Base Purchase Price will be determined as follows:
1.4.1. Before Closing, Stockholders will deliver to Buyer a report (the
"Preliminary Adjustments Report"), certified as to completeness and accuracy by
Stockholders, showing in detail any adjustments which are calculated as of the
Balance Sheet Date (or as of any other date agreed by the parties) and any
documents substantiating the adjustments proposed in the Preliminary Adjustments
Report. The Preliminary Adjustments Report will include a complete list of
Subscribers, a detailed calculation of EBS and an unaudited balance sheet as of
the Balance Sheet Date certified by the Company prepared in accordance with GAAP
<PAGE>
-9-
indicating, inter alia, all Liabilities as of the Balance Sheet Date.
Stockholders also will furnish Buyer a bring down letter stating that the
Company has not incurred any additional liabilities or modified in any material
respect the Balance Sheet as of the Balance Sheet Date, other than in the
ordinary course of Business. The net adjustment shown in the Preliminary
Adjustments Report will be reflected as an adjustment to the Base Purchase Price
payable at Closing.
1.4.2. Within 90 days after the Closing, Stockholders will deliver to Buyer
(i) a balance sheet as of September 30, 1996 audited by KPMG or any other
internationally well known auditors firm prepared in accordance with GAAP
indicating, inter alia, all Liabilities as of September 30, 1996, and (ii) a
report (the "Final Adjustments Report"), similarly certified by Stockholders,
showing in detail the final determination of all adjustments which were not
calculated as of September 30, 1996 and containing any corrections to the
Preliminary Adjustments Report, together with any documents substantiating the
adjustments proposed in the Final Adjustments Report. Buyer will provide
Stockholders with reasonable access to all records which Buyer has in its
possession and which are necessary for preparing the Final Adjustments Report.
1.4.3. Within 30 days after receipt of the Final Adjustments Report and of
the balance sheet referred to in 1.4.2, Buyer will give Stockholders written
notice of Buyer's objections, if any, to the Final Adjustments Report and with
respect to Liabilities indicated in said balance sheet. If Buyer makes any such
objection, the par ties will agree on the amount, if any, which is not in
dispute within 30 days after Stockholders' receipt of Buyer's notice of
objections to the Final Adjustments Report and with respect to Liabilities
indicated in said balance sheet. The undisputed amount will be paid by the
Stockholders within ninety (90) days after the Final Adjustments Report. Should
the Final Adjustments Report show undisputed amount in favor of the
Stockholders, Buyer shall pay said amount within ninety (90) days after the
Final Adjustments Report. Any disputed amounts will be determined within 210
days after the Closing Date by a mutually agreed accounting firm whose
determination will be conclusive. All Liabilities will be paid by the
Stockholders to third parties upon receiving a judicial claim in this sense.
Stockholders and Buyer will bear equally the fees and expenses payable to such
firm in connection with such determination unless the determination of such firm
results in a net decrease in the Base Purchase Price of more than 10% thereof,
in which case the fees and expenses payable to such firm will be paid by
Stockholders.
SECTION 1.5 [RESERVED]
<PAGE>
-10-
SECTION 1.6 Late Payment. Default. The delay in the payment of the balance
---------------------
due pursuant to Section 1.2 will occur automatically, with the expiration of the
agreed dates, without need of any judicial or out-of-court requirement, giving
way to punitive and compensatory interests at a daily rate equivalent to a rate
of 15% per annum, during which payment is due and until the date of payment.
Default in paying two consecutive installments, or six late payments, whether
consecutive or not, will entitle the Stockholders to demand fulfillment of the
agreement in which case all granted financing will be considered due and the
Stockholders may enforce the total pending balance considering it as due,
together with the corresponding compensatory and punitive interests. In order to
enforce the rights provided for above, the Stockholders must have previously
demanded that Buyer fully satisfy his uncomplied obligation, including payment
of capital and compensatory and punitive interests, within fifteen (15) days and
Buyer must not have satisfied his uncomplied obligation. The parties agree that
this benefit granted to Buyer prior demand for compliance- will be one and only
during the whole lifetime of the Agreement. The Buyer can not assign any rights
as long as it is in default of payment.
SECTION 1.6.1 Guarantees. As guarantee of payment of balances due, Buyer
----------
will execute a pledge agreement in favor of the Stockholders, affecting 51% of
the Shares, and any Shares which may replace them, along the following
guidelines (i) the pledge will be registered at the Inspeccion General de
Personas Juridicas and other pertinent registers, together with the registration
of the transfer of such Shares in favor of the Buyer; (ii) the guarantee will
survive until the total cancellation of the balance due, interests and/or
eventual punitive interests if applicable, (iii) all the provisions of the
pledge agreement will be according to the requirements established in the
Argentine Broadcasting Law and/or to those which the COMFER may suggest; (iv)
the Company will duly acknowledge and register the pledge in the pertinent
corporate books; (v) every capital increase decided by the Company will imply
the obligation of the Buyer or assignees to pledge in favor of the Stockholders
51% of the shares subscribed for by Buyer or assignees as a result of the
corresponding capital increase; (vi) the parties agree that the procedure
foreseen in article 3223 of the Argentine Civil Code and/or in the Commercial
Code of the Argentine Republic can be indistinctly used at the option of the
Stockholders; (vii) in case of judicial enforcement, the Stock holders will
appoint all the appraisers and auctioneers which may be necessary, except in
case they take the option of the auctioning procedure under article 585 of the
Commercial Code in which case the parties will agree beforehand to the
appointment of a mutually agreeable appraiser among Price Waterhouse, Arthur
Anderson, Deloitte Haskins & Sells and Citibank (Buenos Aires branch) and,
should an agreement not be possible in this regard, the option among these
firms/institutions will be made by the Stock-
<PAGE>
-11-
holders; (viii) use of other standard clauses which arise from the form of the
Registro Nacional de Creditos Prendarios (Act Nr 12.962); (ix) all registration,
dere gistration and cancellation costs will be faced by Buyer, same as all
enforcement costs (unless otherwise determined by a court resolution); and (x)
the pledge will continue in force until full cancellation of the balance due.
The parties will appoint the administrator of the pledge ("the Agent") in
the same way as provided in the preceding paragraph, to whom the following
irrevocable powers of attorney will be granted at the Closing: (i) by the Buyer:
so that the Agent may proceed with handing over of the Shares, issuing receipts
for monies received and, payment of the same in case the Stockholders elect the
procedure foreseen in article 3223 of the Argentine Civil Code (in which case
the Notes foreseen in Section 1.2 can be used for payment); (ii) the
Stockholders: in order that the Agent proceeds with the same empowerment for the
case of enforcement of the pledge.
At Closing the Stockholders will issue a promissory note in favour of Buyer
in the amount of U$S 5,000,000, in order to secure all Liabilities and amounts
reserved pursuant to Article VI, disclosed or undisclosed, caused before
Closing, enforceable to the extent of the amounts paid by the Company, in
accordance with this Agreement.
SECTION 1.7 [RESERVED]
SECTION 1.8 Deliveries by Stockholders. Stockholders covenant and agree
--------------------------
to deliver items and documents to Buyer as follows:
1.8.1 Stockholders have previously furnished to Buyer prior to Closing Date
accurate and complete copies of all documents hereinafter specified:
(a) a certified copy of the Articles of Incorporation of the Company, as
amen ded, and of the Company's By-laws.
(b) minutes and written actions containing an accurate record of
proceedings of and actions by the shareholders, directors, and committees of
directors of the Company from its inception.
<PAGE>
-12-
(c) copies of the shareholders' book of the Company which accurately
reflect all issuances, reissuances, cancellations and transfers of Company stock
which adequately reflect all ownership, cancellations, capital increase and
transfers of Company interest.
(d) copies of all Governmental Permits for the ongoing Company Business.
(e) copies of Company Contracts and title documents.
(f) copies of any title documents or Company Contracts representing
intangible property.
(g) copies of the insurance policies currently in force.
(h) copies of any employee incentive, bonus or benefit plans or agreements.
(i) the Financial Statements and the Balance Sheet described in Sections
1.4.1 and 2.10 of the Agreement.
(j) copies of all tax returns described in Section 2.14 of the Agreement
that have been filed with any Governmental Authority within the seven (7) years
preceding the date hereof and any additional tax returns for tax years that have
not been agreed as final by the applicable Governmental Authority. Copies of
any tax returns proposed to be filed by or on behalf of the Company, with any
Governmental Authority prior to the Closing shall be delivered to Buyer at least
3 days before the filing thereof for Buyer's review.
(k) copies of such other documents and items as Buyer may reasonably
request.
1.8.2 AT LEAST THREE (3) DAYS PRIOR TO CLOSING, Stockholders shall have
caused the Company to furnish to Buyer documents which accurately show the
boundaries of all Real Property as owned or leased by the Company together with
any and all improvements, rights of way, easements, roads and such other
features as Buyer shall reasonably specify.
1.8.3 AT LEAST THREE (3) DAYS PRIOR TO CLOSING, Stockholders shall have
delivered to Buyer the Financial Statements.
<PAGE>
-13-
1.8.4 AT CLOSING, Stockholders shall also cause the Company to procure and
provide to Buyer a report dated within ten (10) days prior to the Closing Date,
issued by Real Estate Registry or by a notary or an officer of the Company
satisfactory to Buyer, to the effect that (i) none of the Assets is subject to
any recorded lien, including any lien for federal, state or local taxes or
assessments, and (ii) no suits or judgments have been filed against the Company
except for those indicated in the Balance Sheet as of the Closing Date or in
Exhibit 5 as may correspond.
1.8.5 AT CLOSING, provided that the Conditions Precedent indicated in
Articles IV and V have been met, Stockholders will, with duly and fully executed
instruments, certificates, documents and opinions, deliver to Buyer, or cause
Company to deliver to Buyer:
(a) The documents evidencing the Shares, duly endorsed, in blank if
appropriate, and/or all necessary documentary or transfer tax stamps affixed
thereto together with such other documents or instruments as Buyer may request,
in order that Buyer be vested with good and exclusive title to the Shares.
(b) To the extent not previously delivered, the minute books, shareholders
books of the Company -if applicable- and such other papers, evidence of title or
interest, books, records, files, correspondence, memoranda and other documents
of the Company, all as Buyer may request prior to the Closing.
(c) The written resignations, dated the Closing Date, of all of the
directors or managers of the Company (except those managers which the parties
have agreed will remain employees of the Company), and election of new Board of
up to five (5) members.
(d) Duly certified copies of resolutions of the Board of Directors or
similar governing body of, and, if required by applicable law, the Stockholders
or other holders of ownership interest in each Stockholder that is not a natural
person, authorizing the execution, delivery and performance of this Agreement by
such Stock holder which resolutions shall be in full force an effect at and as
of the Closing.
(e) Documentary proof and counsel opinion reasonably acceptable to Buyer
that: (i) The Company has timely obtained or has filed complete and timely
applications for all authorizations needed to carry all signals being carried
and all authorizations needed to utilize the frequencies on which these signals
are carried; (ii) Except with respect to general rulemakings and similar matters
relating
<PAGE>
-14-
generally to the Company activity, there is no legal action or governmental
proceeding pending or, to such counsel's best knowledge after due inquiry, any
investigation pending or proceeding threatened (nor any basis therefor) for the
purpose of modifying, revoking, terminating, suspending, canceling or reforming
any of the Company's certificates of compliance or licenses or which might have
any other adverse effect upon, or cause disruption to, the Company Business;
(iii) that the Company is in good standing with and has appropriate authority
from the COMFER in order to carry on the Company Business as conducted as of the
date of this Agreement and the Closing; (iv) that Stockholders have the power
and capacity to sell the Shares so as to vest good and marketable title to the
same, and (v) such other matters as Buyer may reasonably re quest].
