As filed with the Securities and Exchange Commission on December 12, 2001
Registration No. 333-55228
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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NEW UNITEDGLOBALCOM, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 84-1602895
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
NEW UNITEDGLOBALCOM, INC.
4643 SOUTH ULSTER STREET, SUITE 1300
DENVER, COLORADO 80237
(303) 770-4001
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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MICHAEL T. FRIES
PRESIDENT
4643 SOUTH ULSTER STREET, SUITE 1300
DENVER, COLORADO 80237
(303) 770-4001
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
GARTH B. JENSEN, ESQ. ROBERT W. MURRAY, JR., ESQ. ELIZABETH M. MARKOWSKI, ESQ.
HOLME ROBERTS & OWEN LLP BAKER BOTTS LLP LIBERTY MEDIA CORPORATION
1700 LINCOLN, SUITE 4100 599 LEXINGTON AVE. 12300 LIBERTY BOULEVARD
DENVER, COLORADO 80203 NEW YORK, NEW YORK 10022 ENGLEWOOD, COLORADO 80112
(303) 861-7000 (212) 705-5000 (720) 875-5400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and all
other conditions under the merger agreement (described in the proxy
statement/prospectus herein) are satisfied or waived.
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If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If any of the securities being registered on this form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
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Class A Common Stock (par value $.01 per
share).................................... 160,000,000 shares(1) $4.00(2) $640,000,000 $152,960(3)
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(1)Includes (i) 117,028,115 shares of Registrant's Class A common stock to be
issued with respect to 98,000,981 shares and 19,027,134 shares, respectively,
of UnitedGlobalCom Class A common stock and Class B common stock outstanding
on December 3, 2001, (ii) up to 17,348,317 shares of Registrant's Class A
common stock to be issued with respect to any shares of UnitedGlobalCom
common stock issued between December 3, 2001 and the closing of the merger as
a result of the issuance of stock options or conversion of UnitedGlobalCom
preferred stock and (iii) 25,623,568 shares of Registrant's Class A common
stock to be issued with respect to 113,983 shares, 425,000 shares and 287,500
shares, respectively, of UnitedGlobalCom Series B, Series C and Series D
preferred stock, including accrued dividends through an assumed closing date
of March 31, 2002.
(2) Pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities Act of 1933,
as amended, the maximum offering price is the average of the high and low
prices per share of UnitedGlobalCom Class A common stock on December 10,
2001, as reported on the Nasdaq National Stock Market.
(3)Pursuant to Rule 0-11(a)(2) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the total registration fee for this
registration statement, $152,960, has been reduced in amount by $606,518, the
filing fee paid pursuant to Exchange Act Rule 0-11 in connection with the
filing of preliminary proxy materials of UnitedGlobalCom with the Securities
and Exchange Commission on November 3, 2000. Accordingly, no additional
filing fee is being paid at this time.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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[UNITEDGLOBALCOM LOGO]
, 2001
Dear Fellow Stockholder:
You are invited to attend a special meeting of the stockholders of
UnitedGlobalCom, Inc. which will be held at , Denver, Colorado, on
, 2002, at 10:00 a.m., local time. We have enclosed a notice of the
special meeting, a proxy statement/prospectus and a proxy card.
You will be asked at the special meeting to approve and adopt a merger agreement
among us, a newly formed Delaware corporation to be renamed UnitedGlobalCom,
Inc. following the merger, or "New United," Liberty Media Corporation, or
"Liberty," its subsidiaries, Liberty Media International, Inc., or "LMINT" and
Liberty Global, Inc., or "Liberty Global," United/New United Merger Sub, Inc., a
Delaware corporation and a subsidiary of New United, or "Merger Subsidiary," and
several of our founding stockholders. New United will issue its own stock in
connection with a merger between us and Merger Subsidiary. Incident to the
merger, Liberty or some of its subsidiaries will contribute to New United notes
issued by two of our subsidiaries having an approximate accreted value of $891.7
million (at January 30, 2002), $200.0 million cash and senior notes and senior
discount notes issued by one of our subsidiaries, all in exchange for
approximately 281.4 million shares, subject to certain adjustments, of New
United Class C common stock (based on a closing date of January 30, 2002).
Liberty will also repay approximately $304.6 million of debt (including accrued
interest through January 30, 2002) that Liberty owes to us by issuance of new
debt securities of Liberty or, at its election, a cash payment, or a combination
of debt securities and cash.
OUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND DECLARED THAT THE
MERGER AGREEMENT IS ADVISABLE TO, AND IN THE BEST INTEREST OF, UNITED AND OUR
STOCKHOLDERS. OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT.
You will also be asked at the special meeting to:
- - approve a proposal to amend United's 1993 Stock Option Plan to:
- increase the number of shares of United's common stock reserved for issuance
by 30,000,000 shares from 9,200,000 shares to 39,200,000 shares,
- increase the maximum number of shares subject to options that may be granted
to any one participant in any calendar year from 500,000 shares to
5,000,000 shares, and
- permit the grant of options to acquire, or permit the amendment of
outstanding options granted after December 3, 2001 to provide for the
issuance of, up to an aggregate of 3,000,000 shares of United's Class B
common stock;
- to approve a proposal to amend to our 1998 Stock Option Plan for
Non-Employee Directors to increase the number of shares of our Class A
common stock reserved for issuance by 2,000,000 shares from 1,000,000 shares
to 3,000,000 shares; and
- transact such other business as may properly come before the special
meeting.
OUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THESE PROPOSALS AND RECOMMENDS
THAT YOU VOTE IN FAVOR OF THEM.
Whether or not you are personally able to attend the special meeting, please
complete, sign and date the enclosed proxy card and return it in the enclosed
prepaid envelope as soon as possible. This action will not limit your right to
vote in person if you do wish to attend the meeting and vote personally.
The merger cannot be completed unless the holders of at least a majority of the
combined voting power of the outstanding shares of Class A common stock and
Class B common stock as of , 2001, the record date, approve and
adopt the merger agreement. Approval of the amendments to the 1993 Stock Option
Plan and the 1998 Stock Option Plan for Non-Employee Directors requires the
affirmative vote of the holders of a majority of the combined voting power of
our Class A common stock and Class B common stock as of the record date,
represented in person or by proxy at the special meeting of stockholders. Only
holders of our common stock at the close of business on the record date will be
entitled to vote at the special meeting. Holders of shares of Class A common
stock and Class B common stock representing % of the outstanding votes as of
the record date have indicated that they will vote in favor of the merger
agreement proposal, 1993 Stock Option Plan amendment proposal and 1998 Stock
Option Plan amendment proposal.
For your convenience, the first four pages of the proxy statement/prospectus
contain frequently asked questions and related answers about the merger. PLEASE
REVIEW THE ENTIRE PROXY STATEMENT/PROSPECTUS CAREFULLY. IN PARTICULAR, YOU
SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION ENTITLED "RISK FACTORS"
BEGINNING ON PAGE I-14. If you would like assistance in completing your proxy
card, or if you have any questions about the procedure for voting your shares
described in the attached proxy statement/prospectus, please contact our
Investor Relations Department at (303) 770-4001.
Sincerely yours,
GENE W. SCHNEIDER
Chairman of the Board and
Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY STATE SECURITIES
COMMISSION, HAS APPROVED OR DISAPPROVED THE MERGER AND RELATED TRANSACTIONS
DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS OR THE STOCK OF NEW UNITED TO BE
ISSUED IN CONNECTION WITH THE MERGER OR DETERMINED THAT THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated , 2001, and is first being
mailed to our stockholders on or about , 2001.
[UNITEDGLOBALCOM LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2002
The special meeting of the stockholders of UnitedGlobalCom, Inc., or "United,"
will be held at , Denver, Colorado, on , 2002 at 10:00
a.m., local time, for the following purposes:
(i) to consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Restructuring and Merger, dated December 3,
2001, among United, a newly formed Delaware corporation, or "New
United," Liberty Media Corporation, or "Liberty," and its
subsidiaries, Liberty Media International, Inc., or "LMINT" and
Liberty Global, Inc., or "Liberty Global," United/New United Merger
Sub, Inc., a Delaware corporation and a subsidiary of New United, or
"Merger Subsidiary," and certain long-time holders of United Class B
common stock, or the "Founders," as amended on December , 2001, as
well as the United/New United Agreement and Plan of Merger, dated
December 3, 2001, among United, New United and Merger Subsidiary, as
amended on December , 2001, pursuant to which agreements:
- the Founders will continue to elect half of United's directors and
New United will elect the other half of United's directors,
- the Founders will have effective voting power to elect a majority
of New United's directors,
- New United will become United's approximately 99.5% stockholder,
- holders of United common stock will receive an equivalent number of
pshares of common stock of New United,
- holders of United preferred stock, other than United Series E
preferred stock, will receive the number of shares of New United
Class A common stock equal to the number of shares of United Class
A common stock they would have received had they converted the
preferred stock immediately prior to the merger,
- Liberty will contribute to New United notes issued by two of
United's Dutch subsidiaries having an approximate accreted value of
$891.7 million at January 30, 2002,
- Liberty will contribute to New United $200.0 million of cash,
- Liberty will contribute to New United approximately $1,435.3
million and E263.1 million face amount of senior notes and senior
discount notes issued by United Pan-Europe Communications N.V.,
- Liberty will repay approximately $304.6 million of debt (including
accrued interest through January 30, 2002) that Liberty owes to us
by issuance of new debt securities of Liberty or, at Liberty's
option, a cash payment, or a combination of debt securities and
cash, and
- in exchange for its contributions to New United, Liberty will
receive approximately 281.4 million shares, subject to certain
adjustments, of New United Class C common stock, based on a closing
date of January 30, 2002;
(ii) to consider and vote upon an amendment to our 1993 Stock Option Plan
to:
- increase the number of shares of United's common stock reserved for
issuance by an aggregate of 30,000,000 shares from 9,200,000 shares
to 39,200,000 shares,
- increase the maximum number of shares of United Class A common
stock and Class B common stock subject to options that, in the
aggregate, may be granted to any one participant in any calendar
year from 500,000 shares to 5,000,000 shares, and
- permit the grant of options to acquire, or permit the amendment of
outstanding options granted after December 3, 2001 to provide for
the issuance of, up to an aggregate of 3,000,000 shares of United
Class B common stock;
(iii)to consider and vote on an amendment to United's 1998 Stock Option
Plan for Non-Employee Directors to increase the number of shares of
United Class A common stock reserved for issuance by an aggregate of
2,000,000 shares from 1,000,000 shares to 3,000,000 shares; and
(iv) to transact such other business as may properly come before the
special meeting.
Holders of record of United Class A common stock and Class B common stock at the
close of business on , 2001, the record date of the meeting, will be
entitled to notice of and to vote together as a single class at the meeting.
Holders of United Series B preferred stock, Series C preferred stock and Series
D preferred stock will not be entitled to vote at the meeting. A list of
stockholders entitled to vote at the meeting will be available at our office for
review by any stockholder, for any purpose germane to the meeting, during
regular business hours for at least 10 days prior to the meeting.
Shares can only be voted at the meeting if the holder is present or represented
by a proxy. If you do not expect to attend the meeting, we urge you to complete,
date and sign the enclosed proxy card and return it promptly in the
accompanying, postage prepaid envelope, so that your shares may be voted in
accordance with your wishes and the presence of a quorum may be assured. Signing
the proxy does not affect your right to vote in person if you attend the
meeting. If your shares are registered in street name, however, you will need a
representation from your broker as to your stockholder status in order to vote
in person at the meeting. A representation is not necessary to attend the
meeting.
Our board of directors believes that approving the Agreement and Plan of
Restructuring and Merger and the United/New United Agreement and Plan of Merger,
or collectively the "merger agreement," is advisable to, and in the best
interest of, United and our stockholders. Our board of directors recommends that
you vote in favor of approval and adoption of the merger agreement. The merger
agreement will not be approved and adopted by the stockholders unless the
holders of at least a majority of the combined voting power of the outstanding
shares of our Class A common stock and Class B common stock as of the record
date, voting as a single class, vote to approve and adopt the merger agreement.
Holders of United's Class B common stock, Series B preferred stock, Series C
preferred stock and Series D preferred stock are entitled under Delaware law to
require an appraisal, and to demand the payment of fair value for, their shares
as a result of the merger. These rights, generally known as appraisal rights,
are described in detail in the proxy statement/prospectus accompanying this
notice. In addition, a copy of Section 262 of the Delaware General Corporation
Law, which governs appraisal rights, is attached as Appendix D to the proxy
statement/prospectus accompanying this notice. Holders of United's Class A
common stock will not be entitled to appraisal rights. We urge you to read both
the summary and the statutory provision carefully. If you wish to demand an
appraisal of your shares, you must strictly comply with the statutory
requirements.
Our board of directors likewise believes that the amendments to the United 1993
Stock Option Plan and the United 1998 Stock Option Plan for Non-Employee
Directors are advisable to, and in the best interest of United, its
subsidiaries, and our stockholders, and recommends that you vote in favor of
approval of the amendments. Approval of the amendments requires the affirmative
vote of the holders of a majority of the combined voting power of our Class A
common stock and Class B common stock as of the record date, voting as a single
class, represented in person or by proxy at the special meeting of stockholders.
This notice and the attached proxy statement/prospectus are first being mailed
to United's stockholders on or about , 2001.
By order of the Board of Directors
ELLEN P. SPANGLER,
Secretary
Denver, Colorado
, 2001
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE PREPAID ENVELOPE PROVIDED, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE
SPECIAL MEETING.
THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROXY
STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER , 2001
[UNITEDGLOBALCOM LOGO]
UNITEDGLOBALCOM, INC. NEW UNITEDGLOBALCOM, INC.
A DELAWARE CORPORATION A NEWLY FORMED DELAWARE CORPORATION
PROXY STATEMENT PROSPECTUS
For Special Meeting of Stockholders shares of Class A Common Stock
to be held , 2002
United is furnishing this proxy statement/prospectus to holders of
UnitedGlobalCom, Inc. Class A common stock and Class B common stock. United is
soliciting proxies for use at a special meeting of United's stockholders to
consider and vote upon a transaction with New UnitedGlobalCom, Inc., a newly
formed Delaware corporation, or "New United," Liberty Media Corporation, or
"Liberty," and its subsidiaries, Liberty Media International, Inc., or "LMINT,"
and Liberty Global, Inc., or "Liberty Global," United/New United Merger Sub,
Inc., a Delaware corporation and a subsidiary of New United, or "Merger
Subsidiary," and some long-time holders of our Class B common stock, or the
"Founders." As a result of this transaction, United will become an approximately
99.5% owned subsidiary of New United, and New United will be renamed
"UnitedGlobalCom, Inc." following the merger.
As part of the transaction you will receive stock in New United. United's board
of directors has approved and declared advisable a merger agreement pursuant to
which the transaction will be completed, determined that the transaction is in
the best interest of United and its stockholders, and recommends that you
approve and adopt the merger agreement.
New United has filed a registration statement on Form S-4. This proxy statement
is also the prospectus of New United regarding its common stock to be issued to
our common and preferred stockholders pursuant to the merger agreement. United's
Class A common stock is traded on the Nasdaq National Stock Market under the
symbol "UCOMA." Following the transaction, the shares of Class A common stock to
be issued by New United will be listed, subject to official notice of issuance,
on the Nasdaq National Stock Market under the symbol "UCOMA." Each share of New
United Class A common stock, Class B common stock and Class C common stock will
entitle the holders of such stock to one, ten and ten votes, respectively, on
each matter to be voted on by New United's stockholders, other than the election
of directors. Shares of New United's Class C common stock will vote separately
to elect four of New United's 12 person board of directors, while holders of New
United Class A common and Class B common stock, voting together, will elect the
other eight directors.
You will also be asked at the special meeting to consider and vote upon
amendments to United's 1993 Stock Option Plan and United's 1998 Stock Option
Plan for Non-Employee Directors to, among other things, increase the number of
shares reserved for issuance under each plan.
FOR A DISCUSSION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN EVALUATING THE
TRANSACTION, SEE "RISK FACTORS" BEGINNING ON PAGE I-14.
The date of this proxy statement/prospectus is , 2001, and it and a
form of proxy are first being mailed or otherwise delivered to stockholders on
or about , 2001.
This proxy statement/prospectus does not constitute an offer or a solicitation
in any jurisdiction in which an offer or solicitation is unlawful.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY STATE SECURITIES
COMMISSION, HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
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CHAPTER I -- OVERVIEW
QUESTIONS AND ANSWERS FOR STOCKHOLDERS...................... I-1
SUMMARY..................................................... I-5
Information About the Companies........................... I-5
Contribution of Assets by Liberty......................... I-6
The Merger and Related Transactions....................... I-6
New United Ownership of United............................ I-7
Description of the New United Stock....................... I-8
The Special Meeting of Stockholders....................... I-8
Appraisal Rights.......................................... I-9
United's Reasons for the Merger and Related Transactions;
Recommendation of the United Board of Directors........ I-9
Fairness Opinion of United's Financial Advisor............ I-9
Dividends................................................. I-9
Certain Federal Income Tax Consequences................... I-9
Summary Selected Historical and Pro Forma Financial
Data................................................... I-10
Amendment of Stock Option Plans........................... I-12
RISK FACTORS................................................ I-14
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS... I-17
CHAPTER II -- PROPOSAL 1: THE MERGER TRANSACTION
BACKGROUND AND OVERVIEW OF THE TRANSACTION.................. II-1
Background of the Transaction............................. II-1
Reasons for the Merger.................................... II-4
Opinion of United's Financial Advisor..................... II-5
Accounting Treatment...................................... II-7
Exchange of Shares........................................ II-7
Rights of Dissenting United Stockholders.................. II-8
THE MERGER AGREEMENT AND RELATED AGREEMENTS................. II-12
The Merger Agreement...................................... II-12
Loan Transactions......................................... II-17
Ownership of New United After Closing of the
Transaction............................................ II-17
Founders Agreement for New United......................... II-18
Certain Other Rights of Holders of Class C Common Stock... II-19
Stockholders Agreement.................................... II-19
Standstill Agreement...................................... II-22
Stockholder and Standstill Agreements if Merger Agreement
is Terminated.......................................... II-24
New United Covenant Agreement............................. II-24
Registration Rights Agreements............................ II-25
Founders Agreement for United............................. II-25
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES....... II-26
CHAPTER III -- THE MEETING AND VOTING
Time and Place; Purpose................................... III-1
Voting Rights; Record Date................................ III-1
Proxies................................................... III-1
Voting Arrangements....................................... III-2
Appraisal Rights.......................................... III-2
i
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Interest of Certain Persons in Matters to be Acted Upon... III-3
Security Ownership of Certain Beneficial Owners and
Management of United................................... III-3
CHAPTER IV -- INFORMATION ABOUT NEW UNITED
NEW UNITED'S BUSINESS....................................... IV-1
Operating Data and Financial Information.................. IV-1
Overview of United's Business............................. IV-3
United's European Operations.............................. IV-4
UPC Media................................................. IV-8
Priority Telecom Overview................................. IV-10
United's Latin American Operations........................ IV-11
United's Asia/Pacific Operations.......................... IV-12
Competition............................................... IV-13
Employees................................................. IV-14
Regulation................................................ IV-14
Litigation................................................ IV-19
SELECTED FINANCIAL DATA..................................... IV-21
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF NEW UNITED..... IV-23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF UNITED....................... IV-31
Introduction.............................................. IV-31
Services.................................................. IV-31
Pricing................................................... IV-31
Costs of Operations....................................... IV-32
Results of Operations..................................... IV-32
Liquidity and Capital Resources........................... IV-47
Selected Quarterly Financial Data......................... IV-53
UNITED QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... IV-54
Investment Portfolio...................................... IV-54
Equity Prices............................................. IV-54
Impact of Foreign Currency Rate Changes................... IV-55
Interest Rate Sensitivity................................. IV-58
Other Financial Instruments............................... IV-59
Inflation and Foreign Investment Risk..................... IV-59
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF NEW UNITED.................................. IV-60
MANAGEMENT.................................................. IV-60
Our Directors............................................. IV-60
New United Directors...................................... IV-60
New United Board Committees............................... IV-62
Executive Officers........................................ IV-63
Senior Management......................................... IV-63
UNITED EXECUTIVE COMPENSATION............................... IV-64
United Executive Officer Agreements....................... IV-69
United Stock Option Plans................................. IV-69
Compensation of United's Directors........................ IV-71
United Compensation Committee Interlocks and Insider
Participation.......................................... IV-72
Limitation of Liability and Indemnification............... IV-72
ii
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NO.
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CERTAIN TRANSACTIONS........................................ IV-73
Transactions with Liberty................................. IV-73
Stockholder Arrangements.................................. IV-73
Riordan Transactions...................................... IV-73
M. Schneider Transactions................................. IV-74
Fries Transactions........................................ IV-74
MLS Family Partnership Transactions....................... IV-74
G. Schneider Transaction.................................. IV-75
Wildes Transaction........................................ IV-75
DESCRIPTION OF NEW UNITED CAPITAL STOCK..................... IV-75
Common Stock.............................................. IV-76
Preferred Stock........................................... IV-77
Market Listings........................................... IV-77
Certificate of Incorporation and Bylaws................... IV-77
Delaware General Corporation Law, Section 203............. IV-78
COMPARATIVE PER SHARE MARKET INFORMATION.................... IV-78
COMPARISON OF STOCKHOLDERS' RIGHTS.......................... IV-79
CHAPTER V -- AMENDMENT OF STOCK OPTION PLANS................ V-1
Proposal 2: Amendment of the 1993 Stock Option Plan....... V-1
Proposal 3: Amendment of the 1998 Stock Option Plan for
Non-Employee Directors................................. V-4
CHAPTER VI -- CERTAIN LEGAL INFORMATION..................... VI-1
Legal Matters............................................. VI-1
Experts................................................... VI-1
CHAPTER VII -- WHERE YOU CAN FIND MORE INFORMATION.......... VII-1
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES................................................. F-1
APPENDICES
Appendix A Merger Agreement
Appendix B Opinion of Morgan Stanley & Co. Incorporated
Appendix C Form of Certificate of Incorporation of New
United
Appendix D Delaware General Corporation Law Section 262
iii
CHAPTER I -- OVERVIEW
QUESTIONS AND ANSWERS FOR STOCKHOLDERS
When we use the term "merger agreement," we refer to the Agreement and Plan of
Restructuring and Merger, dated December 3, 2001, among us (UnitedGlobalCom,
Inc., the company in which you currently hold stock), New United, Liberty,
LMINT, Liberty Global, Merger Subsidiary and the Founders, as amended on
December , 2001 and, as the context requires, the United/New United Agreement
and Plan of Merger, dated as of December 3, 2001, among us, New United and
Merger Subsidiary, as amended on December , 2001. When we use the term
"transaction," we refer to the merger agreement and the transactions
contemplated by the merger agreement.
Q. WHAT ARE THE BENEFITS OF THE TRANSACTION? (PAGES THROUGH )
A. We believe that the transaction will strategically position us for growth.
We believe that Liberty is one of the world's most successful media and
communications companies, and the merger and related transactions will
strengthen our relationship with Liberty. Because of the structure of the
transaction and the terms of the stockholders agreement and standstill
agreement described in this proxy statement/ prospectus, the transaction
will not place control of New United in the hands of Liberty while the
structure and those agreements are effective. The transaction also offers
our current common and preferred stockholders the opportunity to continue
to participate in our growth following the transaction. For more
information regarding the expected benefits of the transaction, see "The
Merger Transaction -- Background and Overview of the Transaction, Reasons
for the Merger" beginning on page .
Q. WHAT ASSETS IS LIBERTY CONTRIBUTING TO NEW UNITED? (PAGES THROUGH )
A. Liberty is contributing to New United:
- notes issued by Belmarken Holding B.V., or "Belmarken," and United
Pan-Europe Communications N.V., or "UPC," two of our Dutch subsidiaries,
having an approximate accreted value of $891.7 million as of January 30,
2002, or the "Belmarken notes,"
- $200.0 million in cash, or the "Liberty cash contribution," and
- approximately $1,435.3 million and E263.1 million face amount of senior
notes and senior discount notes issued by UPC, which are all of the UPC
senior notes and senior discount notes that Liberty holds, or the
"Liberty UPC bonds,"
which we collectively refer to as the "Liberty Contribution Assets."
In addition to the contribution of the Liberty Contribution Assets, Liberty
will also repay approximately $304.6 million dollars of debt (including
accrued interest through January 30, 2002)that Liberty owes to us by
delivery of new debt securities of Liberty or, at Liberty's election, cash,
or a combination of such debt securities and cash.
Q. HOW WILL THE TRANSACTION BE STRUCTURED? (PAGES THROUGH )
A. Shares received for Liberty's and Founders' exchange of United shares. In
connection with the capitalization of New United, Liberty and its
affiliates will exchange all of the shares of our Class B common stock and
some of our Class A common stock owned by them for a number of shares of
Class C common stock of New United equal to the number of shares of Class B
common stock and Class A common stock exchanged. The Founders will exchange
the shares of our Class B common stock owned by them for an equal number of
shares of New United's Class B common stock.
Conversion of shares upon merger. Pursuant to the merger, each share of
our common stock outstanding at the time of the merger, other than shares
held by New United, will be converted into one share of New United's Class
A common stock. Shares of our preferred stock, other than our Series E
preferred stock, will be converted into shares of New United Class A common
stock issuable as if the preferred stock had been converted into shares of
our common stock immediately prior to the merger. Our Series E preferred
stock will be converted in the merger as described below under "New
United's ownership of United after the merger."
I-1
Shares received for Liberty contribution. In exchange for Liberty's
contribution of the Belmarken notes, the Liberty cash contribution and the
Liberty UPC bonds, New United will issue approximately 281.4 million
shares, subject to certain adjustments, of Class C common stock to Liberty.
Liberty's interest in New United. Following the merger and the
contribution by Liberty and its affiliates of the Liberty Contribution
Assets to New United, the shares of New United Class C common stock and
Class A common stock to be held by Liberty and its affiliates will
represent an approximate 72.3% economic interest in New United and
approximately 94.1% of the aggregate voting power of all New United common
stock on all matters other than the election of directors. As the holder of
the Class C common stock, Liberty will have the right to elect four out of
12 members of the New United board of directors. Liberty will be bound by a
standstill agreement with New United and a stockholders agreement with New
United and the Founders.
New United's ownership of United after the merger. To avoid a "change of
control" under the terms of our indenture, one or more of the Principals
(as defined in our indenture to be certain Founders and certain related
parties) will, prior to the merger, purchase 1,500 shares of United Series
E preferred stock for cash. The purchase price for the Series E preferred
stock will be based on the average market price of United Class A common
stock, with a ceiling price for these purposes of $5.00 per share, and the
number of shares of United Class A common stock and Class B common stock
issued and outstanding immediately before closing of the merger. In the
merger, these shares of United Series E preferred stock will be converted
into 1,500,000 shares of post-merger United Class A common stock entitled
to elect one half of the directors of United following the merger.
Following the merger, New United will own an approximate 99.5% common
equity interest in United through a combination of shares of United's stock
entitled to elect one half of United's directors and United Class C common
stock that cannot vote in the election of directors.
Q. WHAT WILL I RECEIVE IN THE TRANSACTION? (PAGES THROUGH )
A. You will receive one share of New United Class A common stock for each
share of United Class A common stock or Class B common stock you currently
hold. For example, if you own 500 shares of United Class A common stock and
500 shares of United Class B common stock, you will receive 1,000 shares of
New United Class A common stock.
Holders of United preferred stock, other than holders of Series E preferred
stock, will receive a number of shares of New United Class A common stock
equal to the number of shares of United Class A common stock they would
have received had they converted the preferred stock immediately prior to
the merger. For example, if you own shares of United Series C preferred
stock that, immediately prior to the merger, are convertible into 500
shares of United Class A common stock, you will receive 500 shares of New
United Class A common stock.
Q. WHAT VOTE IS REQUIRED TO APPROVE AND ADOPT THE MERGER AGREEMENT AND
THE AMENDMENTS TO THE STOCK OPTION PLANS? (PAGES THROUGH )
A. A favorable vote by the holders of at least a majority of the combined
voting power of the outstanding, as of the record date, shares of United
Class A common stock and Class B common stock, voting together as a single
class, is required to approve and adopt the merger agreement. A favorable
vote by the holders of at least a majority of the voting power of United
Class A common stock and Class B common stock represented at the special
meeting in person or by proxy is required to approve the amendments to the
1993 Stock Option Plan and the 1998 Stock Option Plan. As of the record
date, the holders of outstanding shares of Class B common stock and Class A
common stock having % of the total vote have agreed to vote in favor of
the proposals to approve and adopt the merger agreement and the proposals
to approve the amendments to the 1993 Stock Option Plan and the 1998 Stock
Option Plan. You are entitled to cast one vote per share of United Class A
common stock and ten votes per share of United Class B common stock held as
of the close of business on , 2001, the record date.
Q. ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
MERGER? (PAGES THROUGH )
A. Yes. In evaluating the merger and related transactions, you should
carefully consider the factors discussed in "Overview -- Risk Factors"
beginning on page I- .
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Q. WHEN DO YOU EXPECT THE TRANSACTION TO BE COMPLETED? (PAGES THROUGH )
A. The parties are working toward completing the transaction as quickly as
possible. New United and United hope to complete the transaction during the
first quarter of 2002. However, if conditions to the transaction are not
satisfied, the transaction may be completed later. See "The Merger
Transaction -- The Merger Agreement and Related Agreements, The Merger
Agreement."
Q. WILL I RECOGNIZE TAXABLE GAIN OR LOSS AS A RESULT OF THE TRANSACTION?
(PAGES THROUGH )
A. It is expected that if the merger is completed and you are not a dissenter,
you will not recognize gain or loss for United States federal income tax
purposes as a result of the transaction except to the extent you receive
cash in lieu of fractional shares. However, you are urged to consult your
own tax advisor to determine the tax consequences particular to your
situation.
Q. WHAT IS THE PURPOSE OF THE AMENDMENTS TO THE 1993 STOCK OPTION PLAN
AND THE 1998 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS? (PAGES THROUGH )
A. The 1993 Stock Option Plan is intended to provide selected employees with
added incentive to continue in our long-term service and to create in such
persons a direct interest in our future success. The plan is also designed
to provide a financial incentive that will help us attract, retain and
motivate the most qualified employees and consultants. The 1998 Stock
Option Plan for directors who are not also employees of United is intended
to encourage non-employee directors of United to continue as directors and
to invest in the capital stock of United, thereby increasing their personal
interests in our continued success and progress.
The board of directors believes that it is in the best interest of United
to increase the number of shares available for option grants under the 1993
Stock Option Plan and the 1998 Stock Option Plan for Non-Employee
Directors, and to permit the issuance of up to 3,000,000 shares of Class B
common stock in lieu of Class A common stock in the case of certain option
grants. The increase and the added flexibility will allow us and, following
the merger, New United, to grant options that are appropriately structured
for particular employees and directors, to attract and retain new employees
and directors, and to further compensate, where appropriate, employees and
directors who have been previously awarded options under these plans.
Q. WHY IS IT APPROPRIATE TO AMEND THE 1993 STOCK OPTION PLAN TO PROVIDE FOR
THE ISSUANCE OF CLASS B COMMON STOCK AS WELL AS CLASS A COMMON STOCK UPON
THE EXERCISE OF OPTIONS?
A. The board of directors believes that the current market for skilled
employees requires flexibility in the design of compensation arrangements,
and that the issuance of Class B common stock is consistent with the
purpose of the plan -- to provide added incentive to selected employees to
continue in our long-term service, and to attract, retain and motivate the
most qualified employees and consultants.
Q. WILL THE 1993 STOCK OPTION PLAN AND THE 1998 STOCK OPTION PLAN FOR NON-
EMPLOYEE DIRECTORS BE OFFERED BY NEW UNITED FOLLOWING THE MERGER? (PAGES
THROUGH )
A. Yes. Upon completion of the merger, United's obligations under these plans
will be assumed by New United, and options for United common stock will be
replaced with substitute options for New United common stock. Each New
United stock option will have the same terms and conditions, exercise
price, vesting and restrictions as the United stock option it replaces.
Q. WHAT DO I NEED TO DO NOW? (PAGES THROUGH )
A. After you read and consider carefully the information contained in this
proxy statement/prospectus, please cast your vote on the merger agreement
by completing, signing and dating your proxy card. You should return your
completed proxy card as soon as possible in the enclosed postage-paid
envelope. If you return your signed proxy card but do not include
instructions on how to vote, your shares will be voted FOR approval and
adoption of the merger agreement and for approval of the amendments to the
1993
I-3
Stock Option Plan and the 1998 Stock Option Plan. You can also attend the
special meeting and vote in person.
If you abstain from voting or do not vote, it will have the effect of
voting against approval and adoption of the merger agreement.
The disinterested directors on our board of directors unanimously recommend
that you vote FOR approval and adoption of the merger agreement. The board
of directors also unanimously recommends that you vote FOR approval of the
amendments to the 1993 Stock Option Plan and the 1998 Stock Option Plan.
Q. IF MY UNITED SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY
BROKER VOTE MY SHARES FOR ME? (PAGES THROUGH )
A. Your broker will vote your shares only if you provide your broker with
instructions on how to vote. You should instruct your broker to vote your
shares by following the directions provided to you by your broker or in the
materials forwarded. Without instructions, your shares will not be voted. A
failure to vote for the merger agreement is equivalent to a vote against
the merger agreement.
Q. WHAT DO I DO IF I WANT TO CHANGE MY VOTE? (PAGES THROUGH )
A. If you want to change your vote after you have mailed your proxy card, send
a later-dated, signed proxy card before the stockholders' meeting to our
secretary, or attend the special meeting and vote in person. You may also
revoke your proxy by sending written notice to our secretary before the
meeting. If you have instructed a broker to vote your shares, you must
follow instructions from your broker to change your vote.
Q. SHOULD I SEND IN MY UNITED STOCK CERTIFICATES NOW? (PAGES THROUGH )
A. No. After the transaction is completed, certificates representing shares of
United Class A common stock will represent shares of New United Class A
common stock. You will receive written instructions for exchanging your
United Class B stock certificates for New United Class A common stock
certificates, and depositary receipts evidencing shares of your United
preferred stock for New United Class A common stock certificates. DO NOT
SEND IN YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD.
Q. AM I ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS? (PAGES THROUGH )
A. Holders of our Class A common stock will not be entitled to appraisal
rights. Holders of United Class B common, Series B preferred, Series C
preferred and Series D preferred stock will be entitled, under Delaware
law, to dissent from the transaction and receive cash equal to the fair
value of their United stock instead of receiving shares of New United Class
A common stock.
You may obtain more information regarding your dissenters' or appraisal
rights discussed in "The Merger Transaction -- Background and Overview of
the Merger, Rights of Dissenting United Stockholders" on page and "The
Meeting and Voting -- Appraisal Rights" beginning on page .
