-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DKwRAdrA6PSN4/U97Mk/rHK7eqXyiefCYNriwXYxa8rH8O0o2wDu8U1JwexRQebl qvnALmMcKsu492+VFgVHCw== 0001014909-01-500066.txt : 20010516 0001014909-01-500066.hdr.sgml : 20010516 ACCESSION NUMBER: 0001014909-01-500066 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UIH AUSTRALIA PACIFIC INC CENTRAL INDEX KEY: 0001015611 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 841341958 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-05017 FILM NUMBER: 1635569 BUSINESS ADDRESS: STREET 1: 4643 SOUTH ULSTER ST STREET 2: SUITE 1300 CITY: DENVER STATE: CO ZIP: 80237 BUSINESS PHONE: 3037704001 10-Q 1 f10q_mar2001uap.txt FORM 10-Q - 3/31/01 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 2001 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 No. 333-05017 United Australia/Pacific, Inc. (Exact name of Registrant as specified in its charter) State of Colorado 84-1341958 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4643 South Ulster Street, #1300 Denver, Colorado 80237 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (303) 770-4001 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The Company has no publicly-traded shares of capital stock. As of May 7, 2001 the Company had 28,460,926 shares of common stock outstanding.
UNITED AUSTRALIA/PACIFIC, INC. TABLE OF CONTENTS Page Number ------ PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2001 (Unaudited) and December 31, 2000............. 2 Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three Months Ended March 31, 2001 and 2000 (Unaudited)....................................... 3 Condensed Consolidated Statement of Stockholders' Deficit for the Three Months Ended March 31, 2001 (Unaudited).......................................................................................... 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 (Unaudited).................................................................................... 5 Notes to Condensed Consolidated Financial Statements (Unaudited)........................................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk.......................................... 18 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.................................................................... 20
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UNITED AUSTRALIA/PACIFIC, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value and number of shares) (Unaudited) As of ------------------------- March 31, December 31, 2001 2000 ----------- ------------ ASSETS Current assets Cash and cash equivalents............................................................................. $ 5,769 $ 5,617 Short-term liquid investments......................................................................... 55,019 101,477 Subscriber receivables, net of allowance for doubtful accounts of $1,175 and $1,039, respectively..... 7,027 8,969 Related party receivables............................................................................. 2,464 3,095 Other receivables..................................................................................... 1,535 2,255 Inventory............................................................................................. 8,931 12,151 Prepaids and other current assets..................................................................... 9,210 10,697 -------- -------- Total current assets.............................................................................. 89,955 144,261 Investments in affiliates, accounted for under the equity method, net................................... 60,015 64,991 Property, plant and equipment, net of accumulated depreciation of $276,753 and $294,935, respectively........................................................................................... 95,145 124,479 Goodwill and other intangible assets, net of accumulated amortization of $21,354 and $20,088, respectively........................................................................................... 226,836 254,387 Deferred financing costs, net of accumulated amortization of $7,057 and $6,826, respectively............ 9,658 10,846 Other non-current assets, net........................................................................... 17 287 -------- -------- Total assets...................................................................................... $481,626 $599,251 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accounts payable...................................................................................... $ 1,564 $ 5,554 Accrued liabilities................................................................................... 52,216 58,088 Current portion of due to parent...................................................................... 17,970 18,583 Current portion of other long-term debt............................................................... 1,127 1,366 -------- -------- Total current liabilities......................................................................... 72,877 83,591 Due to parent........................................................................................... 7,008 8,068 Senior discount notes................................................................................... 482,472 466,241 Other long-term debt.................................................................................... 196,884 226,894 Deferred taxes.......................................................................................... - 67 Other long-term liabilities............................................................................. 525 444 -------- -------- Total liabilities................................................................................. 759,766 785,305 -------- -------- Minority interests in subsidiaries...................................................................... 46,274 68,807 -------- -------- Stockholders' deficit Preferred stock, $0 01 par value, 1,000,000 shares authorized, none issued and outstanding............ - - Common stock, $0 01 par value, 30,000,000 shares authorized, 28,460,926 and 22,961,728 shares issued and outstanding, respectively.......................................................... 285 230 Additional paid-in capital............................................................................ 370,996 371,498 Deferred compensation................................................................................. (6,644) (8,904) Accumulated deficit................................................................................... (618,686) (562,050) Other cumulative comprehensive loss................................................................... (70,365) (55,635) -------- -------- Total stockholders' deficit....................................................................... (324,414) (254,861) -------- -------- Total liabilities and stockholders' deficit....................................................... $481,626 $599,251 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements.
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UNITED AUSTRALIA/PACIFIC, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (In thousands, except per share amounts and number of shares) (Unaudited) For the Three Months Ended March 31, ----------------------------- 2001 2000 ------------- ------------- Revenue.................................................................................... $ 45,082 $ 46,344 Operating expense.......................................................................... (41,395) (35,017) Selling, general and administrative expense, including management fees from related party of $855 and $836, respectively.............................................. (18,151) (18,095) Depreciation and amortization.............................................................. (30,673) (30,027) ---------- ---------- Operating loss....................................................................... (45,137) (36,795) Gain on issuance of common equity securities by subsidiary................................. - 61,172 Interest income............................................................................ 1,310 3,148 Interest expense........................................................................... (23,059) (19,299) Foreign currency exchange loss............................................................. (2,517) (266) Gain on sale of investment in affiliate.................................................... 2,725 - Other income, net.......................................................................... - 84 ---------- ---------- (Loss) income before income taxes and other items.................................... (66,678) 8,044 Income tax expense......................................................................... - (75) Minority interests in subsidiaries......................................................... 15,674 12,059 Share in results of affiliates, net........................................................ (5,632) (581) ---------- ---------- Net (loss) income.................................................................... $ (56,636) $ 19,447 ========== ========== Foreign currency translation adjustments................................................... $ (15,257) $ (15,240) Cumulative effect of change in accounting principle........................................ 527 - ---------- ---------- Comprehensive (loss) income.......................................................... $ (71,366) $ 4,207 ========== ========== Net (loss) income per common share: Basic net (loss) income.............................................................. $ (1.99) $ 1.09 ========== ========== Diluted net (loss) income............................................................ $ (1.99) $ 1.06 ========== ========== Weighted-average number of common shares outstanding: Basic................................................................................ 28,399,824 17,810,299 ========== ========== Diluted.............................................................................. 28,399,824 18,298,249 ========== ========== The accompanying notes are an integral part of these condensed consolidated financial statements.
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UNITED AUSTRALIA/PACIFIC, INC. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (In thousands, except number of shares) (Unaudited) Other Common Stock Additional Cumulative -------------------- Paid-In Deferred Accumulated Comprehensive Shares Amount Capital Compensation Deficit Loss(1) Total ---------- -------- ---------- ------------ ----------- ------------- --------- Balances, December 31, 2000............. 22,961,728 $230 $371,498 $(8,904) $(562,050) $(55,635) $(254,861) Issuance of capital stock to parent for capital contributions....... 5,499,198 55 (55) - - - - Cash contributions from parent.......... - - 295 - - - 295 Equity transactions of subsidiary....... - - (194) 194 - - - Amortization of deferred compensation... - - (548) 2,066 - - 1,518 Net loss................................ - - - - (56,636) - (56,636) Cumulative effect of change in accounting principle................... - - - - - 527 527 Change in cumulative translation adjustments............................ - - - - - (15,257) (15,257) ---------- ---- --------- ------- --------- -------- --------- Balances, March 31, 2001................ 28,460,926 $285 $370,996 $(6,644) $(618,686) $(70,365) $(324,414) ========== ==== ========= ======= ========= ======== ========= (1) As of March 31, 2001 and December 31, 2000, Other Cumulative Comprehensive Loss represents foreign currency translation adjustments of $(70,892) and $(55,635) and the cumulative effect of a change in accounting principle of $527 and nil, respectively. The accompanying notes are an integral part of these condensed consolidated financial statements.
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UNITED AUSTRALIA/PACIFIC, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) For the Three Months Ended March 31, ---------------------------------- 2001 2000 ------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income.......................................................................... $(56,636) $ 19,447 Adjustments to reconcile net (loss) income to net cash flows from operating activities: Gain on issuance of common equity securities by subsidiary............................... - (61,172) Share in results of affiliates, net...................................................... 5,632 (1,508) Minority interests in subsidiaries....................................................... (15,674) (12,059) Depreciation and amortization............................................................ 30,673 30,027 Stock-based compensation expense......................................................... 2,066 2,459 Gain on sale of investment in affiliate.................................................. (2,725) - Accretion of interest on senior notes and amortization of deferred financing costs....... 17,041 15,010 Loss on derivative securities............................................................ 1,260 - Decrease (increase) in receivables, net.................................................. 1,927 (1,303) Increase in other assets................................................................. (2) (2,210) Increase in accounts payable, accrued liabilities and other.............................. 1,239 1,373 -------- -------- Net cash flows from operating activities............................................. (15,199) (9,936) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of short-term liquid investments.................................................. (197,901) (489,594) Proceeds from sale of short-term liquid investments........................................ 233,990 507,753 Investments in affiliates and other investments............................................ (12,681) (2,578) Distribution received from affiliated company.............................................. 3,170 1,576 Capital expenditures....................................................................... (9,244) (29,201) Spectrum license fees...................................................................... (1,429) - Other...................................................................................... 561 (387) -------- -------- Net cash flows from investing activities............................................. 16,466 (12,431) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Cash contributed from parent............................................................... 295 23 Issuance of common stock in connection with subsidiary stock option plan................... - 537 Proceeds from borrowings on the Austar Bank Facility and Saturn Bank Facility.............. - 18,162 Deferred financing costs and other......................................................... (287) - Other borrowings, net...................................................................... - 3,113 -------- -------- Net cash flows from financing activities............................................. 8 21,835 -------- -------- EFFECT OF EXCHANGE RATES ON CASH........................................................... (1,123) (428) -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................................... 152 (960) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................................. 5,617 6,028 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD................................................... $ 5,769 $ 5,068 ======== ======== SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for interest................................................................... $ 3,541 $ 2,027 ======== ======== Cash received for interest............................................................... $ 1,393 $ 6,018 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements.