(g) All blueprints, schematics, drawings, diagrams, maps, system design
bill of material, engineering and technical data, used by the Company in
connection with the Assets and the Company Business, unless Buyer shall direct
in writing that the same or part thereof be delivered to Buyer elsewhere.
(h) A long-form certificate of good standing for the Company dated not more
than five (5) days prior to the Closing Date, a certificate of tax good standing
for the Company dated not more than five (5) days prior to the Closing Date and
a "bring-down" tax good standing telegram for the Company dated the Closing
Date, in each case from the Company syndic or the Chairman of the board of
directors.
(i) A bring down letter dated the Closing Date stating that between the
Balance Sheet Date and the Date of Closing, there have not been modifications to
the Financial Statements other than those attributable to the evolution of the
ordinary Company Business, nor have there been distribution or payings of
Company dividends.
(j) Such documents and instruments as may be necessary or as Buyer may
request in order to change the authorized signatures for all bank accounts, and
the persons authorized to have access of the Company or otherwise in order to
vest in Buyer exclusive control over and possession of such accounts and safety
deposit boxes and the funds and other property deposited therein.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
OF THE STOCKHOLDERS
-------------------
<PAGE>
-15-
Stockholders and Company (where noted) represent and warrant to Buyer, as
of the Closing, as follows:
SECTION 2.1. Organization and Qualification. Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of Argentina and
has all requisite corporate power and authority to own, lease and use its Assets
as they are currently owned, leased and used and to conduct the Company Business
as it is currently conducted. The Company is duly qualified or licensed to do
business and is in good standing under the laws of each jurisdiction in which
the character of the Company Business makes such qualification necessary, except
any such jurisdiction where the failure to be so qualified or licensed and in
good standing would not have a material adverse effect on Company or on the
validity, binding effect or enforceability of this Agreement.
SECTION 2.2. Good Title. Stockholders have good, valid, marketable and
----------
exclusive title to the Shares free and clear of any liens, encumbrances, rights
of first refusal, pledges or claims, with full right and lawful authority to
transfer to Buyer the Shares. There are no outstanding options, warrants or any
other preemptive rights or commitments of any kind for third parties to acquire
or become beneficiary of the Shares in any way. All the Shares have been duly
authorized and validly issued and have been fully paid for and there are no
pending increases of capital nor convertible securities. Spousal consent
provided for in article 1277 of the Argentine Civil Code has been granted by the
spouse of the Stockholders when necessary.
SECTION 2.3. Authority and Validity. Company and Stockholders have
----------------------
authority to execute and deliver, to perform their obligations under, and to
consummate the transactions contemplated by this Agreement. The execution and
delivery by Stockholders and Company and the performance by Stockholders and
Company of their obligations hereunder, and the consummation by Stockholders and
Company of the transactions contemplated by this Agreement have been duly
authorized by all requisite corporate and other appropriate action of
Stockholders and Company. This Agreement has been duly executed and delivered
by Stockholders and Company and is the valid and binding obligation of
Stockholders and Company, enforceable against Stockholders and Company in
accordance with its terms, except insofar as enforceability may be affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect affecting creditor's rights generally or by
principles governing the availability of equitable remedies.
<PAGE>
-16-
SECTION 2.4. No Breach or Violation. Subject to obtaining the COMFER
----------------------
Approval and other Required Consents, the execution, delivery and performance of
this Agreement by Stockholders and Company will not: (a) violate any provision
of the charter or bylaws of the Company; (b) constitute a material violation of
any Legal Requirement; (c) require any consent, approval or authorization of,
or any filing with or notice to, any Person; or (d) (i) violate, conflict with
or constitute a breach of or default under, (ii) permit or result in the
termination, suspension or modification of, (iii) result in the acceleration of
(or give any Person the right to accelerate) the performance of the Company
under, or (iv) result in the creation or imposition of any Encumbrance under,
any Company Contract or any other instrument evidencing any of the Assets or any
instrument or other agreement to which Company is a party or by which Company,
Company Business or any of its Assets is bound or affected, except for purposes
of this clause (d) such violations, conflicts, breaches, defaults, terminations,
suspensions, modifications, and accelerations as would not, individually or in
the aggregate, have a material adverse effect on any System, the Company
Business or the Company.
SECTION 2.5. Assets. Company has exclusive, good and marketable title to
------
(or, in the case of Assets that are leased, valid leasehold interests in) the
Assets (other than Real Property, as to which the representations and warranties
in Section 2.6 apply). The Assets are free and clear of all Encumbrances of any
kind or nature, except (a) restrictions stated in the Governmental Permits and
(b) Encumbrances disclosed in this Agreement. Except as set forth on Exhibit 3,
none of the Equipment is leased by Company from any other Person. The Assets
will remain in the Company and are all the assets necessary to permit Buyer to
conduct the Company Business substantially as it is being conducted on the date
of this Agreement in compliance with all Legal Requirements. The cash remaining
in the Company on the Closing Date must be sufficient to pay the Company's cash
obligations through at least one month after Closing Date. Such obligations will
be paid in the same manner as they were paid prior to the Closing Date. If,
after the Closing Date and prior to one month thereafter, the Company has not
generated sufficient revenues to pay such obligations, the Stockholders will pay
them. All the Equipment is in good operating condition and repair, ordinary
wear and tear excepted and is suitable and adequate for continued use in the
manner in which it is currently used. Neither Company nor Stockholder nor any
affiliate of Stockholder has been granted or has applied for a cable television
franchise in any area currently served by the Company Business or by the Buyer,
except for the participation in RCC, Teleunica and MCM System.
SECTION 2.6. Real Property.
-------------
<PAGE>
-17-
2.6.1. All the Assets consisting of Real Property interests are described
on Exhibit 2. Company has valid leasehold interests in Real Property leased by
Company and, with respect to other Real Property not owned or leased by Company,
Company has the valid and enforceable right to use all other Real Property
pursuant to easements, licenses, rights-of-way or other rights.
2.6.2. The documents delivered by Company or Stockholders to Buyer as
evidence of each lease of Real Property constitute the entire agreement with the
landlord in question, except for the agreements indicated under Exhibit 2 as
subject to renegotiation which will be renegotiated in order to have them meet
current practice and market prices for which purposes the parties may request
the appraisal of three respectable local real estate brokers. There are no
leases or other agreements, oral or written, granting to any Person other than
Company the right to occupy or use any Real Property. All easements, rights-of-
way and other rights appurtenant to, or which are necessary for the Company's
current use of, any Real Property are valid and in full force and effect, and
the Company has not received any notice with respect to the termination or
breach of any of those rights. Each parcel of Real Property, any improvements
constructed thereon and their current use conform to (a) all applicable Legal
Requirements, including zoning requirements, and (b) all restrictive covenants,
if any, or other Encumbrances affecting all or part of such parcel.
2.6.3. With respect to the building at Rivadavia 14874/76, Stockholders
represent and warrant that such building will have been transferred out of the
Company prior to the Closing Date. Moreover, Stockholders agree to indemnify
and hold harmless Company with respect to any liabilities, including taxes,
arising from such transfer of ownership.
SECTION 2.7. Environmental Matters.
---------------------
2.7.1. The Real Property currently complies with and, to Stockholders' best
knowledge, has previously been operated in compliance with, all Environmental
Laws. Company has not generated, released, stored, used, treated, handled,
discharged or disposed of any Hazardous Substances at, on, under, in or about,
or in any other manner affecting any Real Property, transported any Hazardous
Substances to or from any Real Property or discharged any Hazardous Substances
from any Real Property into any body of water, directly or indirectly, and
Stockholders have no notice that any other present or previous owner, tenant,
<PAGE>
-18-
occupant or user of any Real Property or any other Person has committed or
suffered any of the foregoing. To Stockholders's best knowledge, no release of
Hazardous Substances outside the Real Property has entered or threatens to enter
any Real Property, nor is there any pending or threatened claim based on
Environmental Laws which arises from any condition of the land surrounding any
Real Property. No claim or investigation based on Environmental Laws which
relates to any Real Property or any operations on it (a) has been asserted or
conducted in the past or is currently pending against or with respect to Company
or, to the Stockholders' best knowledge, any other Person, or (b) to the
Stockholders' best knowledge, is threatened or contemplated.
2.7.2. To Stockholders's best knowledge, (a) no underground storage tanks
are currently or have been located on any Real Property, (b) no Real Property
has been used at any time as a gasoline service station or any other facility
for storing, pumping, dispensing or producing gasoline or any other petroleum
products or wastes and (c) no building or other structure on any Real Property
contains asbestos. There are no incinerators, septic tanks or cesspools on the
Real Property and all waste is discharged into a public sanitary sewer system.
2.7.3. Stockholders have caused the Company to provide Buyer with complete
and correct copies of (a) all studies, reports, surveys or other materials in
the Company's possession or to which the Company has access relating to the
presence or alleged presence of Hazardous Substances at, on or affecting the
Real Property, (b) all notices or other materials in the Company's possession or
to which the Company has access that were received from any Governmental
Authority having the power to administer or enforce any Environmental Laws
relating to current or past ownership, use or operation of the Real Property or
activities at the Real Property and (c) all materials in the Company's
possession or to which the Company has access relating to any claim, allegation
or action by any private third party under an Environmental Law.
SECTION 2.8. Compliance with Law: Governmental Permits.
-----------------------------------------
2.8.1. The ownership, leasing and use of the Assets as they are currently
owned, leased and used, and the conduct of the Company Business as it is
currently conducted do not violate any Legal Requirement, which violation,
individually or in the aggregate, would have a material adverse effect on the
System, the Company Business or the Company. The Company has received no notice
claiming a violation by Company or the Company Business of any Legal Requirement
<PAGE>
-19-
applicable to Company or the Company Business as it is currently conducted and
to Stockholder's and Company's best knowledge, there is no basis for any claim
that such a violation exists. Stockholders and Company have complied fully with
the laws of the Argentine Republic and United States of America Foreign Corrupt
Practices Act.
2.8.2. Complete and correct copies of the Governmental Permits have been
delivered by Company to Buyer. The Governmental Permits are currently in full
force and effect, are not in default, and are valid under all applicable Legal
Requirements according to their terms. There is no legal action, governmental
proceeding or investigation, pending or threatened, to terminate, suspend or
modify any Governmental Permit and Company is in compliance with the terms and
conditions of all Governmental Permits and with other applicable requirements of
all Governmental Authorities relating to the Governmental Permits, including all
requirements for notification, filing, reporting, posting and maintenance of
logs and records.
2.8.3. Without limiting the generality of the foregoing: (a) the operation
of Company Business and the System has been, and is, in compliance with the
rules and regulations of the Argentine Republic, (b) Company has made all
filings required to be made with the Governmental Authorities; (c) Company has
provided all notices to subscribers and maintained all public files required
under Argentine Law; (d) each System is in compliance with all must carry
requirements and has received all necessary retransmission consents; (e) each
System is in compliance with all signal leakage criteria prescribed by the
Argentine regulations; and (f) the Company has complete authorizations to carry
all signals it carries and all authorizations needed to utilize the frequency on
which these signals are carried.