Q. WHOM SHOULD I CALL WITH QUESTIONS? (PAGES THROUGH )
A. If you have any questions about the transaction or if you need additional
copies of the proxy statement/ prospectus, you should contact:
UNITEDGLOBALCOM, INC.
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237
Attn: Investor Relations Department
(303) 770-4001
You may also obtain additional information about United from documents filed
with the SEC, by following the instructions in the section entitled "Where You
Can Find More Information" beginning on page VII-1.
I-4
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and does not contain all of the information that may be
important to you. To fully understand the merger and related transactions that
we propose to complete and for a more complete description of the legal terms of
the merger and related transactions, you should read carefully this entire
document and the other documents to which you have been referred. In particular,
please read the merger agreement attached as Appendix A, which is incorporated
by reference into this proxy statement/prospectus. Please also read "Additional
Information for Stockholders -- Where You Can Find More Information." We have
included page references parenthetically to direct you to a more complete
description of the topics presented in this summary.
When we use the phrase "we," "us," "our" or similar terms, we refer to
UnitedGlobalCom, Inc., the company in which you currently own stock. When we
refer to information as "aggregate," we mean that the information is given in
respect of all systems in which we hold any equity interest as though we wholly
own them. All references to "dollars" and "$" are to United States dollars. For
your convenience, we have converted some amounts in non-dollar currencies to
United States dollars. All references to "euros" and "E" are to European euros.
These foreign currency translations for amounts prior to December 31, 2000 use
the same exchange rates as used in our December 31, 2000 financial statements,
except where stated otherwise. For amounts after December 31, 2000, we have used
September, 2001 exchange rates, except where stated otherwise. These translated
amounts may not currently equal such dollar amounts nor may they necessarily be
converted into dollars at the translation exchange rates used.
INFORMATION ABOUT THE COMPANIES (Pages through )
UNITEDGLOBALCOM, INC.
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237
(303) 770-4001
We are the largest broadband communications provider outside the United States.
We provide video distribution services in 26 countries worldwide and telephone
and Internet access services in a growing number of our international markets.
Our operations are grouped into three major geographic regions: Europe, Latin
America and Asia/Pacific. Our European operations are held through our 53.1%
owned, publicly traded subsidiary, United Pan-Europe Communications N.V. UPC is
the largest Pan-European broadband communications company. UPC provides video,
telephone and Internet access services in 17 countries in Europe and Israel. Our
primary Latin America operation is our 100% owned Chilean operation, VTR
GlobalCom S.A. VTR is Chile's largest multi-channel television provider and a
growing provider of telephone services. Our Asia/Pacific operations are
primarily held through our 55.8% owned, publicly traded affiliate, Austar United
Communications Limited. Austar United owns the largest provider of video
services in regional Australia, various Australian programming interests and a
50.0% interest in the only full-service provider of broadband communications in
New Zealand.
Our operating companies consist primarily of highly penetrated, mature broadband
systems that generate stable cash flow. We also operate a number of earlier
stage broadband businesses. Our primary goal in the majority of these markets is
to capitalize on the opportunity to increase revenues and cash flows through the
introduction of new and expanded video services and the delivery of telephone
and Internet access services over our broadband communications networks. Today,
we are a full-service provider of these video, voice and Internet access
services in most of our Western European markets and in Chile and New Zealand.
For more information, see "Where You Can Find More Information," beginning on
page VII-1.
I-5
NEW UNITEDGLOBALCOM, INC.
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237
(303) 770-4001
New UnitedGlobalCom, Inc., which we refer to as "New United," is a Delaware
corporation formed on February 5, 2001 in connection with the proposed
transactions.
CONTRIBUTION OF ASSETS BY LIBERTY (Pages through )
Liberty owns interests in a broad range of video programming, communications and
Internet businesses in the United States, Europe, South America and Asia with
some of the most recognized and respected brands. In connection with the merger
Liberty will contribute the following assets to New United:
- - notes issued by Belmarken and UPC having an approximate accreted value of
approximately $891.7 million as of January 30, 2002, which notes are
exchangeable into ordinary shares of UPC at $6.85 per share, as adjusted,
pursuant to the terms of the related loan agreements;
- - $200.0 million in cash; and
- - approximately $1,435.3 million and E263.1 million face amount of senior notes
and senior discount notes issued by UPC, which we refer to as the "Liberty UPC
bonds."
We refer to these assets collectively as the "Liberty Contribution Assets."
Liberty will also repay approximately $304.6 million dollars of debt (including
accrued interest of approximately $17.0 million as of January 30, 2002) that
Liberty owes to us by delivery of new Liberty debt securities or, at Liberty's
election, a cash payment, or a combination of debt securities and cash.
THE MERGER AND RELATED TRANSACTIONS
Before the merger, Liberty and its affiliates will contribute all of their
United Class B common stock and a portion of their United Class A common stock
to New United in exchange for the issuance of an equal number of shares of New
United Class C common stock. New United will then convert these shares of United
Class B common stock into an equal number of shares of United Class A common
stock. Also before the merger, the Founders will contribute their United Class B
common stock to New United in exchange for the issuance of an equal number of
shares of New United Class B common stock. Prior to this contribution, the
Founders will convert an adequate number of shares of United Class B common
stock into shares of United Class A common stock to insure that New United does
not acquire 50.0% or more of the voting power of United before the merger. The
Founders will receive one share of New United Class B common stock for each
share of United Class B common stock that is so converted.
Merger Subsidiary will be merged into us, and the outstanding shares of our
Class A common stock and Class B common stock (including our shares still held
by Liberty and its affiliates, but not including shares held by New United) will
be converted into an equal number of shares of New United's Class A common
stock. The outstanding shares of each series of our preferred stock, other than
our Series E preferred stock, will be converted into a number of shares of New
United Class A common stock equal to the number of shares of United Class A
common stock into which the preferred stock would have been convertible
immediately prior to the merger.
New United will issue approximately 281.4 million shares, subject to certain
adjustments, of New United's Class C common stock in exchange for the Belmarken
notes, the Liberty cash contribution and the Liberty UPC bonds. These shares are
in addition to the shares of New United Class C common stock that Liberty will
receive prior to the merger as a result of the exchange of some of the existing
United Class A common stock
I-6
and all of the Class B common stock that it currently holds. The shares of New
United common stock to be issued to Liberty and its affiliates as a result of
the merger and related transactions will represent:
- - an approximate 72.3% economic interest in New United; and
- - an approximate 94.1% voting interest in New United on matters subject to
stockholder approval other than in the election of New United's directors.
As the holder of all of New United's outstanding shares of New United Class C
common stock, Liberty will have the right to designate four out of 12 members of
the New United board of directors. The New United Class C common stock can be
converted into New United Class A common stock at any time or, upon the
occurrence of certain events, into New United Class B common stock. If it is
converted, the holder of such stock will be subject to certain voting
limitations pursuant to an agreement with New United. Liberty will be bound by a
standstill agreement with New United and a stockholders agreement with New
United and the Founders.
NEW UNITED OWNERSHIP OF UNITED (PAGES THROUGH )
The transaction has been structured so that it will not result in a "change of
control" under United's indenture. Prior to the merger, one or more of the
Principals will purchase 1,500 shares of our Series E preferred stock. The
aggregate purchase price for the Series E preferred stock will be approximately
0.5% of the product of the number of outstanding shares of United common stock
outstanding on the closing date and the average market price of our Class A
common stock for the ten trading days prior to closing, but not more than $5 per
share. Assuming our Class A common stock has an average market price of $ and
shares of our Class A common stock and Class B common stock are issued and
outstanding immediately before the closing, the aggregate purchase price for the
Series E preferred stock would be approximately $ . Upon the merger of Merger
Subsidiary into United, United Series E preferred stock will convert into common
stock of United representing approximately 0.5% of the aggregate outstanding
common stock of United and entitling the Principals to elect four of United's
eight directors. New United will hold common stock of United representing
approximately 99.5% of the aggregate outstanding common stock of United and
entitling it to elect the other four directors. See "The Merger
Transaction -- The Merger Agreement and Related Agreements, The Merger
Agreement, Our Merger with New United Subsidiary."
I-7
The following diagram illustrates the ownership structure of New United and
United following the merger.
[United Diagram Chart]
Elects 4 of LIBERTY OTHER FOUNDERS Elects 8 of 12
12 directors New United SHAREHOLDERS New United Class A and B directors of New
of New United Class A and C New United Class A common stock and United due to
by holding common stock common stock United Class A effective voting
Class C common stock common stock power over
combined Class A
and B common stock
94.1% voting 3.1% voting 2.8% voting
72.3% common equity 25.3% common equity 2.4% common equity
NEW UNITED
United Class A and B common stock
50.0% voting 50.0% voting
99.5% common equity 0.5% common equity
UNITED
DESCRIPTION OF THE NEW UNITED STOCK (Pages through )
New United's Class A common stock and Class B common stock have rights and
preferences that are substantially identical to the rights and preferences of
United's Class A common stock and Class B common stock, respectively. New
United's Class C common stock has the same economic rights as New United's Class
A common stock and Class B common stock. The Class C common stock has ten votes
per share and votes together with the Class A common stock (one vote per share)
and Class B common stock (ten votes per share), other than with respect to the
election of directors. The Class A common stock and Class B common stock voting
together have the right to elect eight of New United's 12 directors. The Class C
common stock voting as a separate class has the right to elect the remaining
four New United directors. The approval of a majority of the directors elected
by the holders of the Class C common stock is required for certain significant
transactions. At the option of the holder, each share of Class C common stock
will be convertible into one share of Class A common stock at any time or, under
certain circumstances, into one share of Class B common stock. Shares of Class C
common stock will have purchase rights to prevent the dilution of their voting
power by 10.0% or more of their voting power immediately following their
issuance.
THE SPECIAL MEETING OF STOCKHOLDERS (Pages through )
The United special meeting will be held at , Denver, Colorado, on
, 2002, at 10:00 a.m., local time. At the meeting, you will be asked
to approve and adopt the merger agreement. Holders of at least a majority of the
combined voting power of the outstanding shares of United Class A common stock
and Class B common stock, voting as a single class, as of the record date, must
approve and adopt the merger agreement in order for the merger to be approved
and adopted. Holders of shares of Class A common stock and Class B common stock
representing % of the outstanding votes as of the record date have indicated
they will vote to approve and adopt the merger agreement. At the meeting you
will also be asked to approve amendments to our stock option plans. See
"Overview -- Summary, Amendment of Stock Option Plans."
I-8
APPRAISAL RIGHTS (Pages through )
Holders of United Class B common stock, Series B preferred stock, Series C
preferred stock and Series D preferred stock are entitled under Delaware law to
appraisal rights and to receive payment in cash for the fair value of their
shares.
UNITED'S REASONS FOR THE MERGER AND RELATED TRANSACTIONS; RECOMMENDATION OF THE
UNITED BOARD OF DIRECTORS (Pages through )
We are pursuing the merger and related transactions with New United and Liberty
and its certain affiliates for the following reasons:
- - We believe that the merger and related transactions will strategically
position us for growth.
- - We believe that Liberty is one of the world's most successful media and
communications companies, and the merger and related transactions will
strengthen our relationship with Liberty.
- - Because of the structure of the transaction and the terms of the stockholders
agreement and standstill agreement described in this proxy
statement/prospectus, the transaction will not place control of New United in
the hands of Liberty while that structure and those agreements are effective;
and
- - The transaction also offers our current common and preferred stockholders the
opportunity to continue to participate in our growth following the
transaction.
Our board of directors concluded that the terms of the transactions contemplated
by the merger agreement are in the best interest of United and our stockholders
after considering the potential benefits and negative effects of the merger
described in "The Merger Transaction -- Background and Overview of the
Transaction, Reasons for the Merger." The disinterested members of our board of
directors have approved the merger agreement and recommend that you vote for
approval and adoption of the merger agreement.
FAIRNESS OPINION OF UNITED'S FINANCIAL ADVISOR (Pages through )
In connection with the merger and related transactions, United's financial
advisor, Morgan Stanley & Co., Incorporated, delivered its written opinion,
dated December 7, 2001, that as of such date and subject to and based on the
considerations in its opinion, the exchange ratio pursuant to the merger
agreement is fair from a financial point of view to the holders of shares of
United Class A common stock (other than Liberty, New United, the Founders and
their respective affiliates). The full text of the written opinion of Morgan
Stanley, attached to this proxy statement/prospectus as Appendix B, and should
be read carefully in its entirety. THE OPINION OF MORGAN STANLEY IS DIRECTED TO
UNITED'S BOARD OF DIRECTORS, AND THIS OPINION DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER OF UNITED AS TO HOW TO VOTE AT THE SPECIAL
MEETING.
DIVIDENDS (Pages through )
Neither we nor New United has ever paid dividends on common stock. New United
intends to retain all earnings for continued development and growth, and has no
plans to pay dividends in the future.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (Pages through )
At the closing of the merger, we will receive a tax opinion from our tax
advisors that the transaction will qualify as tax free under Section 351 of the
Internal Revenue Code of 1986, as amended, or the "Code", and that no gain or
loss will be recognized by our stockholders upon receipt of New United stock in
exchange for their United stock. This matter is not free from doubt. The tax
opinion will be subject to a number of assumptions and conditions, including the
accuracy of certain representations made by New United.
I-9
New United will not consolidate the financial results of United for U.S. income
tax purposes. See "The Merger Transaction -- Background and Overview of the
Transaction, Certain United States Federal Income Tax Consequences."
SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA (Pages through )
How We Prepared the Financial Information. We are providing the following
information to aid you in your analysis of the financial aspects of the merger
and related transactions. We derived this information from our consolidated
financial statements. New United has no historical operations. The information
is only a summary and you should read it together with our historical financial
statements and related notes contained in the underlying reports included in
this proxy statement/prospectus. See "Additional Information for Stockholders."
Accounting Treatment. New United will become our parent company and holders of
our common stock will receive stock of New United. Our merger with Merger
Subsidiary will be accounted for by New United as a reorganization of entities
under common control at historical cost similar to a pooling of interests. New
United expects to consolidate the financial position and results of operations
of United upon closing of the transaction. Based on the relationship between
United, New United and New United's shareholders, we believe, under US generally
accepted accounting principles, or "GAAP," that the consolidation of United into
New United properly reflects the substance of the parent-subsidiary
relationship, notwithstanding the lack of technical majority voting control over
United by New United. Although we believe consolidation is appropriate under the
circumstances, the SEC could disagree, resulting in New United accounting for
its investment in United under the equity method of accounting. We intend to
discuss and resolve this issue with the SEC prior to the effective date of this
proxy statement/registration statement. We have presented unaudited pro forma
condensed consolidated statements of operations that reflect the merger and
contribution transaction to give you a better understanding of what our
businesses might have looked like had they been consolidated since January 1,
2000. The unaudited pro forma condensed consolidated balance sheet shows what
New United may have looked like if we had completed the transaction as of
September 30, 2001. You should not rely on the unaudited selected pro forma
condensed consolidated financial information as being indicative of the
historical results that we would have had or the future results that New United
will experience after the transaction. See "Information About New
United -- Unaudited Pro Forma Financial Information of New United" for a
discussion regarding the accounting and financial reporting treatment of the
transaction.
Merger-Related Expenses. We estimate that fees and expenses related to the
transaction, consisting primarily of SEC filing fees, fees and expenses of
investment bankers, attorneys and accountants, and financial printing and other
related charges, will be approximately $25.0 million.
SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF UNITED
In the table below, we provide you with our summary selected historical
consolidated financial data. We prepared this information using our consolidated
financial statements as of the dates indicated and for each of the fiscal years
in the five-year period ended December 31, 2000, and for the nine month periods
ended September 30, 2001 and 2000. We derived our consolidated statement of
operations and balance sheet data below for the fiscal periods ended December
31, 2000, 1999 and 1998, February 28, 1998 and 1997 from our audited financial
statements. The unaudited financial data as of September 30, 2001 and for the
nine month periods ended September 30, 2001 and 2000 contain only normal
recurring accruals, that in the opinion of management, are necessary for a fair
presentation of our results for these periods. The interim results of operations
are not necessarily indicative of results that may be expected for a full year.
I-10
The unaudited financial data presented below are not necessarily comparable from
period to period as a result of several transactions, including acquisitions and
dispositions of consolidated and equity investees. For this and other reasons,
you should read it together with the historical financial statements and related
notes beginning on page F-1 and the discussion under "Information About New
United -- Management's Discussion and Analysis of Financial Condition and
Results of Operations of United."
NINE MONTHS ENDED YEAR ENDED TEN MONTHS YEAR ENDED
SEPTEMBER 30, DECEMBER 31, ENDED FEBRUARY 28,
--------------------------- --------------------------- DECEMBER 31, -------------------------
2001 2000 2000 1999 1998 1998 1997
------------- ----------- ------------- ----------- ------------ ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations
Data:
Revenue............... $ 1,185,860 $ 901,048 $ 1,251,034 $ 720,762 $ 254,466 $ 98,622 $ 31,555
Operating loss........ $(1,302,875) $(802,263) $(1,140,803) $(775,625) $(327,383) $(150,021) $ (87,677)
Net (loss) income..... $(2,098,782) $(884,841) $(1,220,890) $ 636,318 $(545,532) $(342,532) $(138,825)
Basic net (loss)
income per share.... $ (21.66) $ (9.63) $ (13.24) $ 7.53 $ (7.43) $ (4.46) $ (1.79)
Diluted net (loss)
income per share.... $ (21.66) $ (9.63) $ (13.24) $ 6.67 $ (7.43) $ (4.46) $ (1.79)
DECEMBER 31, FEBRUARY 28,
SEPTEMBER 30, ------------------------------------------- -------------------------
2001 2000 1999 1998 1998 1997
------------- ------------- ------------ ------------ ------------ ----------
(IN THOUSANDS)
Balance Sheet Data:
Current assets....... $ 2,263,483 $ 3,080,200 $2,986,266 $ 188,527 $ 410,999 $169,677
Total assets......... $11,410,375 $13,003,773 $9,002,853 $1,542,095 $1,679,835 $819,936
Senior notes and
other long-term
debt, including
current portion.... $10,902,406 $ 9,738,849 $6,041,635 $2,001,953 $1,866,096 $680,360
Stockholders'
(deficit) equity... $(2,294,598) $ (74,218) $1,114,306 $ (983,665) $ (392,280) $ 15,096
UNAUDITED SUMMARY SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
In the table below, we provide you with unaudited summary selected pro forma
condensed consolidated financial information for New United as if the
transaction had been completed on January 1, 2000, for purposes of the
statements of operations, and as if it had been completed on September 30, 2001,
for balance sheet purposes. This unaudited summary selected pro forma condensed
consolidated financial information is derived from our historical financial
statements and based upon certain assumptions and adjustments. You should not
rely on the unaudited summary selected pro forma condensed consolidated
financial information as being indicative of the historical results that we
would have had or the future results that we will experience after the merger.
Assuming completion of the merger, the actual financial position and results of
operations will differ, perhaps significantly, from the pro forma amounts
reflected herein because of a variety of factors, including access to additional
information and changes in value not currently identified between the dates of
the pro forma financial data and the date on which the merger takes place. We
have included detailed unaudited pro forma financial statements and related
notes that provide further information on the transaction
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and related assumptions and adjustments. See "Information About New
United -- Unaudited Pro Forma Financial Information of New United."
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------ -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenue............................................ $ 1,185,860 $ 1,251,034
Operating loss..................................... $(1,302,875) $(1,140,803)
Net loss from continuing operations................ $(1,990,725) $(1,035,307)
Basic and diluted net loss from continuing
operations per New United common share.......... $ (5.80) $ (3.50)
SEPTEMBER 30, 2001
------------------
(IN THOUSANDS)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DATA:
Current assets............................................ $ 1,917,419
Total assets.............................................. $11,325,915
Senior notes and other long-term debt, including current
portion................................................ $ 8,342,529
Total liabilities......................................... $ 9,558,213
Stockholders' (deficit) equity............................ $ 207,729
AMENDMENT OF STOCK OPTION PLANS (Pages through )
Amendment of the 1993 Stock Option Plan.
Our board of directors is recommending that you approve an amendment to our 1993
Stock Option Plan to:
- - increase the number of shares of our common stock reserved for issuance by an
aggregate of 30,000,000 shares from 9,200,000 shares to 39,200,000 shares;
- - increase the maximum number of shares subject to options that may be granted
to any one participant in any calendar year from 500,000 shares to an
aggregate of 5,000,000 shares; and
- - permit the grant of options to acquire, or permit the amendment of outstanding
options granted after December 3, 2001 to provide for the issuance of, up to
an aggregate of 3,000,000 shares of our Class B common stock.
Upon completion of the merger, United's obligations under the 1993 Stock Option
Plan will be assumed by New United, and stock options for United common stock
will be replaced with substitute stock options for New United common stock. Each
New United stock option will have the same terms and conditions, exercise price,
vesting and restrictions as the United stock option it replaces. Our board of
directors believes that this increase will allow us and, following the merger,
New United, to grant options to attract and retain new employees who have not
received grants of options, and to further compensate, where appropriate,
employees who have been previously awarded options. We sometimes refer to this
proposal to amend the 1993 Stock Option Plan as the "1993 Stock Option Plan
amendment proposal."
Amendment of the 1998 Stock Option Plan for Non-Employee Directors.
Our board of directors is also recommending that you approve an amendment to our
1998 Stock Option Plan for Non-Employee Directors to increase the number of
shares of Class A common stock reserved for issuance under this plan by an
aggregate of 2,000,000 shares from 1,000,000 shares of Class A common stock to
3,000,000 shares of Class A common stock. Upon completion of the merger, New
United will assume United's
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obligations under the 1998 Stock Option Plan for Non-Employee Directors, and
stock options for United common stock will be replaced with substitute stock
options for New United common stock. Each New United stock option will have the
same terms and conditions, exercise price, vesting and restrictions as the
United stock option it replaces. Our board of directors believes that this
increase will allow United and, following the merger, New United, to grant
options to encourage directors who are not also employees to continue as
directors and to invest in the capital stock of United and, following the
merger, New United, thereby increasing their personal interests in our continued
success and progress. We sometimes refer to this proposal to amend the 1998
Stock Option Plan for Non-Employee Directors as the "1998 Stock Option Plan
amendment proposal."
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RISK FACTORS
Stockholders voting for the merger will be choosing to invest in New United
stock. An investment in the New United stock is subject to a number of risks.
You should consider carefully the following risk factors, as well as the more
detailed descriptions cross-referenced to the body of this proxy
statement/prospectus, all of the other information in this proxy
statement/prospectus and the information in the documents incorporated by
reference. IN ADDITION TO THE RISKS DESCRIBED BELOW, NEW UNITED WILL BE SUBJECT
TO THE RISKS TO WHICH WE ARE, AND HAVE BEEN, EXPOSED. PLEASE READ "ADDITIONAL
INFORMATION FOR STOCKHOLDERS -- WHERE YOU CAN FIND MORE INFORMATION."
RISKS RELATING TO THE MERGER WITH NEW UNITED
NEW UNITED'S STOCK PRICE COULD BE VOLATILE FOLLOWING THE MERGER
Similar to United's stock, changes in market prices of New United's common stock
may result from, among other things:
- - access to insufficient capital to permit us to fund capital expenditures and
meet operating expenses;
- - quarter-to-quarter variations in operating results;
- - operating results being less than analysts' estimates;
- - changes in analysts' earnings estimates;
- - new technologies, products and services or pricing policies by New United or
its competitors;
- - developments in existing customer or strategic relationships;
- - actual or perceived changes in our business strategy;
- - sales of large amounts of our common stock;
- - changes in market conditions in the telecommunications industry;
- - changes in prospects for telecommunications reform;
- - changes in general economic conditions; and
- - fluctuations in the securities markets in general.
THE MERGER MAY TRIGGER TAXES FOR US AND UPC AND MAY LIMIT OUR ABILITY TO USE NET
OPERATING LOSSES IN THE FUTURE
Because of Liberty's contribution of the Belmarken notes and the Liberty UPC
bonds, UPC may recognize a substantial amount of cancellation of indebtedness,
or "COD," income. Depending on UPC's positive current year earnings and profits,
the amount of passive income recognized by UPC, and UPC's quarterly average
amount of investments in U.S. property, for the tax year in which such COD
income is realized, United may recognize a deemed dividend based on its
proportionate ownership in UPC as of December 31 of the calendar year that
includes the transaction's closing date. United intends to take actions to
minimize the amount of any such deemed dividend.
We will undergo an "ownership change" as defined in Section 382 of the Internal
Revenue Code. As a result, we will be limited in our ability to use our existing
net operating losses to offset future income or gains. New United and United
will not file as part of a consolidated group because New United will not have
the requisite ownership in United required for consolidation. As a result, New
United will be precluded from using any of United's existing net operating
losses to offset future income or gains at the New United level. See "Proposal
1: The Merger Transaction -- Certain United States Federal Income Tax
Consequences."
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RISKS RELATING TO THE COMBINED COMPANY'S BUSINESS
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT NEW UNITED'S FINANCIAL
CONDITION
We are highly leveraged. As of September 30, 2001, pro forma for the repurchase
of the United senior notes due 2009 in the amount of approximately $270.1
million, we had consolidated long-term debt of approximately $10.6 billion which
includes parent company debt of approximately $1.2 billion and subsidiary level
debt of approximately $9.4 billion. New United's consolidated indebtedness will
be reduced by approximately $2.3 billion after the transaction due to Liberty's
contribution to New United of certain of our subsidiaries' indebtedness.
New United currently believes that following the merger as contemplated, cash on
hand, cash flow from New United's future operations, asset sales and its
borrowing capacity will be sufficient to meet New United's obligations as they
become due. In certain circumstances, some of which may be beyond New United's
control, it may have to repay the indebtedness prior to when it is scheduled to
be repaid. New United may not be able to satisfy all of the conditions necessary
for its lenders to continue to lend it money under existing credit facilities.
Some of these conditions are beyond New United's control. We also cannot assure
you that circumstances will not require New United to sell assets or obtain
additional equity or debt financing at the New United level or those of its
subsidiaries and affiliates. New United may not at such time be able to sell
assets or obtain additional financing on reasonable terms or at all.
The degree to which New United will be leveraged could have important
consequences to you, including, but not limited to, the following:
- - a substantial portion of cash flow from operations will be required to be
dedicated to debt service and will not be available for other purposes;
- - New United's ability to obtain additional financing in the future could be
limited;
- - some of New United's borrowings could be at variable rates of interest, which
could result in higher interest expense in the event of increases in interest
rates; and
- - New United's ability to execute its business plan, compete effectively,
respond adequately to unforeseen events and take advantage of opportunities
could be limited.
NEW UNITED WILL LIKELY EXPERIENCE NET LOSSES FOR THE NEXT SEVERAL YEARS
We have experienced significant operating losses every year since we started
business through the year ended December 31, 2000. As of September 30, 2001, we
had an accumulated deficit of approximately $4.0 billion and expect to have
continued losses. We had net losses of $138.8 million, $342.5 million and $545.5
million, for the fiscal years ended February 28, 1997, and 1998 and the ten
months ended December 31, 1998, respectively. We had a net loss of $872.5
million for the year ended December 31, 1999 and $1.3 billion for the year ended
December 31, 2000, prior to accounting for a non-taxable gain of $1.5 billion
and $0.1 million, respectively, from the issuance of subsidiary stock. We had a
net loss of $2.1 billion for the nine months ended September 30, 2001. We expect
that New United will incur substantial additional losses for the indefinite
future. Continuing net operating losses could materially harm New United's
results of operations and increase its need for additional capital in the
future.
THE LOSS OF KEY PERSONNEL COULD WEAKEN NEW UNITED'S TECHNOLOGICAL AND
OPERATIONAL EXPERTISE, DELAY THE INTRODUCTION OF NEW UNITED'S NEW BUSINESS LINES
AND LOWER THE QUALITY OF ITS SERVICE
New United's success and growth strategy depends, in large part, on its ability
to attract and retain key management, marketing and operating personnel, both at
the corporate and operating company levels. New United may find it difficult to
attract and retain these personnel while it is integrating our operations.
Retaining a successful international management team may be particularly
difficult because key employees may be required to live and work outside of
their home countries and because experienced local managers are
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often unavailable. New United may not be able to attract and retain the
qualified personnel it needs for its business.
THE COMPLEXITIES OF NEW UNITED'S OPERATING SYSTEMS, LARGE NUMBERS OF CUSTOMERS
AND RAPID GROWTH COULD DISRUPT NEW UNITED'S OPERATIONS AND HARM ITS FINANCIAL
CONDITION
New United may not plan for or be able to overcome all of the problems it
encounters in introducing its new local telephone and Internet access services,
or the problems it encounters in providing other services to such a large number
of customers. New United's new services may not meet its performance
expectations. This would impede its planned revenue growth and materially harm
its financial condition. Problems with the existing or new systems could delay
the introduction of the new services, increase their costs, or slow down
successful marketing. We cannot be sure whether New United's Internet access
business will be able to handle a large number of online subscribers at high
data transmission speeds. As the number of subscribers goes up, New United may
have to add more fiber connection points in order to maintain high speeds. This
would require more capital, which New United may be unable to raise. If New
United cannot offer high data transmission speeds, customer demand for its
Internet access services would go down. This would harm its Internet access
services business, its operating results and its financial condition. We have
not yet tested the technology that New United plans to use for telephone
services for the numbers of subscribers it expects. It may not function
successfully at these scales. This would harm New United's telephone operations.
New United plans to use back-up batteries for its cable phones for operation
during power failures. These batteries may run out in prolonged power failures.
This would interrupt service and could lead to customer dissatisfaction. New
United may not be able to manage its growth effectively, which would harm its
business, operating results and financial condition.
We are establishing customer care facilities in our markets to support the
launch of telephone and other new services. New United may not be able to
establish well-running customer care facilities staffed with appropriate
personnel. This could harm the introduction of its new services.
SINCE THE TELECOMMUNICATIONS INDUSTRY IN WHICH NEW UNITED WILL OPERATE IS HIGHLY
REGULATED, ADVERSE REGULATION OF NEW UNITED'S SERVICES AND ARRANGEMENTS WITH
OTHER COMPANIES COULD DECREASE THE VALUE OF NEW UNITED'S ASSETS, LIMIT ITS
GROWTH AND HARM ITS STOCK PRICE
The video, telephone and Internet access industries in which New United will
operate are regulated far more extensively than some other industries. In most
of our markets, regulation of video services takes the form of price controls,
programming content restrictions and ownership restrictions. To operate its
telephone services, New United will generally be required to obtain licenses
from appropriate regulatory authorities and have to comply with interconnection
requirements. The growth of New United's Internet access services may decline if
more extensive laws and regulations are adopted with respect to electronic
commerce.
We have begun facing increased competition regulatory review of our operations
in some countries because we own interests in both video distribution and
Internet access systems as well as companies that provide content for video
services and Internet subscribers. For example, in Europe, local operators with
whom UPC Media, one of UPC's subsidiaries, has long term content agreements are
subject to exclusivity obligations that allow UPC Media to offer its content
products to them to the exclusion of other competing providers. These
exclusivity obligations may cause the European Union and national regulatory
agencies or national courts to reduce the period of exclusivity, declare that
our agreements are null and void, or impose fines or civil liability to third
parties. In The Netherlands, and at the European Union level, there are also
debates ongoing on the question of what rights should be afforded to third
parties in terms of access to cable networks. If New United is required to offer
third parties access to its distribution infrastructure, without being able to
specify the terms and conditions of such access, for the delivery of Internet
services, Internet service providers could potentially provide services that
compete with New United's services over New United's network infrastructure.
Providing third parties access to this distribution system may also diminish the
value of New United's assets because New United may not realize a full return on
the capital that we invested in the distribution system. See "Information About
New United -- New United's Business, Regulation." Even if regulatory changes do
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not, in fact, harm New United's business, the mere perception that these changes
will hurt New United's business may harm New United's stock price.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
We caution you that, in addition to the historical financial information
included in this proxy statement/ prospectus, this proxy statement/prospectus
includes certain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 that are based on management's beliefs,
as well as on assumptions made by and information currently available to
management. 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 or
New United say or imply with such forward-looking statements. All statements
other than statements of historical fact included in this proxy
statement/prospectus, including, without limitation, budgeted, future, and
certain other statements under "Overview -- Summary," and located in other
sections of this proxy statement/ prospectus or documents incorporated by
reference regarding our and New United's financial position and business
strategy, may constitute forward-looking statements.
In addition, when we use the words "may," "will," "expects," "intends,"
"estimates," "anticipates," "believes," "plans," "seeks," or "continues" or the
negative thereof or similar expressions in this proxy statement/prospectus, we
intend to identify forward-looking statements. Such forward-looking statements
involve known and unknown risks, including, but not limited to, national and
international economic and market conditions, competitive activities or other
business conditions, and customer reception of our or New United's existing and
future services. These forward-looking statements may include, among other
things, statements concerning our and New United's 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. You should be aware that the multi-channel television,
telephone and Internet/data services industries are changing rapidly, and,
therefore, the forward-looking statements and statements of expectations, plans
and intent in this proxy statement/prospectus are subject to a greater degree of
risk than similar statements regarding certain other industries.
Although we and New United believe that our and its expectations with respect to
the forward-looking statements are based upon reasonable assumptions within the
bounds of our and its knowledge of our and its business and operations as of the
date of this proxy statement/prospectus, we and New United cannot assure you
that our or New United's actual results, performance or achievements will not
differ materially from any future results, performance or achievements expressed
or implied from such forward-looking statements. Important factors that could
cause actual results to differ materially from our expectations are disclosed in
this proxy statement/prospectus, including without limitation in conjunction
with the forward-looking statements included in this proxy statement/prospectus
and under "Overview -- Risk Factors." 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 digital video, telephone and Internet access services,
our ability to manage and grow our newer digital video, telephone and Internet
access services, our ability to secure adequate capital to fund other system
growth and development and our planned acquisitions, our ability to successfully
close proposed transactions, 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. We and our subsidiaries have
announced several potential acquisitions, many of which are subject to various
conditions, some of which may not occur. All subsequent written and oral
forward-looking statements attributable to us or New United or persons acting on
our or New United's behalf are expressly qualified in their entirety by our
discussion of these factors. Other than as may be required by applicable law, we
and New United undertake no obligation to release publicly the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances. We and New United caution you, however, that
this list of risk factors and other cautionary language contained in this proxy
statement/prospectus may not be exhaustive.
I-17
CHAPTER II -- PROPOSAL 1: THE MERGER TRANSACTION
BACKGROUND AND OVERVIEW OF THE TRANSACTION
As part of the merger, we will become a subsidiary of New United and you will
become stockholders of New United. New United will receive from Liberty the
Belmarken notes, the Liberty cash contribution and the Liberty UPC bonds, all in
exchange for approximately 281.4 million shares of New United Class C common
stock.
BACKGROUND OF THE TRANSACTION
United is one of the world's largest global broadband communications provider of
video, voice and data services with operations in 26 countries throughout the
world. Liberty, directly and through its subsidiaries, holds interests in a
broad range of video programming, communications, technology and Internet
businesses in the United States, Europe, South America and Asia. For many years,
United and Liberty have each pursued a strategy that includes the exploration of
international content and broadband distribution opportunities. Each company had
considered the benefits of jointly exploring these opportunities with the other.