5 UNITED AUSTRALIA/PACIFIC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2001 (Unaudited) 1. ORGANIZATION AND NATURE OF OPERATIONS United Australia/Pacific, Inc. (the "Company" or "UAP") a majority-owned subsidiary of United Asia/Pacific Communications, Inc. ("Asia/Pacific"), which is in turn an indirect wholly-owned subsidiary of UnitedGlobalCom, Inc. ("United"), provides video, telephone and Internet access services, which the Company refers to as "Distribution", in Australia and New Zealand and related and other media services in Australia. The following chart presents a summary of the Company's ownership structure and its significant investments in telecommunications as of March 31, 2001. *********************************************************** * * * United * * * *********************************************************** * 100% * *********************************************************** * * * United International Properties, Inc. ("UIPI") * * * *********************************************************** * 100% * *********************************************************** * * * Asia/Pacific(1) * * * *********************************************************** * 100% * *********************************************************** * * * UAP * * * *********************************************************** * 100% * *********************************************************** * * * United Austar, Inc.(2) * * * *********************************************************** * 72.8% * *********************************************************** * Austar United Communications Limited * * ("Austar United") * * * *********************************************************** * * *********************************************************** *Distribution * *------------ * * Australia: * * Austar 100.0% * * Austar United Broadband 100.0% * * New Zealand: * * TelstraSaturn 50.0% * * * *Content * *------- * * Australia: * * XYZ Entertainment 50.0% * *********************************************************** (1) Asia/Pacific holds a direct ownership interest in Austar United of 0.6%. (2) United Austar, Inc. is a holding company for UAP's investment in Austar United Communications Limited. 6 UNITED AUSTRALIA/PACIFIC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Certain prior year amounts have been reclassified to conform with the current year presentation. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The accompanying interim condensed consolidated financial statements include the accounts of the Company and all subsidiaries where it exercises a controlling financial interest through the ownership of a majority voting interest. The Company discontinued consolidating the results of its New Zealand subsidiary, Saturn, effective April 1, 2000, due to the formation of TelstraSaturn, a 50/50 joint venture which is accounted for under the equity method. NEW ACCOUNTING PRINCIPLE Effective January 1, 2001, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which requires that companies recognize all derivatives as either assets or liabilities in the balance sheet at fair value. Under SFAS 133, accounting for changes in the fair market value of a derivative during the reporting period depends on its intended use and designation. Austar United has interest rate swaps to manage interest rate exposure on the Austar Bank Facility that qualify as derivatives under SFAS 133. The impact of recording these derivative securities at fair market value upon adoption was $0.5 million, which was recorded in the condensed consolidated balance sheet in other cumulative comprehensive loss as a cumulative effect of a change in accounting principle. 7 UNITED AUSTRALIA/PACIFIC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) RISKS AND UNCERTAINTIES Austar United has incurred operating losses and negative cash flows from operations which have been driven by the continuing development efforts including the introduction of new services such as telephone and Internet. Additionally, substantial capital expenditures have been required to deploy these services and to acquire businesses. Management expects Austar United to incur operating losses in 2001 and 2002 primarily as a result of the continued introduction of these new services which are in the early stages of deployment. Their business plan calls for substantial growth in the number of subscribers that will use these new services. This growth requires the availability of capital resources that are sufficient to fund expected capital expenditures. Growth in subscribers will also be required in order for Austar United to achieve consolidated operating profitability and positive operating cash flows. Management believes that the entity can achieve the anticipated growth in subscribers and that the required capital resources will be available to fund expected capital expenditures and operating losses. However, if such subscriber growth is not achieved, management believes access to sources of capital will be sufficient to satisfy future cash needs. Management's estimates of the cash flows generated by these new services and the capital resources needed and available to complete their deployment could change, and such change could differ materially from the estimates used to evaluate the Company's ability to realize its investments. 8 UNITED AUSTRALIA/PACIFIC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. INVESTMENTS IN AFFILIATES
As of March 31, 2001 ------------------------------------------------------------------------------ Cumulative Cumulative Cumulative Dividends Share in Results Translation Contributions Received of Affiliates Adjustments Total ------------- ---------- ---------------- ----------- ---------- (In thousands) TelstraSaturn................. $ 79,310 $ - $(31,894) $(10,314) $37,102 XYZ Entertainment............. 44,306 (8,634) (9,364) (4,713) 21,595 Other......................... 2,860 - (1,006) (536) 1,318 -------- -------- -------- -------- ------- Total.................... $126,476 $(8,634) $(42,264) $(15,563) $60,015 ======== ======== ======== ======== ======= As of December 31, 2000 ------------------------------------------------------------------------------ Cumulative Cumulative Cumulative Dividends Share in Results Translation Contributions Received of Affiliates Adjustments Total ------------- ---------- ---------------- ------------ ---------- (In thousands) TelstraSaturn................. $ 66,629 $ - $(24,503) $ (5,007) $37,119 XYZ Entertainment............. 44,306 (5,464) (11,515) (1,387) 25,940 Other......................... 2,860 - (614) (314) 1,932 --------- ----------- -------- -------- ------- Total.................... $113,795 $(5,464) $(36,632) $ (6,708) $64,991 ========= =========== ========= ======== =======
4. PROPERTY, PLANT AND EQUIPMENT
As of ---------------------------------- March 31, December 31, 2001 2000 --------------- ------------- (In thousands) Subscriber premises equipment and converters........................ $278,097 $309,200 MMDS distribution facilities........................................ 50,897 58,035 Cable distribution networks......................................... 2,309 2,629 Office equipment, furniture and fixtures............................ 17,597 18,748 Buildings and leasehold improvements................................ 4,938 5,670 Other............................................................... 18,060 25,132 -------- -------- 371,898 419,414 Accumulated depreciation.......................................... (276,753) (294,935) -------- -------- Net property, plant and equipment................................. $ 95,145 $124,479 ======== ========
5. GOODWILL AND OTHER INTANGIBLE ASSETS
As of ---------------------------------- March 31, December 31, 2001 2000 --------------- ------------- (In thousands) Goodwill............................................................ $148,418 $159,920 License fees and other intangible assets............................ 99,772 114,555 -------- -------- 248,190 274,475 Accumulated amortization ......................................... (21,354) (20,088) -------- -------- Net goodwill and other intangible assets.......................... $226,836 $254,387 ======== ========
9 UNITED AUSTRALIA/PACIFIC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. SENIOR DISCOUNT NOTES
As of ---------------------------------- March 31, December 31, 2001 2000 --------------- ------------- (In thousands) May 1996 Notes....................................................... $436,161 $421,372 September 1997 Notes................................................. 46,311 44,869 -------- -------- Total senior discount notes........................................ $482,472 $466,241 ======== ========
THE NOTES The 14.0% senior discount notes were issued by the Company in May 1996 and September 1997 at a discount from their principal amount of $488.0 million, resulting in gross proceeds of $255.0 million. On and after May 15, 2001, cash interest will accrue and will be payable semi-annually on each May 15 and November 15, commencing November 15, 2001. The Notes are due May 15, 2006. Effective May 16, 1997, the interest rate on these notes increased by an additional 0.75% per annum to 14.75%. On October 14, 1998, the Company consummated an equity sale resulting in gross proceeds to the Company of $70.0 million, reducing the interest rate from 14.75% to 14.0% per annum. Due to the increase in the interest rate effective May 16, 1997 until consummation of the equity sale, the Notes will accrete to a principal amount of $492.9 million on May 15, 2001, the date cash interest begins to accrue. In November 1997, pursuant to the terms of the indentures governing the Notes, the Company issued warrants to purchase 488,000 shares of its common stock. The warrants are exercisable through May 15, 2006 at a price of $10.45 per share, which would result in gross proceeds of $5.1 million upon exercise. The warrants were valued at $3.7 million and have been reflected as an additional discount to the Notes on a pro rata basis and as an increase in additional paid-in capital. Warrants to acquire 50 shares were exercised November 24, 1999. 7. OTHER LONG-TERM DEBT
As of ---------------------------------- March 31, December 31, 2001 2000 --------------- ------------- (In thousands) Austar Bank Facility................................................ $194,137 $223,501 Capital leases and other ........................................... 3,874 4,759 -------- -------- 198,011 228,260 Less current portion ............................................. (1,127) (1,366) -------- -------- Total other long-term debt ....................................... $196,884 $226,894 ======== ========
AUSTAR BANK FACILITY On April 23, 1999, Austar executed an A$400.0 syndicated senior secured debt facility to refinance the existing bank facility and to fund Austar's subscriber acquisition and working capital needs. The Austar Bank Facility consists of two sub-facilities: (i) A$200.0 million amortizing term facility ("Tranche 1") and (ii) A$200.0 million cash advance facility ("Tranche 2"). Tranche 1 was used to refinance the existing bank facility, and Tranche 2 is available upon the contribution of additional equity on a 2:1 debt-to-equity basis. The Austar Bank Facility bears interest at the professional market rate in Australia plus a margin ranging from 1.75% to 2.25% based upon certain debt to cash flow ratios. The Austar Bank Facility is fully repayable pursuant to an amortization schedule beginning December 31, 2002 and ending March 31, 2006. As of December 31, 2000 and March 31, 2001, Austar has fully drawn the facility. OTHER FINANCIAL INSTRUMENTS Interest rate swap agreements are used by the Company from time to time, to manage interest rate risk on its floating-rate debt facilities. Interest rate 10 UNITED AUSTRALIA/PACIFIC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) swaps are entered into depending on the Company's assessment of the market, and generally are used to convert floating-rate debt to fixed-rate debt. Interest differentials paid or received under these swap agreements are recognized over the life of the contracts as adjustments to the effective yield of the underlying debt, and related amounts payable to, or receivable from, the counterparties are included in the consolidated balance sheet. Currently, the Company has four interest rate swaps to manage interest rate exposure on the Austar Bank Facility. Two of these swap agreements expire in 2002 and effectively convert an aggregate principal amount of A$50.0 ($24.3) million of variable-rate, long-term debt into fixed-rate borrowings. The other two swap agreements expire in 2004 and convert an aggregate principal amount of A$100.0 ($48.5) million of variable-rate, long-term debt into fixed-rate borrowings. For the three months ended March 31, 2001, the weighted-average fixed rate under these agreements was 5.7% compared to the weighted-average variable rate of 5.3%. Fair values of the interest rate swap agreements are based on the estimated amounts that the Company would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates and the current creditworthiness of the counterparties. The total fair value of the interest rate swaps was $(0.5) and $0.7 million as of March 31, 2001 and December 31, 2000, respectively. 8. RELATED PARTY TRANSACTIONs The Company and Asia/Pacific are parties to a 20-year management services agreement (the "Management Agreement"), pursuant to which Asia/Pacific performs certain administrative, accounting, financial reporting and other services for the Company in exchange for a fee of approximately $1.0 million per year. In addition, the Company reimburses Asia/Pacific or United for any out-of-pocket expenses including travel, lodging and entertainment expenses incurred on behalf of the Company. For the three months ended March 31, 2001 and 2000, the Company recorded $0.3 million and $0.2 million, respectively, under this agreement. Effective June 24, 1999, United and Austar United executed a management services agreement pursuant to which United performs certain technical and consulting services in return for a monthly management fee of $0.2 million. This amount may be adjusted before January 1 of each year by the board of directors of United but may not increase by more than 15.0% in any one year. This agreement also requires that Austar United reimburse United for all direct and other expenses reasonably incurred by United on behalf of Austar United. The agreement will continue through December 31, 2010. Prior to June 1999, Austar was a party to a technical assistance agreement with Asia/Pacific whereby Austar paid Asia/Pacific a fee based on its gross revenue. Austar also reimbursed United for certain direct costs incurred by United, including salaries and benefits relating to senior management positions, pursuant to the terms of the technical assistance agreement. Effective June 24, 1999, the rights under this agreement were assigned to Austar United as part of the restructuring associated with the Austar United initial public offering. Included in the amount due to parent is the following:
As of ---------------------------------- March 31, December 31, 2001 2000 --------------- ------------- (In thousands) Management fee payable to Asia/Pacific.............................. $ 3,227 $ 2,972 Austar United technical assistance agreement obligations to United......................................................... 4,622 5,950 Austar United management fees payable to United..................... 4,200 3,600 Austar deferred management fees payable to Asia/Pacific............. 7,008 8,068 Austar technical assistance agreement obligations and other payables to Asia/Pacific and United............................... 5,921 6,061 ------- ------- 24,978 26,651 Less current portion.......................................... (17,970) (18,583) ------- ------- Total due to parent........................................... $ 7,008 $ 8,068 ======= =======
11 UNITED AUSTRALIA/PACIFIC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. SEGMENT INFORMATION
As of -------------------------- March 31, December 31, For the Three Months Ended March 31, 2001 2001 2000 ------------------------------------------------------------------------------ ------------ ------------ Total Total Video Voice Internet Content Other Total Assets Assets ---------- ---------- ------------ ------------ ----------- ------------ ------------ ----------- (In thousands) Revenue: Australia............. $38,479 $ 873 $ 3,033 $ 2,590 $ 107 $ 45,082 $403,424 $520,693 Corporate and other... - - - - - - 78,202 78,558 ------- ------ ------- ------- ------- -------- -------- -------- Total............... $38,479 $ 873 $ 3,033 $ 2,590 $ 107 $ 45,082 $481,626 $599,251 ======= ====== ======= ======= ======= ======== ======== ======== Adjusted EBITDA: (1) Australia............. $(3,369) $ (742) (5,465) $(1,536) $ (970) $(12,082) Corporate and other... - - - - (316) (316) ------- ------ ------- -------- ------- -------- Total............... $(3,369) $ (742) $(5,465) $(1,536) $(1,286) $(12,398) ======= ====== ======== ======= ======= ======== For the Three Months Ended March 31, 2000 ------------------------------------------------------------------------------ Video Voice Internet Content Other Total ---------- ---------- ------------ ----------- ----------- ------------ (In thousands) Revenue: Australia............. $40,849 $ - $ 8 $ - $ 599 $ 41,456 New Zealand........... 844 3,166 878 - - 4,888 Corporate and other... - - - - - ------- ------ ------- ------- ------- -------- Total............... $41,693 $3,166 $ 886 $ - $ 599 $ 46,344 ======= ====== ======= ======= ======= ======== Adjusted EBITDA: (1) Australia............. $ 1,192 $ (37) $(1,721) $ - $(1,777) $ (2,343) New Zealand........... (253) (357) 248 - (1,344) (1,706) Corporate and other... - - - - (260) (260) ------- ------ ------- ------- -------- -------- Total............... $ 939 $ (394) $(1,473) $ - $(3,381) $ (4,309) ======= ====== ======= ======= ======= ========
The Company's consolidated Adjusted EBITDA reconciles to the condensed consolidated statements of operations and comprehensive (loss) income as follows:
For the Three Months Ended March 31, ---------------------------------- 2001 2000 --------------- ------------- (In thousands) Operating loss ..................................................... $(45,137) $(36,795) Depreciation and amortization ...................................... 30,673 30,027 Non-cash stock-based compensation expense .......................... 2,066 2,459 -------- -------- Consolidated Adjusted EBITDA (1) ................................. $(12,398) $ (4,309) ======== ========
- ---------------- (1) Adjusted EBITDA represents net operating earnings before depreciation, amortization and stock-based compensation charges. Stock-based compensation charges are non-cash and result from variable plan accounting for the Austar United stock option plan. Industry analysts generally consider Adjusted EBITDA to be a helpful way to measure the performance of cable television operations and communications companies. Adjusted EBITDA should not, however, be considered a replacement for net income, cash flows or for any other measure of performance or liquidity under generally accepted accounting principles, or as an indicator of a company's operating performance. The presentation of Adjusted EBITDA may not be comparable to statistics with a similar name reported by other companies. Not all companies and analysts calculate EBITDA in the same manner. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. These forward-looking statements may include, among other things, statements concerning our plans, objectives and future economic prospects, expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from what we say or imply with such forward-looking statements. These factors include, among other things, changes in television viewing preferences and habits by our subscribers and potential subscribers, their acceptance of new technology, programming alternatives and new video services we may offer. They also include subscribers' acceptance of our newer telephone and Internet access services, our ability to manage and grow our newer telephone and Internet access services, our ability to secure adequate capital to fund other system growth and development and any acquisitions, risks inherent in investment and operations in foreign countries, changes in government regulation and changes in the nature of key strategic relationships with joint venturers. These forward-looking statements apply only as of the time of this report, and we have no obligation or plans to provide updates or revisions to these forward-looking statements or any other changes in events, conditions or circumstances on which these statements are based. The following discussion and analysis of financial condition and results of operations cover the three months ended March 31, 2001 and 2000 and should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere herein. These unaudited condensed consolidated financial statements provide additional information regarding our financial activities and condition. SUMMARY OPERATING DATA
As of March 31, 2001 ---------------------------------------------------------------------------------- Homes in Two-way UAP System Service Homes Homes Basic Basic Ownership Ownership Area Passed Passed Subscribers Penetration --------- --------- ----------- ---------- ---------- ----------- ----------- Video: Austar........................ 72.8% 100.0% 2,085,000 2,083,100 1,149,600 426,700 20.5% TelstraSaturn................. 36.4% 50.0% 136,500 107,000 107,000 22,100 20.7% --------- --------- --------- ------- Total.................... 2,221,500 2,190,100 1,256,600 448,800 ========= ========= ========= ======= Telephone Subscribers Lines UAP System Serviceable ---------------------- ---------------------- Ownership Ownership Homes Residential Business Residential Business --------- --------- ----------- ----------- ---------- ----------- ---------- Voice: TelstraSaturn................. 36.4% 50.0% 115,800 34,100 1,600 40,000 4,800 Austar United Broadband....... 72.8% 100.0% - 7,400 - 7,400 - --------- --------- --------- ------- ----- Total.................... 115,800 41,500 1,600 47,400 4,800 ========= ========= ========= ======= ===== Internet UAP System Serviceable Ownership Ownership Homes Subscribers ---------- --------- ----------- ----------- Internet: Austar United Broadband....... 72.8% 100.0% 1,149,600 84,200 TelstraSaturn................. 36.4% 50.0% 115,800 49,300 --------- --------- Total.................... 1,265,400 133,500 ========= ========= UAP System Ownership Ownership Subscribers --------- --------- ----------- Content: XYZ Entertainment............. 36.4% 50.0% 6,656,500 =========
13
As of March 31, 2000 ---------------------------------------------------------------------------------- Homes in Two-way UAP System Service Homes Homes Basic Basic Ownership Ownership Area Passed Passed Subscribers Penetration --------- --------- ----------- ---------- ---------- ----------- ----------- Video: Austar........................ 66.3% 100.0% 2,085,000 2,083,100 - 389,800 18.7% Saturn........................ 66.3% 100.0% 115,500 87,800 87,800 17,800 20.3% --------- --------- ------ ------- Total.................... 2,200,500 2,170,900 87,800 407,600 ========= ========= ====== ======= Telephone Subscribers Lines UAP System Serviceable ---------------------- ---------------------- Ownership Ownership Homes Residential Business Residential Business --------- --------- ----------- ----------- ---------- ----------- ---------- Voice: Saturn........................ 66.3% 100.0% 95,400 25,200 1,200 29,600 2,900 Austar United Broadband....... 66.3% 100.0% - - - - - --------- --------- ------ ------- ----- Total.................... 95,400 25,200 1,200 29,600 2,900 ========= ========= ====== ======= ===== Internet UAP System Serviceable Ownership Ownership Homes Subscribers ---------- --------- ----------- ----------- Internet: Saturn........................ 66.3% 100.0% 95,400 8,400 Austar United Broadband....... 66.3% 100.0% 79,400 - --------- --------- Total.................... 174,800 8,400 ========= ========= UAP System Ownership Ownership Subscribers --------- --------- ----------- Content: XYZ Entertainment............. 33.1% 50.0% 4,815,000 =========
14 RESULTS OF OPERATIONS REVENUE Revenue decreased $1.3 million for the three months ended March 31, 2001 compared to the three months ended March 31, 2000, the detail of which is as follows:
For the Three Months Ended March 31, ---------------------------------- 2001 2000 --------------- ------------- (In thousands) Video............................................................... $38,479 $41,693 Voice............................................................... 873 3,166 Internet............................................................ 3,033 886 Content............................................................. 2,590 - Other............................................................... 107 599 ------- ------- Total revenue................................................... $45,082 $46,344 ======= =======
Revenue for Austar United increased A$12.0 million, or 16.4%, from A$73.3 ($46.3) million for the three months ended March 31, 2000 to A$85.3 ($45.1) million for the three months ended March 31, 2001. Video revenue accounted for A$6.9 million of this increase, due to video subscriber growth (426,700 at March 31, 2001 compared to 389,800 at March 31, 2000) as well as growth in the average monthly revenue per video subscriber from A$53.42 ($33.60) for the three months ended March 31, 2000 to A$55.86 ($29.51) for the three months ended March 31, 2001. The remaining increase was due to the launch of wireless data services in late first quarter 2000 and revenue from TVSN, a national shopping channel in Australia and New Zealand, acquired in October 2000. On a U.S. dollar basis, revenue for Austar United decreased by $1.2 million due to the 19.1% devaluation of the Australian dollar to the U.S. dollar from period to period. ADJUSTED EBITDA(1) Adjusted EBITDA decreased $8.1 million for the three months ended March 31, 2001 compared to the three months ended March 31, 2000, the detail of which is as follows:
For the Three Months Ended March 31, ---------------------------------- 2001 2000 --------------- ------------- (In thousands) Video............................................................... $ (3,369) $ 939 Voice............................................................... (742) (394) Internet............................................................ (5,465) (1,473) Content............................................................. (1,536) - Corporate and other................................................. (1,286) (3,381) -------- ------- Total Adjusted EBITDA........................................ $(12,398) $(4,309) ======== =======
(1) Adjusted EBITDA represents net operating earnings before depreciation, amortization and stock-based compensation charges. Stock-based compensation charges are non-cash and result from variable plan accounting for the Austar United stock option plan. Industry analysts generally consider Adjusted EBITDA to be a helpful way to measure the performance of cable television operations and communications companies. Adjusted EBITDA should not, however, be considered a replacement for net income, cash flows or for any other measure of performance or liquidity under generally accepted accounting principles, or as an indicator of a company's operating performance. The presentation of Adjusted EBITDA may not be comparable to statistics with a similar name reported by other companies. Not all companies and analysts calculate EBITDA in the same manner. Adjusted EBITDA for Austar United decreased A$16.4 million, from negative A$6.5 ($4.0) million for the three months ended March 31, 2000 to negative A$22.9 ($12.1) million for the three months ended March 31, 2001. This decrease was primarily due to development and start-up costs associated with the launch of Austar United's Internet business, as well as increased programming costs payable in U.S. dollars as the Australian dollar continued to weaken during the quarter. 15 GAIN ON ISSUANCE OF COMMON EQUITY SECURITIES BY SUBSIDIARY In March 2000, Austar United sold 20.0 million shares in a second public offering on the Australian Stock Exchange, raising gross and net proceeds at A$8.50 ($5.20) per share of A$170.0 ($104.0) million and A$167.5 ($102.4) million, respectively. Based on the carrying value of our investment in Austar United as of March 29, 2000, we recognized a gain of $61.2 million from the resulting step-up in the carrying amount of our investment in Austar United. INTEREST EXPENSE Interest expense increased $3.8 million for the three months ended March 31, 2001 compared to the amounts for the corresponding period in the prior year. This increase was primarily due to increased interest expense related to the Austar Bank Facility due to a higher balance in 2001, as well as a higher effective interest rate as the value of Austar United's interest rate swaps decreased by $1.3 million during the three months ended March 31, 2001. MINORITY INTERESTS IN SUBSIDIARIES The minority interests' share of losses increased $3.4 million, from $12.1 million for the three months ended March 31, 2000 to $15.5 million for the three months ended March 31, 2001. Austar United's initial public offering in July 1999 and a second offering in March 2000 reduced our ownership interest in Austar United from 100% to a cumulative 72.8% as of March 31, 2001. For accounting purposes, we continue to consolidate 100% of the results of operations of Austar United, then deduct the minority interests' share of losses. SHARE IN RESULTS OF AFFILIATES
For the Three Months Ended March 31, ---------------------------------- March 31, December 31, 2001 2000 --------------- ------------- (In thousands) TelstraSaturn (1)................................................... $(7,391) $ - XYZ Entertainment................................................... 2,151 (615) Other............................................................... (392) 34 ------- ----- Total share in results of affiliates............................ $(5,632) $(581) ======= =====
(1) On April 6, 2000, Saturn merged with Telstra NZ to form TelstraSaturn, and we discontinued consolidating the results of operations of Saturn and returned to the equity method of accounting. 16 LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2001, we had invested approximately $534.9 million in our projects. These fundings do not include amounts contributed by shareholders other than us, proceeds from the Austar United initial public offering or operating subsidiary bank borrowings.