SECTION 2.9. Patents. Trademarks and Copyrights. Company has timely and
-----------------------------------
accurately made all requisite filings and payments with the Register of
Copyrights and is otherwise in compliance with all applicable rules and
regulations of the Copyright Office. The operation of the Company Business as
currently conducted does not violate or infringe upon the rights of any Person
in any copyright, trademark, service mark, patent, license, trade secret or the
like.
SECTION 2.10. Financial Statements. Stockholders have delivered to Buyer
--------------------
correct and complete copies of the Company's (a) audited balance sheets and
related statements of income, stockholders' equity and cash flows for and as of
the year(s) ended December 31st, 1995 and December 31, 1994 and (b) the
unaudited balance
<PAGE>
-20-
sheet as of August 31st, 1996, and the related unaudited statement of income for
the eight (8) month period then ended (collectively, the "Financial
Statements"). The Financial Statements were prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby and fairly
present the Company's financial position, results of operations and changes in
financial position as of the dates and for the periods indicated, subject in the
case of the unaudited Financial Statements only to normal year-end adjustments
(none of which will be material in amount) and the omission of footnotes. Except
as disclosed by, or reserved against in, its most recent balance sheet included
in the Financial Statements, Company did not have as of the date of such balance
sheet any liability or obligation, whether accrued, absolute, fixed or
contingent (including liabilities for taxes or unusual forward or longterm
commitments), which was or would be material to the business, results of
operations or financial condition of Company's, nor to Company's best knowledge
does any aspect of the Business form a basis for any claim by a third party
which, if asserted, could result in a liability not disclosed by or reserved
against in such balance sheet.
SECTION 2.11 Except as provided herein, since the date of the most recent
balance sheet included in the Financial Statements (i) the Company Business has
been operated only in the ordinary course, (ii) Company has not sold or disposed
of any Assets other than in the ordinary course of business, (iii) there has
been no material adverse change in, and no event has occurred which is likely,
individually or in the aggregate, to result in any material adverse change in,
the business, operations, Assets, prospects or condition (financial or
otherwise) of the Company Business, other than changes affecting the cable
television industry generally.
SECTION 2.12 Liabilities. Stockholders represent that all Liabilities have
------------
been adequately reported and accounted for and that there are no Liabilities,
disclosed or undisclosed, for which due provision has not been made in the
Financial Statements. Should there be greater Liabilities upon the Company on
the Closing Date, the Base Purchase Price will be reduced in an additional
amount equal to all such greater Liabilities, pursuant to the procedure foreseen
in Section 1.4.
SECTION 2.13. Legal Proceedings. Except as set forth on Exhibit 5 there is
-----------------
no judgment or order outstanding, or any action, suit, complaint, proceeding or
investigation by or before any Governmental Authority or any arbitration
pending, or to Stockholders' best knowledge, threatened, involving or affecting
all or any part of the Company Business or the Company.
<PAGE>
-21-
SECTION 2.14. Tax Returns: Other Reports. Company has duly and timely filed
--------------------------
in proper form all income, franchise, sales, use, property, excise, payroll and
other tax returns and all other reports (whether or not relating to taxes)
required to be filed with the appropriate Governmental Authority. All taxes,
fees and assessments of whatever nature due and payable by Company have been
paid, except such amounts as are being contested diligently and in good faith
and are not in the aggregate material all of which are listed in Exhibit 6.
There are no outstanding agreements or waivers extending the statutory period of
limitations applicable to any federal, state, local or foreign income tax return
for any period.
SECTION 2.15. Employment Matters.
------------------
2.15.1. Before Closing Stockholders will cause Company to deliver to Buyer
a complete and correct list of names and positions of all employees of Company
engaged in the Company Business and their current hourly wages or monthly
salaries and other compensation. Company has complied in all respects with all
Legal Requirements relating to the employment of labor, continuation coverage
requirements with respect to group health plans, and those relating to wages,
hours, collective bargaining, unemployment compensation, worker's compensation,
equal employment opportunity and benefit plans, age and disability
discrimination, immigration control and the payment and withholding of taxes.
2.15.2. Except as provided in Exhibit 7 Company is not bound by any
contract with any labor organization, and Company has not recognized or agreed
to recognize and is not required to recognize any union or other collective
bargaining unit. No union or other collective bargaining unit been certified as
representing any of its employees, nor has Company received any requests from
any party for recognition as a representative of employees for collective
bargaining purposes. To Company's best knowledge, its employees are not engaged
in organizing activity with respect to any labor organization. Company has no
employment agreement of any kind, oral or written, express or implied, that
would require Buyer to employ any Person after the Closing Date.
2.15.3 Company has paid to employees employed in the Company Business all
compensation, including salaries, commissions, bonuses, deferred compensation,
severance, insurance, pensions, profit sharing, vacation, sick pay and other
compensation or benefits to which they are entitled for periods prior to the
Closing.
<PAGE>
-22-
2.15.4 Stockholders will have paid or properly accrued for maintenance and
distribution of benefits accrued under any employee benefit plan maintained by
Company pursuant to the provisions of such plans. Buyer will assume neither any
liability for any such accrued benefits nor any fiduciary or administrative
responsibility to account for or dispose of any such accrued benefits under any
employee benefit plans maintained by Company.
2.15.5 All claims and obligations under, pursuant to or in connection with
any welfare, medical, insurance, disability or other employee benefit plans of
Company or arising under any Legal Requirement affecting employees of Company
incurred on or before the Closing Date or resulting or arising from events or
occurrences occurring or commencing on or prior to the Closing Date will have
been paid or properly accrued for, whether or not such employees are hired after
the Closing.
SECTION 2.16. EBS Numbers. As of the Closing Date, the Company Business
-----------
will have no fewer than 65,000 EBS's.
SECTION 2.17. Finders and Brokers. Stockholders have not employed any
-------------------
financial advisor, broker or finder or incurred any liability for any financial
advisory, brokerage, finder's or similar fee or commission in connection with
the transactions contemplated by this Agreement for which Buyer could be liable.
SECTION 2.18. Disclosure. No representation or warranty by Stockholders in
----------
this Agreement or in any Schedule or Exhibit to this Agreement, or any
statement, list or certificate furnished or to be furnished by Stockholders or
Company pursuant to this Agreement, contains any untrue statement or material
fact, or omits to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading in light of
the circumstances in which were made. Without limiting the generality of the
foregoing, the information set forth herein concerning the Company Business is
accurate and complete in all material respects.
SECTION 2.19 Continuity and Maintenance of Operations. Financial
---------------------------------------------------
Statements. Prior to Closing the Company Business has been operated in the
- - ----------
ordinary course consistent with past practices (including completing line
extensions, placing conduit or cable in new developments and fulfilling
installation requests)
<PAGE>
-23-
and Company and Stockholders have used their best efforts to keep available the
services of Company's employees employed in connection with the System and to
preserve any beneficial business relationships with customers, suppliers and
others having business dealings relating to the Company Business. Without
limiting the generality of the foregoing, Company has maintained the Assets in
good conditions and repair, has maintained adequate inventories of spare
Equipment consistent with past practice, has maintained insurance and has kept
all of its business books, records and files in the ordinary course of business
in accordance with past practices. Company has not itself, and has not permited
any of its officers, directors, shareholders, agents or employees to, pay any of
Company's subscriber accounts receivable (other than for their own residences)
prior to the Closing Date nor will they hire any of the current employees
officers or directors of the Company except for those agreed herein. Company has
continued to implement its procedures for disconnection and/or discontinuance of
service to subscribers whose accounts are delinquent in accordance with those
in effect on July 31st, 1996.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to the Stockholders that:
SECTION 3.1 Organization, Power and Authority. Buyer is a corporation duly
---------------------------------
organized, validly existing and in good standing under the laws of Argentina,
and has the sufficient legal power and authority to own or lease and to operate
its properties and to carry on its business as now being conducted.
SECTION 3.2 Authorization. Buyer has the corporate power and authority to
-------------
execute and deliver this Agreement, to consummate the transactions contemplated
hereby and to perform its obligations under this Agreement, at its sole
discretion. This Agreement, upon its execution and delivery by Buyer (assuming
the due authorization, execution and delivery hereof by the Stockholders), will
constitute the legal, valid and binding obligation of Buyer, enforceable against
Buyer in accordance with its terms, and the rules of law of the country and/or
State to which this Agreement is submitted as per Section 8.14 hereunder.
SECTION 3.3 No Conflict or Violation. Neither the execution and delivery
------------------------
of this Agreement by Buyer, nor the consummation of the transactions
contemplated hereby, will (a) violate any provision of the Articles of
Incorporation
<PAGE>
-24-
of Buyer, (b) violate, conflict with or result in the breach or termination of,
or otherwise give any other contracting party the right to terminate, or
constitute a default under the terms of, any mortgage, bond, indenture or
material agreement to which Buyer is a party or by which Buyer or any of its
property or assets may be bound or materially affected, or (c) violate any
judgment, order, injunction, decree or award of any court, administrative agency
or governmental body against, or binding upon, Buyer or upon the property or
business of Buyer.
SECTION 3.4 Brokers' Fees. No broker, finder or similar agent has been
-------------
employed by or on behalf of Buyer in connection with this Agreement or the
transac transaction contemplated hereby, and no person or entity with which
Buyer has had any dealings or communications of any kind is entitled to any
brokerage commission, finder's fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS
-----------------------------
OF THE STOCKHOLDERS
-------------------
The obligations of each of the Stockholders to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, on or before the
Closing Date, of the following conditions, subject to the right of the
Stockholders to waive any such condition.
SECTION 4.1 Representations and Warranties True. All of the
-----------------------------------
Representations and Warranties of Buyer contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date as if
made on and as of the Closing Date.
SECTION 4.2 Agreements Performed. Buyer shall have performed, in all
--------------------
material respects, all agreements required by this Agreement to be performed by
Buyer prior to or on the Closing Date.
SECTION 4.3 No Actions, Suits or Proceedings. No preliminary or permanent
--------------------------------
injunction or other order issued by any federal or state court of competent
jurisdiction preventing consummation of the sale of any or all of the Shares to
Buyer shall be in effect.
<PAGE>
-25-
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF BUYER
--------------------------------------
The obligations of Buyer to consummate the transactions contemplated by
this Agreement, are subject to the fulfillment, on or before the Closing Date,
of the following conditions (subject to the right of Buyer to waive any and/or
all such condition in full, or partially).
SECTION 5.1 Representations and Warranties True. All of the
-----------------------------------
representations and warranties of the Company and each Stockholder contained in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date.
SECTION 5.2 Agreement Performed. Each Stockholder and the Company shall
-------------------
have performed, in all material respects, all agreements and covenants required
by this Agreement to be performed by such Stockholder and the Company prior to
or on the Closing Date.
SECTION 5.3 No Actions, Suits or Proceedings. No preliminary or permanent
--------------------------------
injunction or other order issued by any Governmental Authority or any federal or
state court of competent jurisdiction preventing consummation of the sale of any
or all of the Shares to Buyer shall be in effect.
SECTION 5.4 Stockholders' and Officer's Certificates. (a) Buyer shall
----------------------------------------
have been furnished with certificates executed by each of the Stockholders,
dated the Closing Date, representing and certifying (i) with respect to such
Stockholder that the conditions set forth in this Article V have been fulfilled
at or prior to the Closing Date, and (ii) that such Stockholder is not in
material default under any provision of this Agreement.