In August 1999, United was advised that Liberty would be interested in
purchasing the shares of Class B common stock that were then held by Apollo
Cable Partners, L.P., or "Apollo," and other of United's affiliated
stockholders. Along with United and the Founders, Apollo and its affiliated
stockholders were parties to a stockholders' agreement executed in 1993, that,
among other things, required a selling stockholder to first offer Class B common
stock to United, and to convert Class B common stock to Class A common stock
unless a third party transferee agreed to become a party to the stockholders'
agreement.
In late August 1999, Gene W. Schneider, United's Chairman and Chief Executive
Officer, and Michael T. Fries, United's President, met several times with
representatives of Liberty to discuss Liberty's possible purchase of the Class B
common stock. During these discussions, they considered the terms of a possible
joint venture to which Liberty and UPC would contribute their shares of United
common stock, as well as the terms of the stockholders' and standstill
agreements to which the joint venture, UPC, Liberty and the Founders would
become subject as part of the transaction. The joint venture would be used as a
vehicle to jointly evaluate content and distribution opportunities in Europe.
Liberty was also exploring selling one half of its interest in United to
Microsoft Corporation with Microsoft to also participate in the joint venture.
On August 30, 1999, United's board of directors met to consider approving the
purchase of the Class B common stock by Liberty. The board of directors also
considered the formation of the joint venture among Liberty, Microsoft and UPC.
Pursuant to Section 203 of the Delaware General Corporation Law, if United's
board of directors did not approve Liberty's purchase of Class B common stock
prior to the purchase, subsequent business combinations between the parties
could be restricted. After carefully reviewing the terms of the purchase and the
proposed joint venture, and after having been advised by counsel of the
provisions of Section 203, the board of directors unanimously approved Liberty's
acquisition, and Microsoft's subsequent acquisition, of the Class B common
stock. The board then considered and approved the proposed joint venture.
On September 7, 1999, United announced that Liberty had agreed to purchase
9,859,336 shares of Class B common stock from Apollo, Lawrence F. DeGeorge and
Lawrence J. DeGeorge (then directors of United). Liberty acquired the shares of
Class B common stock in mid-September 1999. On November 15, 1999, Dr. John
Malone, Liberty's Chairman, and Greg Maffei, Microsoft's then chief financial
officer, became members of United's board of directors. Henry P. Vigil,
Microsoft's vice president, consumer strategy and partnerships, became a
director of United on March 8, 2000, upon Mr. Maffei's resignation. Mr. Vigil
has since resigned.
By early 2000, Microsoft had not purchased any of the Class B common stock held
by Liberty. The parties had also not concluded the formation of the announced
joint venture, nor had they entered into the related definitive agreements.
Nonetheless, United and Liberty continued to believe that they could benefit
from the joint pursuit of international content and broadband distribution
opportunities. During February 2000, representatives of Liberty and Messrs.
Schneider and Fries began discussions concerning a structure in which
II-1
United's international operations would be combined with a substantial portion
of Liberty's international operations under a single corporate structure. In the
ensuing weeks, representatives of United and Liberty met on numerous occasions
to discuss such matters as the valuation of the assets Liberty was to
contribute, the number of shares of Class B common stock to be issued in
connection with the contribution of these assets, and appropriate stockholder
and standstill agreements.
United's financial and legal advisors met several times with United's management
concerning the proposed transaction. On May 5, 2000, United's board of directors
met to consider the transaction that United's management had been discussing
with Liberty. Following presentations by United's management, the board of
directors, other than Dr. Malone who abstained, unanimously concluded that the
transaction was in the best interest of United's stockholders. The board of
directors authorized United's management to enter into an agreement with Liberty
on substantially the terms described at the meeting.
On June 25, 2000, United, Liberty and certain of their affiliates entered into
an agreement that set forth the material terms of the transaction approved on
May 5, 2000. United publicly announced the transaction on June 26, 2000. On July
11, 2000, the parties to the June 25 agreement executed an amendment to the
agreement. The purpose of the amendment was to provide for the assumption of
certain additional obligations and assignment of certain additional rights with
respect to LMINT's interests in Argentina. In October 2000, the parties agreed,
subject to approval by their respective boards of directors, to substantially
alter the structure of the transaction if consent for the original structure was
not received from United's bondholders.
On December 7, 2000, United and Liberty executed a letter agreement pursuant to
which United agreed to loan to Liberty up to $510.0 million for use in funding
certain obligations of Liberty's Latin American subsidiaries that would have
been transferred to New United in connection with the transactions contemplated
by the June 25 agreement. United loaned $510.0 million to Liberty for these
purposes. Approximately $241.3 million, including $18.9 million of accrued
interest, was repaid on December 3, 2001.
On February 22, 2001, the parties to the June 25 agreement signed a term sheet
to modify the structure of the transaction. Liberty agreed to invest $1.4
billion in cash in New United in lieu of contributing its interest in TeleWest
Communications plc as contemplated in the June 25 agreement. United also agreed,
subject to completion of the transaction with Liberty on the terms in the term
sheet, to invest E1.0 billion in UPC in lieu of transferring the TeleWest
interest to UPC. UPC, on the one hand, and the other parties to the June 25
agreement, on the other hand, released each other from their respective
obligations under the June 25 agreement. One of the objectives of the February
22 term sheet was to structure the transaction so that it would not result in a
"change of control" under our indenture. A change of control is deemed to occur
under our indenture when, among other things, by merger or otherwise, any person
or group other than "Principals" (or a group controlled by them) becomes the
beneficial owner of our securities having more than 50.0% of the total voting
power normally entitled to vote in the election of directors. The "Principals,"
as defined in our indenture, includes the Founders and certain other of our
former stockholders. If a change of control were to occur, holders of debt
securities subject to our indenture could require us to repurchase their debt
securities at 101% of their accreted value. United announced the terms of the
modified structure on February 23, 2001.
Between the execution of the June 25, 2000 agreement and the May 25, 2001
agreement discussed below, the board of directors of United at regular and
special meetings discussed the status of the transaction with Liberty and
approved the terms of the various agreements and amendments to be executed in
connection with the transaction.
During April and May 2001, the parties met several times to explore alternative
structures to that contemplated by the February 22 term sheet that would be
acceptable to Liberty and at the same time accomplish United's objectives of
receiving an infusion of capital while avoiding a change of control under its
indenture. Over the next few weeks, the parties negotiated revisions to the
transaction that resulted in a new structure, including the issuance of the
Belmarken notes, the formation of New United, and the transfer of certain assets
to New United. We believe the Board of Directors of United met on April , and
May 23, 2001 to review the revised structure and each time approved proceeding
with the transaction.
II-2
On May 25, 2001, Liberty agreed to loan $856.8 million to Belmarken, with UPC as
a co-obligor. Pursuant to the terms of the Belmarken notes, Liberty has the
right to exchange the Belmarken notes for ordinary shares of UPC. On the same
day, United, Liberty and LMINT amended and restated the June 25 agreement to
provide for the contribution of the Belmarken notes, cash and certain
international assets of Liberty to New United and the merger of a subsidiary of
New United with and into United. On May 29, 2001, United and Liberty publicly
announced the terms of the May 25 amended merger transaction.
Pursuant to the May 25 agreement, Liberty agreed to contribute the following
assets to New United:
- - the Belmarken notes;
- - approximately $543 million in cash; and
- - certain other programming and distribution assets, including a 50.0% stake in
Cablevision S.A., the largest cable television operator in Argentina,
substantial interests in two of the largest Latin American programming
operations; 16.0% of Crown Media Holdings, a provider of programming services
to over 65 million subscribers worldwide and other assets.
In exchange for the assets contributed by Liberty, New United agreed to:
- - issue to Liberty between 60.0 and 86.5 million shares of New United's Class C
common stock (depending on the market value of certain of New United's assets
on the first anniversary of closing) for the Belmarken notes and cash
contributed; and
- - issue to Liberty 20.1 million shares of Class C common stock in exchange in
part for the Latin American and other assets;
- - issue to Liberty additional shares of New United Class C common stock, based
on the market price of the United Class A common stock, in respect of
intercompany indebtedness owed to Liberty with respect to one of the Latin
American assets to be contributed; and
- - cause the Liberty subsidiaries acquired in the transaction to repay certain
additional indebtedness owed to Liberty as well as the $510.0 million of loans
owed to United.
As one of the conditions to the transactions contemplated by the May 25
agreement, Liberty required United to resolve, to Liberty's reasonable
satisfaction, certain contractual obligations United had incurred to the holders
of its senior notes due 2009.
After signing the May 25 agreement, United and Liberty began preparing
definitive agreements for the revised merger transaction. During the course of
the summer and autumn of 2001, the parties discussed other alternative
structures for the transaction. United continued to evaluate plans for funding
the requirements of the Latin American assets to be contributed by Liberty to
New United in light of, among other things, the increasingly worsening Argentine
economy. Liberty was reviewing United's and UPC's capital structure in
connection with the decreasing market prices of those companies' debt and equity
securities.
On October 9, 2001, Liberty launched a tender offer for up to 30% of each series
of UPC's outstanding bonds. On November 7, 2001, Liberty completed the tender
offer and acquired approximately $1,155.9 and E261.1 million face amount of
UPC's bonds for approximately $168.4 million and E40.4 million, respectively,
plus accrued interest in cash.
United preferred that New United acquire the Liberty UPC bonds rather than
Liberty's Latin American assets so that it could participate in any
restructuring of UPC's debt obligations. During October and November the parties
met on several occasions to discuss alternative structures to the transaction.
During this time they began pursuing the current structure pursuant to which
Liberty would contribute the UPC bonds rather than its Latin American assets.
The new structure:
- - improves New United's and United's liquidity over the liquidity they would
have had as a result of the May 25 structure,
II-3
- - eliminates the risk of owning assets in Argentina, and
- - reduces Liberty's overall cost per share of New United.
We believe this new structure does not result in a change of control under our
indenture.
On November 30, 2001, the Board of Directors of United approved the merger. They
also approved the issuance of the Series E preferred stock to one or more of the
Principals and the form of the merger agreement.
At a meeting duly called and held on November 30, 2001, after due consideration,
initially the directors on our board other than the Founders and Dr. Malone,
Liberty's chairman, and then our entire board, excluding Dr. Malone, who
abstained, unanimously:
- - determined that the terms of the transaction are advisable and in the best
interest of our stockholders;
- - voted to approve the merger with a subsidiary of New United and related
transactions;
- - determined to recommend that our stockholders approve and adopt the merger and
related transactions; and
- - approved the issuance to Liberty of up to 12 million shares of our Class A
common stock for an aggregate purchase price of approximately $20.0 million.
At that meeting our board, excluding Dr. Malone, who abstained, unanimously
approved the form of the merger agreement. Some of the Principals abstained from
the approval of the issuance to such Principals of our Series E preferred stock
as contemplated by the merger agreement.
On December 3, 2001, United, New United, Merger Subsidiary, Liberty, LMINT,
Liberty Global and the Founders entered into the merger agreement. On the same
day, Liberty also purchased 11,991,018 shares of United Class A common stock for
approximately $20.0 million in cash, and repaid approximately $241.3 million of
debt to United including $18.9 million in accrued interest. United used the net
cash proceeds of the stock sale to repurchase all of its senior notes due 2009.
United also paid $241.3 million in satisfaction of its contractual obligation in
connection with the resale to United of these senior notes by the holders.
REASONS FOR THE MERGER
We are pursuing the merger and related transactions with New United and Liberty
for the following reasons:
- - We believe that the transaction will strategically position us for growth.
- - We believe Liberty is one of the world's most successful media and
communications companies, and the merger and related transactions will
strengthen our relationship with Liberty.
- - The aggregate consideration for the shares of Class C common stock to be
issued by New United in connection with the contribution of the Belmarken
notes, Liberty UPC bonds and Liberty cash contribution represents a premium
share price in relation to the recent market prices of our Class A common
stock and, in the opinion of our board of directors, more closely reflects the
underlying value of our assets.
- - Because of the structure of the transaction, the stockholders agreement and
the standstill agreement described in this proxy statement/prospectus, the
merger will not place complete control of New United in the hands of Liberty
while the structure and those agreements are effective.
- - The transaction also offers our current common and preferred stockholders the
opportunity to continue to participate in our growth following the
transaction.
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In reaching its decision to approve the transactions described in the merger
agreement and to recommend that our stockholders approve and adopt the merger
agreement, our board consulted with our management and its financial and legal
advisors and considered certain factors, including the following:
- - the reasons for the merger that are listed immediately above under the caption
"The Merger Transaction -- Background and Overview of the Transaction, Reasons
for the Merger";
- - the opinion of our financial advisor;
- - the transaction was the result of arms length bargaining; and
- - the tax-free nature of the transaction for our stockholders.
Our board also considered the risks relating to the merger:
- - the risk that the merger will not be consummated; and
- - the other risks described under "Overview -- Risk Factors."
This discussion of the information and factors considered and given weight by
our board is not intended to be exhaustive, but includes the factors considered
material by our board. In reaching its decision to approve the merger and the
other transactions described in the merger agreement and to recommend approval
and adoption of the merger agreement to our stockholders, our board did not
assign any relative or specific weights to the various factors considered.
Instead, our board conducted an overall analysis of the factors described above,
including through discussions with and asking questions of our management and
legal and financial advisors. In considering the factors described above,
individual directors may have given different weight to different factors. Dr.
John Malone, a member of our board and Liberty's Chairman, abstained from any
votes by the board involving the transactions described in the merger agreement.
Some of the Principals abstained from the vote by the board on the issuance to
him of Series E preferred stock as described in the merger agreement.
For the reasons described above, our board, excluding Dr. Malone, who abstained,
has unanimously approved and deemed advisable and in the best interest of our
stockholders the merger agreement and the merger, and recommends that United
stockholders vote FOR approval and adoption of the merger agreement.
OPINION OF UNITED'S FINANCIAL ADVISOR
United retained Morgan Stanley to provide it with financial advisory services
and a financial fairness opinion in connection with the merger and related
transactions. The United board of directors selected Morgan Stanley to act as
United's financial advisor based on Morgan Stanley's qualifications, expertise
and reputation and its knowledge of the business and affairs of United. On
December 7, 2001, Morgan Stanley delivered its written opinion that as of
December 7, 2001, and subject to and based on the considerations in its opinion,
the exchange ratio pursuant to the merger agreement is fair from a financial
point of view to the holders of shares of United Class A common stock (other
than Liberty, New United, the Founders and their respective affiliates).
THE FULL TEXT OF MORGAN STANLEY'S OPINION, DATED DECEMBER 7, 2001, WHICH SETS
FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY MORGAN STANLEY IS
ATTACHED AS APPENDIX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS. WE URGE YOU TO
READ THIS OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION IS
DIRECTED TO THE BOARD OF DIRECTORS OF UNITED, ADDRESSES ONLY THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW OF THE EXCHANGE RATIO PURSUANT TO THE MERGER AGREEMENT
TO THE HOLDERS OF SHARES OF UNITED CLASS A COMMON STOCK (OTHER THAN LIBERTY, NEW
UNITED, THE FOUNDERS AND THEIR RESPECTIVE AFFILIATES), AND DOES NOT ADDRESS ANY
OTHER ASPECT OF THE MERGER OR THE FAIRNESS OF ANY OTHER TRANSACTIONS AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF UNITED AS TO HOW TO VOTE
AT THE SPECIAL MEETING. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF THE OPINION.
II-5
In connection with rendering its opinion, Morgan Stanley, among other things:
- - reviewed certain publicly available financial statements and other information
of United and its subsidiaries (referred to as the United Group);
- - reviewed certain internal financial statements and other financial and
operating data concerning the United Group prepared by the management of the
United Group;
- - discussed the past and current operations and financial condition and the
prospects of the United Group with senior executives of United and management
of United's subsidiaries;
- - reviewed the reported prices and trading activity for the common stock of
United and UPC;
- - reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;
- - performed discounted cash flow analysis with respect to certain subsidiaries
of United, based on publicly available information;
- - participated in discussions and negotiations among representatives of United
and their legal advisors;
- - reviewed the merger agreement, including the schedules and exhibits thereto,
and certain related documents;
- - reviewed the terms of the Belmarken notes and discussed such terms with the
management of United; and
- - performed such other analyses and considered such other factors as Morgan
Stanley deemed appropriate.
Morgan Stanley assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by Morgan Stanley for the
purposes of this opinion. With respect to the internal financial and operating
information, Morgan Stanley assumed that it has been reasonably prepared on the
bases reflecting the best currently available estimates and judgments of the
future financial performance of United and the United Group. In addition, Morgan
Stanley assumed that the merger and the other transactions contemplated by the
merger agreement would be consummated in accordance with the terms set forth in
the merger agreement and that the merger will be treated as a tax-free
reorganization and/or exchange pursuant to the Internal Revenue Code of 1986, as
amended. Morgan Stanley did not make any independent valuation or appraisal of
the assets or liabilities of the United Group, nor was Morgan Stanley furnished
with any such appraisals. The opinion of Morgan Stanley is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to Morgan Stanley as of, December 7, 2001.
In arriving at its opinion, Morgan Stanley was not authorized to solicit, and
did not solicit, interest from any party with respect to the merger or the other
transactions contemplated by the merger agreement. Morgan Stanley was not
expressing its views as to the accounting or tax treatment with respect to the
merger or the other transactions contemplated by the merger agreement for
reporting purposes or otherwise nor did the opinion of Morgan Stanley address
the structure of the merger or the other transactions contemplated by the merger
agreement. Furthermore, the opinion of Morgan Stanley did not address (1)
United's underlying business decision to effect the merger and the other
transactions contemplated by the merger agreement or (2) the fairness of any of
such other transactions contemplated by the merger agreement or any other
transaction or transactions that United or its affiliates might contemplate.
The exchange ratio pursuant to the merger agreement and the other terms of the
transactions contemplated by the merger agreement were determined through
negotiations between United and the other parties to the merger agreement and
were approved by United's board of directors. Morgan Stanley did not recommend
any specific form or amount of consideration or any other terms of the
transactions contemplated by the merger agreement nor did Morgan Stanley advise
that any given form or amount of consideration or any other terms of the
transactions contemplated by the merger agreement constituted the only
appropriate form or amount of consideration for the merger or the other
transactions contemplated by the merger agreement. The opinion of Morgan Stanley
did not in any manner address the prices at which the stock of New United will
trade following consummation of the merger.
II-6
Morgan Stanley is an internationally recognized investment banking and advisory
firm. Morgan Stanley, as part of its investment banking and financial advisory
business, is continuously engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In the ordinary course of their trading, brokerage, and financing
activities, Morgan Stanley and its affiliates may hold long or short positions
or may trade or otherwise effect transactions, for their own account or the
accounts of customers, in debt or equity securities or senior loans of United,
Liberty or their respective affiliates. Morgan Stanley and its affiliates have
provided and currently provide financial advisory and financing services to
United and have received and will receive fees for the rendering of these
services. Morgan Stanley and its affiliates have provided financing services to
Liberty and have received fees for the rendering of these services.
United has agreed to pay Morgan Stanley a financial advisory fee of $4.5
million, one-half of which is payable upon delivery of its written opinion and
the remainder of which is payable upon completion of the transaction. United has
also agreed to reimburse Morgan Stanley for its expenses incurred in performing
its services and to indemnify Morgan Stanley and its affiliates, their
respective officers, directors, employees and agents and each person, if any,
controlling Morgan Stanley or any of its affiliates against certain liabilities
and expenses, including certain liabilities under federal securities laws,
related to or arising out of Morgan Stanley's engagement and any related
transactions.
ACCOUNTING TREATMENT
New United will become our approximately 99.5% stockholder and holders of our
stock prior to the merger will receive stock of New United. Our merger with
Merger Subsidiary will be accounted for by New United as a reorganization of
entities under common control at historical cost similar to a pooling of
interests. New United expects to consolidate the financial position and results
of operations of United upon closing of the transaction. Based on the
relationship between United, New United and New United's shareholders, we
believe, under US generally accepted accounting principles, or "GAAP," that the
consolidation of United into New United properly reflects the substance of the
parent-subsidiary relationship, notwithstanding the lack of technical majority
voting control over United by New United. Although we believe consolidation is
appropriate under the circumstances, the SEC could disagree resulting in New
United accounting for its investment in United under the equity method of
accounting. We intend to discuss and resolve this issue with the SEC prior to
the effective date of this proxy statement/registration statement.
EXCHANGE OF SHARES
Upon completion of the merger, certificates representing shares of United Class
A common stock will represent shares of New United Class A common stock. New
United will appoint an exchange agent after the merger to handle the exchange of
certificates representing United Class B common stock and depositary shares
representing United Series B, Series C or Series D preferred stock converted in
the merger for certificates representing shares of New United Class A common
stock. The exchange agent, which may be affiliated with New United, will send to
each holder of record of United Class B common stock and United Series B, Series
C and Series D preferred stock at the time the merger is completed a letter of
transmittal for use in the exchange as well as instructions that explain how to
surrender United Class B common stock and depositary shares representing United
Series B, Series C and Series D preferred stock to the exchange agent. WE
REQUEST THAT YOU NOT SURRENDER YOUR UNITED CLASS B COMMON STOCK CERTIFICATES OR
DEPOSITARY SHARES REPRESENTING SERIES B, SERIES C OR SERIES D PREFERRED STOCK
FOR EXCHANGE UNTIL YOU RECEIVE YOUR LETTER OF TRANSMITTAL AND INSTRUCTIONS.
II-7
RIGHTS OF DISSENTING UNITED STOCKHOLDERS
United is a Delaware corporation. Section 262 of the Delaware General
Corporation Law provides appraisal rights, sometimes referred to as "dissenters'
rights," under certain circumstances to stockholders of a Delaware corporation
that is involved in a merger.
Record holders of United Class B common stock, Series B preferred stock, Series
C preferred stock and/or Series D preferred stock that follow the appropriate
procedures are entitled to appraisal rights under Section 262 in connection with
the merger.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING TO
APPRAISAL RIGHTS UNDER THE DELAWARE GENERAL CORPORATION LAW AND IS QUALIFIED IN
ITS ENTIRETY BY THE FULL TEXT OF SECTION 262, WHICH IS REPRINTED IN ITS ENTIRETY
AS APPENDIX D TO THIS PROXY STATEMENT/PROSPECTUS. ALL REFERENCES IN SECTION 262
TO A "STOCKHOLDER" AND IN THIS DISCUSSION TO A "RECORD HOLDER" OR A "HOLDER OF
UNITED STOCK" ARE TO THE RECORD HOLDER OF THE SHARES OF UNITED CLASS B COMMON
STOCK, SERIES B PREFERRED STOCK, SERIES C PREFERRED STOCK AND/OR SERIES D
PREFERRED STOCK IMMEDIATELY PRIOR TO THE EFFECTIVE TIME OF THE MERGER AS TO
WHICH APPRAISAL RIGHTS ARE ASSERTED. A PERSON HAVING A BENEFICIAL INTEREST IN
SHARES HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER OR
NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW THE STEPS
SUMMARIZED BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT APPRAISAL RIGHTS.
Under the Delaware General Corporation Law, record holders of United Class B
common stock, Series B preferred stock, Series C preferred stock and/or Series D
preferred stock that follow the procedures set forth in Section 262 and that
have not voted in favor of the approval and adoption of the merger agreement
will be entitled to have their shares of United appraised by the Delaware Court
of Chancery and to receive payment of the "fair value" of such shares, exclusive
of any element of value arising from the accomplishment or expectation of the
merger, together with a fair rate of interest, as determined by the Delaware
Court of Chancery.
Under Section 262, where a merger agreement is to be submitted for approval and
adoption at a meeting of stockholders, as in the case of the United special
stockholders meeting, not less than 20 days prior to the meeting, United must
notify each of its stockholders entitled to appraisal rights that such appraisal
rights are available and include in each such notice a copy of Section 262. THIS
PROXY STATEMENT/PROSPECTUS CONSTITUTES SUCH NOTICE TO THE HOLDERS OF UNITED
STOCK. Any holder of United Class B common stock, Series B preferred stock,
Series C preferred stock and/or Series D preferred stock who wishes to exercise
appraisal rights or wishes to preserve such holder's right to do so should
review the following discussion and Appendix D carefully because failure to
timely and properly comply with the procedures specified in Section 262 will
result in the loss of appraisal rights under the Delaware General Corporation
Law.
A holder of United Class B common stock, Series B preferred stock, Series C
preferred stock and/or Series D preferred stock wishing to exercise such
holder's appraisal rights must deliver to United, before the vote on the
approval and adoption of the merger agreement at the special stockholders
meeting, a written demand for appraisal of such holder's United Class B common
stock, Series B preferred stock, Series C preferred stock and/or Series D
preferred stock and must reasonably inform United of the identity of the holder
of record as well as the intention of the holder to demand an appraisal of the
fair value of the shares held. In addition, a holder of United Class B common
stock, Series B preferred stock, Series C preferred stock and/or Series D
preferred stock wishing to exercise appraisal rights or wishing to preserve such
holder's right to do so must hold of record such shares on the date the written
demand for appraisal is made, must continue to hold such shares through the
effective time of the merger and must not vote in favor of the merger agreement.
A vote in favor of the approval and adoption of the merger agreement, by proxy
or in person, or the return of a signed proxy that does not specify an
abstention or a vote against the approval and adoption of the merger agreement,
will constitute a vote in favor of the merger agreement and will constitute a
waiver of the stockholder's right of appraisal and will nullify any previously
delivered written demand for appraisal.
Only a holder of record of United Class B common stock, Series B preferred
stock, Series C preferred stock and/or Series D preferred stock is entitled to
assert appraisal rights for United Class B common stock, Series B preferred
stock, Series C preferred stock and/or Series D preferred stock registered in
such holder's
II-8
name. A demand for appraisal should be executed by or on behalf of the holder of
record, fully and correctly, as such holder's name appears on such holder's
stock certificates, or depositary share, as the case may be, and must state that
such holder intends thereby to demand appraisal of such holder's shares of
United Class B common stock, Series B preferred stock, Series C preferred stock
and/or Series D preferred stock. A proxy or vote against the approval and
adoption of the merger agreement will not constitute a demand for appraisal.
If the shares of United Class B common stock, Series B preferred stock, Series C
preferred stock and/or Series D preferred stock are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity, and, if the shares of United Class B
common stock, Series B preferred stock, Series C preferred stock and/or Series D
preferred stock are owned of record by more than one person, as in a joint
tenancy or tenancy in common, the demand should be executed by or on behalf of
all joint owners. An authorized agent, including one or more joint owners, may
execute a demand for appraisal on behalf of all joint owners. An authorized
agent, including one or more joint owners, may execute a demand for appraisal on
behalf of a holder of record; however, the agent must identify the record owner
or owners and expressly disclose the fact that, in executing the demand, the
agent is agent for such owner or owners. A record holder, such as a broker who
holds United Class B common stock, Series B preferred stock, Series C preferred
stock and/or Series D preferred stock as nominee for several beneficial owners,
may exercise appraisal rights with respect to the shares of United Class B
common stock, Series B preferred stock, Series C preferred stock and/or Series D
preferred stock held for one or more beneficial owners while not exercising such
rights with respect to the shares of United Class B common stock, Series B
preferred stock, Series C preferred stock and/or Series D preferred stock held
for other beneficial owners. In such case, however, the written demand should
set forth the number of shares of United Class B common stock, Series B
preferred stock, Series C preferred stock and/or Series D preferred stock as to
which appraisal is sought. If no number of shares of United Class B common
stock, Series B preferred stock, Series C preferred stock and/or Series D
preferred stock is expressly mentioned, the demand will be presumed to cover all
United Class B common stock, Series B preferred stock, Series C preferred stock
and/or Series D preferred stock held in the name of the record owner. Holders of
United Class B common stock, Series B preferred stock, Series C preferred stock
and/or Series D preferred stock who hold their shares in brokerage accounts or
other nominee forms and who wish to exercise appraisal rights are urged to
consult with their brokers or other nominees to determine the appropriate
procedures for making a demand for appraisal by such nominee.
All written demands for appraisal of United Class B common stock, Series B
preferred stock, Series C preferred stock and/or Series D preferred stock should
be mailed or delivered to UnitedGlobalCom, Inc., 4643 South Ulster Street, Suite
1300, Denver, Colorado 80237, Attention: Secretary, so as to be received before
the vote on the approval and adoption of the merger agreement at the United
special stockholders meeting.
Within 10 days after the effective time of the merger, United, as the surviving
corporation in the merger, must send a notice as to the effectiveness of the
merger to each person that satisfied the appropriate provisions of Section 262.
Within 120 days after the effective time of the merger, but not thereafter,
United or any holder of United Class B common stock, Series B preferred stock,
Series C preferred stock and/or Series D preferred stock entitled to appraisal
rights under Section 262 and who has complied with the foregoing procedures, may
file a petition in the Delaware Court of Chancery demanding a determination of
the fair value of such shares. United is not under any obligation, and has no
present intention, to file a petition with respect to the appraisal of the fair
value of the United Class B common stock, Series B preferred stock, Series C
preferred stock and/or Series D preferred stock. Accordingly, it is the
obligation of the holders of the shares of United Class B common stock, Series B
preferred stock, Series C preferred stock and/or Series D preferred stock to
initiate all necessary action to perfect their appraisal rights within the time
prescribed in Section 262.
Within 120 days after the effective time of the merger, any record holder of
United Class B common stock, Series B preferred stock, Series C preferred stock
and/or Series D preferred stock that has complied with the requirements for
exercise of appraisal rights will be entitled to request in writing a statement
from United setting forth the aggregate number of shares of United Class B
common stock, Series B preferred stock, Series C preferred stock and/or Series D
preferred stock not voted in favor of the merger with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such
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statement must be mailed within 10 days after the written request has been
received by United or within 10 days after expiration of the period for delivery
of demands for appraisal, whichever is later.
If a holder of United Class B common stock, Series B preferred stock, Series C
preferred stock and/or Series D preferred stock timely files a petition for
appraisal and serves a copy of such petition upon United, United will then be
obligated, within 20 days, to file with the Delaware Register in Chancery a duly
verified list containing the names and addresses of all stockholders who have
demanded an appraisal of their shares and with whom agreements as to the value
of their shares have not been reached. After notice to such stockholders as
required by the Delaware Court of Chancery, the Delaware Court of Chancery is
empowered to conduct a hearing on such petition to determine those stockholders
that have complied with Section 262 and that have become entitled to appraisal
rights. The Delaware Court of Chancery may require the holders of shares of
United Class B common stock, Series B preferred stock, Series C preferred stock
and/or Series D preferred stock that demanded payment for their shares to submit
their stock certificates to the Delaware Register in Chancery for notation of
the pendency of the appraisal proceeding. If any stockholder fails to comply
with such direction, the Delaware Court of Chancery may dismiss the proceedings
as to such stockholder.
After determining the holders of United Class B common stock, Series B preferred
stock, Series C preferred stock and/or Series D preferred stock entitled to
appraisal, the Delaware Court of Chancery will appraise the fair value of their
shares of United Class B common stock, Series B preferred stock, Series C
preferred stock and/or Series D preferred stock exclusive of any element of
value arising from the accomplishment or expectation of the merger, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value. Holders considering seeking appraisal should be aware that
the fair value of their United Class B common stock, Series B preferred stock,
Series C preferred stock and/or Series D preferred stock as determined under
Section 262 could be more than, the same as or less than the value of the
consideration that they would otherwise receive in the merger if they did not
seek appraisal of their United Class B common stock, Series B preferred stock,
Series C preferred stock and/or Series D preferred stock and that investment
banking opinions as to fairness from a financial point of view are not
necessarily opinions as to fair value under Section 262. The Delaware Supreme
Court has stated that "proof of value by any techniques or methods that are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in the appraisal proceedings. More
specifically, the Delaware Supreme Court has stated that: "Fair value, in an
appraisal context, measures 'that which has been taken from the stockholder,
viz., his proportionate interest in a going concern.' In the appraisal process
the corporation is valued 'as an entity,' not merely as a collection of assets
or by the sum of the market price of each share of its stock. Moreover, the
corporation must be viewed as an on-going enterprise, occupying a particular
market position in the light of future prospects." The Delaware Court of
Chancery will also determine the amount of interest, if any, to be paid upon the
amounts to be received by persons whose shares of United Class B common stock,
Series B preferred stock, Series C preferred stock and/or Series D preferred
stock have been appraised. The costs of the action may be determined by the
Delaware Court of Chancery and taxed upon the parties as the Delaware Court of
Chancery deems equitable. The Delaware Court of Chancery may also order that all
or a portion of the expenses incurred by any holder of United Class B common
stock, Series B preferred stock, Series C preferred stock and/or Series D
preferred stock in connection with an appraisal, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts utilized in the
appraisal proceeding, be charged pro rata against the value of all of the shares
of United Class B common stock, Series B preferred stock, Series C preferred
stock and/or Series D preferred stock entitled to appraisal.
Any holder of United Class B common stock, Series B preferred stock, Series C
preferred stock and/or Series D preferred stock that has duly demanded an
appraisal in compliance with Section 262 will not, after the effective time of
the merger, be entitled to vote such stockholder's shares of United Class B
common stock, Series B preferred stock, Series C preferred stock and/or Series D
preferred stock subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on those shares (except dividends or
other distributions payable to holders of record of United Class B common stock,
Series B preferred stock, Series C preferred stock and/or Series D preferred
stock as of a date prior to the effective time of the merger).
II-10
If any holder of United Class B common stock, Series B preferred stock, Series C
preferred stock and/or Series D preferred stock that demands appraisal of such
holder's shares of United Class B common stock, Series B preferred stock, Series
C preferred stock and/or Series D preferred stock under Section 262 fails to
perfect, or effectively withdraws or loses such holder's right to appraisal, as
provided in the Delaware General Corporation Law, the United Class B common
stock, Series B preferred stock, Series C preferred stock and/or Series D
preferred stock of such holder will be converted without interest into New
United Class A common stock. A holder of United Class B common stock, Series B
preferred stock, Series C preferred stock and/or Series D preferred stock will
fail to perfect, or will effectively lose, the right to appraisal if no petition
for appraisal is filed within 120 days after the effective time of the merger. A
holder may withdraw a demand for appraisal by delivering to United a written
withdrawal of the demand for appraisal and an acceptance of the merger. Any such
attempt to withdraw made more than 60 days after the effective time of the
merger will, however, require the written approval of United. Further, once a
petition for appraisal is filed, the appraisal proceeding may not be dismissed
as to any holder absent court approval.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING APPRAISAL
RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A HOLDER OF UNITED
CLASS B COMMON STOCK, SERIES B PREFERRED STOCK, SERIES C PREFERRED STOCK AND/OR
SERIES D PREFERRED STOCK WILL BE ENTITLED TO RECEIVE ONLY THE CONSIDERATION SET
FORTH IN THE MERGER AGREEMENT FOR EACH SHARE OF UNITED CLASS B COMMON STOCK,
SERIES B PREFERRED STOCK, SERIES C PREFERRED STOCK AND/OR SERIES D PREFERRED
STOCK ISSUED AND OUTSTANDING IMMEDIATELY PRIOR TO THE EFFECTIVE TIME OF THE
MERGER OWNED BY SUCH HOLDER).