As of March 31, 2001 -------------- (In thousands) UAP (Parent Only) Sources of Fundings: Senior discount notes proceeds, net of offering costs.................. $244,652 Cash contributions and other equity from parent (1) (2)................ 284,253 Cash received for interest............................................. 7,133 -------- Total sources..................................................... 536,038 -------- Uses of Fundings: Austar United (1)...................................................... (418,811) Saturn................................................................. (44,612) XYZ Entertainment...................................................... (16,738) Other (2).............................................................. (55,011) -------- Total uses........................................................ (535,172) -------- Cash, end of period............................................... 866 -------- Austar United cash......................................................... 59,922 -------- Total consolidated cash and short-term liquid investments......... $ 60,788 ========
---------------- (1) Includes issuance/use of $29.8 million and $6.2 million in United convertible preferred stock in 1995 and 1998, respectively, to acquire additional economic interests in Australia. (2) Includes $17.2 million paid by United to purchase 2.0% of Asia/Pacific from Kiwi Cable in December 1999. As of March 31, 2001, our working capital and projected operating cash flow are not sufficient to fund our budgeted expenditures and pay interest on our indebtedness over the next year. In May 2001, United made an investment in one of our subsidiaries in exchange for shares of the subsidiary's stock. On May 2, 2001, this subsidiary used these funds to purchase 157.3 million newly issued common shares of Austar United, resulting in proceeds to Austar United of A$149.5 ($75.9) million. United expects to make an additional investment in our subsidiary to allow the subsidiary to purchase an additional 55.9 million shares under Austar United's rights offering by the end of May 2001. This purchase will result in additional proceeds to Austar United of approximately A$53.1 ($27.5) million. We believe the proceeds from this offering, in addition to Austar United's cash on hand, will be sufficient for Austar United's funding requirements through March 31, 2002. Our senior discount notes begin to accrue interest on a cash-pay basis May 15, 2001, with the first payment of $34.5 million due November 15, 2001. We are considering alternatives to payment of this interest, including refinancing of the Notes. If payment is necessary, we will seek funding from various sources, including United. There can be no assurance that we will be successful in obtaining all or a portion of our anticipated funding needs. STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2001. Cash and cash equivalents increased $0.2 million from $5.6 million as of December 31, 2000 to $5.8 million as of March 31, 2001. Principal sources of cash during the three months ended March 31, 2001 included net proceeds from the sale of short-term liquid investments of $36.1 million, a distribution from XYZ Entertainment of $3.2 million and other sources totaling $0.8 million. During the three months ended March 31, 2001, cash was used principally for capital expenditures of $9.2 million as Austar continued to expand its business into the data market, the funding of operating activities of $15.2 million, advances to TelstraSaturn totaling $12.7 million, and other uses totaling $2.8 million. THREE MONTHS ENDED MARCH 31, 2000. Cash and cash equivalents decreased $0.9 million from $6.0 million as of December 31, 1999 to $5.1 million as of March 31, 2000. Principal sources of cash during the three months ended March 31, 2000 included net proceeds from the sale of short-term liquid investments of $18.2 million, borrowings on the Austar and Saturn Bank Facilities totaling $18.2 17 million, other borrowings of $3.1 million, a distribution from XYZ Entertainment of $1.6 million and other sources totaling $0.5 million. During the three months ended March 31, 2000, cash was used principally for the purchase of property, plant and equipment totaling $29.2 million as Austar and Saturn continued to expand their businesses into the data market, the funding of operating activities of $9.9 million, investments in and advances to affiliates of $2.6 million and other uses totaling $0.8 million. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INVESTMENT PORTFOLIO We do not use derivative financial instruments in our non-trading investment portfolio. We place our cash and cash equivalent investments in highly liquid instruments that meet high credit quality standards with original maturities at the date of purchase of less than three months. We also place our short-term investments in liquid instruments that meet high credit quality standards with original maturities at the date of purchase of between three and twelve months. We also limit the amount of credit exposure to any one issue, issuer or type of instrument. These investments are subject to interest rate risk and will fall in value if market interest rates increase. We do not expect, however, any material loss with respect to our investment portfolio. IMPACT OF FOREIGN CURRENCY RATE CHANGES The following rates for the primary currency that impacts our financial statements are shown below, per one U.S. dollar. Australian Dollars ---------- For the three months ended March 31, 2001 ..................... 1.8927 For the three months ended March 31, 2000 ..................... 1.5898 Spot rate as of March 31, 2001 ................................ 2.0604 Spot rate as of December 31, 2000 ............................. 1.7897 We are exposed to foreign exchange rate fluctuations related to the operating subsidiaries' monetary assets and liabilities and the financial results of foreign subsidiaries when their respective financial statements are translated into U.S. dollars during consolidation. Our exposure to foreign exchange rate fluctuations also arises from items such as the cost of equipment, management fees, programming costs and certain other charges that are denominated in U.S. dollars but recorded in the functional currency of the foreign subsidiary. In addition, certain of the operating companies have notes payable and notes receivable which are denominated in a currency other than their own functional currency. Foreign currency rate changes also affect our share in results of our unconsolidated affiliates. We generally do not execute hedge transactions to reduce our exposure to foreign currency exchange rate risk. Accordingly, we may experience economic loss and a negative impact on earnings and equity with respect to our holdings solely as a result of foreign currency exchange rate fluctuations. INTEREST RATE SENSITIVITY The table below provides information about our primary debt obligations. The information is presented in U.S. dollar equivalents, which is our reporting currency.
> As of March 31, 2001 ------------------------------------- Book Value Fair Value ---------- ---------- (In thousands, except interest rates) Long-term and short-term debt: Fixed rate USD Notes.................................................... $482,472 $276,007 Average interest rate................................................. 14.0% 31.2% Variable rate A$ Austar Bank Facility................................... $194,137 $194,137 Average interest rate................................................. 7.1% 7.1%
18 The table below presents principal cash flows by expected maturity dates for our debt obligations. The information is presented in U.S. dollar equivalents, which is our reporting currency.
As of December 31, ------------------------------------------------------------------------------ 2001 2002 2003 2004 2005 Thereafter Total --------- --------- ---------- --------- ---------- ----------- ----------- (In thousands) Long-term and short-term debt: Fixed rate USD Notes......................... $ - $ - $ - $ - $ - $482,472 $482,472 Variable rate A$ Austar Bank Facility........ $ - $6,234 $34,288 $54,772 $65,905 $ 32,938 $194,137
We use interest rate swap agreements from time to time, to manage interest rate risk on our floating-rate debt facilities. Interest rate swaps are entered into depending on our assessment of the market, and generally are used to convert floating-rate debt to fixed-rate debt. Interest differentials paid or received under these swap agreements are recognized over the life of the contracts as adjustments to the effective yield of the underlying debt, and related amounts payable to, or receivable from, the counterparties are included in the consolidated balance sheet. Currently, we have four interest rate swaps to manage interest rate exposure on the Austar Bank Facility. Two of these swap agreements expire in 2002 and effectively convert an aggregate principal amount of A$50.0 ($24.3) million of variable-rate, long-term debt into fixed-rate borrowings. The other two swap agreements expire in 2004 and convert an aggregate principal amount of A$100.0 ($48.5) million of variable-rate, long-term debt into fixed-rate borrowings. For the three months ended March 31, 2001, the weighted-average fixed rate under these agreements was 5.7% compared to the weighted-average variable rate of 5.3%. Fair values of the interest rate swap agreements are based on the estimated amounts that we would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates and the current creditworthiness of the counterparties. The total fair value of the interest rate swaps was $(0.5) and $0.7 million as of March 31, 2001 and December 31, 2000, respectively. 19 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Form of employment agreement between United, Austar United and employee. 10.2 Underwriting agreement between United Austar Inc., Austar United Communications Limited and United Australia Holdings, Inc. (b) Reports on Form 8-K filed during the quarter. None. 20 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. United Australia/Pacific, Inc. Date: May 15, 2001 ------------ By: /s/ Valerie L. Cover ----------------------------------------------------------- Valerie L. Cover Controller (A Duly Authorized Officer and Principal Accounting Officer) 21 EX-10 2 exh10_1.txt EXHIBIT 10.1 EXHIBIT 10.1 UNITEDGLOBALCOM [Date] [Employee Name Address] Re: Employment Terms Dear ________: This letter sets forth our agreement ("Agreement") concerning your employment with UnitedGlobalCom, Inc. ("United"). You will be seconded to Austar United Communications Limited (the "Company") and the Company will have various rights and responsibilities related to your job assignment. United may reassign you to a different affiliated company and/or location during the term of this Agreement. 1. Effective Date: _____________, 20__ 2. Title and Job [Title] Description: Reporting to [Supervisor's Title] Your duties and responsibilities will be as assigned by your supervisor. 3. Term: The term of this Agreement will be for a period of _____ years, commencing on the Effective Date and ending ________, 20__, subject to the terms and conditions of this letter agreement. 4. Wages: You will be paid on a bi-weekly basis, at a rate equal to an annual salary of US$__________, which will be reviewed together with performance In [month] of each year during the term of this Agreement. This wage, together with the other benefits described below, represents your total compensation package. 5. Bonus: You will be elegible for an annual bonus of up to a maximum amount of _________ percent (__%) of your base salary. Your eligibility for the bonus will be based on both the performance of the Company and your individual performance. The granting of the bonus is in the sole discretion of senior management. 5. Cost of Living Differential: You will be paid a cost of living differential for housing and goods and services, in accordance with the policies of United and as may be recommended by a third party consultant used by United. Such payment will be made on the normal payroll dates. Employment Agreement [date] 6. Automobile: The Company will pay for an automobile and all automobile operating costs, to include gas, insurance and maintenance, as approved in advance by your supervisor. 7. Benefits: You and your family will be eligible for the standard benefit package offered by United, in accordance with the policy guidelines set forth by United and its insurance carriers. You will be eligible to participate in United's 401(k) plan in accordance with the plan guidelines. 8. Tuition: You will be reimbursed for the cost of tuition fees for your children enrolled in grades Kindergarten through 12 (or the equivalent) who reside with you in Hungary, as approved in advance by your supervisor. 9. Tax Your taxes will be equalized in accordance with the "Tax Equalization: Equalization Policy" of United. In general terms, this means that the Company will bear the overall worldwide tax burden to the extent it exceeds your hypothetical tax liability (within some limitations) had you remained in the U.S. If it is determined by United and its independent tax consultants that under United's Tax Equalization Policy you owe taxes as a result of your assignment, you agree that you will pay such amount to United. If it is determined by United and its independent tax consultants that under United's Tax Equalization Policy, United owes you taxes as a result of your assignment in the foreign location, United agrees to pay you such amount. In the event you do not submit information necessary to complete your tax returns for a given tax year by the date required by United's tax consultant for timely filing or in the event you have not paid amounts owing to United under the Tax Equalization Policy for prior years, you will have no right to be tax equalized for that tax year for which a tax return is to be prepared and, in United's sole discretion, United may elect not to tax equalize you for such year. Such actions are in addition to, and not in lieu of, any other actions United elects to exercise under its Tax Equalization Policy for non-compliance. 