(b) Buyer shall have been furnished with a certificate signed by an
appropriate officer of the Company, but without any personal liability to such
officer, regarding the Company's Business and financial condition.
<PAGE>
-26-
SECTION 5.5 Required Consents. All Required Consents (including but not
-----------------
limited to consents to change of control of the Company), will have been
obtained on or before the Closing.
SECTION 5.6 Contracts. All Company Contracts are in full force and effect
---------
and the Company has not incurred in any default under the same.
SECTION 5.7 Assets and Employees. The parties will have agreed which
--------------------
assets and which employees, managers and executives will remain in the Company
after Closing.
SECTION 5.8 Non-Competition and Agreement Not To Hire. Each of the
-----------------------------------------
Stockholders will have entered into mutually acceptable agreements not to
compete with the Company (as provided herein) except for RCC, Teleunica and MCM
System, and not to hire employees of the Company after Closing (as provided
herein).
SECTION 5.9 [RESERVED]
SECTION 5.10 COMFER: The COMFER will have issued a letter addressed to
------
Buyer indicating that, as of the Closing Date, the Company is current in all its
obligation to the COMFER (financial and otherwise), including all fees and
penalties, or Stockholders will provide Buyer with a letter by Eduardo Eurnekian
indicating that he will unconditionally undertake payment of such obligations
when and if due after any fiscal resolution of the issue.
SECTION 5.11 [RESERVED]
SECTION 5.12 Due diligence. All aspects related with a broad due diligence
-------------
of the Company must have been satisfactorily completed by the Buyer or its rep
resentatives.
SECTION 5.13 Reports for SEC. Financial Statements will have been prepared
---------------
by Buyer, at its cost, in order that TINTA, its stockholders and affiliates
<PAGE>
-27-
may file the same to satisfy (i) their undertakings under Section 512(a) of
Regulation S-K to keep the prospectuses contained in certain presently effective
registration statements current, (ii) the requirements of any forms for the
registration of securities under the U.S. Securities Act of 1933, as amended
(the "Securities Act") which TINTA, its stockholders and affiliates may
hereafter use to register any of its securities, and (iii) its obligation to
file periodic and current reports under the U.S. Securities Exchange Act of
1934, as amended, (iv) the requirements of any proxy statement under the
Securities Act, and (v) such other rules of the Securities and Exchange
Commission of the United States of America which TINTA, its stockholders and
affiliates may deem applicable. Stockholders shall fully cooperate with the
preparation of these reports which shall be made under generally accepted
accounting principles of the United States of America.
ARTICLE VI
COVENANTS
---------
Buyer and the Stockholders hereby covenant and agree as follows:
SECTION 6.1 Required Consents, Estoppel Certificates and Franchise
------------------------------------------------------
Renewals.
--------
Stockholders, Company and Buyer will obtain, as soon as possible, all the
Required Consents and COMFER Approvals, in form and substance satisfactory to
the parties. Buyer, Company and Stockholders will cooperate in obtaining all
Required Consents and COMFER Approvals, but will not be required to agree to
any changes in, or the imposition of any condition to the transfer to Buyer
which may imply a material modification to the Company Business and/or to the
conditions or Sections of this Agreement. Such failure to agree will not
constitute a reason attributable to the same. Should there be changes in,
impositions or conditions which are acceptable to the Buyer but not to the
Stockholders, the latter - in case Closing is not executed - will immediately
return the entire Base Purchase Price to the Buyer and the Shares will be
immediately returned to Stockholders. Stockholders will cause the Company to
require, at its expense, such estoppel certificates or similar documents from
lessors and other Persons who are parties to Company Contracts as Buyer may
request.
Stockholders will use their best efforts to obtain, and will cooperate with
Company to obtain, renewals or extensions of any COMFER and Governmental
<PAGE>
-28-
Authority licenses and franchises which expire prior to April, 2000 ("Extended
Franchises"), for applicable legal terms.
SECTION 6.2 Lien and Judgment Searches. Buyer may produce, at its cost in
--------------------------
the shortest possible time (a) results of a lien search conducted by a
professional search company of records in the office of the secretaries of state
in each state and county clerks in each county where there exist tangible
Assets, and in the state and county where Company's principal offices are
located, including copies of all financing statements or similar notices or
filings (and any continuation statements) discovered by such search company and
(b) the results of a search of the dockets of the clerk of each federal and
state court sitting in the city, county or other applicable political
subdivision where the principal office or any material assets of Company may be
loca ted, with respect to judgments, orders, writs or decrees against or
affecting Stockholders or any of the Assets. For these purposes Stockholders
will give full collaboration to the representatives of Buyer.
SECTION 6.3 Transfer Taxes. Stockholders and Buyer will be responsible to
--------------
the extent determined by law for the payment of any state or local sales, use,
transfer, excise, documentary or license taxes or fees or any other charge
(including filing fees) imposed by any Governmental Authority with respect to
the transfer pursuant to this Agreement, according to the rules provided by the
pertinent legislation. Shareholders will pay cost related to removal from the
Company of the assets to be excluded. The removal will not affect the Company
Business.
SECTION 6.4 Satisfaction of Conditions. Each party will use its best
--------------------------
efforts to satisfy, or to cause to be satisfied, the conditions to the
obligations of the other party to consummate the transactions contemplated by
this Agreement, provided that Buyer will not be required to agree to any
increase in the amount payable, or the method of payment.
SECTION 6.5 Confidentiality. Neither party will issue any press release or
---------------
make any other public announcement regarding this Agreement or the transactions
contemplated hereby without the consent of the other party. Each party will
hold, and will cause its employees, consultants, advisors and agents to hold, in
confidence, the terms of this Agreement and any non-public information
concerning the other party obtained pursuant to this Agreement. Notwithstanding
the preceding, a party may dis close such information to the extent required by
any Legal Requirement (including dis closure requirements under Argentine and
United States of America federal and state securities laws), but the party
proposing to disclose
<PAGE>
-29-
such information will first notify and consult with the other party concerning
the proposed disclosure, to the extent reasonably feasible. Each party also may
disclose such information to employees, consultants, advisors, agents and actual
or potential lenders whose knowledge is necessary to facilitate the consummation
of the transactions contemplated by this Agreement. Each party's obligation to
hold information in confidence will be satisfied if it exercises the same care
with respect to such information as it would exercise to preserve the
confidentiality of its own similar information. Stockholders authorize Buyer to
use all the information which may be necessary for presentations and filings
before the Securities and Exchange Commission, or applicable state securities
commissions.
SECTION 6.6. Contingencies. Attached hereto as Exhibit 4 is a list of
-------------
estimated contingent liabilities. Stockholders agree that such amounts are
estimates only and that, if and when they become payable, Stockholders will pay
all amounts due thereunder whether greater or less than the amounts listed in
Exhibit 4.
ARTICLE VII
TERMINATION
-----------
SECTION 7 Effects of Termination. If this Agreement is terminated and the
----------------------
transactions contemplated hereby are not consummated as provided in Sections
1.2.2. and 1.2.3., this Agreement shall have no further force and effect. This
general provision does not apply with regard to the provisions of Section 6.5
hereof relating to the confidentiality obligations of the parties and to
publicity, and Sections 2.17 and 3.4 hereof relating to expenses.
ARTICLE VIII
MISCELLANEOUS
-------------
SECTION 8.1 Survival of Representations, Warranties and Agreements. The
------------------------------------------------------
representations and warranties of Stockholders in this Agreement and in the
documents and instruments to be delivered by Stockholders pursuant to this
Agreement will survive until 180 days after the expiration of the applicable
statute of limitations (in including any extensions). The representations and
warranties of Buyer in this Agreement and in the documents and instruments to be
delivered by Buyer pursuant to this Agreement will survive until the sixth
anniversary of the Closing Date. The periods of survival of the representations
and warranties prescribed by this Section are referred to as the "Survival
Period". The liabilities
<PAGE>
-30-
of the parties under their respective representations and warranties will expire
as of the expiration of the applicable Survival Period; provided, however, that
such expiration will not include, extend or apply to any representation or
warranty, the breach of which has been asserted by Buyer in a written notice to
Stockholders before such expiration or about which Stockholders have given Buyer
written notice before such expiration indicating that facts or conditions which
exist or that, with the passage of time or otherwise, can reasonably be expected
to result in a breach.
SECTION 8.2 Indemnification by Stockholders. Stockholders (on behalf of
-------------------------------
themselves and the Company) jointly and severally, agree to indemnify and/or
defend and/or hold harmless Buyer from and against:
(a) all losses, damages, liabilities, deficiencies or obligations of or to
the Company, Buyer or any such other indemnified person resulting from or
arising out of (i) any misrepresentation or breach of warranty or any
nonperformance or breach of any covenant or agreement of Stockholders and/or
Company contained in this Agreement or any additional agreements; (ii) the
ownership of the Shares, the owner ship or operation of the Company Assets, or
the control, management or operations of the Company Business, prior to the
Closing, whether known or unknown, asserted or unasserted, now existing or
arising at any time prior to, at or after the Closing, including, without
limitation, fines or forfeitures imposed or threatened to be imposed by any
authority for any operation of the Company Business at or prior to the Closing
which was not in full compliance with applicable rules, or for any operation at
or prior to the Closing of any facility used in conjunction with the operation
of the Company Business which was not in full compliance with said rules and any
future, additional assessment imposed on Buyer or Company after the Closing by
the Copyright Tribunal, the liability for which occurred prior to the Closing,
but excluding any of such liabilities that are reflected on the Balance Sheet to
the extent reflected thereon; and
(b) all claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including, agreed
to settlement costs and reasonable legal, accounting, experts' and other fees,
costs and expenses) incident or relating to or resulting from any of the
foregoing.
SECTION 8.3 Stockholders further indemnification. Each of the Stockholders
------------------------------------
jointly and severally agrees to indemnify and hold harmless Buyer and its
assigns from and against any and all claims, losses, damages and expenses
(including, without limitation, settlement costs and reasonable legal or other
expenses) incurred by the Company, Buyer or assignee resulting from or arising
out of any misrepresentation or breach of any warranty relating to such
Stockholder or
<PAGE>
-31-
the Shares sold by such Stock holder or the nonperformance or breach of any
covenant, agreement or obligation of such Stockholder.
SECTION 8.4 Indemnification by Buyer. Buyer agrees to indemnify, defend
------------------------
and hold harmless each Stockholder, its successors and assigns, from and against
all losses, damages and expenses (including, agreed to, settlement costs and
reasonable legal or other expenses) incurred by such Stockholder or any other
indemnified person in connection with any misrepresentation or breach of any
warranty made by Buyer in this Agreement or the nonperformance or breach of any
covenant, agreement or obligation of Buyer contained in this Agreement.