The foregoing is a summary of certain of the provisions of Section 262 and is
qualified in its entirety by reference to the full text of such Section 262, a
copy of which is attached as Appendix D to this proxy statement/prospectus.
II-11
THE MERGER AGREEMENT AND RELATED AGREEMENTS
THE MERGER AGREEMENT
OVERVIEW
Pursuant to the merger agreement among Liberty, LMINT, Liberty Global, New
United, the Founders, Merger Subsidiary and us and related agreements among the
parties:
- - we will become a subsidiary of New United;
- - the holders of the various classes of our outstanding common stock will
acquire an equal number of shares of New United common stock;
- - the holders of United preferred stock, other than holders of United Series E
preferred stock, will receive a number of shares of New United Class A common
stock equal to the number of shares of United Class A common stock they would
have received had they converted the preferred stock immediately prior to the
merger;
- - Liberty will have the right to elect four of New United's 12 directors;
- - the Founders will have the effective voting power to elect a majority of New
United's directors;
- - New United will have the right to elect half of our directors and one or more
of the Principals will have the right to elect the other half of our
directors;
- - Liberty will contribute the Belmarken notes to New United and, as a result,
Belmarken and UPC will owe the amounts payable under such notes, which will
have an approximate accreted value of $891.7 million as of January 30, 2002,
to New United, rather than to Liberty;
- - Liberty will contribute $200.0 million in cash to New United;
- - Liberty will contribute to New United the Liberty UPC bonds and, as a result,
UPC will owe the obligations represented by approximately $1,435.3 million and
E263.1 million of face value, of its senior notes and senior discount notes to
New United rather than to Liberty;
- - Liberty will also repay approximately $304.6 million dollars (including
accrued interest as of January 30, 2002) of debt that Liberty owes to us by
issuance of new debt securities of Liberty or, at Liberty's option, in cash,
or a combination of such debt securities and cash;
- - Liberty will acquire approximately 281.4 million shares, subject to certain
adjustments, of New United's Class C common stock, all in exchange for the
Liberty Contribution Assets, which number will be adjusted so that the
aggregate value of the Liberty's contribution to New United (the value of the
Belmarken notes, plus the cash contribution, plus Liberty's cost of acquiring
the Liberty UPC bonds), divided by the total number of New United shares
issued in respect of that contribution plus approximately $20.0 million will
equal $5.00; and
- - Liberty will receive approximately 21.9 million shares of New United Class C
common stock in exchange for the approximately 9.9 million shares of United
Class B common stock and approximately 12 million of the shares of United
Class A common stock currently owned by Liberty.
FORMATION AND CAPITALIZATION OF NEW UNITED
New United was formed on February 5, 2001 as a Delaware corporation. Gene W.
Schneider is the sole stockholder of New United at this time. New United will
have three classes of common stock: Class A common stock, Class B common stock
and Class C common stock. The rights and privileges of the common stock are
described below under "Description of New United Capital Stock."
II-12
Liberty and the Founders currently hold 9,859,336 and 8,870,332 shares of our
Class B common stock, respectively, and 13,154,018 shares and 967,388 shares of
our Class A common stock, respectively. These shares represent approximately
19.7% and 8.4%, respectively, of our outstanding Class A common stock and Class
B common stock taken as a whole, and approximately 39.5% and 31.7%,
respectively, of the combined voting power of our outstanding capital stock. In
addition, UPC and public holders hold 5,569,240 and 78,310,335 shares of our
Class A common stock, respectively, and 0 and 297,466 of our Class B common
stock, respectively. The shares owned by UPC represent approximately 4.7% of our
outstanding Class A and Class B common stock, taken as a whole. As a majority
owned subsidiary of United, UPC is unable to vote the United shares it holds.
The shares held by our public holders represent approximately 67.2% of our Class
A and Class B common stock, taken as a whole, which represents approximately
28.8% of the combined voting power of our outstanding capital stock. Public
shareholders also own 113,983 shares of our Series B preferred stock, 425,000
shares of our Series C preferred stock and 287,500 shares of our Series D
preferred stock. Prior to the merger, we will issue 1,500 shares of Series E
preferred stock to one or more of the Principals in return for a per share
purchase price equal to 1/1,500th of the product (rounded up to the nearest
cent) of (a) the lesser of (1) $5.00 and (2) the average market price of our
Class A common stock for a ten trading day period ending on and including the
third trading day prior to the closing, multiplied by (b) a number equal to (1)
the quotient of X divided by Y minus (2) X, where "X" equals the aggregate
number of shares of our common stock issued and outstanding immediately prior to
the closing and "Y" equals 0.995049505. For example, if the 1,500 shares of
Series E preferred stock were issued on today's date, the per share purchase
price would be equal to 1/1,500th of the product (rounded up to the nearest
cent) of (a) the average market price of our Class A common stock for the ten
trading day period ending on and including the third trading day prior to
today's date ($ ), multiplied by (b) a number equal to (1) the quotient of X
divided by Y minus (2) X, where "X" equals (the aggregate number of
shares of our common stock issued and outstanding on today's date) and "Y"
equals 0.995049505.
Gene W. Schneider will contribute to New United, prior to the effective time of
the merger, one share of United Class A common stock as a contribution to New
United's capital. Liberty and Liberty Global will contribute to New United,
prior to the effective time of the merger, all of the shares of United Class B
common stock and a portion of the United Class A common stock that it owns in
exchange for an equal number of shares of New United Class C common stock. New
United will then convert these shares of United Class B common stock into an
equal number of shares of United Class A common stock.
Each of the Founders will contribute, prior to the effective time of the merger,
all of their United Class B common stock to newly-formed single-member limited
liability companies. Each of these companies will merge with and into New
United, with New United surviving such mergers, and the Founders will receive in
exchange a number of shares of New United Class B common stock equal to the
number of shares of United common stock held by the companies at the time of
these mergers. Prior to these mergers, the companies will each convert an
adequate number of the shares of United Class B common stock into an equal
number of shares of United Class A common stock in order to ensure that New
United does not have 50.0% or more of the voting power of United at any time
before the merger, so as to avoid a "change of control" under United's
indenture.
OUR MERGER WITH MERGER SUBSIDIARY
The merger agreement provides that:
- - following receipt of the requisite approvals, consents, waivers and expiration
or termination of relevant waiting periods, Merger Subsidiary will be merged
into us;
- - each outstanding share of our Class A common stock and Class B common stock,
other than shares held by New United or by us as treasury stock, will be
converted into one share of New United Class A common stock;
- - each share of our Series B preferred stock, Series C preferred stock and
Series D preferred stock will be converted into a number of shares of New
United Class A common stock equal to the number of shares of
II-13
United Class A common stock into which such share of preferred stock was
convertible immediately prior to the merger;
- - each outstanding share of our stock held by New United or by us as treasury
stock will be cancelled;
- - each outstanding United stock option will be converted into an option to
receive the same number of the same class of shares of New United stock at the
same exercise price;
- - all of the shares of our Series E preferred stock will be converted into an
aggregate of 1,500,000 shares of Class A common stock of United as the
surviving corporation in the merger; and
- - the outstanding shares of Merger Subsidiary's Class B common stock and Class C
common stock will be converted into an aggregate of 1,500,000 shares of Class
B common stock and 300,000,000 shares of Class C common stock, respectively,
of United as the surviving corporation in the merger.
Following the transactions:
- - the holders of our Class A and Class B common stock immediately prior to the
transaction (other than Liberty, its affiliates and the Founders with respect
to the shares they directly contribute to New United) will become holders of
an equal number of shares of New United Class A common stock;
- - the holders of our Series B, C and D preferred stock will become holders of a
number of shares of New United Class A common stock equal to the number of
shares of United Class A common stock into which the preferred stock is
convertible immediately prior to the merger;
- - the Founders will hold a number of shares of New United Class B common stock
equal to the number of shares of our Class B common stock they held prior to
the transaction;
- - Liberty will hold a number of shares of New United Class C common stock equal
to the number of shares of our Class B common stock and a portion of our Class
A common stock it held prior to the transaction plus an additional number of
shares of New United Class C common stock as a result of the contribution of
the Liberty Contribution Assets;
- - one or more of our Principals will hold all shares of the Class A common stock
of United as the surviving corporation in the merger that allow such Principal
or Principals, as the case may be, to designate one-half of United's directors
following the merger; and
- - New United will hold shares of the Class B common stock of United as the
surviving corporation in the merger that allow New United to designate
one-half of United's directors following the merger.
The transactions have been structured so as not to result in a "change of
control" under our indenture. A change of control is deemed to occur under our
indenture when, among other events, by merger or otherwise, any person or group
other than the Principals (or a group controlled by them) becomes the beneficial
owner of securities having more than 50.0% of the total voting power normally
entitled to vote in the election of directors. If a change of control were to
occur, holders of debt securities subject to our indenture could require us to
repurchase their debt securities at 101% of their accreted value. Following the
merger, one or more Principals will own 50.0% of our stock entitled to vote in
the election of directors and will be entitled to elect half of our directors.
New United will elect the other half of our directors. The Founders will have
effective voting control to elect a majority of New United's directors.
As a result of the merger and related transactions, New United will own
approximately 99.5% of the common equity interest in us and one or more
Principals will own the remaining common equity interest in us. As the holder of
the Class A common stock of United following the merger, one or more of our
Principals will be entitled to elect four of United's eight directors. New
United, as the holder of the Class B common stock of United following the
merger, will be entitled to elect the remaining four of United's directors. The
Class C common stock of United, all of which will be owned by New United
immediately following the merger, will not vote in the election of directors.
Other than in the election of directors, each share of Class A, Class B and
II-14
Class C common stock of United after the merger will have one vote per share and
will vote together with the shares of each other class on all matters subject to
stockholder approval.
If any of the shares of Class A common stock of United following the merger are
transferred to a person who is not a Principal under our indenture, the shares
will convert automatically into an equal number of shares of United Class C
common stock. The Principals' Class A common stock will automatically be
converted into shares of our Class C common stock, which does not vote in the
election of directors, if the notes issued under our indenture have been
redeemed in full, the change of control covenants of the indenture have been
defeased or waived, or a "change of control" within the meaning of the indenture
has already occurred, whichever occurs first. Each share of the United Class C
common stock received upon exchange of a share of our Class A common stock will
be exchangeable for a number of shares of New United Class A common stock equal
to 1/1,500,000 of the result (rounded to the nearest 1/10,000th of a share) of
(A) the quotient of X divided by Y minus (B) X, where "X" equals the aggregate
number of shares of our common stock issued and outstanding immediately prior to
the closing and "Y" equals 0.995049505. For example, if a share of our Class C
common stock received upon exchange of a share of our Class A common stock were
exchanged for New United Class A common stock on today's date, the number of
shares of New United Class A common stock received would be equal to 1/1,500,000
of the result (rounded to the nearest 1/10,000th of a share) of (A) the quotient
of X divided by Y minus (B) X, where "X" equals the aggregate number of shares
of our common stock issued and outstanding on today's date and "Y" equals
0.995049505.
DIRECTORS OF NEW UNITED
Following the merger, the initial directors of New United will include Albert M.
Carollo, Sr., John P. Cole, Michael T. Fries, John C. Malone, John F. Riordan,
Curtis Rochelle, Gene W. Schneider, Mark L. Schneider and Tina M. Wildes, all of
whom are currently directors of United, and Robert R. Bennett and Gary S.
Howard.
OTHER TERMS OF THE MERGER AGREEMENT
Timing of closing. The merger and the other transactions contemplated by the
merger agreement will close on the date agreed by the parties to the agreement,
but no later than five business days following the date the last of the
conditions to close the transaction have been satisfied.
Conditions to closing. The obligations of the parties under the merger
agreement are conditioned on the satisfaction of or, to the extent legally
permissible, the waiver of the following conditions:
- - receipt of certain governmental approvals and waivers;
- - expiration or early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976;
- - receipt of material approvals, waivers and consents from non-governmental
third parties;
- - no withdrawal of the fairness opinions required by United;
- - receipt of legal and tax opinions;
- - approval of the merger agreement by United stockholders;
- - material accuracy of the representations and warrants set forth in the merger
agreement; and
- - no acceleration under or conflict with our indenture.
Principal covenants. The principal covenants in the merger agreement include an
agreement by United and New United to carry on their respective businesses in
the ordinary course consistent with past practice. United and New United also
agreed, with a few exceptions, not to transfer or encumber material assets,
amend material agreements, acquire or merge or consolidate with other companies,
pay certain dividends, borrow funds, issue capital stock and, in some cases,
enter into certain related-party transactions. United, New United
II-15
and the Founders have also agreed not to solicit any offer for the sale of all
or a substantial portion of United's assets or any business combination with
United. The parties agreed to use commercially reasonable efforts to effect the
transactions contemplated by the merger agreement, including obtaining requisite
consents and approvals, making necessary filings and providing certain notices.
New United, the Founders, Liberty and certain parties affiliated with Liberty
are obligated to execute and deliver the stockholders agreement, standstill
agreement, the voting agreement, registration rights agreements and certain
related agreements at the closing of the merger. New United is also obligated to
apply for the listing of its Class A common stock on the Nasdaq National Stock
Market.
United has agreed to use its commercially reasonable efforts to cause its
publicly held affiliates to comply with the covenants. None of the covenants
can, by their terms, conflict with obligations of United and its subsidiaries
under the material debt instruments to which they are parties.
In addition, until the first anniversary of the closing or the termination date
of the merger agreement, United, New United and Liberty will not, without the
prior written consent of the other, purchase any debt securities issued by UPC
or any senior secured notes issued under United's indenture unless that
indenture requires the purchase of United's senior secured notes.
Representations and warranties. Liberty, LMINT, Liberty Global, United, New
United and the Founders made to each other typical and customary representations
and warranties. These include representations and warranties that relate to:
- - corporate existence and authorization to enter in the contemplated
transaction;
- - absence of any breach of organizational documents, law or certain material
agreements as a result of the contemplated transaction;
- - absence of brokers' and finders' fees;
- - absence of legal proceedings;
- - ownership of subsidiaries in the case of United and, in the case of Liberty
and the Founders, United stock; and
- - title to assets.
In addition, United has represented and warranted as to matters that relate to:
- - United's filings with the SEC and the absence of undisclosed changes since its
second quarter filings;
- - capitalization and ownership of its subsidiaries and affiliates;
- - absence of undisclosed liabilities;
- - compliance with laws;
- - tax matters;
- - contracts and commitments; and
- - the fact that United is not an investment company.
Termination of the merger agreement. The merger agreement may be terminated
prior to the closing upon the agreement of the parties. If the closing has not
occurred prior to February 28, 2002, any party may, subject to potential
extensions through April 29, 2002, terminate the agreement, provided that the
failure to close was not the result of a breach by the terminating party or by
its affiliates of its respective covenants or representations and warranties.
Indemnification. The Founders, Liberty, LMINT, Liberty Global, United and New
United have agreed to indemnify one another and their affiliates against
liabilities arising out of a breach of their respective representations,
warranties and covenants in the merger agreement, except that, in the case of a
breach of
II-16
representations and warranties not related to ownership of the United Class B
common stock and certain other matters, indemnification is limited to
liabilities in excess of an aggregate of $150.0 million.
Appraisal rights. Record holders of United Class B common stock, Series B
preferred stock, Series C preferred stock and/or Series D preferred stock that
follow the appropriate procedures are entitled to appraisal rights under Section
262 of the Delaware General Corporation Law in connection with the merger. For
more information about such appraisal rights, see "-- Background and Overview of
the Transaction, Rights of Dissenting United Stockholders."
LOAN TRANSACTIONS
On December 7, 2000, we entered into an agreement with Liberty pursuant to which
we agreed to lend Liberty up to $510.0 million to provide Liberty with funds to
satisfy certain obligations of Liberty and LMINT with respect to certain of
Liberty's Latin American assets, to retire debt of one of Liberty's subsidiaries
that is guaranteed by Liberty, and to make certain other investments. As of the
date of this proxy statement/ prospectus, we had loaned Liberty all of the
$510.0 million. The loans bear interest at the rate of 8.0% per annum and are
due on the closing date, or, if earlier, the date the merger agreement is
terminated. On December 3, 2001, Liberty repaid approximately $241.3 million of
principal and accrued interest on these loans. On the closing date or, if
earlier, the date the merger agreement is terminated, Liberty will repay the
remainder of the loans, totaling approximately $304.6 million (including accrued
interest as of January 30, 2002).
If the balance of these loans is paid at the closing (rather than an earlier
date if the merger agreement is terminated), Liberty may make such payments
either in cash or by delivering certain notes issued by Liberty, or the "Liberty
2009 Notes." The Liberty 2009 Notes will be substantially identical to Liberty's
7 7/8% Senior Notes due 2009 that were originally issued on July 7, 1999, and
will bear interest on the principal amount thereof at a rate equal to the market
yield on such existing Liberty notes as of the closing date, as determined in
accordance with the merger agreement. If for any reason the closing does not
occur, the loans will be due and payable in cash on the date the merger
agreement is terminated.
If Liberty chooses to repay the loans by delivering Liberty 2009 Notes, the
Liberty 2009 Notes will not be registered under the Securities Act and will be
subject to certain transfer restrictions. Upon the issuance of the Liberty 2009
Notes, Liberty and United will enter into a registration rights agreement,
pursuant to which United will be entitled, at any time following the closing, to
require Liberty to file a shelf registration statement with respect to the
Liberty 2009 Notes. In addition, if United desires to transfer any Liberty 2009
Notes to any person that is not a wholly owned subsidiary of United, United must
first offer to sell the Liberty 2009 Notes to Liberty for cash. If Liberty does
not agree to purchase all of the Liberty 2009 Notes, United may, within the time
period set forth in the merger agreement, sell the Liberty 2009 Notes to a bona
fide third party for a cash purchase price no less than the purchase price
offered to Liberty.
OWNERSHIP OF NEW UNITED AFTER CLOSING OF THE TRANSACTION
As of the date of this proxy statement/prospectus, our common stock is held
approximately as set forth below:
UNITED
-----------------------------------------------------
NUMBER OF COMMON SHARES PERCENTAGE
---------------------------------------- OF TOTAL
HOLDER CLASS A CLASS B TOTAL COMMON
------ ----------- ----------- ------------ ----------
Public................................ 78,310,335 297,466 78,607,801 67.2%
Liberty............................... 13,154,018 9,859,336 23,013,354 19.7%
Founders.............................. 967,388 8,870,332 9,837,720 8.4%
UPC................................... 5,569,240 - 5,569,240 4.7%
---------- ---------- ----------- -----
98,000,981 19,027,134 117,028,115 100.0%
II-17
After the merger and related transactions have been completed, New United's
Class A common stock, Class B common stock and Class C common stock will be held
approximately as set forth in the table below. The number of shares holders of
our Series B, Series C and Series D preferred stock will receive in the merger
with respect to the accrued and unpaid dividends on the preferred stock will be
based on the average trading price of United Class A common stock for the five
days prior to the closing. For purposes of this table and throughout this proxy
statement/prospectus, we have assumed the average trading price will be $3.02
per share, the closing price on December 3, 2001, the date the merger agreement
was signed and announced.
NEW UNITED
--------------------------------------------------------------------
NUMBER OF COMMON SHARES PERCENTAGE
------------------------------------------------------- OF TOTAL
HOLDER CLASS A CLASS B CLASS C TOTAL COMMON
------ ------------ ---------- ------------ ------------ ----------
Liberty................. 1,177,970 - 303,240,166 304,418,136 72.3%
Public.................. 101,145,712 - - 101,145,712 24.0%
Founders................ 967,388 8,870,332 - 9,837,720 2.4%
UPC..................... 5,569,240 - - 5,569,240 1.3%
---------- -------- ---------- ---------- -----
108,860,310 8,870,332 303,240,166 420,970,808 100.0%
Each share of our and New United's Class A common stock is entitled to one vote
and each share of our and New United's Class B common stock and New United's
Class C common stock is entitled to ten votes in all matters subject to
stockholder approval, other than in the election of directors. Holders of New
United Class A common stock and Class B common stock, voting as a single class,
will be entitled to elect eight of New United's 12 directors. Holders of New
United Class C common stock will be entitled to elect four of New United's 12
directors. The holders of our capital stock with voting power in all matters
subject to stockholder approval are, and the holders of New United's capital
stock will be, approximately as set forth in the tables below as of the date of
this proxy statement/prospectus and after the merger, respectively. As a
subsidiary of United, UPC cannot vote the United common stock that it holds.
PERCENTAGE OF VOTING POWER OF
PERCENTAGE OF VOTING POWER OF NEW UNITED COMMON STOCK, OTHER
HOLDER EXISTING UNITED COMMON STOCK THAN IN THE ELECTION OF DIRECTORS
------ ------------------------------- ---------------------------------
Liberty...................... 39.5% 94.1%
Founders..................... 31.7% 2.8%
Public....................... 28.8% 3.1%
----- -----
100.0% 100.0%
FOUNDERS AGREEMENT FOR NEW UNITED
The Founders, as a result of their aggregate ownership of shares of New United
Class A common stock and Class B common stock, will own approximately 46.2% of
the voting power entitled to vote in the election of New United's eight
directors elected by the holders of New United's Class A and Class B common
stock. Upon the conversion in full of the Class C common stock into Class B
common stock, the Founders will be subject to a voting agreement and Liberty
will be subject to a standstill agreement pursuant to which the Founders and
Liberty will each nominate four members of New United's board of directors,
which board will in turn nominate the remaining four directors. The Founders and
Liberty will vote their shares in favor of all such nominees, and may seek the
removal of any director only on the terms described in the standstill agreement
and voting agreement.
II-18
CERTAIN OTHER RIGHTS OF HOLDERS OF CLASS C COMMON STOCK
Under the terms of New United's certificate of incorporation following the
closing, New United must have the approval of the majority of directors elected
by the holders of Class C common stock, before it can:
- - acquire or dispose of assets or issue equity or debt securities, in any
12-month period, in an amount exceeding 30.0% of its market capitalization
(excluding a merger, sale of New United, sale of all or substantially all of
the assets of New United, or a reorganization among affiliated entities,
provided that the Class C common stockholders are treated equally with Class B
common stockholders and all Class B common stockholders are treated equally);
- - issue any additional shares of Class C common stock (other than upon the
exercise of Liberty's preemptive rights or rights under the Stockholders
Agreement or the exercise of the proportional purchase right granted to
holders of New United's Class C common stock under New United's certificate of
incorporation);
- - issue any options exercisable for Class B common stock (other than upon the
exercise of certain options that have been assumed by New United or that are
permitted under the terms of New United's certificate of incorporation);
- - remove or replace its Chief Executive Officer, except in the case of one of
four candidates pre-approved by Liberty;
- - amend its charter or bylaws in a manner adverse to Liberty or the holders of
Class B or Class C common stock or their affiliates;
- - enter into a material transaction with a Founder or other affiliate of New
United, excluding subsidiaries of New United and employee matters in the
ordinary course of business;
- - amend, alter or repeal any provision of United's charter that would be adverse
to Liberty or its affiliates; or
- - sell, assign, transfer or otherwise dispose of, or take any action in exercise
of, or waive or amend any rights with respect to any debt securities issued or
indebtedness incurred by UPC, or any of its subsidiaries, which debt is held
by or which indebtedness is owed to New United.
If any issuance of the additional Class B common stock dilutes the voting power
of the outstanding Class C common stock in New United by 10.0% or more (on an
as-converted basis), Liberty will have the right to maintain its voting power by
purchasing additional shares of Class C common stock at the same per share price
as the Class B common stock per share issue price or by exchanging its Class A
shares for Class C shares. At the option of the holder, each share of New United
Class C common stock can be converted into one share of New United Class A
common stock at any time and, upon the occurrence of certain conversion events,
related to United's outstanding indebtedness, into one share of New United Class
B common stock. If no conversion event has occurred by June 25, 2010, shares of
Class C common stock may be converted into 1.645 shares of Class A common stock
or, in some cases, 1.645 shares of Class B common stock which could result in
the issuance of a substantial number of additional shares.
The terms of the Class C common stock are set out in the certificate of
incorporation of New United. The form of the certificate of incorporation of New
United is attached hereto as Appendix C.
STOCKHOLDERS AGREEMENT
At the closing of the merger, New United, Liberty and Liberty Global (together
with their permitted transferees, the "Liberty Parties") and certain Founders,
including Gene W. Schneider, United's Chief Executive Officer, Mark L. Schneider
and various Schneider family trusts (such Founders together with their permitted
transferees, the "Founder Parties") will enter into a stockholders agreement,
the material terms of which include the following:
Limitations on Conversion. Until such time as the provisions of United's
indenture that require United to offer to repurchase the bonds issued thereunder
upon a change of control of United are rendered inapplicable
II-19
(either by redemption of the bonds, defeasance in accordance with the terms of
the indenture, waiver or amendment) or such a change of control occurs, other
than as a result of a breach of the standstill agreement by Liberty, the Liberty
Parties will not convert any shares of New United Class C common stock into New
United Class A common stock if, after giving effect to the conversion, the
Liberty Parties would have more than 50.0% of the combined voting power of the
New United Class A common stock and New United Class B common stock outstanding
or would have more voting power than the New United Class A common stock and New
United Class B common stock owned by the Founder Parties. This limitation on the
Liberty Parties' right to convert will terminate if any person or group other
than the Founders acquires either 50.0% of the total voting power of New United
or more voting power than that held by the Founder Parties and will not apply to
conversions made by the Liberty Parties in connection with sale or hedging
transactions or any related pledges of their shares.
Change of Control Covenants. Subject to specified exceptions for governmental
licenses, New United will not take or permit any action that would result in it
being subject to any covenants restricting the ability of United, New United or
any of their affiliates to effect a change of control, other than such covenants
contained in United's indenture, unless any such change of control involving or
caused by the action of any Liberty Party (other than a transfer of control, if
control were obtained, by a Liberty Party to a third party) is exempted from the
application and effects of any such restrictive covenants. New United will not
take or permit any action to extend or perpetuate the existing change of control
covenants beyond the maturity date of the bonds issued under its outstanding
indenture.
Rights of First Offer. Subject to specified exceptions, which are summarized
below, no Liberty Party may transfer any shares of New United Class B or Class C
common stock, or convert any such shares to New United Class A common stock,
unless it first offers the Founders the opportunity to purchase the shares, and
no Founder Party may transfer any shares of New United Class B common stock, or
convert any such shares to New United Class A common stock, unless it first
offers the Liberty Parties the opportunity to purchase the shares. If either the
Liberty Parties or the Founder Parties decline to exercise their right of first
offer, then the party proposing to transfer shares of New United Class B or
Class C common stock to a third party must convert the shares to New United
Class A common stock immediately prior to such transfer, unless, in the case of
a proposed transfer by the Founder Parties, the number of shares being
transferred by all Founder Parties to the same transferee represents at least a
majority of all shares of New United Class B common stock owned by the Founder
Parties, their permitted transferees, and any other person that the Founder
Parties have designated to purchase shares from the Liberty Parties pursuant to
the Founder Parties' right of first offer. Prior to any event that permits the
conversion of Class C common stock into Class B common stock, the number of
shares that the Liberty Parties may transfer to a third party, when taken
together with the number of shares of Class A common stock previously
transferred to a third party following their conversion from Class B or Class C
common stock, shall not exceed the number of shares of Class A common stock
acquired after the closing of the merger from parties other than New United
(including upon conversion of Class C common stock) and the Founder Parties,
plus the number of shares of Class A common stock that the Liberty Parties
receive in the merger upon conversion of any Class A common stock of United
acquired after the execution and delivery of the merger agreement.
Permitted Transfers. The Liberty Parties and Founder Parties may transfer their
shares to permitted transferees without having to first offer them to any other
party. The Founder Parties' permitted transferees include other Founders, family
members and heirs of the Founders and partnerships or trusts owned by or for the
benefit of the Founders. The Liberty Parties' permitted transferees include
Liberty and any entity controlled by Liberty. The parties may pledge their
shares of New United Class B common stock in loan and hedging transactions;
provided that the applicable pledgee does not become a registered holder of the
shares and agrees to comply with the right of first offer provisions of the
stockholders agreement, with shortened notice and exercise periods, in
connection with any foreclosure on the pledged shares. Pledges of the Founders'
shares that were in existence prior to May 25, 2001 are also allowed under the
agreement. The stockholders agreement specifies some transactions that are not
considered to be transfers for purposes of the agreement, and thus are generally
not subject to the rights of first offer and other restrictions on transfer.
Such transactions include: conversions of Class C common stock to Class B common
stock or Class B or Class C
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common stock to Class A common stock, transfers pursuant to a tender or exchange
offer approved by a majority of the New United board of directors, transfers by
operation of law in connection a merger, consolidation, statutory share exchange
or similar transaction involving New United, transfers pursuant to a liquidation
approved by a majority of the New United board of directors and, in the case of
Liberty, a transfer of (or control of) a Liberty Party which results in voting
securities representing at least a majority of the outstanding voting power of
such party or any ultimate parent entity of such party or its successor being
beneficially owned by persons who prior to such transaction were beneficial
owners of a majority of the outstanding voting power of the outstanding voting
securities of Liberty (or any publicly traded class of voting securities of
Liberty designed to track a specified group of assets or businesses), or who are
control persons of any combination of the foregoing, as long as such ultimate
parent entity of such transferred party becomes a party to the stockholders
agreement and the standstill agreement with the same rights and obligations as
Liberty.
Tag-Along Rights. If the Liberty Parties propose to transfer a majority of
their shares of New United Class B and Class C common stock to persons other
than permitted transferees, and the Founder Parties do not purchase such shares,
then the Founder Parties will be entitled to transfer a proportionate amount of
their shares of New United Class B common stock to the same purchaser on no less
favorable terms. If the Founder Parties propose to transfer a majority of their
shares of New United Class B common stock to persons other than permitted
transferees, and the Liberty Parties do not purchase such shares, then the
Liberty Parties will be entitled to transfer a proportionate amount of their New
United Class A, Class B and/or Class C common stock to the same purchaser on no
less favorable terms.
Drag-Along Rights. If the Founder Parties propose to transfer a majority of
their New United Class B common stock to an unaffiliated third party that is not
a permitted transferee, and the Liberty Parties do not purchase such shares,
then the Founder Parties can require the Liberty Parties to transfer to the same
transferee on terms no less favorable than those on which the Founder Parties
transfer their shares, at the election of the Liberty Parties, either (i) all of
their shares of New United Class B and Class C common stock, (ii) all of their
New United common stock or (iii) a proportionate amount of each class of New
United common stock that they own; provided that the Liberty Parties will be
required to transfer all of their New United common stock if, in connection with
the proposed transfer by the Founder Parties, Mr. Gene W. Schneider, G.
Schneider Holdings, Co., The Gene W. Schneider Family Trust, Mr. Mark L.
Schneider and The MLS Family Partnership LP propose to transfer all shares of
New United common stock beneficially owned by them, which shares of common stock
include shares of New United Class B common stock representing at least 40% of
the greater of the number of shares of New United Class B common stock owned by
them on the date of the stockholders agreement and the number of shares of
United Class B common stock owned by them on June 25, 2000.
Exchange of Shares. New United will, on request, permit Liberty and its
affiliates to exchange any shares of New United Class A common stock owned by
them for shares of New United Class C common stock, or, following the conversion
of Class C common stock, Class B common stock, on a one-for-one basis. New
United will, upon request and subject to applicable laws, permit Liberty and its
affiliates to exchange any shares of capital stock of UPC, and any other
affiliate of New United (which shares were acquired from UPC or such affiliate),
for shares of New United Class C common stock or, following the conversion of
the Class C common stock, Class B common stock. Without limiting the generality
of the foregoing, at anytime after UPC is entitled to convert shares of its
Series 1 Convertible Preference Shares held by Liberty to UPC ordinary shares,
(i) Liberty will be entitled to exchange such shares for New United Class C
common stock or, following the conversion of the Class C common stock, Class B
common stock, and (ii) New United will be entitled to call such shares from
Liberty in exchange for shares of New United Class C common stock or, following
the conversion of the Class C Common stock, Class B common stock, provided such
exchange is tax-free to Liberty, in either case on terms specified in the
stockholders agreement.
Termination. The tag-along provisions and the drag-along provisions terminate
on June 25, 2010, unless the stockholders agreement is terminated earlier. The
stockholders agreement will terminate as to any Liberty Party or Founder Party
the voting power of whose equity securities is reduced below 10% of the voting
power of United such party held on June 25, 2000. The stockholders agreement
will terminate in its entirety on the
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first to occur of (a) all of the Founders and their permitted transferees or Mr.
Gene W. Schneider and Mr. Mark L. Schneider and their permitted transferees
(other than the other Founders) holding less than 40% of the greater of the
number of shares of New United Class B common stock owned by them on the date of
the stockholders agreement and the number of shares of United Class B common
stock owned by them on June 25, 2000 (assuming for such purpose that any shares
transferred by such persons to a Liberty Party continue to be owned by such
person) or (b) the transfer by the Founder Parties of a majority of their New
United Class B common stock to one or more Liberty Parties or one or more
unaffiliated third parties.
STANDSTILL AGREEMENT
At the closing of the Merger, New United, Liberty and Liberty Global will enter
into a standstill agreement, the material terms of which include the following:
Limitation on Acquiring Securities. The Liberty Parties will not acquire common
stock of New United in an amount that would cause their percentage of the total
common stock of New United outstanding, on a fully-diluted basis, to exceed the
greater of (a) the sum of (i) the percentage beneficially owned by them
immediately after the closing of the transactions contemplated by the merger
agreement, plus (ii) the percentage represented by any shares acquired by them
from (x) other parties to the stockholders agreement, including New United, and
(y) from UPC pursuant to a release agreement, dated February 22, 2001, among
UPC, United, Liberty and LMI, or the "UPC Release," plus (iii) the percentage
represented by an additional 25 million shares; provided that the number
determined by clauses (a)(i) and (a)(iii) shall not exceed 81%, and (b) the sum
of 81% plus the percentage determined by clause (a)(ii)(x). Liberty will not
solicit offers for New United from persons other than Liberty Parties or
Founders or call a meeting of stockholders or seek amendments to New United's
bylaws without the consent of New United's board of directors. Liberty will not
be in breach of the restrictions on its maximum share ownership if its share
ownership exceeds the maximum percentage specified solely because of any action
taken by New United in respect of which no Liberty Party takes any action other
than in its capacity as a holder of equity securities of New United, including,
for example, a tender offer by New United to acquire shares of its common stock
that Liberty elects not to accept or the issuance of a dividend by New United
payable in cash or stock that the Liberty Parties elect to receive in stock.