10. Vacation: You will be granted twenty (20) days of vacation per anniversary year for the Term, which accrues on a monthly basis, taken in accordance with United's policy. Your original date of hire will be used as the anniversary date for calculating carry-over vacation. 2 Employment Agreement [date] 11. Home Leave: The Company agrees to pay for one business or two coach class tickets per anniversary year during the Term for you and each of your immediate family members residing with you in the foreign location for return to one destination in the U.S. These tickets can not be used or exchanged for any other purpose. 12. Repatriation: Upon termination of your employment, except for termination by United for cause as defined in Section 14 or unless you voluntarily resign prior to the end of this Agreement, the Company will pay all repatriation costs to one destination in the U.S. in accordance with the United's Expatriate Policies Manual. 13. Employee You understand that you may incur personal expenses in the Receivables: course of your employment with United. These expenses may include, but are not limited to, personal phone call charges, personal travel expenses, travel advances, and amounts due as a result of the tax equalization calculation. As a condition of your employment with United, you agree that United may deduct expenses you owe the Company or United from your paycheck at any time during your employment. You may be provided equipment to utilize during your employment with United. As a condition of your employment, you agree that upon separation from United, you will return such equipment. Any charges for damage done to any equipment will be deducted from your final paycheck. In the event any equipment is not returned, it will be given a fair market value which will be deducted from your final paycheck. Also, the Company may pursue other legal remedies available to recover the reasonable value of any items damaged or not returned 14. Termination: Although it is not anticipated, your employment and this Agreement may be terminated before the end of its stated assignment length with or without cause. Cause for termination shall include but not be limited to violations of United or Company policy, unsatisfactory job performance, sexual harassment or other workplace misconduct, misuse of expense account, falsification of United or Company records, or similar offenses. Your employment and this Agreement may also be terminated without cause for any reason. In the case of a termination by United without cause, before the end of your assignment term, you will be entitled to a severance payment equal to three (3) months salary or salary through the end of the Term, whichever is less. As a condition of receiving the severance payment, however, you will be required to sign a legal release giving up your rights to sue United and the company to which you have been seconded for any reason related to your employment and separation from employment. 3 Employment Agreement [date] 15. United The Company may change, at its sole discretion, from time to Policies: time, the provisions of benefit plans, expatriate policies or other corporate policies. 16. Confidential You will not, during or after your employment, disclose or Information: use for the benefit of any person or entity other than United or the Company, any United or the Company confidential information that you develop or receive during your employment. United and the Company confidential information shall include all trade secrets, research and development information, product and marketing plans, personnel and financial data, product and service specifications, prototypes, software, models, customer lists and other confidential information or materials of United, the Company, or of others with whom United or the Company has a confidential relationship. You will promptly return all such information and materials to United when your employment ends. 17. Severability In case any one or more of the provisions of this Agreement and Survival shall be found to be invalid, illegal or unenforceable in of Terms: any respect, the validity, legality and enforceability of the remaining provisions contained in this Agreement will not be affected. Further, any provision or portion of this Agreement found to be invalid, illegal, or unenforceable shall be deemed, without further action on the part of you or United, to be modified, amended and/or limited to the minimum extent necessary to render such provisions or portions thereof valid and enforceable. The provisions of this letter regarding trade secrets and confidential information shall survive the termination of your employment by United. 18. Entire This Agreement contains the parties' entire agreement with Agreement: respect to your expatriate assignment and supersedes any prior written or oral agreements the parties may have made. This Agreement may be amended only by a written document signed by you, United and the Company. 19. Governing This Agreement and all aspects of your employment Law: relationship with United are governed by the laws of the United States and the State of Colorado and all disputes concerning same will be resolved in Colorado. 4 Employment Agreement [date] If the above employment terms are satisfactory, please indicate your acceptance of our offer by signing and returning three executed originals of this letter. Sincerely, UNITEDGLOBALCOM, INC. By:______________________________________________ Its:__________________________________________ Date: _________________ AUSTAR UNITED COMMUNICATIONS LIMITED, N.V. By:______________________________________________ Its: _________________________________________ Date: _________________ ACCEPTED and AGREED: _________________________________________________ [Name] Date: __________________ 5 EX-10 3 exh10_2.txt EXHIBIT 10.2 EXHIBIT 10.2 UNDERWRITING AGREEMENT United Austar, Inc. Austar United Communications Limited ABN 88 087 695 707 and United Australia Holdings, Inc. Freehills MLC Centre Martin Place Sydney NSW 2000 Australia Telephone 61 2 9225 5000 Facsimile 61 2 9322 4000 www.freehills.com.au DX361 Sydney SYDNEY MELBOURNE PERTH CANBERRA BRISBANE HANOI HO CHI MINH CITY Correspondent Offices JAKARTA KUALA LUMPUR SINGAPORE Liability limited by the Solicitors' Limitation of Liability Scheme approved under the Professional Standards Act 1994 (NSW) Reference LP:KL - -------------------------------------------------------------------------------- Table of contents Clause Page 1 Definitions and interpretation 1 1.1 Definitions 1 1.2 Interpretation 3 2 Conditions precedent 4 2.1 Conditions precedent 4 2.2 Satisfaction of conditions 5 2.3 Waiver 5 2.4 Termination of agreement 5 3 Appointment of Underwriters 5 3.1 Appointment 5 3.2 Subunderwriting 5 4 Applications and allotment 5 4.1 Offer of Underwritten Shares 5 4.2 Allotment of Underwritten Shares 6 4.3 Notification to Underwriter 6 4.4 Foreign holders 6 5 Shortfall 6 5.1 Calculation of Shortfall 6 5.2 Notice of Shortfall and Certificate 6 5.3 Applications for Shortfall 6 5.4 Allotment of Shares 6 6 Cessation of Underwriter's liability 7 7 Irrevocable authority 7 8 Payments 7 8.1 Expenses 7 8.2 Goods and Services Tax 7 9 Representations and warranties 8 9.1 Representations and warranties by the parties 8 9.2 Representations and warranties by AUN 8 9.3 Survival of representations and warranties 9 10 Obligations 9 10.1 Compliance 9 10.2 Prospectus 9 10.3 Supplementary or replacement documents 10 10.4 Examination and enquiries of the Underwriter 10 10.5 Obligation of Underwriter 10 10.6 Obligation of United Australia 10 11 Events of Termination 11 11.1 Events of Termination 11 11.2 Occurrence of an Event of Termination 13 11.3 Termination in relation to United Australia 13 11.4 Underwriter's knowledge 13 12 Indemnity 13 12.1 Indemnity 13 12.2 Limitation on indemnity 14 12.3 Survival of indemnity 14 Page 1 12.4 Underwriter's obligation to notify 14 12.5 Indemnified Party's obligation to assist 15 12.6 AUN's obligation 15 12.7 Consent to be named does not affect liability 15 13 Confidentiality 16 13.1 Confidentiality 16 13.2 Announcements 16 14 General 16 14.1 Notices 16 14.2 Governing law and jurisdiction 17 14.3 Enforceability, prohibition and severance 17 14.4 Waivers 17 14.5 Variation 18 14.6 Cumulative rights 18 14.7 Counterparts 18 Schedule 1 - Certificate 20 Annexure A - Timetable Annexure B - Prospectus Page 2 - -------------------------------------------------------------------------------- This Underwriting Agreement is made on 23 March 2001 between the following parties: 1. United Austar, Inc. of Suite 1300, 4643 South Ulster Street, Denver, CO 80237 UNITED STATES OF AMERICA (Underwriter) 2. Austar United Communications Limited ABN 88 087 695 707 of Level 29, AAP Centre 259 George Street, Sydney, NSW 2000 AUSTRALIA (AUN) 3. United Australia Holdings, Inc. of Suite 1300, 4643 South Ulster Street, Denver, CO 80237 UNITED STATES OF AMERICA (United Australia) Recitals A. AUN proposes to make a rights issue on the terms of the Prospectus to its existing Shareholders on the basis that each Shareholder will be entitled to subscribe for 3 Shares for each 7 existing Shares held at an issue price of $0.95 per Share. B. AUN seeks an underwriting of Underwritten Shares being offered under the Issue. C. In consideration for, among other things, AUN granting the indemnity to the Underwriter and its Related Corporations, the Underwriter has agreed to underwrite the Issue, and United Australia has agreed to perform its obligations, on the terms and conditions in this agreement. The parties agree in consideration of, among other things, the mutual promises contained in this agreement: - -------------------------------------------------------------------------------- 1 Definitions and interpretation 1.1 Definitions In this agreement: ALLOTMENT DATE means the allotment date shown in the Timetable, or any earlier time and date agreed by AUN and the Underwriter in writing; APPLICATION means a duly completed and executed application for Shares in the form of the application attached to the Prospectus; APPLICATION MONEY means the amount which must accompany an Application in cash or by cheque (other than a cheque which is not honoured within 5 Business Days after presentation or 3 Business Days after the Closing Date, whichever occurs first) being the issue price of $0.95 multiplied by the number of Shares subscribed for; Page 1 ASIC means the Australian Securities and Investments Commission; ASX means Australian Stock Exchange Limited; BUSINESS DAY means a 'Business day' as defined in the Listing Rules; CERTIFICATE means a Certificate in the form set out in schedule 1 duly executed by AUN; CLOSING DATE means the closing date for Applications shown in the Timetable, being in respect of offers under the Prospectus the day specified in the Prospectus or any other time and date agreed by AUN and the Underwriter in writing; DUE DILIGENCE COMMITTEE means the committee appointed by the board of directors of AUN to conduct the Due Diligence Program; DUE DILIGENCE PLANNING MEMORANDUM means the memorandum outlining the Due Diligence Program to be implemented and supervised by the Due Diligence Committee; DUE DILIGENCE PROGRAM means the commercial, accounting and legal investigations of the assets, liabilities, financial position, profits and losses, and affairs of AUN (including future business plans and prospects), and the verification of all material statements in the Prospectus, conducted in the period up to allotment of Shares; EVENT OF TERMINATION means any event specified in clause 11.1; GOVERNMENTAL AGENCY means any government or any governmental, semi-governmental, administrative, fiscal or judicial body, department, commission, authority, tribunal, agency or entity; ISSUE means the issue of 214,229,574 Shares, each at an issue price of $0.95 respectively offered under the Prospectus; LISTING RULE means the official listing rules and requirements as varied from time to time of the ASX; LODGMENT DATE means the date specified in the Timetable for the lodgment of the Prospectus; MATERIAL ADVERSE EFFECT means a material reduction in the level or likely level of Applications for the Issue; MATERIAL SUBSIDIARY means each of the following: (a) Austar United Broadband Pty Limited ACN 089 048 439; (b) Austar Entertainment Pty Limited ACN 068 104 530; (c) CTV Pty Limited ACN 064 416 128; (d) STV Pty Limited ACN 065 312 450; (e) XYZ Entertainment Pty Limited ACN 066 812 119; and (f) Telstra Saturn Limited; NOTICE CLOSING DATE means the date which is 5 Business Days after the Closing Date; PROSPECTUS means a Prospectus to be lodged with ASIC in relation to the Issue substantially in the form of annexure B, subject to any amendments approved by the Underwriter (such approval not to be unreasonably withheld or delayed); RELATED CORPORATION means a `related body corporate' as that expression is defined in the Corporations Law and includes a body corporate which is at any time after the date of this agreement a `related body corporate' but ceases to be a `related body corporate' because of an amendment, consolidation or replacement of the Corporations Law; Page 2 SHAREHOLDERS means: (a) holders of Shares with registered addresses in: (1) Australia; (2) New Zealand; (3) Saskatchewan Canada; or (4) Hong Kong; and (b) holders of Shares with registered addresses in the United States which are institutional `accredited investors' within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act of 1933, as amended; SHARES means fully paid ordinary shares in the capital of AUN; SHORTFALL means the difference between: (a) the Underwritten Shares; and (b) the number of Shares offered under the Issue for which valid Applications and correct Application Money have been received (other than those AUN offers to the Underwriter under the Issue in the Underwriter's capacity as a Shareholder), calculated no later than 3 Business Days after the Closing Date; SHORTFALL APPLICATION DATE means the date which is 7 Business Days after the Notice Closing Date; SUBSIDIARY means a subsidiary as defined in the Corporations Law but in the case of the Underwriter does not include AUN or its Subsidiaries; TIMETABLE means the timetable for the Issue contained in annexure A or varied by AUN with the approval of the Underwriter (such approval not to be unreasonably withheld or delayed, except in relation to the delay of an event by more than 5 Business Days in total, which the Underwriter may decline to approve in its discretion); UNDERWRITTEN SHARES means all of the Shares the subject of the Issue other than: (a) those AUN offers to the Underwriter under the Issue in the Underwriter's capacity as a Shareholder; and (b) those AUN offers to United Australia under the Issue in United Australia's capacity as a Shareholder. 