SECTION 8.5 Third Party Claims. Promptly after the receipt by any party
------------------
hereto of notice of any claim, action, suit or proceeding by any person who is
not a party to this Agreement (collectively, an "Action") which is subject to
indemnification hereunder, such party (the "Indemnified Party") shall give
reasonable written notice to the party from whom indemnification is claimed (the
"Indemnifying Party"). At the sole expense and liability of the Indemnifying
Party and within a reasonable time after the giving of such notice by the
Indemnified Party, the Indemnifying Party shall: (i) admit or decline in writing
to the Indemnified Party, the Indemnifying Party's liability to the Indemnified
Party for such Action, (ii) notify the Indemnified Party in writing of the
Indemnifying Party's intention to assume the defense thereof, (iii) post an
indemnity or similar bond (in form and substance satisfactory to the Indemnified
Party), in both cases for the full amount (including interest and penalties) for
which the Indemnified Party may be liable as a result of such Action or provide
other evidence satisfactory to the Indemnified Party of the Indemnifying Party's
ability to pay such amount in full, and (iv) retain legal counsel reasonably
satisfactory to the Indemnified Party to conduct the defense of such Action. The
Indemnified Party and the Indemnifying Party shall cooperate with the party
assuming the defense, in defending, compromising or settling any such Action in
any manner that such party reasonably may request. No Indemnified Party shall
settle or compromise any such Action for which it is entitled to
indemnification hereunder without the prior written consent of the Indemnifying
Party, unless the Indemnifying Party shall have failed, after reasonable notice
thereof, to undertake control of such Action in the manner provided above in
this Section. No Indemnifying Party shall settle or compromise any such Action
in which any relief other than the payment of money damages is sought against
any Indemnified Party unless the Indemnified Party consents in writing to such
com promise or settlement.
<PAGE>
-32-
SECTION 8.6 Assignment: Successors and Assigns; Third Parties. Except as
-------------------------------------------------
provided herein, Stockholders may not convey, assign or otherwise transfer any
of their rights or obligations under this Agreement without the express written
consent of Buyer or the Stockholders as the case may be. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. This Agreement is not intended to
benefit, and shall not run to the benefit of or be enforceable by, any other
person or entity other than the parties hereto and their permitted successors
and assigns.
SECTION 8.7 Notices. All notices or other communications required or
-------
permitted to be given hereunder shall be in writing and shall be delivered by
hand (acknowledgement of receipt requested) or through a notary public, or sent
by facsimile, telegram or registered mail (carta documento) and shall be deemed
given when so delivered by hand or through a notary, or if faxed, telegraphed or
mailed when so delivered. Said notices and communications must be addressed as
follows:
If to the Stockholders, addressed to:
Mr. Eduardo Eurnekian
Honduras 5663
1414 - Buenos Aires
Argentina
Telephone: (54 1) 778-6585
Fax: 778-6764
with a copy to:
Dr. Mariano Ibanez
Honduras 5663
1414 - Capital Federal
Telephone: 778-6585
Fax: 778-6765
If to Buyer, addressed to:
Cablevision S.A.
Bonpland 1773
<PAGE>
-33-
1414 - Capital Federal
Attention: General Manager
Telephone: 778-6683
Fax: 778-6689
with copies to:
Tele-Communications International, Inc.
5619 DTC Parkway
Englewood, Colorado 80111, U.S.A.
Attention: Chief Executive Office
Telephone: (1 303) 267 5216
Telecopier: (1 303) 488 3200
Tele-Communications International, Inc.
5619 DTC Parkway
Englewood, Colorado 80111, U.S.A.
Attention: General Counsel
Telephone: (1 303) 267 4827
Telecopier: (1 303) 488 3207
M. & M. BOMCHIL - Abogados
Suipacha 268, 12th floor
1355 - Buenos Aires, Argentina
Attention: Dr. Marcelo E. Bombau
Telephone: 328 8400
Telecopier: 326 7217
Mr. Eduardo Eurnekian
Honduras 5663
1414 - Buenos Aires
Argentina
Telephone: (54 1) 778-6769
Fax: 778-6764
Dr. Mariano Ibanez
<PAGE>
-34-
Honduras 5663
1414 - Capital Federal
Telephone: 778-6585
Fax: 778-6765
or in any case to such other address or addresses as hereafter shall be
furnished as provided in this Section 8.7 by any of the parties hereto to each
of the other parties hereto.
SECTION 8.8 Waiver: Remedies. No delay on the part of Buyer, on the one
----------------
hand, or the Stockholders, on the other, in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of Buyer or the Stockholders of any right, power or privilege hereunder
operate as a waiver of any other right, power or privilege hereunder, nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder. Upon any default by the Buyer, on the one
hand, or any of the Stockholders, on the other hand, the Buyer or any such
Stockholder, as the case may be, may proceed to protect his or its rights by
suit in equity, action at law or other appropriate proceedings, whether for the
specific performance of any covenant or agreement contained in this Agreement or
to enforce any and all other legal or equitable rights.
SECTION 8.9 Entire Agreement. This Agreement, including the schedules and
----------------
Exhibits attached hereto, constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements or understandings of the parties relating thereto. There are no
representations, warranties, agreements or undertakings of any party hereto with
respect to the transactions contemplated by this Agreement other than those set
forth in this Agreement or in the documents delivered at the Closing. All
Exhibits annexed hereto, and all schedules referred to herein, are hereby
incorporated in and made a part of this Agreement as if set forth in full
herein.
SECTION 8.10 Amendments; Waivers. This Agreement may be modified or
-------------------
amended only by a written agreement signed by Buyer and Stockholders.
Provisions hereof may be waived, and other actions permitted hereunder or
contemplated hereby may be taken, in the case of Buyer, by an instrument signed
by Buyer, and in the case of the Stockholders, by an instrument signed by
Stockholders.
<PAGE>
-35-
SECTION 8.11 Further Assurances. Each Stockholder shall, at the request
------------------
of Buyer, at any time and from time to time following the Closing hereunder,
execute and deliver to Buyer all such further instruments and take all such
further action as may be reasonably necessary or appropriate in order more
effectively to confirm or carry out the provisions of this Agreement and to
sell, assign, transfer and convey to Buyer, or to perfect or record Buyer's
title to or interest in, the Shares sold by such Stockholder hereunder. Buyer
shall at any time and from time to time following the Closing hereunder execute
and deliver to the Stockholders, or any of them, all such further instruments
and take all such further action as may reasonably be necessary or appropriate
in order more effectively to confirm or carry out the provisions of this
Agreement. The parties hereto shall use their best efforts to consummate the
transactions contemplated by this Agreement.
SECTION 8.12 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original but all of which together shall
constitute a single instrument.
SECTION 8.13 Governing Law: Choice of Forum. Except with respect to the
------------------------------
Promissory Notes, this Agreement shall be governed by and construed in
accordance with the laws of the Republic of Argentina.
SECTION 8.14 Submission to Arbitration. The parties will use their best
-------------------------
efforts to resolve amicably any disputes arising under this Agreement, or those
con tained in its Exhibits or schedules. Except as otherwise expressly provided
herein, and except for those cases related to default in payment of moneys due
and the en forcement of the pledge agreement indicated in Section 1.6.1., all
disputes arising between the parties under this Agreement which cannot be
resolved amicably shall be resolved by submission to arbitration pursuant to the
Rules of the Inter-American Commission on International Commercial Arbitration
then in force. The arbitration shall be held in Geneva, Switzerland. There
shall be three arbitrators, one selected by the Stockholders, one selected by
the Buyer and the third selected by mutual agreement of the parties, and failing
their agreement, pursuant to the Rules of the Commission. None of the
arbitrators shall be citizens of the U.S.A. or the Republic of Argentina. The
arbitration shall be conducted in the English and Spanish languages. Except as
provided below, the arbitrators shall decide the case on the basis of Argentine
law, and shall give written reasons for their award. The party in whose favour
an award is issued shall be entitled to recover its costs on the arbitration,
and any costs incurred in the enforcement of the award, including rea
<PAGE>
-36-
sonable attorney's fees. The award of the arbitrators may be enforced in any
jurisdiction where a party has assets or may be found, and the parties hereby
irrevocably waive, to the fullest extent permitted by law, any defenses to
recognition and enforcement of the award on the grounds of the invalidity of the
submission to arbitration, and improper constitution of the arbitral panel (if
constituted pursuant to this Section). Should an issue related to default in
payment of moneys due or enforcement of the pledge agreement foreseen in
Sections 1.6.1. arise, parties agree to submit to the jurisdiction of the courts
of the city of Buenos Aires, or the city of New York as the Stockholders may
decide, except as provided in the Promissory Notes.
SECTION 8.15 Noncompetition. Each Stockholder covenants and agrees that,
--------------
during the period in which he is a director or Stockholder of the Company or of
Buyer, and for five years thereafter neither he nor any of Company's officers,
directors or affiliates, directly or indirectly, shall manage, operate, join,
control, participate, or become interested in, or be connected with (as an
employee, consultant, partner, officer, director, stockholder or investor,
other than through ownership of up to a 5% equity interest in a publicly-traded
entity) any cable television company (except Cablevision S.A., Televisora
Belgrano S.A., MCM System, RCC and Teleunica) or System nor in any Direct
Broadcast Satellite or Direct to Home System which has Subscribers located
within 40 (forty) kilometers miles from the periphery of any por tion of Buyer's
or the Company's Business. This non-competition clause will terminate five (5)
years as from the date the Stockholders cease in their capacities as
Stockholders or directors of the Company and of Buyer.
SECTION 8.16 Disclosure. This Agreement does not contain any untrue
----------
statement nor omit to state a material fact necessary to make the statements
contained herein not misleading. There is no fact known to Stockholders which
materially and adversely affects, or which in the future may so affect, the
Shares, which has not been set forth in this Agreement.
SECTION 8.17 Captions. All section titles or captions contained in this
--------
Agreement, in any Exhibits annexed hereto or in any Schedule referred to herein,
and the table of contents to this Agreement are for convenience only, and shall
not be deemed a part of this Agreement and shall not affect the meaning or
interpretation of this Agreement. All references herein to numbered sections,
except otherwise indicated, are to sections of this Agreement.
<PAGE>
-37-
SECTION 8.18. This Agreement is executed in English and Spanish versions,
and in case of differences among them, the Spanish version shall prevail.
SECTION 8.19. The Stockholders and Buyer will execute those documents which
may be necessary for the best implementation of the agreements contained herein.
SECTION 8.20. All the provisions, rights and obligations undertaken by the
Buyer and Stockholders are subject to the suspensive condition of the
corresponding COMFER Approval.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
EDUARDO
________________
EURNEKIAN CABLEVISION S.A.
________________________________
NATALIO WENDE By: William L. Wedum
Marcelo E. Bombau
OESTE CABLE COLOR S.A. TELE-COMMUNICATIONS
INTERNATIONAL, INC.
______________________________________________________
By: Eduardo Eurnekian By: William L. Wedum
As: President
<PAGE>
DEED OF GUARANTEE AND INDEMNITY AND SUBORDINATION
DATED ____ AUGUST 1996
by
INDEPENDENT NEWSPAPERS, PLC
TELE-COMMUNICATIONS INTERNATIONAL INC.
UNITED AND PHILIPS COMMUNICATIONS B.V.
as Guarantors
and
INDEPENDENT NEWSPAPERS, PLC
TELE-COMMUNICATIONS INTERNATIONAL INC.
UNITED AND PHILIPS COMMUNICATIONS B.V.
UII IRELAND LIMITED
as Subordinated Creditors
In favour of
THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND
as facililty agent and security trustee
McCann FitzGerald
SOLICITORS
<PAGE>
DEED OF GUARANTEE AND INDEMNITY AND SUBORDINATION
To: The Governor and Company of the Bank of Ireland having its principal
place of business at Lower Baggor Street Dublin 2 in its capacity as
facility agent and security trustee for the Banks (each as defined in
the Facilities Agreement referred to below) together with their
successors and permitted assigns and transferees (the "Agent")
This Deed of Guarantee and Indemnity and Subordination is made on the day of
August 1996.