Appraisal; Voting Rights. No Liberty Party will exercise appraisal rights as to
any matter. Liberty will cause its shares to be present at meetings of New
United stockholders so as to be counted for quorum purposes. Except for matters
as to which Liberty or the directors elected by the holders of New United Class
C common stock have approval rights under the New United certificate of
incorporation, the standstill agreement, the stockholders agreement or the New
United Covenant Agreement, or which, pursuant to the bylaws of New United are
required to be approved by the board of directors prior to being submitted to
the stockholders (in any such case, if such approval has not been obtained),
Liberty will vote its shares of common stock on all matters submitted to a vote
of stockholders, other than the election or removal of directors or a merger,
sale or similar transaction involving New United, either as recommended by New
United's board of directors or in the same proportion as all other holders of
common stock of New United. Liberty will vote its shares of New United common
stock against any merger, consolidation, recapitalization, dissolution or sale
of all or substantially all of New United's assets not approved by New United's
board of directors.
Until such time as the provisions of United's indenture that require United to
offer to repurchase the bonds issued thereunder upon a change of control of
United are rendered inapplicable (either by redemption of the applicable bonds,
defeasance in accordance with the terms of the indenture, waiver or amendment)
or such a change of control occurs, other than as a result of a breach of the
standstill agreement by Liberty, Liberty will vote its shares in the election of
directors in its sole discretion.
Following such time (unless, in the case of the occurrence of a change of
control as to which a defeasance or waiver of the change of control restrictions
has not occurred, more than $200 million remains outstanding under our
indenture), Liberty will be entitled to nominate four members of New United's
board of directors or, if greater, a number equal to at least 33 1/3% of New
United's board of directors, and the Founder Parties will be entitled to
nominate the same number of directors. New United's board of directors will
nominate the
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remaining members of the board of directors. The Liberty Parties will then be
obligated to vote their shares of common stock of New United in favor of such
nominees to the board of directors and, unless requested to do so by the
Founders, will not vote to remove any board members nominated by the Founders
except for cause.
Limitations on Issuing High Vote Securities. New United will not issue any New
United Class B common stock or other equity security having more votes per share
than New United Class A common stock, or rights to acquire any such securities,
other than to Liberty Parties and their controlled affiliates, except that New
United may issue up to an aggregate of 3 million shares of New United Class B
common stock upon exercise of options outstanding at the time of the closing of
the Merger or subsequently issued options, and New United may, on a majority
vote of its board of directors, issue preferred stock convertible into New
United Class B common stock (but with no other conversion rights, no voting
rights other than as are customary in preferred stocks and no special rights),
provided that such preferred stock cannot be so converted prior to such time as
United is no longer subject to the change of control provisions of the
indentures described above, and the total number of shares of New United Class B
common stock issuable upon conversion of such options and preferred stock must
be less than the number of shares that would, if issued after such time as
United is no longer subject to such change of control provisions in such
indentures, entitle the Liberty Parties to exercise the purchase rights
described below.
Limitations on Transfer. No Liberty Party may transfer any equity securities of
New United, unless the transfer is (i) to Liberty or a controlled affiliate of
Liberty that is or becomes a party to the standstill agreement, (ii) to one or
more underwriters in connection with a public offering (iii) to one or more
Founders or purchasers designated thereby pursuant to the right of first offer
provisions of the stockholders agreement, provided that any such transferee, if
other than a Founder, becomes subject to the stockholders agreement and, if
other than a Founder or permitted transferee of a Founder, the standstill
agreement, (iv) pursuant to the tag-along and drag-along provisions of the
stockholders agreement, (v) otherwise made in accordance with the provisions of
the stockholders agreement; provided that if the transfer is to a non-affiliate,
the transferring Liberty Party has no reason to believe that any person or group
would obtain more than ten percent of New United's voting power in the election
of directors as a result of the transfer. The Liberty Parties may pledge their
equity securities to financial institutions in connection with loan and hedging
transactions that comply with the stockholders agreement.
Offers for New United. If any person makes an offer to (i) acquire equity
securities of New United from New United or one or more of its stockholders by
public offer, (ii) acquire all or substantially all of New United's assets or
(iii) effect a merger, consolidation, share exchange or similar transaction, New
United will give Liberty notice of such offer promptly upon receipt thereof, or,
if giving such notice would violate any applicable law or agreement, promptly
after public announcement of such offer. In no event will New United give
Liberty notice of such an offer less than 10 days prior to accepting it. If New
United does not reject such an offer within 5 days, then any Liberty Party or
its affiliates may propose a competing offer to New United's board of directors,
and the board of directors will in the exercise of its fiduciary duties consider
in good faith waiving any provision of the standstill agreement that would
restrict actions that might be taken by a Liberty Party or its affiliates in
support of such a competing offer.
If New United proposes to sell all or substantially all of its assets, effect a
merger, consolidation, share exchange or similar transaction or issue New United
Class B common stock in an amount that would not trigger Liberty's purchase
rights described below, then New United will give Liberty notice of such
proposal and will give Liberty an opportunity to propose an alternative
transaction to New United's board of directors.
Purchase Right. If, following such time as United is no longer subject to the
change of control provisions of the indentures described above under "Appraisal;
Voting Rights," New United issues equity securities having more votes per share
than the New United Class A common stock and such issuance, together with any
prior issuance of high vote securities as to which the Liberty Parties did not
have purchase rights, results in the voting power of the Liberty Parties' equity
securities being reduced below 90% of their voting power prior to such issuance
or the first such issuance, the Liberty Parties will be entitled to acquire a
number of additional shares of New United Class B common stock from New United
that would restore the Liberty Parties' voting power to 100% of what it was
prior to such issuance or the first such issuance (whichever is greater).
Liberty
II-23
may acquire such New United Class B common stock by purchasing it from New
United for cash or other form of consideration acceptable to New United and/or
by exchanging shares of New United Class A common stock on a one-for-one basis.
The Liberty Parties will not be entitled to the foregoing purchase rights in
respect of any issuance of New United Class B common stock in an amount such
that, immediately following such issuance, the persons who were holders of
equity securities immediately prior to such issuance then hold less than 30% of
the voting power of New United's outstanding equity securities in the election
of directors generally.
Preemptive Right. If, at any time after the signing of the standstill
agreement, New United proposes to issue any New United Class A common stock or
rights to acquire New United Class A common stock, the Liberty Parties will have
the right, but not the obligation, to purchase a portion of such issuance
sufficient to maintain their then existing equity percentage in New United on
terms at least as favorable as those given to any third party purchasers. This
preemptive right will not apply to (i) the issuance of New United Class A common
stock or rights to acquire New United Class A common stock in connection with
the acquisition of a business from a third party not affiliated with New United
or any Founder that is directly related to the then existing business of New
United and its subsidiaries, (ii) the issuance of options to acquire New United
Class A common stock to employees pursuant to employee benefit plans approved by
New United's board of directors (such options and all shares issued pursuant
thereto not to exceed 10% of New United's outstanding common stock), (iii)
equity securities issued as a dividend on all equity securities or upon a
subdivision or combination of all outstanding equity securities, or (iv) equity
securities issued upon the exercise of rights outstanding as of the closing of
the merger or as to the issuance of which the Liberty Parties had the right to
exercise their preemptive rights.
Termination. The standstill agreement will terminate on June 25, 2010, except
for the restrictions on New United's ability to issue additional high vote
securities and the Liberty Parties' purchase and preemptive rights; provided
that the Agreement will terminate in its entirety upon termination of the
stockholders agreement.
STOCKHOLDER AND STANDSTILL AGREEMENTS IF THE MERGER AGREEMENT IS TERMINATED
The merger agreement provides that if the merger agreement is terminated prior
to the merger being consummated, then the parties will negotiate in good faith
to enter into a stockholders agreement and a standstill agreement similar to the
stockholders agreement and standstill agreement described above, as if all
references therein to New United were references to United and all references to
New United Class C common stock were references to United Class B common stock;
except that (a) the maximum percentage of United common stock that Liberty and
its controlled affiliates will be permitted to acquire under such standstill
agreement, on a fully diluted basis, will be limited to the sum of (i) the
percentage beneficially owned by them immediately after the execution and
delivery of the merger agreement (including that represented by the shares of
United Class A common stock purchased by a subsidiary of Liberty from United on
December 3, 2001), plus (ii) the percentage represented by any shares acquired
by them from (x) other parties to the stockholders agreement, including United,
and (y) pursuant to the UPC Release, plus (iii) the percentage represented by an
additional 20 million shares; and (b) 11,972,048 of the shares of United Class A
common stock acquired by Liberty on December 3, 2001 and any shares of United
Class A common stock acquired by Liberty and its controlled affiliates in
reliance on clause (iii) above will not be exchangeable for shares of United
Class B common stock pursuant to the exchange rights provided for in the
stockholders agreement.
NEW UNITED COVENANT AGREEMENT
New United has agreed that, without the consent of Liberty, it will not:
- - enter into any contract that purports to be binding on Liberty or its
affiliates;
- - enter into any material contract with respect to which an act or omission by
Liberty or its affiliates that would result in a default or cancellation, or
give rise to a repayment obligation or a loss of a material benefit;
II-24
- - enter into any contract between itself and its subsidiaries, on the one hand,
and us and our subsidiaries, on the other;
- - transfer, pledge or otherwise dispose of the Belmarken notes to any affiliate
of New United; or
- - amend the provision of its bylaws that requires approval by the board of
directors or a board committee of expenditures exceeding $10 million.
New United will also provide Liberty with certain financial information for use
by Liberty in connection with the preparation of its financial statements.
REGISTRATION RIGHTS AGREEMENTS
Liberty will enter into a registration rights agreement with New United at the
closing providing Liberty and its affiliates certain registration rights with
respect to securities of New United owned by them. The Founders will enter into
an identical registration rights agreement with New United and will terminate
their existing registration rights agreement with United. These registration
rights will include "demand" rights and "piggyback" rights.
Under the terms of its registration rights agreement, Liberty will be entitled
to demand up to five registrations with respect to securities of New United or
any successor entity now owned or hereafter acquired by Liberty or its
affiliates provided the securities to be registered in any such registration
equal a minimum of the lower of 10.0% of the number of New United shares
beneficially owned by Liberty immediately after giving effect to the merger, or
all of the New United securities owned by Liberty. The Founders will be entitled
to demand up to five registrations with similar minimum requirements. Neither
Liberty nor the Founders may make more than two demands for registration in any
12 month period and New United, subject to certain limitations, may preempt and
in certain instances postpone registration of securities owned by Liberty or the
Founders, or an offering of securities registered under a shelf registration.
Liberty and the Founders may demand that the securities they own be offered and
sold on a continuous or delayed basis in accordance with relevant securities
laws. New United will agree to use its reasonable best efforts to cause each
registration statement to remain effective for such a period, not to exceed 180
days (or two years, in the case of a shelf registration), as may be reasonably
necessary to effect the sale of the securities. Each registration rights
agreement will also provide that a registration will not count as a demand
registration until it has become effective and at least 90.0% of the New United
securities requested to be included in such registration have been registered
and sold. New United will use its reasonable best efforts to permit a period of
at least 180 consecutive days during which a demand registration may be effected
or an offering of securities may be effected under an effective shelf
registration.
Each registration rights agreement will also provide Liberty and the Founders
unlimited "piggyback" rights for New United securities owned by them.
"Piggyback" rights will permit Liberty and the Founders to include the New
United securities they own in New United's registration of other securities.
Such piggyback rights will be subject to cutback by the underwriters involved in
such registration, priority of the party initiating the registration and certain
lockup limitations. Each registration rights agreement will also limit New
United from granting other piggyback registration rights superior to Liberty's
and the Founders' rights.
Although New United will be responsible for all expenses incurred in connection
with any registration, New United will not be responsible for applicable
underwriting discounts, selling commissions or stock transfer taxes. Each
registration rights agreement will also include customary indemnification and
contribution provisions.
FOUNDERS AGREEMENT FOR UNITED
At the closing of the merger, certain Principals will enter into a founders
agreement that sets forth the manner by which holders of United's Class A common
stock will select one-half of the members of United's board of directors for so
long as such stock remains outstanding. The founders agreement will also
regulate the voting of the Class A common stock on other matters, and put in
place restrictions on the transfer of its Class A common stock.
II-25
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
NATURE OF DISCUSSION
The discussion in this section summarizes certain United States Federal income
tax consequences of the transaction that we believe may be material to a typical
holder of United common or preferred stock, each of which we refer to as a
"Holder" and as further limited below. The discussion is intended to provide
general information only; it is not a complete technical analysis or a listing
of all potential tax effects to a particular Holder. The discussion is directed
only to Holders who hold their United stock as a capital asset within the
meaning of Section 1221 of the Internal Revenue Code of 1986, or the "Code." The
discussion does not include the potential effects of state, local and foreign
tax laws on Holders, and it is impracticable to comment on all aspects of United
States federal income tax that may affect a particular holder. Further, the tax
consequences to a Holder may vary depending on the Holder's particular situation
or status. Certain types of Holders (including insurance companies, tax-exempt
organizations, mutual funds, retirement plans, financial institutions, dealers
in securities or foreign currency, persons who hold their United stock as part
of a straddle, hedge, conversion, synthetic security, or constructive sale
transaction for United States Federal income tax purposes or who have a
functional currency other than the United States dollar, investors in
pass-through entities, traders in securities who elect to mark-to-market,
certain expatriates, and Holders who are not U.S. citizens or residents,
domestic corporations or partnerships, or U.S. trusts or estates) may be subject
to tax rules that are not discussed herein or that differ significantly from the
rules summarized below. Accordingly, each Holder is urged and expected to
consult with his or her individual tax advisor to consider all of the tax
effects (including the effects of applicable state, local and foreign laws) that
the transaction may have on the Holder.
LAW SUBJECT TO CHANGE
The discussion in this section is based on the current provisions of the Code,
the applicable Treasury Regulations, or the "Regulations," and public
administrative and judicial interpretations of the Code and Regulations. All of
these provisions and interpretations are subject to change, and such changes can
be applied retroactively. Accordingly, future changes in these provisions and
interpretations could affect the validity of the following discussion.
NO RULING
Neither United nor New United has not sought and will not seek any ruling from
the Internal Revenue Service, or the "IRS," with respect to United States
federal income tax consequences of the transaction. United expects to receive an
opinion from its tax advisor that the transaction will qualify as tax free under
Section 351 of the Code. The opinion of the tax advisor will be subject to
certain assumptions and conditions, including the accuracy of certain
representations made by New United. The matters described in this section and in
the opinion are not free from doubt. The IRS could take positions concerning the
tax consequences of the transaction that are different from those set forth in
the opinion and this section, and a court could sustain any such IRS positions.
EFFECT OF THE TRANSACTION ON UNITED AND NEW UNITED
Neither United nor New United is expected to recognize any gain or loss directly
as a result of the transaction. However, the transaction may result in the
realization of substantial COD income by UPC. Depending on UPC's positive
current year earnings and profits, the amount of passive income recognized by
UPC, and UPC's quarterly average amount of investments in U.S. property during
the tax year in which such COD income is realized, United may recognize a deemed
dividend based on its proportionate ownership in UPC as of December 31 of the
calendar year that includes the transaction's closing date. United intends to
take actions to minimize the amount of any such deemed dividend.
II-26
In addition, the transaction may result in United undergoing an "ownership
change" as defined in Section 382 of the Code, which could limit United's
ability to utilize existing net operating losses to offset future income or gain
recognized by United.
For U.S. income tax purposes, New United and United will not file as part of a
consolidated group, because New United will not have the requisite control of
United to permit consolidation.
EFFECT OF THE TRANSACTION ON HOLDERS OF UNITED COMMON STOCK AND UNITED PREFERRED
STOCK WHO PARTICIPATE IN THE MERGER
The steps of the transaction are expected to be treated as a single exchange for
United States federal income tax purposes, and that exchange is expected to
qualify for tax-free treatment under Section 351 of the Code. Assuming the
transaction so qualifies and except with respect to Holders of United stock who
exercise dissenters' rights in the transaction (i) Holders of United common
stock whose shares are converted into New United common stock in the transaction
will not recognize gain or loss as a result of the conversion (except to the
extent of any cash received for fractional shares), (ii) Holders of United
preferred stock whose shares are converted into shares of New United common
stock in the transaction will not recognize gain or loss as a result of the
conversion (except to the extent of any cash received for fractional shares),
(iii) in the case of any Holder who holds only one class of United stock (common
or preferred) with a single basis and holding period, the Holder's holding
period and basis applicable to the shares of New United common stock received in
the transaction will be the same as the Holder's holding period and basis
applicable to the shares of United stock, that were converted in the transaction
(less any basis allocable to fractional shares for which cash was received), and
(iv) in the case of any Holder of more than one class of United stock (common or
preferred), or any Holder with varying basis or holding periods in a single
class of stock, (a) the aggregate basis applicable to the shares of New United
stock received in the transaction will be the same as the aggregate basis
applicable to the shares of United stock that were converted in the transaction
(reduced by any basis allocable to a fractional share interest in New United
common stock for which cash is received), and (b) the holding period applicable
to each share of New United common stock received in the transaction will be a
split holding period, based on the holding periods of each proportionate part of
the United shares that were deemed converted into the New United common shares
in the transaction. A Holder who receives cash in lieu of fractional shares will
recognize gain (or loss) to the extent the cash received is greater (or less)
than the Holders' basis allocable to the fractional shares. Any such gain or
loss will be long-term capital gain or loss of the holding period attributable
to the fractional shares is longer than one year.
EFFECT OF THE TRANSACTION ON HOLDERS OF UNITED COMMON OR PREFERRED STOCK WHO
DISSENT FROM THE MERGER
Except as described below with respect to certain Holders that exercise
dissenters' rights in the transaction and who actually or constructively,
through the application of certain attribution rules, own shares of New United
immediately following the merger, any holder of United common or preferred stock
who dissents from the merger and receives cash in redemption of all of his or
her shares will recognize gain or loss measured by the difference between the
amount of cash received and the amount of the Holder's aggregate basis in his or
her United common and preferred stock. Any such gain or loss will be taxed as
capital gain (or loss) and, if the Holder has held his or her common or
preferred shares for more than one year on the effective date of the exchange,
as long-term capital gain (or loss).
If a Holder of United stock dissents as to part but not all of his or her shares
of United stock, or if a Holder of United stock that exercises dissenters rights
constructively owns, through the application of certain attribution rules,
shares of New United stock immediately following the merger, his or her receipt
of consideration as a dissenter may be treated as a dividend to the extent of
the cash received. Furthermore, the basis rules discussed above may not apply to
such shareholders. Any Holder in such situation is urged and expected to consult
with his or her individual tax advisor to consider the tax effects of this type
of situation.
THE DISCUSSION ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT DOES NOT
ADDRESS THE STATE, LOCAL, OR FOREIGN TAX ASPECTS OF THE MERGER. THE DISCUSSION
IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING
II-27
AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULING
AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH
CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. EACH UNITED
SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO HIM OR HER INCLUDING THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
II-28
CHAPTER III -- THE MEETING AND VOTING
, 2002
10:00 A.M., LOCAL TIME
This proxy statement/prospectus is furnished to you in connection with the
solicitation of proxies by our board of directors in connection with our
proposed merger and stock option plan amendments.
TIME AND PLACE; PURPOSE
A special meeting of stockholders will be held at 10:00 a.m., local time, on
, 2002, at the , , Denver, Colorado. At the
meeting, our stockholders will be asked to consider and vote upon: (i) the
approval and adoption of the merger agreement; (ii) the approval of the 1993
Stock Option Plan amendment proposal; (iii) the approval of the 1998 Stock
Option Plan amendment proposal, and (iv) such other business as may properly
come before the special meeting. Pursuant to the merger agreement, we will merge
with a subsidiary of New United and New United will become our majority
shareholder. In connection with the merger, you will receive stock in New
United. Following the merger, Liberty will contribute to New United the
Belmarken notes, the Liberty UPC bonds, and $200.0 million of cash. In exchange
for its contributions to New United, Liberty will receive approximately 281.4
million shares (subject to certain adjustments) of New United Class C common
stock.
This proxy statement/prospectus and the accompanying form of proxy are first
being mailed to our stockholders on or about , 2001. If we do not
close the transactions contemplated by the merger agreement with Liberty, your
deadline for submitting shareholder proposals for inclusion in our proxy
statement and form of proxy for our next annual meeting is , .
After , , any notice of a shareholder proposal is considered
untimely.
VOTING RIGHTS; RECORD DATE
Our board of directors has fixed the close of business on , 2001, or
the "Record Date," as the record date for the determination of holders of common
stock entitled to receive notice of and to vote at the meeting. Accordingly,
only holders of record of shares of common stock at the close of business on the
Record Date are entitled to notice of and to vote at the meeting. At the close
of business on the Record Date, we had outstanding and entitled to vote at the
meeting shares of Class A common stock and shares of Class B
common stock. The Class A common stock and Class B common stock vote together as
a single class on all matters, except where otherwise required by the Delaware
General Corporation Law. Each share of Class A common stock has one vote and
each share of Class B common stock has ten votes on each matter on which holders
of such shares of such classes are entitled to vote at the meeting. As of
, 2001, we had and record holders of our Class A
common stock and Class B common stock, respectively.
The presence, in person or by proxy, of the holders of a majority of the
combined voting power of the outstanding shares of common stock entitled to vote
is necessary to constitute a quorum at the meeting. The affirmative vote of a
majority of the combined voting power of the outstanding shares of common stock
is required to approve and adopt the merger agreement. The affirmative vote of
holders of a majority of the combined voting power of United's Class A common
stock and Class B common stock as of the record date, represented in person or
by proxy at the special meeting of stockholders is required to approve the 1993
Stock Option plan amendment proposal and the 1998 Stock Option Plan amendment
proposal.
PROXIES
All shares of common stock represented by properly executed proxies received
prior to or at the meeting, and not revoked, will be voted in accordance with
the instructions indicated in such proxies. If no specific instructions are
given with respect to the matters to be acted upon at the meeting, shares of
common stock
III-1
represented by a properly executed proxy will be voted FOR the merger agreement
proposal and the 1993 Stock Option plan amendment proposal and the 1998 Stock
Option Plan amendment proposal. The merger agreement proposal, the 1993 Stock
Option Plan amendment proposal and the 1998 Stock Option Plan amendment proposal
are the only matters to be acted upon at the meeting. A properly executed proxy
marked "ABSTAIN," although counted for purposes of determining whether there is
a quorum and for purposes of determining the aggregate voting power and number
of shares represented and entitled to vote at the meeting, will not be voted and
will have the same effect as a vote cast against the proposal to which such
instruction is indicated. Shares represented by "broker non-votes" (i.e., shares
held by brokers or nominees which are represented at the meeting but with
respect to which the broker or nominee is not empowered to vote on a particular
proposal) will also be counted for purposes of determining whether there is a
quorum at the meeting but will have the same effect as a vote cast against the
adoption of each proposal for which the broker or nominee is not empowered to
vote.
A stockholder may revoke his or her proxy at any time prior to its use by
delivering to our Secretary a signed notice of revocation or a later dated
signed proxy or by attending the meeting and voting in person. Attendance at the
meeting will not in itself constitute the revocation of a proxy. Any written
notice of revocation or subsequent proxy should be sent or hand delivered so as
to be received by UnitedGlobalCom, Inc., 4643 South Ulster Street, Suite 1300,
Denver, Colorado 80237, Attention: Secretary, at or before the vote to be taken
at the meeting.
The cost of solicitation of proxies will be paid by us. In addition to
solicitation by mail, our officers and employees may solicit proxies by
telephone, telegram, or by personal interviews. Such persons will receive no
additional compensation for such services. Brokerage houses, nominees,
fiduciaries and other custodians will be required to forward soliciting material
to the beneficial owners of shares held of record by them and will be reimbursed
for the reasonable expenses in connection therewith.
VOTING ARRANGEMENTS
As of the record date, the holders of % of the outstanding shares of Class A
common stock and % of the outstanding shares of Class B common stock, together
having % of the total vote, have agreed to vote in favor of the merger
agreement proposal and the 1993 Stock Option Plan amendment proposal and the
1998 Stock Option Plan amendment proposal. As of , 2001, we had
approximately and holders of our Class A common stock and Class B
common stock, respectively.
APPRAISAL RIGHTS
Under Delaware law, record holders of our Class B common stock who do not vote
in favor of the approval and the adoption of the merger agreement and record
holders of our Series B preferred stock, Series C preferred stock and Series D
preferred stock may exercise appraisal rights by delivering to us a demand in
writing for the appraisal of such shares at a fair value. Stockholders who elect
to exercise appraisal rights must comply strictly with all of the procedures set
forth in Section 262 of the Delaware General Corporation Law to preserve those
rights. Holders of our Class A common stock will not have appraisal rights.
Section 262 of the Delaware General Corporation Law sets forth the required
procedure a stockholder seeking appraisal must follow. The procedural rules are
specific. Failure to comply with the procedural rules may cause you to lose your
appraisal rights. Please review Section 262, a copy of which is attached as
Appendix D to this proxy statement/prospectus, for the complete procedure. We
will not give you any notice of your appraisal rights other than as described in
this proxy statement/prospectus and as required by Delaware law.
YOU SHOULD NOT SEND IN ANY CERTIFICATES REPRESENTING OUR COMMON OR PREFERRED
STOCK. FOLLOWING THE EFFECTIVE TIME OF THE MERGER, IF APPLICABLE, YOU WILL
RECEIVE INSTRUCTIONS FOR THE SURRENDER AND EXCHANGE OF YOUR UNITED STOCK.
III-2
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Prior to the merger, one or more of the Principals will purchase 1,500 shares of
our Series E preferred stock for a per share purchase price equal to 1/1,500th
of the product (rounded up to the nearest cent) of (a) the lesser of (1) $5.00
and (2) the average market price of our Class A common stock as of the closing
date, multiplied by (b) a number equal to (1) the quotient of X divided by Y
minus (2) X. For purposes of the foregoing, "X" shall be equal to the aggregate
number of shares of our common stock issued and outstanding immediately prior to
the closing and "Y" shall be equal to 0.995049505. As a result of the merger,
all of the shares of our Series E preferred stock will convert into 1,500,000
shares of our Class A common stock as the surviving entity in the merger. As the
holder of our Class A common stock following the merger, one or more of our
Principals will be entitled to elect four of our eight directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF UNITED
The following table sets forth as of December 3, 2001, certain information
concerning the ownership of United common stock of all classes by (i) each
stockholder who is known by us to own beneficially more than 5.0% of the
outstanding United Class A common stock or United Class B common stock at
December 3, 2001, (ii) each of our directors, (iii) each of our named executive
officers, and (iv) all of our directors and named executive officers as a group.
Shares of United Class B common stock are convertible immediately into shares of
United Class A common stock on a one-for-one basis, and accordingly, holders of
our Class B common stock are deemed to be owners of the same number of shares of
our Class A common stock and are reflected as such in the table. The ownership
information includes shares of common stock that may be acquired within 60 days
of December 3, 2001, through stock options and convertible securities.
Shares issuable within 60 days upon exercise of options, conversion of
convertible securities, exchange of exchangeable securities or upon vesting of
restricted stock awards are deemed to be outstanding for the purpose of
computing the percentage ownership and overall voting power of persons
beneficially owning the securities, but have not been deemed to be outstanding
for the purpose of computing the percentage ownership or overall voting power of
any other person. So far as we know, the persons indicated below have sole
voting and investment power with respect to the shares indicated as owned by
them, except as otherwise stated below and in the notes to the table. The number
of shares indicated as owned by Gene W. Schneider, Michael T. Fries, and Mark L.
Schneider, each one of our named executive officers, and by Ms. Wildes, one of
our directors, includes interests in shares held by the trustee of our defined
contribution 401(k) plan, or the "401(k) Plan" as of December 31, 2000. The
shares held by the trustee of our 401(k) Plan for the benefit of these persons
are voted at the discretion of the trustee.
Upon the execution of the merger agreement, Liberty and the Founders became
subject to the stockholders and standstill arrangement that applies prior to the
closing of the merger (or in the event the merger agreement is terminated) and
is described above under the caption "Proposal 1: The Merger Agreement -- The
Merger Agreement and Related Agreements, Standstill Agreement." The Founders and
Liberty are not deemed to have beneficial ownership of any voting securities of
the other under the pre-closing arrangement described in the merger agreement.
Certain Founders are deemed to have beneficial ownership of other Founders'
voting securities under a stockholders agreement dated as of April 13, 1993.
III-3
BENEFICIAL OWNERSHIP OTHER THAN
DEEMED BENEFICIAL OWNERSHIP AS A
RESULT OF THE STOCKHOLDERS'
AGREEMENT
-------------------------------------
CLASS A COMMON STOCK
AND
CLASS B COMMON STOCK
-------------------------------------
PERCENT OF PERCENT OF
NUMBER NUMBER OF TOTAL
BENEFICIAL OWNER OF SHARES SHARES(1) VOTE(1)
- --------------------------------- ----------- ---------- ----------
Gene W. Schneider(3)(4).......... 6,295,235 5.6% 18.8%
Curtis W. Rochelle(3)(5)......... 2,418,525 2.2% 7.3%
Mark L. Schneider(3)(6).......... 400,863 * *
Albert M. Carollo(3)(7).......... 329,503 * *
John F. Riordan(8)............... 1,550,859 1.4% 1.9%
Tina M. Wildes(9)................ 664,530 * 1.6%
Michael T. Fries(10)............. 664,102 * *
John P. Cole(11)................. 214,999 * *
Lawrence J. DeGeorge(12)......... 237,083 * *
John C. Malone(13)............... 60,832 * *
Charles H. R. Bracken............ - - -
All directors and executive
officers as a group (11
persons)........................ 12,169,990 10.7% 30.0%
Liberty Media Corporation(14).... 23,013,354 20.6% 39.5%
The Gene W. Schneider Family
Trust(15)....................... 400,000 * 1.5%
The MLS Family Partnership
LLLP(16)........................ 666,541 * 1.5%
AXA Financial, Inc., Mutuelles
AXA as a group, AXA and their
subsidiaries(17)................ 8,635,521 7.7% 3.1%
Capital Research and Management
Company(18)..................... 11,546,120 10.4% 4.1%
Gabelli Group(19)................ 8,442,556 7.6% 3.0%
Smith Barney Fund
Management LLC
("SB Fund") and
parent entities(20)............. 11,374,522 10.2% 4.0%
BENEFICIAL OWNERSHIP, INCLUDING DEEMED BENEFICIAL OWNERSHIP
AS A RESULT OF THE STOCKHOLDERS' AGREEMENT
---------------------------------------------------------------------------
PERCENTAGE OF ALL
OUTSTANDING
CLASS A COMMON STOCK CLASS B COMMON STOCK COMMON STOCK
------------------------ ------------------------ ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT
NUMBER NUMBER OF NUMBER NUMBER OF NUMBER OF OF TOTAL
BENEFICIAL OWNER OF SHARES SHARES(2) OF SHARES SHARES(1) SHARES(1) VOTE(1)
- --------------------------------- ----------- ---------- ----------- ---------- ---------- --------
Gene W. Schneider(3)(4).......... 10,543,974 10.3% 8,729,040 45.9% 9.4% 31.4%
Curtis W. Rochelle(3)(5)......... 10,543,974 10.3% 8,729,040 45.9% 9.4% 31.4%
Mark L. Schneider(3)(6).......... 10,543,974 10.3% 8,729,040 45.9% 9.4% 31.4%
Albert M. Carollo(3)(7).......... 10,543,974 10.3% 8,729,040 45.9% 9.4% 31.4%
John F. Riordan(8)............... 1,550,859 1.5% 410,000 2.2% 1.4% 1.9%
Tina M. Wildes(9)................ 664,530 * 416,956 2.2% * 1.6%
Michael T. Fries(10)............. 664,102 * 91,580 * * *
John P. Cole(11)................. 214,999 * - - * *
Lawrence J. DeGeorge(12)......... 237,083 * - - * *
John C. Malone(13)............... 60,832 * - - * *
Charles H. R. Bracken............ - - - - * *
All directors and executive
officers as a group (11
persons)........................ 12,869,838 12.6% 8,837,576 46.4% 11.3% 32.4%
Liberty Media Corporation(14).... 23,013,354 22.7% 9,859,336 51.8% 20.6% 39.5%
The Gene W. Schneider Family
Trust(15)....................... 10,543,974 10.3% 8,729,040 45.9% 9.4% 31.4%
The MLS Family Partnership
LLLP(16)........................ 10,543,974 10.3% 8,729,040 45.9% 9.4% 31.4%
AXA Financial, Inc., Mutuelles
AXA as a group, AXA and their
subsidiaries(17)................ 8,635,521 8.5% - - 7.7% 3.1%
Capital Research and Management
Company(18)..................... 11,546,120 11.4% - - 10.4% 4.1%
Gabelli Group(19)................ 8,442,556 8.3% - - 7.6% 3.0%
Smith Barney Fund
Management LLC
("SB Fund") and
parent entities(20)............. 11,374,522 11.2% - - 10.2% 4.0%
- ------------
* Less than 1%.
(1)The figures for the percent of number of shares and percent of total vote
are based on 92,431,741 shares of United Class A common stock (after
elimination of shares of United held in treasury and by its subsidiaries)
and 19,027,134 shares of United Class B common stock outstanding on December
3, 2001. In determining the percent of vote, each share of United Class A
common stock has one vote per share and each share of United Class B common
stock has 10 votes per share.
(2)The figures for the percent of number of shares in this column are based on
92,431,741 shares of United Class A common stock (after elimination of
shares of United held in treasury and by its subsidiaries) outstanding on
December 3, 2001 and 8,729,040 shares of United Class B common stock held by
parties to the Stockholders' Agreement as if converted into an equal number
of shares of United Class A common stock.
(3)The address of Messrs. G. Schneider, Rochelle, M. Schneider and Carollo is
c/o UnitedGlobalCom, Inc., 4643 South Ulster Street, Suite 1300, Denver,
Colorado 80237.
(4)Includes 808,159 shares of United Class A common stock that are subject to
presently exercisable options and 3,637 shares of United Class A common
stock held by the trustee of United's 401(k) Plan for the benefit of Mr.
Schneider. Also includes 4,806,728 shares of United Class B common stock of
which 3,063,512 shares are owned by the G. Schneider Holdings Co. (c/o
UnitedGlobalCom, Inc., 4643 South Ulster Street, Suite 1300, Denver,
Colorado 80237). In addition, includes 256,541 shares of United Class A
common stock and 410,000 shares of United Class B common stock held by the
MLS Family Partnership LLLP, or the "MLS Partnership," of which Mr.
Schneider is a co-trustee of the
III-4
trust that is the general partner of the MLS Partnership. The fourth through
ninth columns also include 420,664 shares of United Class A common stock,
315,763 shares of United Class A common stock subject to presently
exercisable options, and 3,512,312 shares of United Class B common stock
owned by other parties to the Stockholders' Agreement.