1.2 Interpretation In this agreement, unless the context otherwise requires: (a) headings are for convenience only and do not affect the interpretation of this agreement; (b) words importing the singular include the plural and vice versa; (c) words importing a gender include any gender; (d) other parts of speech and grammatical forms of a word or phrase defined in this agreement have a corresponding meaning; (e) an expression importing a natural person includes any company, partnership, joint venture, association, corporation or other body corporate and any Governmental Agency; (f) a reference to any thing (including, but not limited to, any right) includes a part of that thing; (g) a reference to a clause, party, annexure, exhibit or schedule is, unless otherwise specified, a reference to a clause of, and a party, annexure, exhibit and schedule to, this agreement and a reference to this agreement includes any annexure, exhibit and schedule; Page 3 (h) a reference to a statute, regulation, proclamation, ordinance or by-law includes all statutes, regulations, proclamations, ordinances or by-laws amending, consolidating or replacing it, and a reference to a statute includes all regulations, proclamations, ordinances and by-laws issued under that statute; (i) a reference to a document includes all amendments or supplements to, or replacements or novations, of that document; (j) a reference to a party to a document includes that party's successors and permitted assigns; (k) where the day on or by which any thing is to be done is not a Business Day, that thing must be done on or by the next Business Day; (l) no rule of construction applies to the disadvantage of a party because that party was responsible for the preparation of this agreement or any part of it; (m) a reference to an agreement other than this agreement includes any undertaking, deed, agreement or legally enforceable arrangement or understanding whether or not in writing; (n) a reference to an asset includes all property of any nature, including, but not limited to, a business, and all rights, revenues and benefits; (o) a reference to a document includes any agreement in writing, or any certificate, notice, instrument or other document of any kind; (p) a reference to any act of AUN includes an act performed in general meeting or on AUN's behalf by its directors, officers, employees, share registrars, accountants, solicitors, or agents; (q) a reference to a body, other than a party to this agreement (including, without limitation, an institute, association or authority), whether statutory or not: (1) which ceases to exist; or (2) whose powers or functions are transferred to another body, is a reference to the body which replaces it or which substantially succeeds to its powers or functions; and (r) a reference to currency is a reference to the lawful currency of the Commonwealth of Australia. - -------------------------------------------------------------------------------- 2 Conditions precedent 2.1 Conditions precedent The obligations of the Underwriter under clause 5 are conditional upon: (a) AUN issuing the Prospectus to all Shareholders by the time specified in the Timetable after lodging it with ASIC by the Lodgment Date; (b) the Shares offered under the Issue being granted official quotation by the ASX before the Closing Date, which approval may be conditional only upon the issue of those Shares and other conditions usually imposed by the ASX; (c) AUN delivering to the Underwriter a Certificate both: (1) 2 Business Days before the Prospectus is sent to all members of AUN; and Page 4 (2) after the Closing Date but before 5.00pm on the Notice Closing Date; and (d) the Treasurer of the Commonwealth of Australia: (1) consenting unconditionally to, or stating before the Closing Date that he or she has no objection under the Commonwealth Government's foreign investment policy to, the issue of the Underwritten Shares to the Underwriter or its Subsidiary; or (2) ceasing to be entitled to make an order under the Foreign Acquisitions and Takeovers Act 1975 in respect of that acquisition. 2.2 Satisfaction of conditions AUN must use its best endeavours to satisfy the conditions precedent in clause 2.1. The Underwriter must use its best endeavours to satisfy the condition precedent in clause 2.1(d). AUN must promptly notify the Underwriter when it has satisfied the conditions precedent in clause 2.1. 2.3 Waiver The Underwriter alone may waive any or all of the conditions precedent in clause 2.1. 2.4 Termination of agreement If any condition in clause 2.1 has not been satisfied or waived by the time specified in that condition (or, if no time is specified, by the Closing Date) the Underwriter may by notice to AUN terminate its obligations under this agreement. In that case AUN has no claim against the Underwriter arising under this agreement or in respect of its termination. The Underwriter's rights survive such a termination. - -------------------------------------------------------------------------------- 3 Appointment of Underwriters 3.1 Appointment AUN appoints the Underwriter to underwrite the subscription of the Underwritten Shares and the Underwriter accepts the appointment on the conditions and for the consideration set out in this agreement. 3.2 Subunderwriting The Underwriter may appoint sub-underwriters for the subscription of some or all of the Underwritten Shares. - -------------------------------------------------------------------------------- 4 Applications and allotment 4.1 Offer of Underwritten Shares AUN must offer the Underwritten Shares for subscription in accordance with the Timetable, the Prospectus, the constitution of AUN and any applicable statute. Page 5 4.2 Allotment of Underwritten Shares (a) AUN must allot the Underwritten Shares for which an Application and the correct Application Money have been received under the Prospectus by the Allotment Date. (b) The allotment must be in accordance with the Prospectus, the constitution of AUN and any applicable statute. 4.3 Notification to Underwriter AUN must, when requested, give the Underwriter written notice of: (a) the number of Applications received by AUN; (b) the identity of the applicants; and (c) the number of Shares applied for by each applicant and in total. 4.4 Foreign holders AUN must follow the procedure under section 615 of the Corporations Law in relation to the Issue, and ensure that the terms of the Issue require that procedure to be followed in relation to holders of Shares other than the Shareholders. - -------------------------------------------------------------------------------- 5 Shortfall 5.1 Calculation of Shortfall AUN must calculate the Shortfall. All Applications received by AUN before 5.00pm on the Closing Date and for 2 Business Days after the Closing Date must be taken into account in calculating the Shortfall whether or not AUN makes allotments in respect of those Applications. 5.2 Notice of Shortfall and Certificate If there is a Shortfall then, after the Closing Date but before 5.00pm on the Notice Closing Date (or such later date as the Underwriter may allow), AUN must give the Underwriter: (a) a notice in writing stating the Shortfall and setting out the calculations made by AUN under clause 5.1; and (b) a Certificate dated the same date as the notice. 5.3 Applications for Shortfall On receiving a notice and Certificate under clause 5.2, the Underwriter must lodge or procure the lodgment with AUN a list of applicants, Applications and the appropriate Application Money for all of the Shortfall on or before 5.00pm on the Shortfall Application Date. 5.4 Allotment of Shares AUN must allot Shares in respect of any Applications lodged under clause 5.3 by the Allotment Date. Page 6 - -------------------------------------------------------------------------------- 6 Cessation of Underwriter's liability The liability of the Underwriter under this agreement ceases on the first to occur of the following: (a) Applications and correct Application Money having been received for all of the Underwritten Shares; (b) the Underwriter lodging one or more Applications and the correct Application Money in accordance with clause 5.3; or (c) the termination of this agreement under clause 2.4 or clause 11.2. - -------------------------------------------------------------------------------- 7 Irrevocable authority Subject to clauses 2.4 and 11.2, this agreement is irrevocable on the part of the Underwriter. If the Underwriter fails to discharge its obligation under clause 5.3, this agreement constitutes an authority for AUN to sign or authorise any other person to sign an application in the name and on behalf of the Underwriter for all or any of the Shortfall and to allot the Shortfall to the Underwriter. The Underwriter must pay, on demand from AUN, the Application Money for the amount of the Shortfall AUN allots to the Underwriter under this clause 7. - -------------------------------------------------------------------------------- 8 Payments 8.1 Expenses (a) AUN acknowledges that it must pay the expenses of the Issue in relation to the costs of preparing and lodging the Prospectus, the printing, advertising and postage costs associated with the Prospectus, and the costs of AUN's advisers in connection with the Prospectus and the Issue. (b) AUN must reimburse the Underwriter for the cost of its advisers and its other reasonable expenses in connection with this agreement, the underwriting, the Prospectus and the Issue. 8.2 Goods and Services Tax If goods and services tax or any similar tax (GST) is payable as a consequence of any supply made or deemed to be made or other matter or thing done under or in connection with this agreement by the Underwriter, AUN must pay to the Underwriter on demand, as consideration in addition to the consideration provided for elsewhere in the agreement, an amount calculated by multiplying the amount of the consideration provided for elsewhere in the agreement by the applicable rate of GST. To the extent that GST is not calculated on the amount of the consideration provided for elsewhere in the agreement, AUN must pay to the Underwriter an amount that is sufficient to ensure that the economic benefit to the Underwriter of this agreement remains the same whether GST applies or not. The Underwriter will provide to AUN a tax invoice. Page 7 - -------------------------------------------------------------------------------- 9 Representations and warranties 9.1 Representations and warranties by the parties Each party represents and warrants to the other that: (a) registration: it is a corporation as that expression is defined in the Corporations Law having limited liability, registered (or taken to be registered) and validly existing under the laws of the place of its incorporation; (b) authority: it has full power and authority to enter into and perform its obligations under this agreement in accordance with its terms; (c) authorisations: subject to satisfaction of conditions in clause 2.1, it has taken all necessary action to authorise the execution, delivery and performance of this agreement in accordance with its terms (d) binding obligations: subject to satisfaction of conditions in clause 2.1, this agreement constitutes its legal, valid and binding obligations and, subject to any necessary stamping and registration, is enforceable in accordance with its terms; (e) transaction permitted: subject to satisfaction of conditions in clause 2.1, the execution, delivery and performance by it of this agreement does not and will not violate, breach or result in a contravention of: (1) any law, regulation, authorisation, ruling, consent, judgment, order or decree of any Government Agency; (2) its constitution or any other of its constituent documents; (3) any encumbrance or document which is binding upon it or any Subsidiary or any asset of it or any such Subsidiary; or (4) the Listing Rules, and do not and will not result in: (5) the creation or imposition of any encumbrance or restriction or any nature on any asset of it or any of its Subsidiaries; or (6) the acceleration of the date of payment of any obligation existing under any encumbrance or document which is binding upon it or any Subsidiary or any asset of it or any such Subsidiary. 