The persons specified in the First Schedule to this Deed (the "Guarantors" and
any one a "Guarantor") have agreed to guarantee and indemnify certain
obligations for the payment of money by the Borrowers, and the Guarantors
together with UII Ireland Limited ("UII") (the "Subordinated Creditors") have
agreed to subordinate the indebtedness now or at any time owed to any of them by
any members of the Group, in each case upon the terms and subject to the
conditions of this Deed.
1. The terms and expressions defined in the Facilities Agreement (referred
to below) shall, unless the context otherwise requires, have the same
meanings when used herein.
2. Each of the Guarantors, in consideration of the Facilities being made
available under the Facilities Agreement of even date herewith and made
between (1) Princes Holdings Limited (the "Parent"), (2) the Specifics
Subsidiaries named in the First Schedule thereto, (3) certain subsidiary
companies of the Parent named Part 3 of the Sixth Schedule thereto as
guarantors, (4) the Agent and (5) the Financial Institutions named in
the Second Schedule thereto (as the same may be amended, varied, novsted
and/or supplemented from time to time but subject to Clause 7 (a) below,
(the "Facilities Agreement"), as primary obliger and not as surety only,
hereby unconditionally and irrevocably guarantees the discharge by the
Borrowers of each and every one of the obligations for the payment of
money (whether present or future, actual or contingent, joint or several
and including, without limitation, interest whether accruing after or
before any demand or judgment) owed or which may at any time become
owing to the Agent and the Banks (whether collectively or individually)
under or pursuant to the Finance Documents and agrees to indemnify the
Agent and the Banks in respect of such payment obligations, such
guarantee and indemnity being several and limited in amount to such
Guarantor's Several Percentage (as defined below) of the Maximum Amount
(as defined below) as determined in accordance with the provisions of
this Deed ("Its Guarantee Obligations").
<PAGE>
3. The liability of each Guarentor under this Deed shall be limited to the
suit of that Guarantor's liabilities under Clause B (if any) and that
Guarantor's Several Percentage of the Maximum Amount where:
"Several Percentage" in relation to each Guarantor means the percentage
specified opposite its name in the First Schedule;
"Maximum Amount" means
(a) IR(Pounds)10,000,000 in circumstances where Acceleration results
from an Event of Default occurring at any time during the period
commencing on the date hereof and terminating on the later of
(i) the date the Agent tests the covenants in clause 21.1 of
the Facilities Agreement which are to be complied with
on or before 31 December 1996 (by reference to the
consolidated audited accounts of the Group for the
twelve (12) month period ended 31 December 1996 (the
"1996 Accounts") or, if the Borrowers fail to furnish
the 1996 Accounts to the Agent by the date specified in
clause 20.1 (a) of the Facilities Agreement, the date of
the report to the Agent by the auditors appointed
pursuant to clause 22.3 of the Facilities Agreement to
test the covenants in clause 21.1 of the Facilities
Agreement which are to be complied with on or before 31
December 1996 for the twelve (12) month period ended 31
December 1996, and
(ii) if the testing of covenants referred to in (i) above
shall evidence an Event of Default, the date on which
the Agent shall issue a notice under clause 25 of the
Facilities Agreement in respect of, or waive, such Event
of Default (as the case may be); or
(b) following the expiry of the period referred to in (a) above, the
amount "MA" determined in accordance with the following formula:
"MA" = TCC - (OC x 6.5);
"TCC" means the lesser of IR(Pounds)40 million and the Total Cash
Commitments (less any increases to the same sanctioned by the Banks but
not consented to by the Guarantors under Clause 7(a)) at the time of
calculation;
"OC" means
(a) where Acceleration occurs following the occurrence of a Relevant
Event (as defined below), the Operating Cashflow in relation to
the Group for the twelve (12) month period immediately preceding
the
2
<PAGE>
Relevant Event (or such other twelve (12) month period as may be
selected by the auditors in accordance with Clause 4.3 (c)
below);
(b) where Acceleration occurs for any other reason, the Operating
Cashflow in relation to the Group for the twelve (12) month
period immediately preceding the date of Acceleration (or such
other twelve (12) month period as may be selected by the
auditors in accordance with Clause 4.3 (c) below);
(c) where auditors have been appointed pursuant to clause 22.3 of
the Facilities Agreement and have calculated the Operating
Cashflow pursuant to such appointment, the Operating Cashflow so
calculated until a new Operating Cashflow in relation to the
Group for which new consolidated audited accounts of the Group
for a twelve (12) month period have been made available to the
Agent and the Banks has been determined by references to such
new accounts;
(d) at any other time, the Operating Cashflow in relation to the
Group for the twelve (12) month period for which the latest
consolidated audited accounts of the Group are available to the
Agent and the Banks and determined by reference to such
accounts;
"Acceleration" means the making of a first Demand by the Agent in
accordance with Clause 4.1 below;
"Relevant Event" means the appointment of a liquidator, receiver,
trustee or other similiar officer or an Examiner (save where the same is
appointed by petition of any of the Subordinated Creditors, the Obligors
or any director or officer of a Subordinated Creditor or an Obligor
acting in such capacity) to, or the winding up or dissolution of, a
Borrower;
"Examiner" means an examiner appointed under Section 2 of the Companies
(Amendment) Act, 1990.
4.1 Each Guarantor unconditionally covenants and undertakes with the Agent
that, following the occurrence of (and provided the same is continuing)
an Event of Default, upon first written demand of the Agent (a "Demand")
it will make payment or cause payment to be made of its Several
Percentage of the Maximum Amount. In addition, each Guarantor
unconditionally covenants and undertakes with the Agent that it will
make payment or cause payment to be made of its Several Percentage of
the excess of the Actual Maximum Amount (as defined below) over the
Original Maximum Amount (as defined below) if a further demand is made
by the Agent pursuant to Clause 4.4 below.
4.2 Notwithstanding Clause 4.1, if, for whatever reason including, without
limitation, the non-availability of, or failure to supply, relevant
financial
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information, it is not possible to determine each Guarantor's Several
Percentage of the Maximum Amount upon Acceleration, the agent may make
Demand in accordance with Clause 4.1 above on the basis that the Maximum
Amount shall be calculated on the assumption that (notwithstanding the
definition of the term) OC is equal to the Operating Cashflow in
relation to the Group for the twelve (12) month period to" which the
latest consolidated audited accounts of the Group are available to the
Agent and the Banks (the "Assumed OC Value"). Each of the Guarantors
shall make payment or cause payment to be made of its Several Percentage
of the amount specified in the Demand (notwithstanding that the Maximum
Amount has been calculated using the Assumed OC Value).
4.3 As soon as reasonably practicable after Acceleration (and unless the
Maximum Amount is determined in accordance with paragraph (a) of the
definition of such term), the Agent shall obtain the determination of
the actual value of the maximum Amount (the "Actual Maximum Amount") in
accordance with the following procedure:
(a) the Agent (acting on the instructions of an instructing Group)
shall furnish the Guarantors with the names of three firms of
auditors and, within five Business Days of receipt thereof, the
Guarantors shall by notice in writing to the Agent select one of
such firms of auditors. The Agent shall promptly thereafter
appoint such auditors to carry out the determination. Failure by
the Guarantors to select a firm of auditors in accordance with
the above shall entitle the Agent to appoint a firm of auditors
to carry out the determination from the three firms furnished by
it upon the expiry of the fifth Business Day following receipt
of the names of the firms by the Guarantors;
(b) the determination shall be carried but in accordance with
generally accepted accounting principles in Ireland as soon as
practicable after the date of appointment of the auditors. Each
Guarantor shall each use its best endeavors to procure that the
Group does all things reasonably necessary to enable the
auditors to make the determination:
(c) if the auditors shall notify the Agent within 30 days of their
appointment that in their view it is not practicable to
calculate the Maximum Amount using the actual Operating Cashflow
in relation to the Group for the twelve (12) month period
immediately proceeding the Relevant Event or the date of Demand
(as the case may be), they may select a different twelve (12)
month period terminating prior to the Relevant Date or the date
of Demand (as the case may be) provided that in either case the
auditors shall be obligated to select a twelve (12) month period
ending as near as
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practicable to the date of the Relevant Event or Demand (as the
case may be):
(d) the determination of the auditors shall be communicated in
writing to the Agent and promptly thereafter by the Agent to the
Banks and the Guarantors and shall be final, binding and
conclusive.
4.4 In the event that each Guarantor's Several Percentage of the Actual
Maximum Amount is greater than that calculated by the Agent using the
Assumed OC Value (the "Original Maximum Amount"), the Agent shall be
entitled to demand a further amount from each Guarantor equal to that
Guarantor's Several Percentage of the excess of the Actual Maximum
Amount over the Original Maximum Amount.
4.5 In the event that the Actual Maximum Amount is less than the Original
Maximum Amount then if following enforcement proceeds by the Agent and
the Banks:
(a) there remains no indebtedness of the Borrowers outstanding to
the Agent or the Banks, the Agent shall repay to each Guarantor
its Several Percentage of the excess (the "Excess") of the
Original Maximum Amount over the Actual maximum Amount; or
(b) any indebtedness of the Borrowers is outstanding (the
"Outstanding Indebtedness"), the Excess shall be treated as
follows:
(i) the Agent (for itself and the Banks) shall retain an
amount equal to the Outstanding Indebtedness divided by
the sum of the outstanding indebetedness and the Excess;
and
(ii) the Agent shall pay to each Guarantor its Several
Percentage of an amount equal to the Excess divided by
the sum of the Outstanding Indebtedness and the Excess.
4.6 The Agent and the Banks agree that (unless unlawful) the Agent shall on
the same date (or within one (1) Business Day) make Demand or demand
hereunder on all of the Guarantors on each occasion on which a Demand or
demand is made.
5. As a separate and alternative stipulation in addition to its liabilities
in Clauses 2 and 4, each Gurarantor hereby unconditionally and
irrevocably agrees with the Agent that any Indebtedness constituting its
Guarantee Obligations which is expressed to be payable by the Borrowers
under the Finance Documents but which may not be recoverable from the
Guarantor on the footing of a guarantee (whether by reason of the
dissolution of the Borrowers or any of them, any reconstruction or
amalgemation in which or
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as a consequence of which any of the Borrowers loses its separate
corporate identity, any legal incapacity of any of the Borrowers, any
invalidity or illegality in the incurring of the liabilities under the
Finance Documents or any other fact or circumstance whatsoever and
whether or not known or becoming known to the Banks) shall nevertheless
be recoverable from the Guarantor as if it were the principal debtor.
The Guarantors hereby waive all or any of their rights as surety which
may at any time be inconsistent with any of the provisions of this Deed.
6. In addition to its liabilities under Clauses 2,4 and 6 above, each
Guarantor hereby unconditionally and irrevocably agrees with the Agent
to pay or causes to be paid to the Agent within three (3) Business Days
of the first written demand of the Agent (i) interest (both before and
after judgment on the amount or any part thereof for the time being
unpaid and due by such Guarantor, to the agent under this Deed from the
Business Day following the due date for payment until payment is made at
the rate percent per annum certified by the Agent to be the rate per
cent per annum at which a deposit of an amount comparable to the amount
of such Guarantor's Guarantee Obligations then outstanding is offered to
the Agent for such period as the Agent may select plus two (2) per cent
per annum (the "Default Rate"), and (ii) all costs, charges and expenses
(including, without limitation, legal fees) on a full indemnity basis
incurred by or on behalf of the Agent and/or the Banks (x) in protecting
or enforcing any of its rights against the Guarantor under this Deed
together with Interest thereon at the Default Rate and (y) as a
consequence of the breach by such Guarantor of any representation given
by it or any covenant, undertaking or condition to be performed by it
under this Deed or any Finance Document to which it is a party.