(5)Includes 107,083 shares of United Class A common stock that are subject to
presently exercisable options. Also includes 222,368 shares of United Class
B common stock and 142,134 shares of United Class A common stock owned by
the Marian H. Rochelle Revocable Trust of which Mr. Rochelle's spouse Marian
Rochelle is the trustee (Box 996, Rawlins, Wyoming 82301) and 1,796,940
shares of United Class B common stock and 150,000 shares of United Class A
common stock owned by the Rochelle Limited Partnership of which the Curtis
Rochelle Trust is the general partner and Mr. Rochelle is the trustee of
said Trust. The fourth through ninth columns include 76,912 shares of United
Class B common stock owned by Kathleen Jaure (Box 321, Rawlins, Wyoming
82301), and 66,912 shares of United Class B common stock owned by Jim
Rochelle (Box 967, Gillette, Wyoming 82717) that are excluded from column
one. The fourth through ninth columns also include 398,898 shares of United
Class A common stock, 1,016,839 shares of United Class A common stock
subject to presently exercisable options, and 6,709,732 shares of United
Class B common stock owned by other parties to the Stockholders' Agreement
(including Kathleen Jaure and Jim Rochelle).
(6)Includes 101,597 shares of United Class A common stock that are subject to
presently exercisable options and 1,844 shares of United Class A common
stock held by the trustee of United's 401(k) Plan for the benefit of Mr.
Schneider. Also includes 170,736 shares of United Class B common stock owned
by Mr. Schneider. The fourth through ninth columns also include 562,482
shares of United Class A common stock, 1,022,325 shares of United Class A
common stock subject to presently exercisable options, and 8,558,304 shares
of United Class B common stock owned by other parties to the Stockholders'
Agreement.
(7)Includes 107,083 shares of United Class A common stock that are subject to
presently exercisable options and 222,420 shares of United Class B common
stock owned by the Carollo Company. The fourth through ninth columns include
222,412 shares of United Class B common stock owned by Albert & Carolyn
Company, 222,412 shares of United Class B common stock owned by the James R.
Carollo Living Trust and 111,200 shares of United Class B common stock owned
by the John B. Carollo Living Trust that are excluded from column one. The
fourth through ninth columns also include 691,012 shares of United Class A
common stock, 1,016,839 shares of United Class A common stock subject to
presently exercisable options, and 8,506,620 shares of United Class B common
stock owned by other parties to the Stockholders' Agreement (including the
Albert & Carolyn Company, James R. Carollo Living Trust and the John B.
Carollo Living Trust). The address of Albert & Carolyn Company and the John
B. Carollo Living Trust is c/o Sweetwater Television Co., P.O. Box 8, 602
Broadway, Rock Springs, Wyoming 82901. The address of the James R. Carollo
Living Trust is 32395 Highlands Road, Steamboat Springs, Colorado 80477.
(8)Includes 102,135 shares of United Class A common stock that are subject to
presently exercisable options and 748,903 shares of United Class A common
stock owned by Riordan Communications Limited. Also includes 256,541 shares
of United Class A common stock and 410,000 shares of United Class B common
stock held by the MLS Partnership of which Mr. Riordan is a co-trustee of
the trust that is the general partner of the MLS Partnership.
(9)Includes 180,094 shares of United Class A common stock that are subject to
presently exercisable stock options. Also includes 16,956 shares of United
Class B common stock owned by Ms. Wildes, 400,000 shares of United Class B
common stock held by The Gene W. Schneider Family Trust of which Ms. Wildes
is a trustee and a beneficiary, and the following securities owned by her
spouse: 26,000 shares of United Class A common stock, 1,881 shares of United
Class A common stock held by the trustee of United's 401(k) Plan and 11,916
shares of United Class A common stock that are subject to presently
exercisable stock options. Ms. Wildes disclaims beneficial ownership of such
shares owned
III-5
by her spouse and the shares held by The Gene W. Schneider Family Trust,
except to the extent of her pecuniary interest therein.
(10)Includes 407,956 shares of United Class A common stock that are subject to
presently exercisable options and 3,592 shares of United Class A common
stock held by the trustee of United's 401(k) Plan for the benefit of Mr.
Fries. Also includes 140,792 shares of United Class A common stock and
91,580 shares of United Class B common stock owned by The Fries Family
Partnership LLLP of which a trust is the general partner and the trustee of
said trust can be replaced by Mr. Fries.
(11)Includes 102,291 shares of United Class A common stock that are subject to
presently exercisable options.
(12)Includes 107,083 shares of United Class A common stock that are subject to
presently exercisable options. Also includes 40,000 shares of United Class A
common stock owned by his spouse, Florence DeGeorge. Mr. DeGeorge disclaims
beneficial ownership of such shares owned by Mrs. DeGeorge.
(13)Includes 60,832 shares of United Class A common stock that are subject to
presently exercisable options.
(14)Includes 9,859,336 shares of United Class B common stock owned by Liberty.
The address of Liberty is 12300 Liberty Boulevard, Englewood, Colorado
80112. John C. Malone, a director of United, is also an officer and director
of Liberty.
(15)Includes 400,000 shares of United Class B common stock. The fourth through
ninth columns also include 691,012 shares of United Class A common stock,
1,123,922 shares of United Class A common stock subject to presently
exercisable options, and 8,329,040 shares of United Class B common stock
owned by other parties to the Stockholders' Agreement. The address for The
Gene W. Schneider Family Trust is c/o UnitedGlobalCom, Inc., 4643 S. Ulster
Street, Suite 1300, Denver, Colorado 80237.
(16)Includes 410,000 shares of United Class B common stock. The fourth through
ninth columns also include 434,471 shares of United Class A common stock,
1,123,922 shares of United Class A common stock subject to presently
exercisable options, and 8,319,040 shares of United Class B common stock
owned by other parties to the Stockholders' Agreement. The address for the
MLS Partnership is c/o UnitedGlobalCom, Inc., 4643 S. Ulster Street, Suite
1300, Denver, Colorado 80237.
(17)The number of shares of United Class A common stock in the table is based
upon Amendment No. 3 to the Schedule 13G dated February 12, 2001, filed by
AXA Financial, Inc.; AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie
Mutuelle, AXA Conseil Vie Assurance Mutuelle and AXA Courtage Assurance
Mutuelle (collectively "Mutuelles AXA") as a group; AXA and its
subsidiaries, Alliance Capital Management L.P., ("Alliance") and The
Equitable Life Assurance Society of the US ("Equitable"). AXA Financial,
Inc., Mutuelles AXA and AXA filed as parent holding companies and are
beneficial owners of the shares of United Class A common stock as a result
of Alliance, acting on behalf of client discretionary investment advisory
accounts, and Equitable. Of such shares, 741,612 shares of United Class A
common stock held by Alliance and 118,264 shares of United Class A common
stock held by Equitable are issuable upon conversion of certain outstanding
series of cumulative convertible preferred stock of United. The address of
AXA Financial, Inc. is 1290 Avenue of the Americas, New York, NY 10104. The
address of Mutuelles AXA is 370 Saint Honore, 75001 Paris, France and the
address of AXA is 25 Avenue Matignon, 75008 Paris, France.
(18)The number of shares of United Class A common stock in the table is based
upon a Schedule 13G dated February 9, 2001, filed by Capital Research and
Management Company ("Capital Research") with respect to the United Class A
common stock. Capital Research, an investment advisor, is the beneficial
owner of 11,546,120 shares of United Class A common stock, which includes
391,900 shares of United Class A common stock issuable upon conversion of
500,000 shares of United's Series D preferred stock and 919,310 shares of
United Class A common stock issuable upon conversion of 775,000 shares of
United's Series C preferred stock, as a result of acting as investment
advisor to various investments companies. The Schedule 13G reflects that
Capital Research has no voting power over said shares and
III-6
sole dispositive power over the shares of United Class A common stock. The
address of Capital Research is 333 South Hope Street, Los Angeles,
California 90071.
(19)The number of shares of United Class A common stock in the table is based
upon a Schedule 13D (Amendment No. 5) dated November 13, 2001, filed by
Mario J. Gabelli, Marc J. Gabelli and various entities which either one
directly or indirectly controls or for which either one acts as chief
investment officer (collectively, the "Gabelli Group"). The Schedule 13D
reflects that GAMCO Investors, Inc. has no voting power over 22,500 shares
of United Class A common stock and under certain circumstances a committee
of the Gabelli Funds LLC will vote its 2,458,000 shares of United Class A
common stock. Except as stated below, for certain Gabelli Group members, the
address of the Gabelli Group is One Corporate Center, Rye, NY 10580. The
address of Gabelli Performance Partnership L.P., MJG Associates, Inc. and
Gemini Capital Management LLC is 401 Theodora Fremd Ave., Rye, NY 10580. The
address of Gabelli International Limited is c/o Fortis Fund Services
(Cayman) Limited, Grand Pavilion, Commercial Centre, 802 West Bay Road,
Grand Cayman, British West Indies and the address of Gabelli International
II Limited is c/o Coutts & Company (Cayman) Limited, West Bay Road, Grand
Cayman, British West Indies.
(20)The number of shares of United Class A common stock in the table is based
upon Amendment No. 1 to a Schedule 13G dated July 31, 2001, filed by SB Fund
and its parent entities Salomon Smith Barney Holdings Inc. ("SSB Holdings")
and Citigroup Inc. ("Citigroup"). Citigroup is the sole stockholder of SSB
Holdings which is the sole stockholder of SB Fund. Citigroup and SSB
Holdings filed as parent holding companies of subsidiaries. The address of
SB Fund and SSB Holdings is 388 Greenwich Street, New York, NY 10013, and
the address of Citigroup is 399 Park Avenue, New York, NY 10043.
No equity securities in any of our subsidiaries, including directors' qualifying
shares, are owned by any of our executive officers or directors, except as
stated below. The following discussion sets forth ownership information as of
December 3, 2001 and within 60 days thereof with respect to stock options.
The following of our executive officers and directors own ordinary shares A,
options to purchase ordinary shares A and phantom options based on ordinary
shares A of UPC: (i) Mr. Gene W. Schneider -- 98,000 ordinary shares A and
phantom options based on 562,500 ordinary shares A of which all are exercisable;
(ii) Mr. Fries -- 9,153 ordinary shares A and phantom options based on 225,000
ordinary shares A of which 182,813 are exercisable; (iii) Mr. Mark L.
Schneider -- 2,015,000 ordinary shares A and options to purchase 3,500,000
ordinary shares A of which 1,625,000 are exercisable; (iv) Mr.
Bracken -- options to purchase 1,200,000 ordinary shares A of which 643,750 are
exercisable; (v) Mr. Riordan -- 908,754 ordinary shares A and options to
purchase 1,759,375 ordinary shares A of which 784,375 are exercisable; (vi) Mrs.
Wildes -- 9,153 ordinary shares A and phantom options based on 153,000 ordinary
shares A of which all are exercisable; (vii) Mr. Carollo -- 30,000 ordinary
shares A; (viii) Mr. Cole -- 14,575 ordinary shares A; and (ix) Mr.
Rochelle -- 32,034 ordinary shares A. UPC may elect to pay phantom options in
cash, in ordinary shares A of UPC, or in shares of our Class A common stock. In
each case and as a group, the ownership is less than 1.0% of UPC's outstanding
ordinary shares.
The following executive officers and directors beneficially own options to
purchase ordinary shares of Austar United: (i) Mr. Gene W. Schneider -- options
to purchase 2,403,316 ordinary shares of which 2,094,974 are exercisable; (ii)
Mr. Fries -- options to purchase 6,529,285 ordinary shares of which 5,686,760
are exercisable; (iii) Mr. Riordan -- options to purchase 50,000 ordinary shares
of which 13,542 are exerciseable; and (iv) Mrs. Wildes -- options to purchase
706,288 ordinary shares of which 665,035 are exercisable. In each case and as a
group, the ownership is less than 1.0% of Austar United's outstanding ordinary
shares.
The following executive officers and directors beneficially own options to
purchase ordinary shares of chello broadband: (i) Mr. Mark L.
Schneider -- options to purchase 161,459 ordinary shares of which 88,542 are
exercisable; and (ii) John F. Riordan -- options to purchase 300,000 ordinary
shares of which 212,500 are exercisable. In each case and as a group, the
ownership is less than 1.0% of chello broadband's outstanding ordinary shares.
III-7
CHAPTER IV -- INFORMATION ABOUT NEW UNITED
NEW UNITED'S BUSINESS
Upon completion of the merger, New United's business will consist of the
businesses currently operated or held by us.
OPERATING DATA AND FINANCIAL INFORMATION
The following tables show certain operating and financial data for our systems
that New United will own following the merger. The financial information
presented below reflects 100% of the operations of each respective business.
Certain systems are not majority owned affiliates and hence the financial
information is not consolidated in our statements of operations. In addition,
certain information presented in the tables below has been derived from
financial statements prepared in accordance with foreign generally accepted
accounting principles which differ from U.S. generally accepted accounting
principles and certain amounts have been converted to U.S. dollars using the
period-end exchange rates for the convenience translation.
OPERATING SYSTEM DATA FOR UNITED SYSTEMS
VIDEO
SEPTEMBER 30, 2001
-----------------------------------------------------------------------------------------------
HOMES IN TWO-WAY
UNITED SYSTEM SERVICE HOMES HOMES BASIC BASIC
OWNERSHIP OWNERSHIP AREA PASSED PASSED SUBSCRIBERS PENETRATION
----------- ------------ ----------- ----------- ---------- ----------- -----------
UPC (EUROPE):
The Netherlands.......... 53.1% 100.0% 2,644,500 2,514,500 2,209,300 2,369,300 94.2%
Germany(1)............... 13.3-27.1% 25.0-51.0% 2,641,200 2,641,200 430,100 1,901,800 72.0%
Poland................... 53.1% 100.0% 1,851,800 1,851,800 181,000 1,318,800 71.2%
Hungary.................. 52.5-53.1% 98.9-100.0% 1,001,100 910,600 362,800 704,800 77.4%
Austria.................. 50.4% 95.0% 1,081,400 923,300 920,100 493,200 53.4%
Israel................... 24.7% 46.6% 680,000 660,400 405,000 426,800 64.6%
Czech Republic........... 53.1% 100.0% 913,000 786,400 179,300 381,300 48.5%
France................... 48.9% 92.0% 2,656,500 1,290,700 536,700 433,900 33.6%
Norway................... 53.1% 100.0% 529,000 476,300 155,300 332,200 69.7%
Slovak Republic.......... 50.4-53.1% 95.0-100.0% 517,800 373,200 17,300 317,300 85.0%
Romania.................. 27.1-37.2% 51.0-70.0% 648,500 450,700 - 289,100 64.1%
Sweden................... 53.1% 100.0% 770,000 421,600 244,400 260,900 61.9%
Belgium.................. 53.1% 100.0% 530,000 152,300 152,300 122,400 80.4%
Malta.................... 26.6% 50.0% 184,500 182,800 35,000 91,000 49.8%
---------- ---------- --------- ----------
Total................ 16,649,300 13,635,800 5,828,600 9,442,800
---------- ---------- --------- ----------
LATIN AMERICA:
Chile.................... 100.0% 100.0% 2,350,000 1,652,100 836,300 445,100 26.9%
Mexico................... 90.3% 90.3% 395,300 277,700 87,300 75,800 27.3%
Brazil (Jundiai)......... 49.0% 49.0% 70,200 67,900 - 16,900 24.9%
Brazil (TV Show
Brasil)................ 100.0% 100.0% 463,000 390,000 - 15,100 3.9%
Peru..................... 100.0% 100.0% 140,000 64,500 - 8,700 13.5%
---------- ---------- --------- ----------
Total................ 3,418,500 2,452,200 923,600 561,600
---------- ---------- --------- ----------
ASIA/PACIFIC:
Australia(2)............. 81.3% 100.0% 2,085,000 2,083,100 - 434,700 20.9%
Philippines.............. 19.6% 49.0% 600,000 517,500 29,500 181,600 35.1%
New Zealand(2)........... 40.7% 50.0% 146,900 128,200 128,200 26,000 20.3%
---------- ---------- --------- ----------
Total................ 2,831,900 2,728,800 157,700 642,300
---------- ---------- --------- ----------
Total.................................................. 22,899,700 18,816,800 6,909,900 10,646,700
========== ========== ========= ==========
Total Based On Consolidated Systems(3)................. 18,895,700 15,055,200 5,806,900 8,515,900
========== ========== ========= ==========
Total Based On Proportionate Data(4)................... 12,610,300 10,134,300 3,727,000 5,057,900
========== ========== ========= ==========
IV-1
VOICE
SEPTEMBER 30, 2001
----------------------------------------------------------------------------------
SUBSCRIBERS LINES
UNITED SYSTEM ------------------------- -------------------------
OWNERSHIP OWNERSHIP RESIDENTIAL BUSINESS RESIDENTIAL BUSINESS
----------- ------------ ----------- ----------- ----------- -----------
UPC:
The Netherlands..... 53.1% 100.0% 166,200 - 207,300 -
Austria............. 50.4% 95.0% 130,200 - 131,300 -
Hungary............. 52.5-53.1% 98.9-100.0% 67,300 - 72,700 -
France.............. 48.9% 92.0% 59,800 - 62,400 -
Norway.............. 53.1% 100.0% 18,600 - 20,200 -
Czech Republic...... 53.1% 100.0% 3,400 - 3,400 -
Germany............. 27.1% 51.0% 100 - 100 -
------- ------ ------- ------
Total........... 445,600 - 497,400 -
------- ------ ------- ------
VTR:
Chile............... 100.0% 100.0% 171,300 1,700 190,100 3,400
------- ------ ------- ------
AUSTAR UNITED:
New Zealand(2)...... 40.7% 50.0% 39,900 2,000 46,900 6,600
Australia(2)........ 81.3% 100.0% 11,000 - 11,000 -
------- ------ ------- ------
Total........... 50,900 2,000 57,900 6,600
------- ------ ------- ------
Total............................................. 667,800 3,700 745,400 10,000
======= ====== ======= ======
Total Based On Consolidated Systems(3)............ 627,900 1,700 698,500 3,400
======= ====== ======= ======
Total Based On Proportionate Data(4).............. 427,000 2,500 476,000 6,100
======= ====== ======= ======
INTERNET
SEPTEMBER 30, 2001
----------------------------------------
UNITED SYSTEM
OWNERSHIP OWNERSHIP SUBSCRIBERS
----------- ------------ -----------
UPC:
The Netherlands........................................... 53.1% 100.0% 219,600
Austria................................................... 50.4% 95.0% 129,500
Sweden.................................................... 53.1% 100.0% 44,100
Germany................................................... 13.3-27.1% 25.0-51.0% 27,300
Norway.................................................... 53.1% 100.0% 22,300
Belgium................................................... 53.1% 100.0% 20,300
France.................................................... 48.9% 92.0% 19,900
Hungary................................................... 52.5-53.1% 98.9-100.0% 10,500
Czech Republic............................................ 53.1% 100.0% 4,200
Poland.................................................... 53.1% 100.0% 5,500
Malta..................................................... 26.6% 50.0% 4,000
----------
Total................................................. 507,200
----------
LATIN AMERICA:
Chile..................................................... 100.0% 100.0% 21,300
Mexico.................................................... 90.3% 90.3% 1,000
----------
Total............................................................................. 22,300
----------
AUSTAR UNITED:
Australia(2).............................................. 81.3% 100.0% 78,100
New Zealand(2)............................................ 40.7% 50.0% 65,300
----------
Total................................................. 143,400
----------
Total................................................................................... 672,900
==========
Total Based On Consolidated Systems(3).................................................. 575,600
==========
Total Based On Proportionate Data(4).................................................... 365,300
==========
IV-2
CONTENT
SEPTEMBER 30, 2001
----------------------------------------
UNITED SYSTEM
OWNERSHIP OWNERSHIP SUBSCRIBERS
----------- ------------ -----------
UPC:
UPCtv..................................................... 53.1% 100.0% 8,688,000
Spain/Portugal............................................ 26.6% 50.0% 7,873,000
Ireland................................................... 42.5% 80.0% 5,689,000
MTV Joint Venture......................................... 26.6% 50.0% 2,881,000
Poland.................................................... 53.1% 100.0% 950,000
Hungary................................................... 53.1% 100.0% 30,000
Czech Republic............................................ 53.1% 100.0% 15,000
Slovak Republic........................................... 53.1% 100.0% 2,000
----------
Total................................................. 26,128,000
----------
MGM NETWORKS LA:
Latin America............................................. 50.0% 50.0% 15,009,900
----------
AUSTAR UNITED:
Australia(2).............................................. 40.7% 50.0% 7,077,800
----------
Total................................................................................... 48,215,700
==========
Total Based On Consolidated Systems(3).................................................. 15,374,000
==========
Total Based On Proportionate Data(4).................................................... 20,796,800
==========
- ------------
(1)Includes 299,900 subscribers in The Netherlands.
(2)On November 15, 2001, we sold 50.0% of our interest in the holding company
through which we held the largest portion of our interests in the Australia
and New Zealand systems. Following the sale, our ownership interests in the
Australia and New Zealand systems are 55.8% and 27.9%, respectively.
(3)Summation of the operating system data for those systems that we consolidate
in our financial statements due to majority ownership and control.
(4)Summation of the operating system data multiplied by our ownership
percentage.
OVERVIEW OF UNITED'S BUSINESS
We are the largest broadband communications provider outside the United States.
We provide video distribution services in 26 countries worldwide and voice and
Internet access services in a growing number of our international markets. Our
operations are grouped into three major geographic regions: Europe, Latin
America and Asia/Pacific. Our European operations are held through our 53.1%
owned, publicly traded subsidiary, UPC, which is the largest Pan-European
broadband communications company providing video, voice and Internet access
services to 17 countries in Europe and Israel. Our primary Latin America
operation is our 100% owned Chilean operation, VTR, Chile's largest
multi-channel television provider and a growing provider of voice services. Our
Asia/Pacific operations are primarily held through our 55.8% owned, publicly
traded affiliate, Austar United, which owns the largest provider of video
services in regional Australia, various Australian programming interests and a
50.0% interest in the only full-service provider of broadband communications in
New Zealand.
Our primary goal in the majority of these markets is to capitalize on the
opportunity to increase revenues and cash flows through the introduction of new
and expanded video services and the delivery of voice and Internet access
services over our broadband communications networks. Today we are a full-service
provider of these video, voice and Internet access services in most of our
Western European markets and in Chile and New Zealand.
Upon consummation of the merger, we will merge into a subsidiary of New United.
New United will own all of our assets and conduct the business that we currently
are conducting.
IV-3
UNITED'S EUROPEAN OPERATIONS
UPC owns and operates broadband communications networks or services in 17
countries in Europe, and in Israel. UPC's operations are organized into three
principal divisions. UPC Distribution, which comprises UPC's local operating
systems, delivers video and, in many of UPC's Western European systems,
telephone and Internet services, or "the triple play," to residential customers.
UPC Media comprises UPC's Internet access business and converging Internet
content and programming businesses, which provide their products and services to
UPC, as well as third parties. The Priority Telecom brand is used for UPC's
residential, wireless local loop, or "WLL," and competitive local exchange
carrier, or "CLEC" businesses. UPC has spun-off Priority Telecom CLEC as the
provider of telephone and data network solutions to the business market.
Priority Telecom CLEC or "Priority Telecom," is UPC's third division. UPC's
subscriber base is the largest of any group of broadband communications networks
operated across Europe. UPC's goal is to enhance its position as a leading
pan-European distributor of video programming services and to become a leading
pan-European provider of telephone, Internet and enhanced video services,
offering a one-stop shopping solution for residential and business communication
needs. UPC plans to reach this goal by increasing the penetration of its new
services, such as digital video, telephone and Internet, primarily within its
existing customer base.
UPC DISTRIBUTION
As of September 30, 2001, UPC's operating systems had approximately 7.15 million
aggregate subscribers to their basic tier video services, excluding an
additional 413,000 subscribers for UPC's digital DTH service in Poland, Hungary,
the Czech Republic and the Slovak Republic.
During 2000, UPC launched its digital video services in the Netherlands, UPC's
largest market. The digital services are currently offered in the Netherlands,
France and Austria. Full digitalization of UPC's television signals will be made
possible by UPC's network upgrade to full two-way capability. The rollout of
digital services via the set-top computers installed in customers' homes will
involve significant capital investment and the use of new technologies. UPC
cannot assure that they will be able to complete the rollout of digital services
on the planned schedule.
UPC DISTRIBUTION -- VIDEO
UPC plans to continue increasing its revenue per subscriber by expanding its
video services program offerings through digital and expanded basic tier
services, pay-per-view and digital audio.
UPC offers some of the most advanced analog video services available today and a
large choice of radio programs. In many systems, for example, UPC has introduced
impulse pay-per-view services. UPC plans to continue improving its expanded
basic tier offerings by adding new channels and, where possible, migrating
popular commercial channels into an expanded basic tier service. Generally,
basic tier pricing is regulated while the expanded basic tier is not
price-regulated. In addition, UPC plans to offer subscribers additional choice
by offering thematic groupings of tiered video services in a variety of genres
and by increasing the number and time availability of pay-per-view offerings.
The increased channel capacity provided by digitalization will enable UPC to
offer subscribers more choice in video products, such as NVOD, digital expanded
basic tiers, and additional premium channels. In addition, digitalization will
allow UPC to provide value-added services such as digital music, walled garden,
interactive television and basic e-mail functionality. The increased channel
capacity provided by digitalization will enable subscribers to customize their
subscriptions for UPC's products and services to suit their lifestyles and
personal interests. UPC also intends to provide its subscribers with
customizable programming guides that would enable them to program their favorite
channels and also allow parents to restrict their children's viewing habits.
IV-4
UPC DISTRIBUTION -- VOICE
UPC offers local telephone services over its network, under the brand name
Priority Telecom, to the residential market in its Austrian, Dutch, French and
Norwegian systems. UPC also has a traditional telephone network in Hungary and
the Czech Republic. UPC offers its residential telephone customers local,
national and international voice services in addition to several value-added
features.
Traditional telephone service is carried over twisted copper pair in the local
loop. The cable telephone technology that UPC is using allows telephone traffic
to be carried over its upgraded network without requiring the installation of
twisted copper pair. This technology only requires the addition of equipment at
the master telecom center, the distribution hub and in the customer's home to
transform voice communication into signals capable of transmission over the
fiber and coaxial cable. UPC is currently working on alternative telephone
technologies, including Voice over Internet Protocol, or "VOIP." VOIP is well
suited for many of UPC's networks, as the technology used is similar to its
existing Internet service. Because of these similarities, UPC believes it can
minimize its capital expenditures for the introduction of VOIP as compared to
other technologies. Because VOIP services are commercially available from other
operators, there can be no assurances that UPC will be able to successfully
launch VOIP services to its customers.
UPC generally prices its telephone services at a discount compared to services
offered by incumbent telecommunications operators. Because of relatively high
local tariff rates, UPC believes potential customers will be receptive to its
telephone services at a lower price. In addition to offering competitive
pricing, UPC offers a full complement of services to telephone subscribers
including custom local access services, or "CLASS," including caller ID, call
waiting, call forwarding, call blocking, distinctive ringing and three-way
calling. UPC also provides voice mail and second lines. The introduction of
number portability in some of its markets, including The Netherlands, Norway and
France, provides an even greater opportunity as potential customers will be able
to subscribe to UPC's service without having to change their existing telephone
numbers.
Each of UPC's operating companies that offers telephone services has entered
into an interconnection agreement with either the incumbent national
telecommunications service provider or, in most cases, with Priority Telecom
N.V., UPC's publicly listed CLEC company. In addition, certain of these
operating companies have also entered into interconnection agreements with other
telecommunications service providers, providing alternative routes and
additional flexibility. Even though UPC has secured these interconnection
arrangements, UPC may still experience difficulty operating under them. In UPC's
Amsterdam system, for example, capacity constraints at the interconnection have
lowered the quality of its telephone service, resulting in a higher rate of
customer loss than its system has experienced before. In Austria, while UPC
secured its interconnection arrangement with the support of the Austrian
telecommunications regulator, the Austrian incumbent telecommunications operator
is challenging the arrangement in the Austrian courts. Priority Telecom will
manage UPC interconnection relationships in the future.
UPC DISTRIBUTION -- INTERNET
UPC initially launched its broadband Internet business in a few of its operating
systems in September 1997. Cable modem technology allows access to the Internet
over UPC's existing upgraded network. All that is required is to transform data
communication into signals capable of transmission over fiber and coaxial cable
is the addition of incremental electronic equipment, including servers, routers
and switches at the master telecom center. Cable modems allow Internet access at
speeds significantly faster than dial-up access. Although a number of different
technologies designed to provide much faster access than traditional dial-up
modems have been proposed and are being introduced, such as digital subscriber
lines, or "DSL," UPC believes that cable modem access technology is superior.
Cable modem technology, unlike most other high-speed technologies, is based on
the widely used Transport Control Protocol/Internet Protocol, "TCP/IP," which is
used on local area networks and the Internet. A global standard for TCP/IP has
been created and accepted.
IV-5
UPC's local operating companies have entered into franchise agreements with
chello broadband, which provides UPC's local systems access to the Internet
gateway and the chello portal. Under the franchise agreements, chello broadband
provides UPC's affiliates with high-speed connectivity, caching, local language
broadband portals, and marketing support for a fee based upon a percentage of
subscription and installation revenue. In the future, the franchise agreement
further provides that the local operator will receive a percentage of the
revenue from chello broadband's e-commerce and advertising.
WESTERN EUROPE
Austria: Telekabel Group. UPC owns 95.0% of the Telekabel Group, which provides
communications services to Vienna and other Austrian cities and is the largest
video distribution system in Austria with over 40.0% of the market. UPC is
capitalizing on Telekabel Group's strong market position and positive perception
by its customers by aggressively expanding Telekabel Group's service offerings
as its network is upgraded to full two-way capability. The upgraded network
enabled Telekabel Group to launch an expanded basic tier, impulse pay-per-view
services and Internet access services in 1997. Telekabel Group launched Priority
Telecom cable telephone services in Vienna on a commercial basis in early 1999,
Internet access service in September 1997 and chello broadband service in June
1999. UPC launched digital video services in Austria in the fourth quarter of
2001.
Belgium: UPC Belgium. UPC Belgium, UPC's 100% owned subsidiary, provides cable
television and communications services in selected areas of Brussels and Leuven.
UPC Belgium plans to increase revenues through the introduction of new services
that currently are not subject to price regulations. UPC Belgium offers an
expanded basic tier cable television, impulse pay-per-view as well as UPC's
chello broadband Internet access service.
France: UPC France. UPC France is one of the largest cable television providers
in France. UPC France's major operations are located in suburban Paris, the
Marne-la-Vallee area east of Paris, Lyon and in other towns and cities
throughout France. UPC's interest in UPC France is approximately 92.0%. In June
1998, UPC France obtained a 15-year telephone and network operator license for
an area that includes 1.5 million homes in the eastern suburbs of Paris. UPC
France began offering telephone services in its existing cable television
franchise area in March 1999 and has continued to roll-out telephone services in
2000 in suburban Lyon and Limoges. UPC France launched chello broadband's
Internet access services over the upgraded portions of its network in 1999. One
of UPC's recently acquired systems began offering Internet services at the end
of 1997. UPC launched chello broadband's Internet access service on its systems
in the suburban Lyon and Limoges areas in the second quarter of 2000.
Germany: UPC Germany. In October 2000, UPC's 51.0% owned subsidiary, UPC
Germany, acquired EWT/TSS Group, the fourth largest independent German broadband
cable operator. EWT/TSS has cable operations throughout Germany, with the
greatest concentration in Nordrhein-Westfalen, Berlin/Brandenberg and
Sachsen/Thueringen. EWT/TSS is the second largest cable provider in Berlin, and
has introduced cable telephone services in Berlin on a trial basis. UPC also
owns approximately 25.0% of PrimaCom, which owns and operates cable television
networks in Germany. PrimaCom's footprint shares a significant geographic
overlap with EWT/TSS. In March 2001, UPC announced an agreement with PrimaCom to
merge its German assets, including EWT/TSS and the TeleColumbus option, as well
as its Alkmaar subsidiary located in the Netherlands, with those of PrimaCom.
The TeleColumbus option expired at the end of August 2001 and no longer forms
part of the discussions. However, UPC and PrimaCom agreed to continue
discussions about alternative structures until December 15, 2001. UPC's interest
in EWT/TSS is held through its 51.0% owned subsidiary, UPC Germany. Due to
changes in market conditions, the parties are currently re-evaluating the
merger. UPC's carrying value of the assets subject to this proposed transaction,
(E939.1 ($859.0) million), is significantly greater than the fair value of the
consideration that would be received should the PrimaCom transaction be
completed. As a result, UPC Germany could record a significant write-down if the
transaction is closed.
The Netherlands: UPC Nederland. UPC's Dutch systems are its largest group of
cable television systems. UPC has had operations in The Netherlands since it was
formed in 1995, but substantially all of its operations
IV-6
in The Netherlands have come from acquisitions. As UPC's subscribers are located
in large clusters, including the major cities of Amsterdam, Rotterdam and
Eindhoven, UPC has constructed a fiber backbone to interconnect these
region-wide networks. In addition to cable television services, UPC Nederland
offers Internet access and telephone services over its upgraded network. As a
result of UPC Nederland's high penetration in its Dutch systems and the rate
regulation of basic tier services in many of UPC Nederland's franchise areas,
UPC has focused its efforts on increasing revenue per subscriber in these
systems through the introduction of new video, telephone and Internet access
services. Many of UPC's Dutch systems have offered an expanded basic tier
service since late 1996. UPC initially launched impulse pay-per-view services in
April 1997. In the fourth quarter of 2000, UPC commenced the soft rollout of
digital video services in Amsterdam and Rotterdam. In 2001, UPC continues to
focus on the bundling of its new services to achieve increased revenue per
subscriber. UPC's Amsterdam system launched its cable telephone service in July
1997. UPC Nederland launched Priority Telecom cable telephone service in many
other parts of its network in May 1999. In some of UPC's recently acquired
systems, UPC launched cable television services in 2000. Some of UPC's Dutch
systems had Internet access services as early as 1997. UPC launched chello
broadband's Internet services in UPC Nederland's existing systems in early 1999
and in its new systems in 2000. UPC has launched digital video services in
Amsterdam and Haarlem in the fourth quarter of 2001.
Norway: UPC Norge. UPC Norge is Norway's largest cable television operator. UPC
Norge's main network is located in Oslo and its other systems are located
primarily in the southeast and along the southwestern coast. UPC Norge has been
upgrading its network to two-way capacity since 1998. UPC Norge offers cable
television subscribers four tiers of video services. UPC Norge introduced
Priority Telecom's cable telephone service in April 1999 in the upgraded
portions of its network. UPC Norge launched Internet access service in March
1998 and introduced chello broadband service in June 1999. UPC has migrated all
of UPC Norge's existing Internet access subscribers to chello broadband. UPC has
launched digital video services in Oslo in the fourth quarter of 2001.
Sweden: UPC Sweden. In July 1999, UPC acquired Stjarn, now called UPC Sweden.