9.2 Representations and warranties by AUN AUN represents and warrants, other than as previously disclosed in writing to the Underwriter, that: (a) no default or breach: (1) neither it nor any of its Subsidiaries is in breach in any material respect under any material agreement binding on it or any of its Subsidiaries; (2) nothing has occurred which is, or with the giving of notice, lapse of time, satisfaction of some other condition, or any combination of the above, constitutes an event (whatever called) which causes or enables the acceleration of any payment to be made under, or the enforcement, termination or rescission of, any material agreement binding on it or any of its Subsidiaries: (b) no litigation: no litigation, arbitration, dispute or administrative proceeding has been commenced, is pending or to Page 8 its knowledge threatened, by or before any Governmental Agency, and no judgment or award has been given, made or is pending, by or before any Governmental Agency, which: (1) in any way questions its power or authority to enter into or perform its obligations under this agreement or the Prospectus; or (2) in the Underwriter's reasonable opinion would have a Material Adverse Effect; (c) Prospectus: on lodgment with the ASIC, the Prospectus will comply with the Corporations Law and the Listing Rules; (d) due diligence: the Due Diligence Program has been and will be conducted in accordance with the Due Diligence Planning Memorandum prepared for that process; (e) information disclosed: to the best of AUN's knowledge and belief, all information that has a Material Adverse Effect has been disclosed to the Underwriter. 9.3 Survival of representations and warranties The representations and warranties contained in clauses 9.1 and 9.2 survive completion of this agreement. - -------------------------------------------------------------------------------- 10 Obligations 10.1 Compliance In respect of the Issue, AUN must: (a) take all reasonable precautions to ensure that the Timetable complies with the Listing Rules; (b) conduct the Issue in accordance with the Timetable, the Prospectus, the Listing Rules and the Corporations Law; (c) fully and punctually perform its obligations under the Prospectus; (d) comply with and observe all statutes and lawful requirements other than a requirement of the ASX which is waived in writing by the ASX or a requirement of the Corporations Law that ASIC modifies under section 741 of the Corporations Law; and (e) inform the Underwriter of any Event of Termination, breach or default under this agreement immediately in writing. 10.2 Prospectus In respect of the Issue, AUN must ensure that: (a) the Prospectus is in the form of annexure B, with any amendments that are approved by the Underwriter, such approval not to be unreasonably withheld or delayed; (b) the Prospectus is issued by AUN to Shareholders after it has been lodged with ASIC; (c) copies of the Prospectus are made available to the Underwriter as soon as possible after the Prospectus is lodged with ASIC; and Page 9 (d) the Prospectus complies with the requirements of the Corporations Law, the constitution of AUN and the requirements of the ASX. 10.3 Supplementary or replacement documents Without prejudice to any right of the Underwriter to terminate this agreement, if, before the Underwritten Shares are allotted or issued under the Prospectus, AUN becomes aware of: (a) a new circumstance that has arisen since the Prospectus was lodged that would have been required to be disclosed under the Corporations Law had it arisen before the Prospectus was lodged and that is materially adverse from a potential investor's point of view; or (b) a misleading or deceptive statement in the Prospectus; or (c) an omission from the Prospectus of information required to be disclosed under the Corporations Law, then AUN must: (d) inform the Underwriter of the change, information or deficiency immediately; and (e) promptly lodge a supplementary document or a replacement document in accordance with AUN's obligations under the Corporations Law in a form approved by the Underwriter, such approval not to be unreasonably withheld. 10.4 Examination and enquiries of the Underwriter (a) Without limiting any other provision of this agreement but subject to clause 10.4(b), the Underwriter is itself, or by its authorised agents, entitled to make any examination and enquiry of or concerning the business, assets, liabilities, books and accounts of AUN or any of its Subsidiaries as the Underwriter, in its absolute discretion requires during the term of this agreement. (b) Under clause 10.4(a), the Underwriter may only request information and documents relevant to the Prospectus or the Issue or to the Underwriter's risks, liabilities or duties in respect of the Issue or under this agreement. (c) AUN must promptly provide all information and documents requested by the Underwriter or its authorised representative. 10.5 Obligation of Underwriter The Underwriter agrees to apply for its full entitlement of Shares as a Shareholder under the Issue. 10.6 Obligation of United Australia United Australia agrees to apply for its full entitlement of Shares as a Shareholder under the Issue. Page 10 - -------------------------------------------------------------------------------- 11 Events of Termination 11.1 Events of Termination (a) It is an Event of Termination if any of the following events occurs on or before the Closing Date in the case of the event described in paragraph (1) and otherwise on or before the Shortfall Application Date: (1) fall in index: the All Ordinaries Index of ASX is, at the close of trading on at least 3 consecutive Business Days, at a level which is 15% or more below the level at the close of trading on the ASX on the Business Day immediately preceding the date of this agreement; (2) statement of ASX: the ASX makes a statement to any person that official quotation of the Shares offered under the Issue will not be granted; or (3) indictable offence: a director of AUN or any of its Subsidiaries is charged with an indictable offence relating to a financial or corporate matter. (b) It is an Event of Termination if any of the following events occurs on or before the Shortfall Application Date, and the Underwriter determines reasonably in good faith that the event has or would have a Material Adverse Effect: (1) change in laws: any of the following occurs : (A) the introduction of legislation into the Parliament of the Commonwealth of Australia or of any State or Territory of Australia; or (B) the public announcement of prospective legislation or policy by the Commonwealth, or any State or Territory Government : (C) the adoption by ASIC, its delegates or the Reserve Bank of Australia of any regulations or policy; (2) failure to comply: AUN or any Material Subsidiary fails to comply with any of the following: (A) a provision of its constitution; (B) any statute; (C) a requirement, order or request, made by or on behalf of ASIC or any Governmental Agency; or (D) any material agreement entered into by it; (3) capital structure: AUN or any of its Subsidiaries alters its capital structure other than as contemplated by or referred to in the Prospectus without the prior written consent of the Underwriter (such consent not to be unreasonably withheld or delayed); (4) constitution: the constitution of AUN is amended without the prior written consent of the Underwriter (such consent not to be unreasonably withheld or delayed); Page 11 (5) financial assistance: AUN or any of its Subsidiaries passes, becomes obliged to pass or takes any steps to pass a resolution under section 260B of the Corporations Law, without the prior written consent of the Underwriter (such consent not to be unreasonably withheld or delayed); (6) ceasing business: AUN or any Material Subsidiary ceases or threatens to cease to carry on business, or suspends payments generally; (7) winding up: a application or order is made for the winding up or dissolution of AUN or any Material Subsidiary or a resolution is passed or any steps are taken to pass a resolution for the winding up or dissolution of AUN or any Material Subsidiary otherwise than for the purpose of an amalgamation or reconstruction which has the Underwriter's prior written consent (such consent not to be unreasonably withheld or delayed); (8) receiver: a receiver, receiver and manager, trustee, administrator or similar official is appointed, or steps taken for such appointment, over any of the assets or undertaking of AUN or any Material Subsidiary; (9) arrangements: AUN or any Material Subsidiary enters into or resolves to enter into any arrangement, composition or compromise with, or assignment for the benefit of, its creditors or any class of them otherwise than for the purpose of an amalgamation or reconstruction that has the Underwriter's prior written consent (such consent not to be unreasonably withheld or delayed); (10) insolvency: AUN or any Material Subsidiary becomes unable to pay its debts when they are due or is or becomes unable to pay its debts within the meaning of the Corporations Law or is presumed to be insolvent under the Corporations Law; (11) Prospectus: (A) any statement in the Prospectus becomes false or misleading; (B) the Prospectus does not comply with section 713 of the Corporations Law; (C) any person gives a notice under section 730 of the Corporations Law in relation to the Prospectus; (D) ASIC gives notice of intention to hold a hearing in relation to the Prospectus under section 739(2) of the Corporations Law or makes an interim order under section 739(3) of the Corporations Law; (E) any person who consented to being named in the Prospectus (other than the Underwriter) withdraws that consent; (F) an application is made by the ASIC for an order under section 1324B of the Corporations Law in relation to the Prospectus; (12) supplementary or replacement document: before the Closing Date the Underwriter forms the reasonable view that a supplementary document or replacement document must be lodged with the ASIC under section 719 of the Corporations Law and AUN does not lodge a supplementary document or a replacement document in the form and content and within the time reasonably required by the Underwriter; (13) information supplied: any material information supplied by AUN or any of its Subsidiaries or on its behalf to the Underwriter in respect of the Issue is or becomes false or misleading in a material respect; (14) due diligence: there is a material omission from the results of the Due Diligence Program or the results of the Due Diligence Program are false or misleading in a material respect; Page 12 (15) hostilities: there is an outbreak of hostilities (whether or not war is declared) involving Australia; (16) breach: AUN fails to perform or observe any of its material obligations under this agreement and that failure is not remedied to the satisfaction of the Underwriter prior to the Notice Closing Date; (17) misrepresentation: a material representation or warranty made or given or deemed to have been made or given by AUN under this agreement proves to be, or have been, or becomes untrue or incorrect in any material respect. (18) adverse change: any other change occurs in the management, financial position, results of operations or prospects of AUN or any of its Subsidiaries. 11.2 Occurrence of an Event of Termination If an Event of Termination occurs, the Underwriter may terminate its obligations under this agreement by giving written notice to AUN on or before the Shortfall Application Date which sets out: (a) the Event of Termination; (b) in relation to events in clause 11.1(b) -- that the Underwriter has determined reasonably and in good faith that it is likely to have a Material Adverse Effect; and (c) a statement that the agreement is terminated. The Underwriter's rights survive such a termination. 11.3 Termination in relation to United Australia If the Underwriter terminates this agreement, United Australia's obligations under this agreement automatically terminate. United Australia's rights survive such a termination. 