7. The liability of the Guarantors and the Subordinated Creditors hereunder
shall not be discharged or impaired by:
(a) any amendment or supplement to or modification or variation of or
departure from the terms of the Finance Documents provided that
any increase from time to time in the Total Cash Commitments
shall be made only with the consent of the Guarantors; or
(b) the release, variation, enforcement, abstention from perfection
or enforcement or surrender of any security given by the
Borrowers or any other person for the obligations of the
Borrowers under the Finance Documents or by the absence of any
action to enforce the rights of the Agent or the Banks under the
Finance Documents or this Deed; or
(c) any release of or granting of time or any other indulgence to the
Obligors, any party hereto or any of them or to any third party;
or
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(d) any insolvency, winding-up, receivership, administration,
dissolution, re-organization or reconstruction, court protection
or examinership or participation in (including voting in respect
of) any compromise or scheme of arrangement of the Borrowers
and/or the Guarantors or the Subordinated Creditors or any of
them; or
(e) any change in the name, constitution, shareholders, or otherwise
of the Guarantors, the Subordinated Creditors, the Borrowers, the
Agent, the Banks or any of them or the absorption or amalgamation
of the Borrowers by or with any other entity; or
(f) any other act, event or omission which would, but for this
Clause, discharge or impair the liability of the Guarantors or
the Subordinated Creditors.
8. Any release, compromise or discharge of the obligations of the
Guarantors or any of them shall be deemed to be made subject to the
condition that it will be void if any conveyance, transfer, payment or
security on the faith of which such release, compromise or discharge is
given or made is set aside or proves invalid for whatever reason so that
the Agent and the Banks shall become and be entitled at any time after
such avoidance to exercise all or any of the rights which it or they
would have been entitled to exercise but for such release, compromise or
discharge.
9. This guarantee and indemnity is a continuing security and shall be
construed and take effect as a guarantee and indemnity in relation to
the whole and each part of each Guarantor's Guarantee Obligations
covenanted to be paid and/or performed by each Guarantor pursuant to
Clauses 2, 4 and 5 hereof until the entire indebtedness of the Borrowers
under the Financial Documents has been satisfied and discharged in full
and all of its Guarantee Obligations shall be deemed to be due, owing
and outstanding notwithstanding any right of set-off or counterclaim,
which the Guarantor may have against the Agent or the Banks. This Deed
is in addition to and not in substitution for any other guarantee,
undertaking or security which the Agent and the Banks or any other
person may now or hereafter hold or hold on behalf of, or in trust for,
the Agent and the Banks or any other person in respect of the
obligations of the Borrowers to the Agent under the Finance Documents
and may be enforced without the Agent first having recourse to any such
other security or guarantee and without the Agent first taking any steps
to enforce any provision of the Finance Documents or to take any
proceedings against the Borrowers.
10. Subject to Clause 4.8, each Guarantor hereby waives any rights to
require a proceeding first against the Borrowers or the other Guarantors
and any other notice and all demands whatsoever, other than those
expressly required by the terms of this Deed.
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<PAGE>
11. Each Guarantor hereby covenants and undertakes with the Agent and the
Banks that until the entire indebtedness under the Finance Documents has
been unconditionally discharged in full, such Guarantor has not taken
and shall not take from the Borrowers any security whatsoever in respect
of its Guarantee Obligations or any of them and if in breach of such
obligation, any security is taken by the Guarantor, the Guarantor shall
forthwith assign or otherwise transfer the benefit of such security to
the Agent and, until such assignment or transfer, shall hold such
security in trust for the Agent.
12.1 Each payment to be made by each Guarantor hereunder shall be made free
and clear of and without deduction for or on account of any tax unless
the Guarantor is required by law and/or any competent authority to made
sure payment subject to a deduction or withholding of tax, in which case
the sum payable by the Guarantor in respect of which such deduction of
withholding is required to be made shall be increased to the extent
necessary to ensure that, after the making of such deduction or
withholding, each of the Agent and the Banks receives and retains (free
from any liability in respect of any such deduction or withholding) a
net sum equal to the sum which would have received and so retained had
no such deduction or withholding been made or required to be made.
12.2 If any Guarantor makes a payment under Clause 12.1 above and any of the
Agent and the Banks determines that it has received or been granted a
credit against or relief or remission for, or repayment of, any tax paid
or payable by it in respect of or which takes account of the deduction,
withholding or other matter giving rise to such payment, the Agent or
any of the Banks, as the case may be, shall, to the extent it determines
that it can do as without prejudice to the retention of the amount of
such credit, relief, remission or repayment, pay to such Guarantor such
amount as the Agent or such Banks, as the case may be, shall have
determined to be attributable to such deduction or withholding or other
matter and which will leave the Agent or the Banks, as the case may be,
(after such payment) in a position no better or worse than it would have
been in if such Guarantor had not been required to make such deduction
or withholding or such other matter had not arisen. Any payment by the
Agent of a Bank pursuant to this Clause 12.2 shall be conclusive
evidence (save for manifest error or until the contrary is proved) of
the amount due to a Guarantor hereunder. Nothing herein contained shall:
(a) oblige the Agent or such Bank, as the case may be, to claim any
credit, relief, remission or repayment within any particular
time;
(b) interfere with the right of the Agent or such Bank, as the case
may be, to arrange its tax or other affairs in whatever manner
it thinks fit;
(c) oblige the Agent or such Bank, as the case may be, to disclose
any information relating to its tax or other affairs;
8
<PAGE>
(d) require the Agent or such Bank, as the case may be, to do
anything that it determines would be likely to prejudice its
ability to benefit from any other credit, relief, remission or
repayment to which it may be entitled; or
(e) require the Agent or such Bank, as the case may be, to give any
priority as to the order in which it allocates to any person or
class of persons any such credit, relief, remission or
repayment.
13. Each Subordinated Creditor hereby represents, warrants and covenants to
the Agent and each Bank that:
(a) it is a corporation duly established and validly existing under
the laws of its jurisdiction of incorporation and it has power
to carry on its business as it is now being conducted and to own
its assets;
(b) it has the power to execute and deliver, and to perform its
obligations under this Deed and all necessary corporate action
had been taken by it to authorize the execution, delivery and
performance of the same;
(c) it has taken all necessary legal action to authorize the person
or persons who execute and deliver this Deed to execute and
deliver the same and thereby bind it to all the terms and
conditions hereof and to act for it and on its behalf as
contemplated hereby;
(d) such obligation expressed to be accepted by it in this Deed
constitutes or, as the case may be, will constitute its legal,
valid and binding obligations subject to equitable principles
and the provisions of applicable bankruptcy, insolvency,
moratorium or other laws for the protection of debtors and
creditors generally;
(e) the execution and delivery of, the performance of its
obligations under, and compliance with the provisions of, this
Deed will not (i) contravene any existing law applicable to it
or (ii) conflict with its constitutive documents and rules and
regulations;
(f) every consent, filing or other act required by it to authorize,
or required by it in connection with, the execution, delivery,
legality, validity, admissibility in evidence or effectiveness
of this Deed or the performance by it of any of its obligations
under this Deed has been duly obtained, made or given and is in
full force and effect;
(g) it has not taken any corporate action nor, to the knowledge of
its officers, have any steps been taken or legal proceedings
been started or threatened against it for winding-up,
dissolution or reorganization or for the appointment of a
liquidator, receiver,
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<PAGE>
examiner or administrative receiver, or an administrator, trustee or
similar officer of it or of any or all of its assets;
(h) in any proceedings taken in its jurisdiction of incorporation in
relation to this Deed (i) it will not be entitled to claim for
itself or any of its assets any sovereign immunity from suit,
execution, attachment or other legal process and (ii) the choice of
Irish law as the governing law of this Deed and any judgment obtained
in Ireland will be recognized and enforced;
(i) it is the sole legal and beneficial owner of the Subordinated
Liabilities owed to it; and
(j) the Shareholders' Documents and Finance Documents to which it is a
party contain all agreements made by it regarding the Parent, the
Business and management of the Parent.
14. Each Guarantor undertakes to the Agent and the Banks that until the
discharge of its Guarantee Obligations it will;
(a) remain a corporation duly established and validly existing under the
laws of its jurisdiction of incorporation;
(b) ensure that its obligations under this Deed constitute, and will
constitute, its direct, unconditional, irrevocable and general
obligations (subject to the availability of specific performance or
other equitable remedies being in the discretion of the relevant
court) and that all of the same rank, and will rank, at least pari
passu with all the Guarantor's other unsecured obligations and
liabilities including the Guarantor's contingent liabilities except
these obligations mandatorily preferred by applicable law;
(c) promptly and duly execute and deliver to the Agent such further
documents and assurances and take such further action as the Agent
and the Banks may from time to time reasonably request in order to
carry out the intent and purpose of this Deed and/or to establish and
protect the rights and remedies created or intended to be created in
favor of the Agent and the BANKS hereunder;
(d) obtain, or cause to be obtained, maintain in full force and effect
and comply in all material respects with the conditions and
restrictions (if any) imposed on, or in connection with, every
consent or filing and do, or cause to be done, all other acts and
things, which may from time to time be necessary under the law of its
jurisdiction of incorporation and Irish law for its continued
validity and the continued due performance of all its obligations
under this Deed;
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<PAGE>
(e) use its best endeavours at all times to procure that this Parent
shall make available to the Agent its consolidated financial
statements in accordance with its obligations pursuant to Clause 21
of this Facilities Agreement; and
(f) deliver to the Agent within 120 days after the end of its financial
year a copy of its audited accounts for such financial year.
15. if, under any applicable law, whether as a result of a judgment against any
Guarantor or the liquidation of any Guarantor or for any other reason, any
payment under or in connection with this Deed is made or is recovered in a
currency (the "other currency") other than the currency (the "duo
currency") in which the corresponding amount is due from the Borrower under
or by virtue of the Finance Documents to the extent that the payment to the
Agent or the Banks, as the case may be, (when converted into the due
currency at the spot rate of exchange on the date of payment, or in the
case of a liquidation, the latest date for the determination of liabilities
permitted by the applicable law) falls short of the amount unpaid under
this Deed, the relevant Guarantor shall, as a separate and independent
obligation, fully indemnify the Agent or the Banks, as the case may be,
against the amount of the shortfall and for the purposes of this clause
"rate of exchange" means the rate at which the Agent is able on the
relevant date to purchase the due currency in Dublin with the other
currency.
15.1 Subject to Clause 18.2 below, while any obligations for payment of money of
the Obligors to the Agent and the Banks under the Finance Documents remain
outstanding, none of the Subordinated Creditors shall, without first
obtaining the written consent of the Agent (acting on the instructions of
all of the Banks), accelerate the maturity of or claim payment whether
directly or by set-off, lien, counterclaim or otherwise of any Subordinated
Liability which may be or has become due to the Subordinated Creditors by
the Obligors for any reason and on whatever basis.