UPC Sweden operates cable television systems servicing the greater Stockholm
area, currently offering six tiers of programming. Upon upgrade of its networks,
UPC Sweden plans to offer additional tiers of programming. UPC Sweden launched
Internet access service in one area in the City of Stockholm in April 1999 and
introduced chello broadband service in November 1999. UPC Sweden leases the
fiber optic cables it uses to link to its main headend under agreements with
Stokab, a city-controlled entity with exclusive rights to lay ducts for cables
for communications or broadcast services in the City of Stockholm. The main part
of the leased ducting and fiber optic cables is covered by an agreement, which
expires in January 2019. Additional fiber optic cables are leased under several
short-term agreements, most of which have three-year terms, but some of which
have ten-year terms. UPC has launched digital video services in Stockholm in the
fourth quarter of 2001.
CENTRAL AND EASTERN EUROPE
Czech Republic: UPC Czech provides cable and "wireless" cable television
services in the cities of Prague and Brno, the Czech Republic's second largest
city. In October 1999, UPC acquired 94.6% of Kabel Plus, the leading provider of
cable television services in the Czech Republic. UPC recently acquired
DattelKabel, a Prague-based cable television operator. UPC offers a number of
tiers of programming services in the Czech Republic. UPC launched satellite
direct-to-home, or "DTH," service in the Czech Republic during the third quarter
of 2000, leveraging its existing DTH platform in Poland. UPC has plans to launch
Internet access services and telephone services in its Czech systems in 2002,
once the market has deregulated for telephone services.
Hungary: UPC Magyarorszag. UPC has owned and operated systems in Hungary for
nearly a decade. In June 1998, UPC combined its Hungarian operations with
Kabeltel, Hungary's then second-largest operator of cable television systems,
creating Telekabel Hungary, in which UPC retained a 79.3% interest. In February
2000, UPC acquired the 20.8% of UPC Magyarorszag that it did not own. UPC
launched DTH service in Hungary during the third quarter of 2000, leveraging its
existing DTH platform in Poland. In the fourth quarter of 2000, UPC Magyarorszag
launched Internet access services.
IV-7
Hungary: Monor. Monor, one of UPC's Hungarian operating companies, has offered
traditional telephone services since December 1994. Through 2002, Monor has the
exclusive, local-loop telephone concession for the region of Monor. UPC has an
economic ownership interest in Monor of approximately 98.9%.
Poland: UPC Polska. In August 1999, UPC acquired @Entertainment, now called UPC
Polska, which owns and operates the largest cable television system in Poland.
UPC Polska's subscribers are located in regional clusters encompassing eight of
the 10 largest cities in Poland. UPC Polska has DTH broadcasting service for
Poland, targeted at homes outside of its cable network coverage area. UPC Polska
has been able to avoid constructing its own underground conduits in certain
areas by entering into a series of agreements with TPSA, the Polish national
telephone company, which permit UPC Polska to use TPSA's infrastructure for an
indefinite period or for fixed periods up to 20 years. Over 80.0% of UPC
Polska's cable television plant has been constructed using pre-existing conduits
from TPSA. A substantial portion of these contracts to use TPSA conduit allow
for termination by TPSA without penalty upon breaches of specified regulations.
Any termination by TPSA of such contracts could result in UPC Polska losing its
permits, the termination of agreements with co-op authorities and programmers,
and an inability to service customers with respect to the areas where its
networks utilize the conduits that were the subject of such TPSA contracts. In
addition, some conduit agreements with TPSA provide that cables can be installed
in the ducts only for the use of cable television. If UPC Polska uses the cables
for a purpose other than cable television, such as data transmission, telephone,
or Internet access, such use could be considered a violation of the terms of
certain conduit agreements, unless this use is expressly authorized by TPSA.
There is no guarantee that TPSA would give its approval to permit other uses of
the conduits.
In August 2001, UPC and Canal+ Group, or "Canal+," the television and film
division of Vivendi Universal, announced the signing of definitive agreements to
merge their respective Polish DTH satellite television platforms, as well as the
Canal+ Polska premium channel, to form a common Polish DTH platform. In the
merger agreements, UPC Polska agreed to contribute its Polish and United Kingdom
DTH assets to TKP, the Polish subsidiary of Canal+, and fund a maximum of E30.0
($27.4) million in the form of a note receivable from TKP at closing. For this,
UPC Polska will receive a 25.0% ownership interest in TKP and E150.0 ($137.2)
million in cash. As part of this transaction, through a carriage agreement, the
Canal+ Polska premium channel will also be available on UPC Polska's cable
network. TKP will be managed and controlled by Canal+, who will own 75.0%. UPC
will own the remaining 25.0%. For accounting purposes, TKP will be deemed the
acquirer. UPC Polska's investment in the merged companies will be recorded at
fair value as of the date of the transaction. UPC Polska's carrying value of the
Polish DTH assets being contributed may be significantly higher than the
determined fair value of its investment in the merged companies if and when the
transaction is consummated, leading to a write-down at the date the transaction
is consummated. On November 13, 2001, the Company received the regulatory
approval necessary to complete the merger, which has since closed. UPC will
deconsolidate the DTH operations upon closure of the merger.
Romania. UPC recently entered into a joint venture with the owners of two
Romanian cable television companies, collectively "AST," to which UPC's and
AST's Romanian assets were contributed. UPC holds a 70.0% interest in the joint
venture. UPC's Romanian systems offer subscribers two or three different tiers
of programming. The minority shareholders in UPC Romania have exercised their
option which requires UPC to purchase all of their partnership interests
effective December 31, 2001 for consideration of approximately E22.7 ($20.8)
million, which is payable before February 15, 2002.
Slovak Republic: UPC Slovensko. UPC is the largest cable operator in the Slovak
Republic. UPC offers subscribers three tiers of cable television service. UPC
launched DTH service in the Slovak Republic during the fourth quarter of 2000,
leveraging its existing DTH platform in Poland. UPC plans to launch telephone
and Internet access services as regulation permits.
UPC MEDIA
In February 2001, UPC formed a new division, UPC Media, combining UPC's Internet
and content businesses. Due to the convergence of various media forms, UPC
believes these businesses will operate more
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efficiently if combined. UPC Media will focus on four key areas: (i) chello
broadband Internet access; (ii) interactive services; (iii) transactional
television and (iv) pay television.
CHELLO BROADBAND
In March 1998, UPC formed chello broadband for the purpose of developing a
global broadband Internet operation. chello broadband provides UPC's affiliates
and non-affiliated local operators with high-speed connectivity, caching,
local-language broadband portals, and marketing support for a fee based upon
percentage of subscription and installation revenue. Certain of UPC's operating
companies in March 1999 launched chello broadband. chello broadband has
long-term agreements for the distribution of Internet access services to
residential and business customers using cable television and fixed wireless
infrastructure of local operators, including our companies and those of United,
covering 13.4 million homes in Europe and Latin America. chello broadband
currently provides its services through UPC's operating companies in Austria,
Belgium, France, The Netherlands, Norway, Sweden, Hungary and Poland. chello
broadband's agreements with UPC's affiliates cover all the homes in their
territory. Therefore, as the affiliates' network expand, other than through
acquisitions, chello broadband's exclusive rights to distribute its services
will expand as well.
During 2001 chello broadband plans to introduce bandwidth monitoring tools in
conjunction with UPC Distribution, which are critical for effective network cost
control. In addition, chello broadband launched a "chello plus" product for
heavy users in Austria.
INTERACTIVE SERVICES
UPC expects the development of interactive services to play an important role in
UPC's digital strategy. UPC's interactive services group within UPC Media is
responsible for core digital products, such as electronic program guide, or
"EPG," walled garden, television email and other applications like enhanced news
and on-screen betting. The technical platform launch, which will allow UPC to
begin its offering of interactive service, is nearing completion.
Interactive services will also be responsible for continued development of the
chello portal. UPC's strategy is to initially create a "thin portal" internally,
and then work with strong partners to develop deep content. To date chello
broadband has developed nine local language portals. Each of these portals
brings together locally relevant content with broadband content and is managed
and supported locally by a chello broadband office. chello broadband plans to
offer an expanding variety of multimedia content, e-commerce and services
specifically designed to take advantage of the speed and versatility provided by
broadband access.
TRANSACTIONAL TELEVISION
Transactional television, consisting of NVOD and video on demand, or "VOD," is
another component of UPC's digital services. In addition to movies, VOD will
provide a broad product offering such as events, local drama, music, kids,
subscriptions and other.
PAY TELEVISION
The core of UPC Media's existing pay television business is the eight-channel
thematic bouquet launched by UPCtv since May 1999. Content acquired from third
parties created the channels. The channels include various genres, such as
Extreme Sports Channel, Expo Film1, Avante, Sport1, Club, Reality TV, and
Innergy and are distributed from the digital media center, or "DMC," throughout
Europe. UPC also plans to distribute these channels to entities that are not
affiliated with UPC and in countries where UPC does not currently operate. UPC
currently has over 20 non-UPC distribution contracts. UPC has already reached
agreement to distribute one or more of its channels to non-affiliated systems in
Germany, Sweden, The Netherlands, Israel, and Turkey. UPC is reviewing the
success of the channels that it launched. The review may lead to closing or
merging some of the channels. UPC has decided to close the Sports 1 channel.
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In October 2000, UPC officially opened the DMC in Amsterdam. The DMC is a
state-of-the-art production facility that provides UPCtv and other broadcasters
with production and post-production playout and transmission facilities. The DMC
combines the ability to produce high quality, customized content by integrating
various video segments, language dubbing, sub-titling and special effects, with
up and downlink facilities for delivery to customers.
In addition to the UPCtv channels, UPC has been involved in branded equity
ventures for the development of country-specific content, including:
- -an 80.0% interest in Tara TV, a company that produces an Irish-thematic general
entertainment channel for the United Kingdom market;
- -a 50.0% interest in Iberian Programming Services, which produces a movie
channel, a documentary channel, a children's channel and a music channel
independently, as well as a history channel in joint venture with A&E Networks
for the Spanish and Portuguese markets;
- -a 50.0% interest in Xtra Music, which provides an 80 channel digital audio
service by satellite in Europe in joint venture with DMX;
- -a 10.0% interest in Cinenova, which produces a premium movie channel in the
Netherlands and Belgium in joint venture with Disney and Sony;
- -a 50.0% interest in MTV Networks Polska, a joint venture with MTV Networks
Europe which produces and distributes two 24-hour music channels, MTV Polska
which is specifically targeted at the Polish marketplace, and VH1 Polska; and
- -a 20.0% interest in ATV, which produces a general entertainment channel for the
Austrian market.
UPC has a strategic investment of approximately 23.5% in SBS which creates,
acquires, packages and distributes programming and other media content in many
of UPC's territories and elsewhere in Europe via television channels, radio
stations and the Internet.
PRIORITY TELECOM OVERVIEW
In 1998, UPC founded Priority Telecom for the purpose of providing telephone
services to business customers passed through UPC's upgraded networks. In
November 2000, Priority Telecom merged with Cignal Global Communications Inc.,
or "Cignal," a global carriers' carrier. Priority Telecom acquired 100% of
Cignal in exchange for a 16.0% interest in its shares. With the intent of
unlocking the value of UPC's business customers, UPC decided to spin off the
business customers of its local systems to Priority Telecom, which is now
positioned to become UPC's solutions provider for the business market. Priority
Telecom is currently focused on eight cities in three European
countries -- Austria, the Netherlands and Norway. UPC was listed on September
27, 2001 on the Euronext Amsterdam Stock Exchange.
In addition to transport type services, Priority Telecom has developed its
product portfolio towards advanced hosting services, IP-virtual private network
services, or "IP-VPN," and Applications Service Provider, or "ASP," enabling
services. Management believes this process is necessary to anticipate and meet
changing business customer requirements. Priority Telecom decided to close its
international wholesale business during the third quarter of 2001.
UPC expects Priority Telecom to be able to leverage substantially from UPC's
operating companies' existing infrastructure, allowing for efficient,
cost-effective growth. For operations with UPC's affiliates network areas,
Priority Telecom's network will consist of 12 metropolitan area networks, or
"MANs," including national and international networks. Contrary to "regular"
CLEC-built networks, which target a selected business area only, Priority
Telecom's MANs are a denser "general-purpose" network. This creates strategic
advantages for Priority Telecom since it can, for instance, serve the
headquarters of a large bank in Amsterdam, and also serve their branch offices
across the city with on-net solutions. In addition, the dense network enables
Priority Telecom to execute a "smart build" strategy. It allows "regular" CLEC
extensions to the current footprint and
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addition of local tails for limited capital expenditure with a short
time-to-market. In addition, Priority Telecom obtained a pan-European backbone
network, providing connectivity to its 14 target cities through its merger with
Cignal. These MANs and national networks are based on 25-year indefeasible
rights of use, or "IRUs," over UPC's affiliates' European network. As part of
the agreement, Priority Telecom will pay an annual administration, operations
and maintenance fee to UPC's affiliates.
UPC's affiliates have also agreed to provide certain services relating to
Priority Telecom's operations through outsourcing contracts. Services include
the maintenance, upgrade and configuration of network termination devices,
network operations center management, network management services and fault
resolution for the local hybrid fiber coaxial, or "HFC," infrastructure.
UNITED'S LATIN AMERICAN OPERATIONS
VTR
Video. Our largest operation in Latin America is our 100% owned Chilean
operation, VTR. Through VTR we are the largest provider of wireline cable
television, Microwave Multi-point Distribution System, or "MMDS," and DTH
technologies in Chile. Wireline cable is VTR's primary business representing
approximately 94.7% of VTR's video subscribers. VTR has an estimated 58.0%
market share of cable television services throughout Chile and an estimated
50.0% market share within Santiago, Chile's largest city. VTR's channel line-up
consists of 50 to 65 channels segregated into two tiers of service -- a basic
service with 40 to 54 channels and a premium service with 14 channels. VTR
offers basic tier programming similar to the basic tier program line-up in the
United States plus more premium-like channels such as HBO, Cinemax and Cinecanal
on the basic tier. As a result, subscription to VTR's existing premium service
package is limited because VTR's basic cable package contains similar channels.
In order to better differentiate VTR's premium service and increase the number
of subscribers to premium service and, therefore, average monthly revenues per
subscriber, VTR anticipates gradually moving some channels out of its basic tier
and into premium tiers or pay-per-view events. VTR launched the Playboy channel
as a premium service in January 2000. VTR is also considering offering
additional movies and believes it may be possible to offer additional adult
programming on premium tiers in the future. For the programming services
necessary to compile its channel lineups, we rely mainly on international
sources including the United States, Europe, Argentina and Mexico. Domestic
cable television programming is only just beginning to develop around local
events such as soccer matches.
Voice. VTR began marketing cable telephone service to residential customers in
several communities within Santiago in 1997, and today continues its wide-scale
rollout of residential cable telephone service in 18 communities within Santiago
and five cities outside Santiago. As of September 30, 2001, 50.6% of VTR's
television homes passed were capable of using VTR's telephone services and
approximately 36.8% of VTR's telephone subscribers also subscribe to VTR's cable
television services. VTR's plan is to be technologically capable of providing
telephone service to approximately 0.9 million homes by the end of 2001 and to
be able to provide telephone service to 1.0 million homes by the end of 2002,
although achieving these objectives depends on several factors, many of which
are outside the control of VTR. VTR offers basic dial tone service as well as
several value-added services including voice mail, caller I.D., 3-way calling,
speed dial, wake-up service, call waiting, call forwarding, local bill detail,
unlisted number and directory assistance. VTR primarily provides service to
residential customers who require one or two telephone lines. VTR also provides
service to small businesses and home offices requiring up to 12 telephone lines.
In general, VTR has been able to achieve approximately 20.0% to 25.0%
penetration of its new telephone markets within the first year of marketing. VTR
has the necessary interconnect agreements with local carriers, cellular
operators and long distance carriers to allow VTR to provide its telephone
services. Interconnect agreements are mandatory for all local carriers.
Internet. VTR began offering Internet access services in 1999. VTR projects
that there will be increasing demand for Internet services.
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OTHER ULA OPERATIONS
We have ownership interests in two systems in Brazil: (i) a 49.0% interest in
Jundiai, which holds nonexclusive cable television licenses for the city of
Jundiai in southern Brazil and (ii) a 100% interest in TV Show Brasil, an owner
and operator of a 31-channel exclusive license MMDS system in Fortaleza, on the
Northeast coast of Brazil. We also have a 90.3% interest in Telecable, a
regional cable television system based in Cuernavaca, Mexico and 100% of Star
GlobalCom, a cable television system in Peru.
We provide content to various Latin American countries through our 50.0%
ownership interest in MGM Networks LA. MGM Networks LA currently produces and
distributes three pan-regional channels including: MGM Gold, a Portuguese
language movie and television series channel for Brazil; MGM, a Spanish language
movie and television series channel; and Casa Club TV, a Spanish and Portuguese
language lifestyle channel dedicated to home, food and lifestyle programming
featuring a significant block of original productions. These three channels are
currently distributed on most major cable and satellite systems in 17 countries
throughout Latin America.
UNITED'S ASIA/PACIFIC OPERATIONS
Our Asia/Pacific operations are primarily held through our 55.8% owned
affiliate, Austar United, which is one of the fastest growing broadband
communications companies in Australia and New Zealand. Austar United provides
video, voice, Internet access and content services through its three core
businesses: Austar, XYZ Entertainment and TelstraSaturn. Austar United completed
an initial public offering in July 1999 and is publicly traded on the Australian
Stock Exchange under the symbol "AUN." Austar United had a market capitalization
of approximately $118.1 million based on the closing price on the Australian
Stock Exchange on December 3, 2001.
AUSTAR (AUSTRALIA)
Austar is the largest provider of pay television services in regional Australia
with a service area encompassing approximately 2.1 million homes, or
approximately one-third of Australia's total homes. Austar is the only pay
television provider in substantially all of its service area.
Distribution Systems. Austar primarily uses digital DTH and, to a lesser
extent, wireless cable and cable distribution technologies for delivery of pay
television services. At present, approximately 85.0% of Austar's subscribers are
serviced by digital DTH technologies, while the balance receive service via
wireless cable and cable. Austar has recently commenced the migration of
customers from the wireless cable service to the digital DTH service.
Programming and Pricing. Austar offers some of the widest range of programming
available in Australia. Its programming agreements allow Austar to establish
different service levels of tiers at multiple price points. By tiering its
services, Austar permits its subscribers to select programming that is
customized to their interests, which we believe is a valuable tool in ensuring
our product meets customer value expectations. Tiering also provides customers
with a lower-priced basic service that both enhances sales opportunities and
helps reduce the level of customer churn.
Programming Agreements. Austar's programming agreement with Foxtel provides it
with the exclusive rights to distribute Showtime, Encore and TV-1 via digital
DTH and wireless cable throughout Austar's service area until December 2006. In
addition, Austar has an agreement with a News Corporation Limited subsidiary
pursuant to which Austar has the exclusive right to distribute Fox Sports and
Fox Sports Two over the same technologies throughout Austar's service area until
2006. Austar has also entered into an agreement with C&W Optus that provides
Austar with non-exclusive distribution rights for the three C&W Optus movie
channels until December 2006.
Austar has exclusive rights in its service area to distribute, via DTH and
wireless cable, six channels of programming supplied by XYZ Entertainment:
Discovery Channel, Nickelodeon, The Lifestyle Channel,
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Channel [V], MusicMAX and arena. The Disney Channel is provided to Austar under
a licensing agreement that runs until September 2005. Austar also obtains at
competitive price levels additional programming from a number of independent
sources, including Time Warner, ESPN, Seven Network, National Geographic, Music
Country and Sky Racing. The Weather Channel, the Adults Only channel and certain
pay-per-view events are derived from entities in which we have an interest.
Effective November 1, 2001 Austar made available the ABC National channel as
well as two youth channels, ABC Kids and Fly, for no additional charge.
In October 2001, Austar commercially launched a broad range of interactive
services including subscription games, "T-Mail," interactive advertising and
retail shopping applications, as well as an enhanced electronic programming
guide. Austar has licensed from Open TV, Inc. its operating systems for
interactive applications through Austar's set top boxes.
New Business Opportunities. Austar launched high-speed and traditional Internet
access services in its markets in early 2000 using wireless cable technologies,
and began delivering these services in some of its operating areas via digital
DTH at the end of 2000. We believe the provision of Internet access services
represents a significant market opportunity due to the combination of
substantial consumer demand for Internet access, the limited capacity of the
public switched telephone network in regional Australia and the lack of a
broadband alternative. Austar also launched the resale of mobile telephone
products in October 2000.
In 2000 Austar launched a traditional Internet service and a high speed,
broadband service. During 2000 and 2001 Austar built the network to support
these services. In late 2001, the provision of these services was reviewed and
it was determined that the high speed, broadband service should be cancelled and
the network terminated. Austar will continue to provide a traditional Internet
service, to complement the pay television service, using a third party network.
Austar also launched a mobile telephone service in late 2000.
TELSTRASATURN (NEW ZEALAND)
TelstraSaturn is the only provider of integrated telephone, pay television and
Internet access services in New Zealand. These services are currently provided
in the greater Wellington area over a hybrid fiber cable network with an overlay
of traditional telephone lines. TelstraSaturn plans to create a state-of-the-art
national broadband network, which will include a submarine fiber backbone
linking Auckland, Wellington and Christchurch during the next five years. On
October 1, 2001, Austar announced that it had restructured the shareholders
agreement with Telstra whereby Telstra agreed to fund TelstraSaturn by way of
subordinated debt. In addition, subsequent to 2004, Austar will have the right
to sell its shares in TelstraSaturn to Telstra and Telstra will have the right
to acquire Austar's shares. On November 15, 2001, TelstraSaturn announced that
it had agreed to acquire Clear Communications from British Telecom. The
acquisition, which is subject to regulatory approval, will result in Austar's
share of TelstraSaturn being diluted to below 50%.
OTHER UAP OPERATIONS
We also provide multi-channel television services via wireline cable in the
Philippines, through our 19.6% economic interest in Pilipino Cable Corporation.
COMPETITION
In areas where our cable television franchises are exclusive, our operating
companies generally face competition only from DTH satellite service providers
and terrestrial television broadcasters. We have faced the most competition from
DTH providers in France, Poland and Sweden. In those areas where our cable
television franchises are nonexclusive, including Chile, New Zealand, France,
Sweden and Poland, our operating companies face competition from other cable
television service providers, DTH satellite service providers and television
broadcasters.
In the provision of telephone services, our operating companies face competition
from the incumbent telecommunications operator in each country. These operators
have substantially more experience in providing telephone services and have
greater resources to devote to the provision of telephone services. In many
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countries, our operating companies also face competition from other new
telephone service providers like us, including traditional wireline providers,
other cable telephone providers, wireless telephone providers and indirect
access providers.
In the provision of Internet access, services and online content, chello
broadband faces competition from incumbent telecommunications companies and
other telecommunications operators, other cable-based Internet service
providers, non cable-based Internet service providers and Internet portals. The
Internet services offered by these competitors include both traditional dial-up
Internet services and high-speed access services. We have recently encountered
competition from a new technology, DSL, which provides high-speed Internet
access over traditional telephone lines. Both incumbent and alternative
providers offer DSL services. We expect DSL to be a strong competitor to our
Internet service in the future.
In the provision of CLEC services, Priority Telecom faces competition from the
incumbent telecommunications operator in each country and other CLEC operators.
Certain of these operators have substantially more experience in providing
telephone services and have greater resources to devote to the provision of
telephone services.
EMPLOYEES
As of September 30, 2001, we, together with our consolidated subsidiaries, had
approximately 15,000 employees. Certain of our operating subsidiaries, including
our Austrian, Dutch, Norwegian and Australian systems are parties to collective
bargaining agreements with some of their respective employees. We believe that
our relations with our employees are good.
REGULATION
The distribution of video, telephone and content businesses are regulated in
each of the countries in which we operate. The scope of regulation varies from
country to country, although in some significant respects regulation in UPC's
Western European markets is harmonized under the regulatory structure of the
European Union, or "EU." Adverse regulatory developments could subject us to a
number of risks. These regulations could limit our growth plans, limit our
revenues, and limit the number and types of services we offer in different
markets. In addition, regulation may impose certain obligations on our systems
that subject them to competitive pressure, including pricing restrictions,
interconnect obligations, open-network provision obligations and restrictions on
content we deliver, including content provided by third parties. Failure to
comply with current or future regulation could expose us to various penalties.
In general, the regulatory environment in the EU countries in which we operate
is to an increasing degree shaped by the EU framework. Since January 1, 1998, EU
directives have set out a framework for telecommunications regulation, which all
Member States must follow. These directives are the subject of regular
implementation reports from the European Commission which assess the compliance
of Member States with the various requirements of the directives. In addition,
the Commission has taken action to enforce compliance on Member States.
The European Union is taking steps to substantially increase the level of
harmonization across the whole range of communications and broadcasting services
early in 2003.
In addition, all EU legislation is required to be implemented in those countries
seeking EU membership as part of their accession to the EU. Thus, EU rules have
a strong influence and foreshadowing effect in almost all UPC's countries of
operation.
EUROPEAN UNION
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, The Netherlands, Portugal, Spain, Sweden and the United Kingdom are
all Member States of the EU. As such, these countries are required to enact
national legislation to implement directives issued by the European
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Commission and other EU bodies. Although not an EU Member State, Norway is a
member of the European Economic Area and has generally implemented or is
implementing the same principles on the same timetable as EU Member States. The
Czech Republic, Hungary, Malta, Poland, Romania and Slovak Republic, which are
in the process of negotiating their memberships into the EU, started adjusting
their regulatory systems to EU requirements. As a result, most of the European
markets in which UPC operates or has pending acquisitions have been
significantly affected by regulation initiated at the EU level.
On July 12, 2000, the European Commission proposed a suite of new directives,
which, if implemented by the European Parliament and European Council would
re-write the regulatory regime concerning communications services across the EU.
The proposed regulatory framework would attempt, among other things, to decrease
national variations in regulations and licensing systems and further increase
market competition. These policies would seek to harmonize licensing procedures,
reduce administrative fees, ease access and interconnection, and reduce the
regulatory burden for telecommunications companies. The European Commission is
also proposing to use competition laws rather than regulation to prevent
dominant carriers from abusing their market power. Specifically, the various
provisions of the proposed directives would: extend the protection of personal
data and privacy rules to data services and Internet connections; define
universal service goals and user rights policies; require several measures for
consumer protection, including number portability and the establishment of a
European emergency number; and require that, except in cases of limited
resources such as the licensing of spectrum rights, national regulatory agencies
issue general authorizations in place of individual operator licenses. These
directives are expected to be adopted in some form or other in 2001 or 2002 and
come in force in the Member States in 2003.
Conditional Access for Video Services. EU Member States regulate the offering
of conditional access systems, such as set-top computers used for the expanded
basic tier services offered by many of our operating companies. Providers of
such conditional access systems are required to make them available on a fair,
reasonable and non-discriminatory basis to other video service providers, such
as broadcasters.
Separation of Video and Telephone Operations. In June 1999, the European
Commission adopted a directive requiring Member States to enact legislation
directing certain telecommunications operators to separate their cable
television and telecommunications operations into distinct legal entities. This
directive is intended to aid the development of the cable television sector and
to encourage competition and innovation in local telecommunications and high
speed Internet access. The directive includes competition safeguards to deter
anticompetitive cross-subsidies or discrimination by incumbent
telecommunications operators as they enter into cable television or broadband
services.
Telephone Interconnection. An EU directive sets forth the general framework for
interconnection, including general obligations for telecommunications operators
to allow interconnection with their networks. Public telecommunications network
operators are required to negotiate interconnection agreements on a non-
discriminatory basis. Public telecommunications network operators with
significant market power (which, although it may vary, is generally presumed
when an operator has 25.0% or more of the relevant market) are subject to
additional obligations. They must offer interconnection without discriminating
between operators that offer similar services, and their interconnection charges
must follow the principles of transparency and be based on the actual cost of
providing the interconnection and carriage of telephone traffic. The directive
also contains provisions on collocation of facilities, number portability with
certain exceptions, supplementary charges to contribute to the costs of
universal service obligations and other interconnection standards. As a result,
if the principles in the directive are fully applied, our operating companies in
the EU and Norway should be able to interconnect with the public fixed network
and other major telecommunications networks on reasonable terms in order to
provide their services.
Telephone Licensing. EU Member States are required to adopt national
legislation so that providers of telecommunications services generally require
either no authorization or a general authorization which is conditional upon
"essential requirements," such as the security and integrity of the network's
operation. Licensing conditions and procedures must be objective, transparent
and non-discriminatory. In addition, telecommunications operators with
significant market power may be required by Member States to hold individual
licenses carrying more burdensome conditions than the authorizations held by
other providers.
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Significant market power is typically 25.0% of the relevant market. License fees
can only include administrative costs except in the case of scarce resources
where additional fees are allowed.
Broadcasting. Generally, broadcasts emanating from and intended for reception
within a country must respect the laws of that country. EU Member States are
required to allow broadcast signals of broadcasters in other Member States to be
freely transmitted within their territory so long as the broadcaster complies
with the law of the originating Member States. To some degree such cross-border
broadcasting rights are permitted outside the EU. For example, programs
originating in the UK or The Netherlands may be broadcast into Poland. An EU
directive also establishes quotas for the transmission of European-produced
programming and programs made by European producers who are independent of
broadcasters.
Member States are required to permit a satellite broadcaster to obtain the
necessary copyright license for its programs in just one country (generally, the
country in which the broadcaster is established), rather than obtaining
copyright licenses in each country in which the broadcast is received.
Set forth below is an overview of the types of regulation affecting our various
businesses, as well as a summary of the regulatory environment in the EU and
certain countries where we operate a significant proportion of our major
systems.
DISTRIBUTION INFRASTRUCTURE AND VIDEO BUSINESS
Licenses. Our operating companies are generally required to either obtain
licenses, permits or other governmental authorizations from, or notify or
register with relevant local or regulatory authorities to own and operate their
respective distribution systems. Generally, these licenses are non-exclusive. In
many countries, licenses are granted for a specified number of years. For
example, most of the licenses of UPC's Israeli system expire in 2002 and UPC
will seek renewal.
In some countries, including Austria, France and Israel, UPC pays annual
franchise fees based on the amount of UPC's revenues. In other countries, the
fee consists of a payment upon initial application and/or nominal annual
payments.
Broadcasters such as SBS and our Polish DTH video service operate pursuant to
licenses granted by national or local regulatory authorities that allow use of
certain radio frequencies in a specified geographic area, generally for a
limited duration but which can be renewed. Broadcasters operate subject to
various regulatory conditions, such as limitations on advertising, program
content, program sponsorship and ownership.
Video "Must Carry" Requirements. In most countries where UPC provides video and
radio service, UPC is required to transmit to subscribers certain "must carry"
channels, which generally include public national and local channels. Certain
countries have adopted additional programming requirements. For example, in
France various laws restrict the content of programming UPC is allowed to offer.
In parts of Belgium UPC must seek authorization for distribution of non-EU
programming. In Israel, cable television providers must obtain an authorization
from the relevant regulatory authority to add or remove channels from their
cable programming offerings and must spend at least 15% of their programming
expenses on local programming.
Pricing Restrictions. Local or national regulatory authorities in many
countries where we provide video services also impose pricing restrictions.
Often, the relevant local or national authority must approve basic tier price
increases. In certain countries, price increases will only be approved if the
increase is justified by an increase in costs associated with providing the
service or if the increase is less than or equal to the increase in the consumer
price index. Even in countries where rates are not regulated, subscriber fees
may be challenged if they are deemed to constitute anti-competitive practices.
TELEPHONE
The liberalization of the telecommunications market in Europe and Chile allowed
new entrants like us to enter the telephone services market. The regulatory
situation in most of the Eastern European markets in which we operate and in
Israel currently precludes us from offering traditional switched telephone
services.
IV-16
Generally, our operating companies are required to obtain licenses to offer
telephone services, although, in some countries we need only register with the
appropriate regulatory authority. Our operating companies have, to date, not
been subject to telephone rate regulation but would become subject to such
regulation in a number of jurisdictions if they are deemed to hold significant
market power, typically defined as at least 25.0% market share in a relevant
market. In some countries, we must notify the regulatory authority of our tariff
structure and any subsequent price increases.
Incumbent telephone providers in each EU market are required to offer new
entrants into the telephone market interconnection with their networks.
Interconnection must be offered on a non-discriminatory basis and in accordance
with certain principles set forth in the relevant EU directive, including
cost-based pricing.
CONTENT BUSINESS
Internet. UPC's internet-related businesses must comply with both EU regulation
and with relevant domestic law in the provision of Internet access services and
on-line content. In several countries, including Norway and France, the
provision of Internet access services does not require any sort of license or
notification to a regulatory body. Other countries, including Austria, Belgium
and The Netherlands, require that providers of these services register with or
notify the relevant regulatory authority of the services they provide and, in
some cases, the prices charged to subscribers for such services.
Our operating companies that provide Internet services must comply with both
Internet-specific and general legislation concerning data protection, content
provider liability and electronic commerce. For example, in June 2000, the EU
issued a directive establishing several principles for the regulation of
e-commerce activities, including that companies providing network services or
storage of information have limited obligations and liability for information
transmitted or stored on their systems. As regulation in this area develops, it
will likely have a significant impact on the provision of Internet services by
our operating companies.
Programming. The Independent Television Commission in the United Kingdom
licenses the Polish programming we produce and one of our UPCtv channels as
satellite television services. Some of our UPCtv channels are licensed in The
Netherlands. As such, this programming is then retransmitted under the European
Convention on Transfrontier Broadcasting.
COMPETITION LAW AND OTHER MATTERS
EU directives and national consumer protection and competition laws in UPC's
Western European and certain other markets impose limitations on the pricing and
marketing of integrated packages of services, such as video, telephone and
Internet access services. These limitations are common in developed market
economies and are designed to protect consumers and ensure a fair competitive
market. While UPC may offer our services in integrated packages in our Western
European markets, UPC is generally not permitted to make subscription to one
service, such as cable television, conditional upon subscription to another
service, such as telephone, that a subscriber might not otherwise take. In
addition, we must not abuse or enhance a dominant market position through unfair
anti-competitive behavior. For example, cross-subsidization between our business
lines that would have this effect would be prohibited. We have to be careful,
therefore, in accounting for discounts in services provided in integrated
packages.
As we become larger throughout the EU and in individual countries in terms of
service area coverage and number of subscribers, we may face regulatory scrutiny
as we continue to acquire new systems or expand operations. Regulators may
prevent certain acquisitions or permit them only subject to certain conditions.
In a number of non-EU jurisdictions where our operating companies have a
significant market presence, we are subject to certain limitations. For example,
in Hungary a single cable operator may not provide service to homes exceeding in
the aggregate one-sixth of the Hungarian population. On November 8, 1999, the
Israeli Restrictive Trade Practices Tribunal announced its determination that
all Israeli cable television operating companies, including Tevel and Gvanim,
were monopolies in their respective franchise areas in the field of
IV-17
supplying multi-channel pay television. Tevel and Gvanim are contesting this
declaration which would subject Tevel to the provisions of the Israeli
Anti-trust law applicable to monopolies.