11.4 Underwriter's knowledge Notwithstanding any other provision of this clause 11, the Underwriter may not exercise any rights under this clause 11 in reliance on the occurrence of one of the events specified in clause 11.1 where, at the date of this agreement, an Underwriter's representative on the Due Diligence Committee had knowledge that the event had already occurred or would occur in the future. - -------------------------------------------------------------------------------- 12 Indemnity 12.1 Indemnity AUN must indemnify and hold harmless the Underwriter, its Related Corporations (other than AUN and its Subsidiaries) and their respective officers, employees, agents and advisers (Indemnified Parties) and must keep them indemnified from and against any claim, action, damage, loss, liability, cost, charge, expense, outgoing or payment (Losses) including, Losses arising by reason of negligence of any person, which any Indemnified Party pays, suffers, incurs or is liable for in connection with the appointment of the Underwriter pursuant to this agreement including without limitation: (a) the Issue and any conduct in relation to it; (b) the Prospectus or any omission from it; Page 13 (c) this agreement; (d) reliance by the Indemnified Party on information supplied by AUN; (e) an announcement, advertisement or publicity made or distributed by or on behalf of AUN in relation to the Issue; or (f) any investigation, enquiry, or hearing by ASIC or the ASX in relation to the Issue, including, but not limited to, in respect of the above, any legal costs and expenses on a full indemnity basis and any professional consultant's fees, and all expenses in connection with the investigation of, preparation for or defence of any pending or threatened claim, action or proceeding arising therefrom whether or not such Indemnified Party is a party. The Underwriter is hereby contracting for the benefit of each of the Indemnified Parties. 12.2 Limitation on indemnity The indemnity in clause 12.1 does not extend to and is not an indemnity against; (a) any penalty or fine which the Indemnified Party is required to pay for any contravention of the Corporations Law; (b) any other amount in respect of which the indemnity in clause 12.1 would be illegal, void or unenforceable; (c) any announcement, advertisement or publicity made or distributed by the Indemnified Party without the approval of AUN in relation to the Issue or the Prospectus; (d) any liability of the Underwriter to subscribe for the Shortfall under this agreement; (e) any action, demand, claim, suit or proceeding arising out of fraud, bad faith, wilful misconduct or default, recklessness or negligence on the part of an Indemnified Party; (f) any income or withholding tax payable by the Underwriter on any amount paid or payable to it pursuant to this agreement. 12.3 Survival of indemnity The indemnity in clause 12.1 survives completion and termination of this agreement. 12.4 Underwriter's obligation to notify (a) If the Underwriter becomes aware of any matter for which an Indemnified Party may make a claim for indemnity, it must notify AUN in writing of the substance of that matter or thing, giving such details as it is practicable to give, as soon as reasonably practicable and in any event, within 5 Business Days of becoming aware of the matter. (b) If the Underwriter fails to notify AUN under clause 12.4(a), AUN's obligation to indemnify the Indemnified Party under clause 12.1 is unaffected unless an Underwriter's failure to notify under clause 12.4(a) directly results in: (1) a complete defence no longer being available to AUN; or (2) an increase in the amount payable by AUN under the indemnity in clause 12.1, Page 14 in which case AUN will only be liable to indemnify the Indemnified Party for the amount that would have been payable if such Underwriter had given notice pursuant to clause 12.4(a). 12.5 Indemnified Party's obligation to assist (a) Subject to clause 12.6, AUN is entitled to defend or to institute legal or other proceedings in the name of the Indemnified Party conducted under the management and control of AUN but with reasonable consultation with the Indemnified Party. (b) Subject to clause 12.6, the Indemnified Party, must: (1) do anything that AUN requests to avoid, dispute, resist, appeal, compromise or defend any action, demand, claim, suit, proceeding or other thing, or any adjudication in respect of such item; (2) not settle any such action, demand, claim, suit or proceeding without the prior written consent of AUN, which must not be unreasonably withheld; (3) assist and co-operate with AUN in the conduct of any legal or other proceedings, including, without limitation, give AUN any documents in its possession and sign all documents, authorities and directions which AUN may reasonably require for the prosecution or advancement of any legal or other proceeding; and (4) do anything reasonably necessary or desirable to ensure that AUN is subrogated to and enjoys the benefit of the rights of the Indemnified Party in relation to any cross-claims and to give AUN all assistance it reasonably requests for this reason. 12.6 AUN's obligation (a) The Indemnified Party is under no obligation under clause 12.4 or 12.5 unless at the time AUN requests the Indemnified Party to take any action, AUN agrees to indemnify the Indemnified Party against all costs, expenses and charges incurred by or awarded against the Indemnified Party in taking the action required, as and when they fall due including legal costs and disbursements on a full indemnity basis. (b) AUN must not settle, compromise or consent to the entry of any judgment in relation to any legal or other proceedings against any Indemnified Party unless either: (1) the Underwriter gives prior written consent (which must not be unreasonably withheld or delayed); or (2) such settlement, compromise or consent does not include a statement or admission that such Indemnified Party is or was at fault or culpable, failed to act or contravened any applicable law and AUN uses its reasonable endeavours to obtain an unconditional release of each Indemnified Party from all liability arising out of such legal or other proceedings. 12.7 Consent to be named does not affect liability The Underwriter is not liable to AUN for the contents, completeness or accuracy of the Prospectus, even if it consents to be named in the Prospectus or consents to the issue of the Prospectus. A consent or approval given by the Underwriter does not waive or in any way prejudice the rights of any Indemnified Party under this clause 12. Page 15 - -------------------------------------------------------------------------------- 13 Confidentiality 13.1 Confidentiality (a) The contents of this agreement are confidential. (b) Despite clause 13.1(a) each party may make any disclosure to the extent required by: (1) any applicable law or Governmental Agency; or (2) the ASX or any stock exchange on which its shares, or shares of its parent entity, are listed. 13.2 Announcements AUN and the Underwriter must not announce or publish anything in connection with the Prospectus, including but not limited to: (a) the applications for Shares received; or (b) the progress or results of the issue of the Shares, without first advising and consulting with the other party. - -------------------------------------------------------------------------------- 14 General 14.1 Notices (a) Any notice or other communication including, but not limited to, any request, demand, consent or approval, to or by a party to this agreement: (1) must be in legible writing and in English addressed as shown at the commencement of this agreement/below: (A) if to the Underwriter: Address: Suite 1300, 4643 South Ulster Street, Denver, CO 80237 UNITED STATES OF AMERICA Attention: Vice President -- Legal Facsimile: +1 303 220 3117 (B) if to AUN: Address: Level 29, AAP Centre 259 George Street Sydney, NSW 2000 AUSTRALIA Attention: General Counsel Facsimile: +61 2 9394 9850 (C) if to United Australia: Address: Suite 1300, 4643 South Ulster Street, Denver, CO 80237 UNITED STATES OF AMERICA Attention: Vice President - Legal Facsimile: +1 303 220 3117 or as specified to the sender by any party by notice; Page 16 (2) where the sender is a company, must be signed by an officer of the sender; (3) is regarded as being given by the sender and received by the addressee; (A) if by delivery in person, when delivered to the addressee; (B) if by post, 3 Business Days from and including the date of postage; or (C) if by facsimile transmission, when transmitted to the addressee with a transmission report confirming successful transmission, but if the delivery or receipt is on a day which is not a Business Day or is after 5.00pm (addressee's time) it is regarded as received at 9.00 am on the following Business Day; and (4) can be relied upon by the addressee and the addressee is not liable to any other person for any consequences of that reliance if the addressee believes it to be genuine, correct and authorised by the sender. (b) In this clause 14.1 a reference to an addressee includes a reference to an addressee's officers, agents or employees. 14.2 Governing law and jurisdiction (a) This agreement is governed by the laws of the State of New South Wales. (b) Each of the parties irrevocably submits to the non exclusive jurisdiction of the courts of the State of New South Wales. 14.3 Enforceability, prohibition and severance (a) Any provision of, or the application of any provision of this agreement which is prohibited in any jurisdiction is, in that jurisdiction, ineffective only to the extent of that prohibition. (b) Any provision of, or the application of any provision of, this agreement which is void, illegal or unenforceable in any jurisdiction does not affect the validity, legality or enforceability of that provision in any other jurisdiction or of the remaining provisions in that or any other jurisdiction. 14.4 Waivers (a) Waiver of any right arising from a breach of this agreement or of any right, power, authority, discretion or remedy arising upon default under this agreement or upon the occurrence of an Event of Termination must be in writing and signed by the party granting the waiver. (b) This clause 14.4 may not itself be waived except by writing. (c) A single or partial exercise of a right by a party does not preclude another exercise or attempted exercise of that right or the exercise of another right. (d) Failure by a party to exercise or delay in exercising a right does not prevent its exercise or operate as a waiver. Page 17 14.5 Variation Variation of any term of this agreement must be in writing and signed by the parties. 14.6 Cumulative rights The rights, powers and remedies arising out of or under this agreement are cumulative and additional to any rights, powers and remedies provided in law or equity. 14.7 Counterparts This agreement may be executed in any number of counterparts. All counterparts, taken together, constitute a single agreement. A party may execute this agreement by signing any counterpart. - --------------------------------------------------------------------------------
Executed as an agreement: Signed by Austar United Communications Limited by: /s/ Justin H. Gardener /s/ T. D. Downing - ------------------------------------------------ -------------------------------------------------- Secretary/Director Director Justin H. Gardener T. D. Downing - ------------------------------------------------ -------------------------------------------------- Name (please print) Name (please print) Signed for United Austar, Inc. by its authorised representative in the presence of: /s/ Rick Westerman /s/ Ellen P. Spangler - ------------------------------------------------ -------------------------------------------------- Witness Authorised Representative Rick Westerman Ellen P. Spangler - ------------------------------------------------ -------------------------------------------------- Name (please print) Name (please print) V.P. -------------------------------------------------- Title (please print) Page 18 Signed for United Australia Holdings, Inc. by its authorised representative in the presence of: /s/ Rick Westerman /s/ Ellen P. Spangler - ------------------------------------------------ -------------------------------------------------- Witness Authorised Representative Rick Westerman Ellen P. Spangler - ------------------------------------------------ -------------------------------------------------- Name (please print) Name (please print) V.P. -------------------------------------------------- Title (please print)
Page 19 - -------------------------------------------------------------------------------- Schedule 1 - Certificate To: United Austar, Inc. Attention: General Counsel I hereby certify on behalf of Austar United Communications Limited ABN 88 087 695 707 (AUN) that the following statements are true and not misleading: (a) AUN is not in default under the Underwriting Agreement and has performed all its obligations under clause 10 to the extent that that agreement contemplated such performance to be completed on the date of this Certificate; (b) the representations and warranties contained in clauses 9.1 and 9.2 are repeated as of the date of this Certificate and there has not been any breach of such representations and warranties from the date of that Underwriting Agreement until the date of this Certificate; and (c) none of the Events of Termination has occurred. For the purposes of this Certificate: (a) Underwriting Agreement means the underwriting agreement dated on or about 5 May 2000 between AUN and United Austar, Inc. (b) words and expressions used in this Certificate have the meanings ascribed to them in the Underwriting Agreement. DATED /s/ John C. Porter - -------------------- Director For and on behalf of Austar United Communications Limited Page 20
- ----------------------------------------------------------------------------------------------------------- Annexure A - Timetable Clause 1.1 Description of action required Party responsible Latest date for performance - ------------------------------ ----------------- --------------------------- Lodgment of Prospectus AUN 23 March 2001 Prospectus sent to shareholders AUN 6 April 2001 Closing Date 2 May 2001 Allotment of New Shares AUN 23 May 2001 Trading of New Shares on ASX on T+3 basis AUN begins AUN 24 May 2001
Page 21 - -------------------------------------------------------------------------------- Annexure B - Prospectus Clause 1.1 Page 22 -----END PRIVACY-ENHANCED MESSAGE-----