16.2 Each Subordinated Creditor hereby agrees that if, nothwithstanding the
provisions of Clause 16.1, that Subordinated Creditor receives any amount
from the Group, or from any liquidator, administrator, administrative
receiver, receiver, Examiner or other officer, in respect of the
Subordinated Liabilities, that Subordinated Creditor shall forthwith pay to
the Agent such amount which shall have been received by it and until such
payment shall hold such amount on trust for the Agent and the Banks. Each
Subordinated Creditor may prove in a liquidation or winding up of any
member of the Group in respect of all Indebtedness owed to such
Subordinated Creditor by such member provided that all amounts recovered in
-------------
respect of the Subordinated Liabilities are applied on behalf of the Agent
and the Banks in accordance with this Clause 16.2.
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16.3 Subject to the following provisions of this Clause 16.3, none of the
Subordinated Creditors shall have a right of contribution, indemnity or
other claim whatsoever against the Agent, the Banks or any member of this
Group by virtue of any payment made by any of them pursuant to this Deed.
Any payment made by the Subordinated Creditors to the Agent pursuant to
Clause 16.2 shall not operate to discharge indebtedness of the Obligors to
the Agent and the Banks under the Finance Documents and in the event that
payments amounting to the total accrued and contingent indebtedness of the
Obligors to the Agent and the Banks are made to the Agent and the Banks
pursuant to this Deed and the Finance Documents, each Subordinated Creditor
shall be subrogated to the rights and interest of the Agent and the Banks
in the Finance Documents until the principal and interest on the
Subordinated Liabilities shall be paid in full.
16.4 Each Subordinated Creditor undertakes to the Agent and the Banks that until
all obligations for payment of money of the Obligors to the Agent and the
Banks under the Finance Documents are discharged in full;
(a) it shall maintain/ensure that its Subsidiaries maintain the same
influence over the Parent as it has at the date hereof and shall
maintain at least the percentage of ownership of the Parent as it has
at the date hereof provided however that: if, with the consent of the
-------- -------
Agent (acting on the instructions of the Instructing Group) such
consent not to be unreasonably withheld, it ceases to maintain such
influence and/or ownership it shall use its best endeavours to ensure
that the persons to whom it transfers influence and/or ownership
enter into an undertaking in the same form as this undertaking in
favour of the Agent and the Banks;
(b) it shall not exercise any of the rights attaching to its shares in
the Parent or do any thing pursuant to the Shareholders' Documents to
which it is a party which would be likely to be prejudicial to the
interests of the Agent and the Banks;
(c) it shall not, and shall not procure that any other person shall,
petition for or vote in favour of any resolution for or take any
other action which is intended to lead to, the appointment of a
liquidator, an Examiner or a receiver to, or the winding up or
dissolution of, any member of the Group; and
(d) it shall notify the Agent of the occurrence of a deadlock under
clause 8.04 of the Shareholders Agreement and shall furnish to the
Agent a certified copy of all statements issued under clause 8.04(b)
of the Shareholders Agreement provided that notice received by the
-------- ----
Agent from one Subordinated Creditor hereunder shall in this instance
satisfy the obligations of each Subordinated Creditor.
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16.5 The Agent and the Banks agree with the Subordinated Creditors that if all
obligations for payment of money of the Obligors to the Agents and the
Banks under the Finance Documents are discharged in full the Subordinated
Creditors shall be released and discharged from their respective
obligations under Clause 16.
16.6 If any act on the faith of which any such release as is referred to in
Clause 15.5 was given which served as the basis for such release is
subsequently avoided by or in pursuance of any provision of law or ecuity
such release shall be (and be deemed always to have been) void and the
provisions hereof shall be (and be deemed always to have been) in full
force and affect.
16.7 This Deed shall not be discharged nor shall the Guarantor's liability be
affected by any reduction occurring in, or other arrangement being made
relating to the Borrowers' liabilities or any of them to the Agent or the
Banks as a result of any arrangement or composition, made pursuant to any
of the provisions of the Companies (Amendment) Act, 1980 or any analogous
provisions in any other jurisdiction or made pursuant to any proceedings
or actions whatsoever and whether or not following the appointment of an
administrator, administrative receiver, trustee, liquidator receiver or
Examiner or any similar officer to the Borrowers or over all or a
substantial part of the assets (as the case may be) of the Borrowers and
the Guarantors hereby agree with and to the Agent and the Banks that the
amount receivable by the Agent and the Banks from the Guarantors hereunder
will be and will continue to be the full amount which would have been
recoverable by the Banks from the Borrowers in respect of the Borrowers'
liabilities and any of them had no such arrangement or composition as
aforesaid been entered into.
17. The rights of the Agent and the Banks hereunder are cumulative and in
addition to each of the Agent's and each Bank's rights under general law.
Such rights (whether arising hereunder or under general law) shall not be
capable of being waived or varied otherwise then by an express waiver or
variation in writing and in particular any failure to exercise or any
delay in exercising any of such rights shall not operate as a waiver or
variation of that or any other such right; any detective or partial
exercise of any of such rights shall not preclude any other or further
exercise of that or any other such right and no act or course of conduct
or negotiation on the part of the Agent and any Bank shall in any way
preclude the Agent or any Bank from exercising any such right or
constitute a suspension or variation of any such right.
18. If any of the provisions of this Deed become invalid, illegal or
unenforceable in any respect under any law, the validity, legality and
enforceability of the remaining provisions shall not in any way be
effected or impaired thereby.
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19.1 The liability of each Subordinated Creditor shall be several and every
agreement, undertaking, covenant, representation and warranty on the
part of each Subordinated Creditor shall be construed accordingly. If
the whole or any part of this Deed be new or hereafter unenforceable
against one or more of the Subordinated Creditors for any reason
whatsoever or if this Deed is not executed by one or more of the
Subordinated Creditors, this Deed shall nevertheless be and remain fully
binding upon and enforceable against the other Subordinated Creditors.
19.2 The failure of a Subordinated Creditor to perform its obligations
hereunder shall not affect the obligations of any of the other
Subordinated Creditors towards the Agent and the Banks nor shall any
other Subordinated Creditor be liable for the failure by such
Subordinated Creditor to perform its obligations under this Deed.
20. Any Bank may assign or transfer any or all of its rights under this Deed
to any person to whom any assignment or transfer of a corresponding
portion of its rights or obligations under the Facilities Agreement is
made pursuant to Clause 38 of the Facilities Agreement.
21.1 This Deed shall be governed by and construed in accordance with the laws
of Ireland. For the benefit of the Agent and the Banks, each of the
Subordinated Creditors irrevocably agrees that the courts of Ireland are
to have jurisdiction to settle any disputes which may arise in relation
to any suit, legal action or proceedings in connection with the Deed
(together in this Clause 21 referred to as "Proceedings"). Each of the
Subordinated Creditors Irrevocably waives any objection on the grounds
of venue or forum non convenians or any similar grounds. Each of the
Subordinated Creditors shall at all times maintain an agent for service
of process in Ireland. Such agent shall be the Secretary of Princes
Holdings Limited Corporate House, Mungret Street, Limerick and any writ,
judgement or other notice of legal process shall be sufficiently served
on the Subordinated Creditor if delivered to such agent. The
Subordinated Creditor undertakes not to revoke the authority of such
agent and if for any reason such agent no longer serves as agent of the
Subordinated Creditor to receive service or process, the Subordinated
Creditor shall promptly appoint another agent and advise the Agent
thereof.
21.2 Nothing contained in this Clause 21 shall limit the right of the Agent
to take Proceedings against a Subordinated Creditor in any other court
of competent jurisdiction, nor shall the taking of Proceedings in one or
more jurisdictions preclude the taking of Proceedings in any other
jurisdiction.
22.1 Each communication to be made hereunder shall be made in writing but,
unless otherwise stated, may be made by facsimile or letter.
22.2 Any communication or document to be made or delivered by one person (the
"Sender") to another (the "Addressee") pursuant to this Deed shall
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(unless the Addressee has by fifteen days' prior written notice to the
Agent specified another address) be made or delivered to the Addressee
at the address hereinbefore specified or (as the case may be) specified
in the First Schedule and shall be deemed to have been made or delivered
when dispatched (in the case of any communication made by facsimile or
(in the case of any communication made by letter) when left at that
address or (as the case may be) two days after being deposited in the
post (postage prepaid) in an envelope addressed to the Addressee at the
address Provided that any communication or document to be made or
delivered to the Agent shall be effective only when received by the
Agent and then only if the same is expressly marked for the attention of
the office identified with the Agent's signature below (or such other
office as the Agent shall from time to time specify for this purpose).
23. For the purposes of clause 7.06 of the Shareholders Agreement each of
the Subordinated Creditors hereby consents to the Borrowers entering
into the Finance Documents to which they are a party and incurring the
obligations on their part therein contained.
24. This Deed may be signed in any number of counterparts, all of which
taker together shall constitute one and the same instrument. Any party
to this Deed may enter into this Deed by signing any such counterpart.
<PAGE>
FIRST SCHEDULE
<TABLE>
<CAPTION>
================================================================================
NAME Registered Office Several
/Principal Percentage
Place
of Business
- - --------------------------------------------------------------------------------
<S> <C> <C>
Independent Newspapers, FLC 1/2 Upper Hetch 52.63%
Street, Dublin 2,
Ireland
Tele-Communications International, 5619 DTC Parkway, 26.34%
Inc. Englewood,
Colorado 80111,
USA
United and Philips Communications Fred, Roeakestrat 21.03%
B.V. 123, 1076 EE
Amsterdam, the
Netherlands
================================================================================
</TABLE>
16
<PAGE>
IN WITNESS WHEREOF this Deed has been duly executed the day and year first above
written.
SIGNED SEALED AND DELIVERED
BY
as attorney of
INDEPENDENT NEWSPAPERS, PLC
in the presence of:
SIGNED SEALED AND DELIVERED
BY [SIGNATURE APPEARS HERE]
as attorney of
TELE-COMMUNICATIONS INTERNATIONAL INC.
in the presence of: [SIGNATURE APPEARS HERE]
5916 DTC Parkway
Englewood, CO 80111
SIGNED SEALED AND DELIVERED
BY
as attorney of
UNITED AND PHILIPS COMMUNICATIONS B.V
in the presence of:
SIGNED SEALED AND DELIVERED
BY
as attorney of
UII IRELAND LIMITED
in the presence of:
We hereby accept, and agree to, the terms of the above Deed as Agent for and on
behalf of ourselves and the Banks:
Duly authorized for and on behalf of
THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND
Office:
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 29,898
<SECURITIES> 0
<RECEIVABLES> 30,744
<ALLOWANCES> 0
<INVENTORY> 64,284
<CURRENT-ASSETS> 0
<PP&E> 190,111
<DEPRECIATION> 48,967
<TOTAL-ASSETS> 1,740,882
<CURRENT-LIABILITIES> 0
<BONDS> 416,641
0
0
<COMMON> 118,661
<OTHER-SE> 758,334
<TOTAL-LIABILITY-AND-EQUITY> 1,740,882
<SALES> 0
<TOTAL-REVENUES> 219,873
<CGS> 0
<TOTAL-COSTS> 184,163
<OTHER-EXPENSES> 39,014
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,315
<INCOME-PRETAX> (144,292)
<INCOME-TAX> (42,435)
<INCOME-CONTINUING> (101,857)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (101,857)
<EPS-PRIMARY> (.86)
<EPS-DILUTED> (.86)
</TABLE>