ISRAEL
According to the terms and conditions of its current franchise, Tevel makes
royalty payments equal to 5% of Tevel's income to the State of Israel. The
Ministry of Communications has announced its intention to lower the current rate
of royalties expected from cable companies to a rate of 4% in years 2002 and
2003, and 3.5% from 2004 and afterwards.
On July 25, 2001, the Israeli parliament passed amendment number 25 to the
Communications Law -- 1982, which became effective as of August 9, 2001. The
amendment requires that broadcast services and telecommunication services
provided by the cable companies be provided through separate entities. The
amendment to the Communications law also gives the Minister of Communications
expansive authority to order license holders to open access to other license
holders, including the use of broadcast centers and infrastructure which has
been built on the property of subscribers.
Under the amendment, a holder of a general license to broadcast via cable will
be obligated to invest in local content production. The amount of this
investment will be decided by the Cable Television Commission, but can be no
lower than 8% and no greater than 12% of the amount of income received by the
license holder from its subscribers.
THE NETHERLANDS
In the Netherlands, the Dutch government is debating the question of what rights
regulation should afford third parties in terms of access to cable networks. In
the summer of 2000, the Dutch government committed to adopt a law on cable
access, in line with the EU framework within two years. The early stages of
consultation on this law are ongoing.
In addition, in March of 2001 OPTA (the Dutch communications regulator) and the
NMa (the Dutch competition authority) published a joint consultation paper
regarding access to cable networks. It is likely that the findings of this joint
consultation will inform the ongoing legislative process.
There can be no certainty at the moment as to the final form of any such law, if
passed, nor how it will be implemented by regulatory authorities should it come
into force. We expect debate on this issue at national and European levels to
continue.
POLAND REGULATORY ISSUES
In addition to many of the issues discussed above, Poland has certain foreign
ownership restrictions. Programming may be broadcast in Poland only by Polish
entities in which foreign persons hold no more than 33.0% of the share capital,
ownership interest and voting rights. The majority of the management and
supervisory boards of any company holding a broadcasting license must be
comprised of Polish citizens residing in Poland. We believe that the ownership
structure of UPC Polska and its subsidiaries comply with Poland's regulatory
restrictions on foreign ownership of broadcasts.
Television operators, including cable and DTH operators, in Poland are subject
to the provisions of the Polish Copyright Act. Recent legislation has increased
the rights of authors in their copyrighted materials, which could lead to a
significant increase of fees to be paid by television operators.
On January 1, 2001, a new Telecommunications Law came into force. Under the new
Telecommunications Law, only the operation of public telephone networks and the
operation of public networks used for the broadcast or distribution of radio and
TV programs would require a telecommunications permit to be issued by the new
regulatory authority, the Office of Telecommunications Regulation, or "OTR."
Other types of telecommunication activities, such as data transmission and
Internet access services, are subject to registration with the OTR.
IV-18
The new Telecommunications Law may affect UPC Polska's ability to obtain
required radio frequencies allocations in case such frequencies would be
assigned by way of public tenders. The new Telecommunications Law also contains
provisions regarding the access to networks and infrastructure sharing, and
eliminates foreign ownership limitations with respect to the provision of cable
television and domestic telecommunications services.
CHILE
Cable and telephone applications for concessions and permits are submitted to
the Ministry of Transportation and Telecommunications, which, through the
Subsecretary of Telecommunications, is the government body responsible for
regulating, granting concessions and registering all telecommunications.
Wireline cable television licenses are non-exclusive and granted for indefinite
terms, based on a business plan for a particular geographic area. There is an
18.0% value added tax levied on multi-channel television services but no royalty
or other charges associated with the re-transmission programming from off-air
broadcasting television networks. Wireless licenses have renewable terms of 10
years. VTR has cable permits in most major and medium sized markets in Chile.
Cross ownership between cable television and telephone is also permitted.
The General Telecommunications Law of Chile allows telecommunications companies
to provide service and develop telecommunications infrastructure without
geographic restriction or exclusive rights to serve. Chile currently has a
competitive, multi-carrier system for international and local long distance
telecommunications services. Regulatory authorities currently determine prices
for local services until the market is determined to be competitive. The maximum
rate structure is determined every five years. Local service providers with
concessions are obligated to provide service to all concessionaires who are
willing to pay for an extension to get service. Local providers must also give
long distance service providers equal access to their network connections.
AUSTRALIA
The Australian federal government under various Commonwealth statutes regulates
the provision of subscription television services in Australia. In addition,
State and Territory laws, including environmental and consumer contract
legislation, may impact the construction and maintenance of a transmission
system for subscription television services, the content of those services, as
well as various aspects of the subscription television business itself.
The Australia Broadcasting Services Act 1992, or "BSA," regulates the ownership
and operation of all categories of television and radio services in Australia.
The technical delivery of broadcasting services is separately licensed under the
Radiocommunications Act 1992 or the Telecommunications Act 1997, depending on
the delivery technology utilized, such as wireline cable, DTH, MMDS or any other
means of transmission. The BSA regulates subscription television broadcasting
services by requiring each service to have an individual license. Companies
associated with Austar hold approximately 152 television broadcasting licenses
issued under the BSA. Each license is issued subject to certain conditions. The
government may vary or revoke license conditions or may, by written notice,
specify additional conditions.
Those companies also hold a carrier license, and operate as carriage service
providers, under the Telecommunications Act for the provision of broadband
Internet services and certain pay television services; as well as hold a mixture
of spectrum and apparatus licenses issued under the Radiocommunications Act.
Under the BSA, foreign ownership of "company interests" of pay television
broadcasting licenses is limited to 20.0% by a single foreign person and an
aggregate of 35.0% by all foreign persons. Australian companies hold the BSA
licenses authorizing Austar's pay television services for the purposes of the
BSA.
LITIGATION
UPC is currently engaged in arbitration proceedings in France. A minority
shareholder in UPC's subsidiary, Mediareseaux S.A., has instituted arbitration
proceedings under ICC Rules alleging breach of contract under
IV-19
a certain Business Combination Agreement dated December 15, 1999 and entered
into between, inter alia, UPC and Intercomm France CVOHA, or "ICH." As part of
the arbitration proceedings, ICH obtained an attachment of the shares held by
UPC in Mediareseaux. UPC is vigorously defending the attachment and the
arbitration proceedings and has filed appropriate counter claims.
On November 28, 2001, a class action law suit was filed in the United States
District Court, Southern District of New York, against UPC and certain of its
officers and underwriters. The suit was filed on behalf of certain purchasers of
UPC's common stock. The complaint alleges violations of securities laws incident
to UPC's initial public offering of its shares of common stock. The alleged
violations are said to involve commissions that the underwriters received from
certain investors, wrongful allocations of shares by the underwriters to their
customers, and inadequate disclosure. UPC and its officers deny the plaintiffs'
claims and intend to vigorously defend the lawsuit.
IV-20
SELECTED FINANCIAL DATA
In the table below, we provide you with our selected historical consolidated
financial data. We prepared this information using our consolidated financial
statements as of the dates indicated and for each of the years ended December
31, 2000 and December 31, 1999, the ten months ended December 31, 1998, the
years ended February 29, 1998 and 1997, and for the nine month periods ended
September 30, 2001 and 2000. We derived our consolidated statement of operations
and balance sheet data below for the fiscal periods ended December 31, 2000,
1999, 1998, February 28, 1998 and 1997 from our audited financial statements.
The unaudited financial data as of September 30, 2001 and for the nine month
periods ended September 30, 2001 and 2000 contain only normal recurring
accruals, that in the opinion of management, are necessary for a fair
presentation of our results for these periods. The interim results of operations
are not necessarily indicative of results that may be expected for a full year.
The financial data presented below is not necessarily comparable from period to
period as a result of several transactions, including acquisitions and
dispositions of consolidated and equity investees. For this and other reasons,
you should read it together with our historical financial statements and related
notes and also with management's discussion and analysis of financial condition
and results of operations contained in the underlying reports included in this
proxy statement/prospectus.
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------- -----------------------------
2001 2000 2000 1999
-------------- -------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES)
STATEMENT OF OPERATIONS DATA:
Revenue........................... $ 1,185,860 $ 901,048 $ 1,251,034 $ 720,762
Operating expense................. (841,080) (630,867) (876,234) (458,748)
Selling, general and
administrative expense........... (518,463) (506,148) (700,081) (618,925)
Depreciation and amortization..... (823,824) (566,296) (815,522) (418,714)
Impairment and restructuring
charges.......................... (305,368) - - -
----------- ----------- ----------- -----------
Operating loss................... (1,302,875) (802,263) (1,140,803) (775,625)
Interest income................... 88,148 101,213 133,297 54,375
Interest expense.................. (811,918) (637,145) (928,783) (399,999)
Foreign currency exchange (loss)
gain, net........................ (29,643) (292,606) (215,900) (39,501)
Proceeds from litigation
settlement....................... 194,830 - - -
Gain on issuance of common equity
securities by subsidiaries....... - 127,731 127,731 1,508,839
Provision for losses on investment
related costs.................... (334,660) - (5,852) (7,127)
(Loss) gain on sale of investments
in affiliates.................... 1,764 - 6,194 -
Other expense, net................ (7,736) (2,306) (4,305) (14,641)
----------- ----------- ----------- -----------
(Loss) income before income taxes
and other items................ (2,202,090) (1,505,376) (2,028,421) 326,321
Income tax benefit (expense),
net.............................. 773 6,932 2,897 (198)
Minority interests in
subsidiaries..................... 192,698 692,935 934,548 360,444
Share in results of affiliates,
net.............................. (122,737) (79,332) (129,914) (50,249)
Extraordinary charge for early
retirement of debt............... - - - -
Cumulative effect of change in
accounting principle............. 32,574 - - -
----------- ----------- ----------- -----------
Net (loss) income............. $(2,098,782) $ (884,841) $(1,220,890) $ 636,318
=========== =========== =========== ===========
Net (loss) income per common
share:
Basic net (loss) income.......... $ (21.66) $ (9.63) $ (13.24) $ 7.53
=========== =========== =========== ===========
Diluted net (loss) income........ $ (21.66) $ (9.63) $ (13.24) $ 6.67
=========== =========== =========== ===========
TEN MONTHS
ENDED YEAR ENDED FEBRUARY 28,
DECEMBER 31, -----------------------------
1998 1998 1997
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES)
STATEMENT OF OPERATIONS DATA:
Revenue........................... $ 254,466 $ 98,622 $ 31,555
Operating expense................. (122,811) (65,631) (26,251)
Selling, general and
administrative expense........... (299,993) (91,356) (54,020)
Depreciation and amortization..... (159,045) (91,656) (38,961)
Impairment and restructuring
charges.......................... - - -
----------- ----------- -----------
Operating loss................... (327,383) (150,021) (87,677)
Interest income................... 10,681 7,806 13,329
Interest expense.................. (163,227) (124,288) (79,659)
Foreign currency exchange (loss)
gain, net........................ 1,582 (1,419) (350)
Proceeds from litigation
settlement....................... - - -
Gain on issuance of common equity
securities by subsidiaries....... - - -
Provision for losses on investment
related costs.................... (9,686) (14,793) (5,859)
(Loss) gain on sale of investments
in affiliates.................... - 90,020 65,249
Other expense, net................ (3,518) (3,669) (641)
----------- ----------- -----------
(Loss) income before income taxes
and other items................ (491,551) (196,364) (95,608)
Income tax benefit (expense),
net.............................. (610) - -
Minority interests in
subsidiaries..................... 1,410 1,568 4,358
Share in results of affiliates,
net.............................. (54,781) (68,645) (47,575)
Extraordinary charge for early
retirement of debt............... - (79,091) -
Cumulative effect of change in
accounting principle............. - - -
----------- ----------- -----------
Net (loss) income............. $ (545,532) $ (342,532) $ (138,825)
=========== =========== ===========
Net (loss) income per common
share:
Basic net (loss) income.......... $ (7.43) $ (4.46) $ (1.79)
=========== =========== ===========
Diluted net (loss) income........ $ (7.43) $ (4.46) $ (1.79)
=========== =========== ===========
IV-21
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------- -----------------------------
2001 2000 2000 1999
-------------- -------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES)
Weighted-average number of common
shares outstanding:
Basic............................ 98,683,319 95,940,658 96,114,927 82,024,077
=========== =========== =========== ===========
Diluted.......................... 98,683,319 95,940,658 96,114,927 95,331,929
=========== =========== =========== ===========
OTHER FINANCIAL DATA:
Operating loss.................... $(1,302,875) $ (802,263) $(1,140,803) $ (775,625)
Depreciation and amortization..... 823,824 566,296 815,522 418,714
Stock-based compensation.......... 982 (960) (43,183) 223,734
Impairment and restructuring
charges.......................... 305,368 - - -
----------- ----------- ----------- -----------
Consolidated Adjusted EBITDA(1).. $ (172,701) $ (236,927) $ (368,464) $ (133,177)
=========== =========== =========== ===========
TEN MONTHS
ENDED YEAR ENDED FEBRUARY 28,
DECEMBER 31, -----------------------------
1998 1998 1997
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES)
Weighted-average number of common
shares outstanding:
Basic............................ 73,644,728 77,033,786 78,071,552
=========== =========== ===========
Diluted.......................... 73,644,728 77,033,786 78,071,552
=========== =========== ===========
OTHER FINANCIAL DATA:
Operating loss.................... $ (327,383) $ (150,021) $ (87,677)
Depreciation and amortization..... 159,045 91,656 38,961
Stock-based compensation.......... 164,793 - -
Impairment and restructuring
charges.......................... - - -
----------- ----------- -----------
Consolidated Adjusted EBITDA(1).. $ (3,545) $ (58,365) $ (48,716)
=========== =========== ===========
- ------------
(1)Adjusted EBITDA represents net operating earnings before depreciation,
amortization and stock-based compensation charges. Stock-based compensation
charges result from variable plan accounting for our subsidiaries' regular
and phantom stock option plans and are generally non-cash charges. 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. Our presentation of Adjusted EBITDA may not be
comparable to statistics with a similar name reported by other companies. Not
all companies and analysts calculate Adjusted EBITDA in the same manner.
(UNAUDITED) DECEMBER 31, FEBRUARY 28,
SEPTEMBER 30, ------------------------------------------- -------------------------
2001 2000 1999 1998 1998 1997
------------- ------------- ------------ ------------ ------------ ----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents, restricted cash
and short-term liquid investments..... $ 1,218,077 $ 2,235,524 $2,573,821 $ 94,321 $ 358,122 $140,743
Other current assets, net.............. 1,045,406 844,676 412,445 94,206 52,877 28,934
Investments in affiliates, net......... 345,421 756,322 309,509 429,490 341,252 253,108
Property, plant and equipment, net..... 3,743,597 3,748,804 2,379,837 451,442 440,735 219,342
Goodwill and other intangible assets,
net................................... 4,490,339 5,154,907 2,944,802 424,934 409,190 132,636
Other non-current assets............... 567,535 263,540 382,439 47,702 77,659 45,173
----------- ----------- ---------- ---------- ---------- --------
Total assets...................... $11,410,375 $13,003,773 $9,002,853 $1,542,095 $1,679,835 $819,936
=========== =========== ========== ========== ========== ========
Current liabilities.................... $ 1,266,011 $ 1,553,765 $ 908,700 $ 326,552 $ 291,390 $ 88,941
Senior notes and other long-term
debt.................................. 10,699,677 9,544,926 5,989,455 1,939,289 1,702,771 675,183
Other non-current liabilities.......... 152,402 66,615 95,502 184,928 30,204 9,116
----------- ----------- ---------- ---------- ---------- --------
Total liabilities................. 12,118,090 11,165,306 6,993,657 2,450,769 2,024,365 773,240
Minority interests in subsidiaries..... 1,557,373 1,884,568 867,970 18,705 15,186 307
Preferred stock........................ 29,510 28,117 26,920 56,286 32,564 31,293
Stockholders' (deficit) equity......... (2,294,598) (74,218) 1,114,306 (983,665) (392,280) 15,096
----------- ----------- ---------- ---------- ---------- --------
Total liabilities and
stockholders' (deficit)
equity.......................... $11,410,375 $13,003,773 $9,002,853 $1,542,095 $1,679,835 $819,936
=========== =========== ========== ========== ========== ========
IV-22
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF NEW UNITED
In the tables below, we provide you with unaudited pro forma condensed
consolidated statements of operations of New United for the year ended December
31, 2000 and the nine months ended September 30, 2001, to give you a better
understanding of what New United's consolidated operations might have looked
like had we consummated the merger as of January 1, 2000. The pro forma
consolidated balance sheet shows what New United would have looked like if we
had completed the transaction as of September 30, 2001. We derived this
information from the consolidated financial statements of United, in addition to
certain assumptions and adjustments in the accompanying notes to the pro forma
information. The information should be read together with our historical
financial statements and related notes contained in the underlying reports
included in this proxy statement/prospectus.
The unaudited pro forma condensed consolidated financial statements reflect the
consolidation of United into New United. Based on the relationship between
United, New United and New United's shareholders, we believe, under US generally
accepted accounting principles ("GAAP"), that the consolidation of United into
New United properly reflects the substance of the parent-subsidiary
relationship, notwithstanding the lack of technical majority voting control over
United by New United. Although we believe consolidation is appropriate under the
circumstances, the SEC could disagree resulting in New United accounting for its
investment in United under the equity method of accounting. We intend to discuss
and resolve this issue with the SEC prior to the effective date of this proxy
statement/registration statement.
New United will become our 99.5% shareholder and holders of our common stock
will receive equivalent common stock of New United. Our merger with a newly
created subsidiary of New United will be accounted for by New United as a
reorganization of entities under common control at historical cost similar to a
pooling of interests. New United expects to consolidate the financial position
and results of operations of United upon closing of the transaction. You should
not rely on the unaudited selected pro forma condensed consolidated financial
information as being indicative of the historical results that we would have had
or the future results that New United will experience after the merger. Assuming
completion of the merger, the actual financial position and results of
operations will differ, perhaps significantly, from the pro forma amounts
reflected herein because of a variety of factors, including access to additional
information, change in value not currently identified and changes in operating
results between the dates of the pro forma financial data and the date on which
the merger takes place.
In connection with the merger and related transactions, Liberty will contribute
the Liberty Contribution Assets to New United as follows:
- - notes issued by Belmarken and UPC (subsidiaries of United) having an accreted
value of approximately $891.7 million at January 30, 2002, exchangeable into
shares of UPC at the U.S. dollar equivalent of E8.00 per share;
- - the Liberty cash contribution; and
- - the Liberty UPC bonds.
Liberty will also repay approximately $304.6 million dollars of debt (including
accrued interest of $17.0 through January 30, 2002) that Liberty owes to us,
through the issuance of Liberty Notes to us in an equivalent amount, in addition
to approximately $241.3 million which was repaid in cash on December 3, 2001.
Before the merger, Liberty and its affiliates will contribute all of their
United Class B common stock and a portion of their United Class A common stock
to United in exchange for the issuance of an equal number of shares of New
United Class C common stock. Also before the merger, the Founders will
contribute their United Class B common stock to New United in exchange for the
issuance of an equal number of shares of New United Class B common stock. Prior
to this contribution the Founders will convert an adequate number of shares of
United Class B common stock into shares of United Class A common stock to insure
that New United does not acquire 50.0% or more of the voting power of United.
The Founders will receive one share of New United Class B common stock for each
share of United Class B common stock that is so converted.
IV-23
Merger Subsidiary will be merged into us, and the remaining outstanding shares
of our Class A common stock (including those shares still held by Liberty and
its affiliates) and Class B common stock will be converted into an equal number
of shares of New United's Class A common stock. The outstanding shares of each
series of our preferred stock, other than our Series E preferred stock, will be
converted into shares of New United Class A common stock equal to the number of
shares of United Class A common stock into which the preferred stock is
convertible immediately prior to the merger.
New United will issue approximately 281.4 million shares of New United's Class C
common stock in return for the Belmarken notes, the Liberty cash contribution
and the Liberty UPC bonds. These shares are in addition to the shares of New
United Class C common stock that Liberty will receive as a result of the
conversion or exchange of some of the existing United Class A common stock and
all of the Class B Common stock it currently holds in United.
IV-24
NEW UNITED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2001
PRO FORMA
PURCHASE NEW UNITED
NEW UNITED(1) UNITED(1) ADJUSTMENTS PRO FORMA
------------- ------------- ------------- -------------
(IN THOUSANDS)
ASSETS
Current assets
Cash, cash equivalents,
restricted cash and short-term
liquid investments............. $ - $ 1,218,077 $ 189,082(2) $ 1,407,159
Subscriber receivables, net...... - 116,717 - 116,717
Notes receivable, related
party.......................... - 560,510 (535,146)(3) 25,364
Other current assets, net........ - 368,179 - 368,179
---- ----------- ----------- -----------
Total current assets......... - 2,263,483 (346,064) 1,917,419
Marketable equity securities and
other investments................ - 37,276 - 37,276
Investments in affiliates, net..... - 345,421 - 345,421
Property, plant and equipment,
net.............................. - 3,743,597 - 3,743,597
Goodwill and other intangible
assets, net...................... - 4,490,339 - 4,490,339
Deferred financing costs, net...... - 188,434 (32,234)(4) 156,200
Derivative securities.............. - 306,277 - 306,277
Other assets, net.................. - 35,548 - 35,548
---- ----------- ----------- -----------
Total assets................. $ - $11,410,375 $ (378,298) $11,032,077
==== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities
Accounts payable................. $ - $ 304,616 $ - $ 304,616
Accrued liabilities.............. - 565,909 (12,469)(5) 553,440
Subscriber prepayments and
deposits....................... - 140,213 - 140,213
Short-term debt.................. - 35,908 - 35,908
Current portion of other
long-term debt................. - 202,729 - 202,729
Other current liabilities........ - 16,636 - 16,636
---- ----------- ----------- -----------
Total current liabilities.... - 1,266,011 (12,469) 1,253,542
Senior discount notes and senior
notes............................ - 6,675,074 (1,685,711)(6) 4,989,363
Other long-term debt............... - 4,024,603 (874,166)(7) 3,150,437
Deferred compensation.............. - 9,149 - 9,149
Deferred taxes..................... - 90,310 - 90,310
Other long-term liabilities........ - 52,943 - 52,943
---- ----------- ----------- -----------
Total liabilities............ - 12,118,090 (2,572,346) 9,545,744
---- ----------- ----------- -----------
Minority interests in
subsidiaries..................... - 1,557,373 2,600(8) 1,559,973
---- ----------- ----------- -----------
Series B Convertible Preferred
Stock............................ - 29,510 (29,510)(9) -
---- ----------- ----------- -----------
Stockholders' (deficit) equity..... - (2,294,598) 2,220,958(9) (73,640)
---- ----------- ----------- -----------
Total liabilities and
stockholders' (deficit)
equity.................... $ - $11,410,375 $ (378,298) $11,032,077
==== =========== =========== ===========
IV-25
NEW UNITED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001
PRO FORMA
PURCHASE NEW UNITED
NEW UNITED(1) UNITED(1) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
Revenue............................. $ - $ 1,185,860 $ - $ 1,185,860
Operating expense................... - (841,080) - (841,080)
Selling, general and administrative
expense........................... - (518,463) - (518,463)
Depreciation and amortization....... - (823,824) - (823,824)
Impairment and restructuring
charges........................... - (305,368) - (305,368)
------- ----------- ------- ------------
Operating (loss) income........... - (1,302,875) - (1,302,875)
Interest income..................... - 88,148 (24,101)(10) 64,047
Interest expense.................... - (811,918) 164,732(11) (647,186)
Foreign currency exchange loss,
net............................... - (29,643) - (29,643)
Proceeds from litigation
settlement........................ - 194,830 - 194,830
Provision for loss on investments... - (334,660) - (334,660)
Other (expense) income, net......... - (5,972) - (5,972)
------- ----------- ------- ------------
(Loss) income before income taxes
and other items................. - (2,202,090) 140,631 (2,061,459)
Income tax benefit, net............. - 773 - 773
Minority interests in
subsidiaries...................... - 192,698 - 192,698
Share in results of affiliates,
net............................... - (122,737) - (122,737)
------- ----------- ------- ------------
Net (loss) income from continuing
operations...................... $ - $(2,131,356) $140,631 $ (1,990,725)
======= =========== ======= ============
Basic and diluted net (loss) income
from continuing operations per
common share...................... $ - $ (21.99) $ (5.63)
======= =========== ============
Weighted-average common shares --
basic and diluted................. 1 98,683,319 353,529,573
======= =========== ============
IV-26
NEW UNITED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
PRO FORMA
PURCHASE NEW UNITED
NEW UNITED(1) UNITED(1) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
Revenue............................... $ - $ 1,251,034 $ - $ 1,251,034
Operating expense..................... - (876,234) - (876,234)
Selling, general and administrative
expense............................. - (700,081) - (700,081)
Depreciation and amortization......... - (815,522) - (815,522)
-------- ----------- -------- -----------
Operating (loss) income........... - (1,140,803) - (1,140,803)
Gain on issuance of common equity
securities by subsidiaries.......... - 127,731 - 127,731
Interest income....................... - 133,297 (1,045)(10) 132,252
Interest expense...................... - (928,783) 186,628(11) (742,155)
Foreign currency exchange loss, net... - (215,900) - (215,900)
Other expense, net.................... - (3,963) - (3,963)
-------- ----------- -------- -----------
(Loss) income before other
items........................... - (2,028,421) 185,583 (1,842,838)
Income tax benefit, net............... - 2,897 - 2,897
Minority interests in subsidiaries.... - 934,548 - 934,548
Share in results of affiliates, net... - (129,914) - (129,914)
-------- ----------- -------- -----------
Net (loss) income from continuing
operations...................... $ - $(1,220,890) $185,583 $(1,035,307)
======== =========== ======== ===========
Basic and diluted net (loss) income
from continuing operations per
common share........................ $ - $ (13.24) $ (3.35)
======== =========== ===========
Weighted-average common shares --basic
and diluted......................... - 96,114,927 308,978,378
======== =========== ===========
IV-27
NEW UNITED
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(1) These columns represent the financial position and historical results of
operations of the respective companies.
(2) Represents the pro forma effect on cash as follows (in thousands):
Transactions which occurred on December 3, 2001
Repayment by Liberty of a portion of the loans from United
and related accrued interest thereon as of September 30,
2001...................................................... $ 241,309
Issuance of approximately 12.1 million shares of United
Class A common stock to Liberty for cash.................. 20,025
Redemption of the United 1999 Notes......................... (261,309)
Transactions occurring at closing
Cash received for New United Class C common stock........... 200,000
Cash received from Founders in exchange for 0.5% economic
interest in United........................................ 2,600
Estimated merger transaction costs expected to be incurred
subsequent to September 30, 2001.......................... (13,543)
-----------
$ 189,082
===========
(3) Represents the pro forma effect on notes receivable, related party as
follows (in thousands):
Transactions which occurred on December 3, 2001
Repayment by Liberty in cash of a portion of the loans from
United and related accrued interest thereon as of
September 30, 2001........................................ $ (241,309)
Transactions occurring at closing
Repayment in Liberty Notes of the remaining balance of the
loans, including related accrued interest, from United to
Liberty................................................... (293,837)
-----------
$ (535,146)
===========
(4) Represents the decrease in net deferred financing costs as follows:
Elimination upon consolidation of certain deferred financing
costs associated with the UPC Notes contributed by Liberty
(Liberty UPC bonds) to New United at closing.............. $ (20,777)
Estimated merger transaction costs reclassified to equity
upon consummation of the transaction...................... (11,457)
-----------
$ (32,234)
===========
(5) Represents the accrued dividends on the United Series C and D preferred
stock paid with New United Class A common stock (approximately 4.1 million
shares) at closing.
(6) Represents the pro forma effect on senior discount notes and senior notes
as follows (in thousands):
Elimination upon consolidation of certain UPC Notes as a
result of the contribution by Liberty of Liberty UPC bonds
to New United at closing.................................. $ (1,415,624)
Early retirement of United 1999 Notes on December 3, 2001... (270,087)
-------------
$ (1,685,711)
=============
IV-28
NEW UNITED
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(7) Represents the elimination upon consolidation of the UPC Belmarken loan
upon contribution by Liberty at closing of the Belmarken loan to New
United.
(8) Represents the Founders 0.5% economic interest in United.
(9) Represents the pro forma effect on stockholders' (deficit) equity as
follows (in thousands):
Transaction which occurred on December 3, 2001
Extraordinary gain on early retirement of United 1999
Notes..................................................... $ 8,778
Issuance of approximately 12.1 million shares of United
Class A common stock to Liberty........................... 20,025
Transactions occurring at closing
Issuance at closing of approximately 281.4 million shares of
New United Class C common stock to Liberty, valued at
$3.02 per share (December 3, 2001 closing price):
Belmarken loan............................................ 294,584
Liberty UPC bonds......................................... 355,233
Cash...................................................... 200,000
Issuance of approximately 17.4 million shares of New United
Class A common stock to existing holders of United Series
B, C and D preferred stock................................ 742,010
Issuance of approximately 4.1 million shares of New United
Class A common stock for the accrued dividends to the
holders of United Series C and D preferred stock.......... 12,469
Historical cost of United's Series C and D preferred
stock..................................................... (712,500)
Liberty Notes received in payment of amounts owed to us by
Liberty, reclassified as an offset to shareholders
equity.................................................... (293,837)
Extraordinary gain on acquisition by New United of:
Liberty UPC bonds......................................... 1,039,614
Belmarken loan............................................ 579,582
Estimated merger transaction costs.......................... (25,000)
------------
$ (2,220,958)
============
The pro forma effect of the acquisition of the Liberty UPC bonds and
Belmarken loan issued by UPC, and the redemption of the United 1999 Notes,
which results in an extraordinary gain on the early retirement of such
debt, has not been reflected in the unaudited pro forma statements of
operations as this gain is considered a nonrecurring gain attributable to
the transaction. See "Certain Federal Income Tax Consequences" elsewhere
herein for a discussion regarding the potential adverse tax impacts
associated with this discharge of indebtedness.
(10) Represents the pro forma effect on interest income from the repayment of
the loans from United to Liberty. It is assumed that New United will resell
such Liberty Notes obtained at closing and therefore, no interest income
related to such Notes has been reflected in the accompanying pro forma
condensed consolidated statements of operations.
IV-29
NEW UNITED
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(11)Represents the pro forma effect on interest expense as follows (in
thousands):
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------ -----------------
Elimination of historical interest
expense:
Belmarken loan..................... $ 17,366 $ -
Liberty UPC bonds.................. 126,775 161,558
United 1999 Notes.................. 20,591 25,070
---------- ----------
$ 164,732 $ 186,628
========== ==========
IV-30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF UNITED
The following discussion and analysis of financial condition and results of
operations cover the nine months ended September 30, 2001 and 2000 (unaudited),
the years ended December 31, 2000 and 1999 and the ten months ended December 31,
1998 and should be read together with our consolidated financial statements and
related notes included elsewhere herein. These consolidated financial statements
provide additional information regarding our financial activities and condition.
INTRODUCTION
Prior to the ten months ended December 31, 1998, our fiscal year-end was the
last day of February, and we accounted for our share of the income or loss of
our operating companies based on the calendar year results of each operating
company. This created a two-month delay in reporting the operating company
results in our consolidated results for our fiscal year-end. On February 24,
1999, we changed our fiscal year-end from the last day in February to the last
day in December, effective December 31, 1998. To effect the transition to the
new fiscal year-end, the combined results of operations of the operating
companies for January and February 1998, a loss of $50.4 million, was reported
as a one-time adjustment to our retained deficit as of March 1, 1998, in our
consolidated statement of stockholders' (deficit) equity. Consequently, the
consolidated statement of operations and comprehensive (loss) income presents
the consolidated results of the Company and its subsidiaries for the ten months
ended December 31, 1998.
SERVICES
To date, our primary source of revenue has been video entertainment services to
residential customers. We believe that an increasing percentage of our future
revenues will come from telephone and Internet access services within the
residential and business markets. Within a decade, video services may only
account for half of our total revenue, as our other services increase. The
introduction of telephone and Internet access services had a significant
negative impact on operating earnings and Adjusted EBITDA during 1998, 1999 and
2000. We expected this negative impact due to the high costs associated with
obtaining subscribers, branding, and launching these new services against the
incumbent operator. We expect this negative impact to decline in the future. We
intend for these new businesses to be Adjusted EBITDA positive after two to
three years following introduction of the service, but there can be no assurance
this will occur.
Video. Our operating systems generally offer a range of video service
subscription packages including a basic tier and an expanded basic tier. In some
systems, we also offer mini-tiers and other premium programming. Historically,
video services revenue has increased as a result of acquisitions of systems,
subscriber growth from both well-established and developing systems, and
increases in revenue per subscriber from basic rate increases and the
introduction of expanded basic tiers and pay-per-view services.
Voice. Our operating systems that have launched telephone service offer a full
complement of telephone products, including caller ID, call waiting, call
forwarding, call blocking, distinctive ringing and three-way calling.
Internet. Our local operating companies provide subscribers with high-speed
Internet access via their broadband network for a fee.
Content. We provide content for video service providers in Europe, Latin
America, Australia and New Zealand. In addition to being provided on our
systems, content is also sold to third-party operators.
PRICING
Video. We usually charge a one-time installation fee when we connect video
subscribers, a monthly subscription fee that depends on whether basic or
expanded-basic tier service is offered, and incremental amounts for those
subscribers purchasing pay-per-view and premium programming.
IV-31
Voice. Revenue from residential telephone usually consists of a flat monthly
line rental and a usage charge based upon minutes. In order to achieve high
growth from early market entry, we price our telephone service at a discount
compared to services offered by incumbent telecommunications operators. In
addition, we may waive or substantially discount our installation fees.
Internet. Generally, our services are offered to residential subscribers at
flat subscription fees. Our flat fee is designed to be competitive with fees for
dial-up Internet access. For business subscribers to services other than our
standard broadband Internet access services, we generally agree on the pricing
with local operators on a case-by-case basis, depending on the size and capacity
requirements of the businesses.
Content. We charge video service providers a per-subscription fee for our video
channels.
COSTS OF OPERATIONS
Video. Operating costs include the direct costs of programming, franchise fees
and operating expenses necessary to provide service to the subscriber. Direct
costs of programming are variable, based on the number of subscribers. The cost
per subscriber is established by negotiation between us and the program supplier
or rates negotiated by cable associations. Franchise fees, where applicable, are
typically based upon a percentage of revenue. Other direct operating expenses
include operating personnel, service vehicles, maintenance and plant
electricity. Selling, general and administrative expenses include salaries,
marketing, sales and commissions, legal and accounting, office facilities and
other overhead costs.
Voice. Operating costs include interconnect costs, fees for our customers to
move their telephone number from the incumbent's network to our network, network
operations, customer operations and customer care. Interconnect costs are
variable based upon usage as determined through negotiated interconnect
agreements. Selling, general and administrative expenses include salaries,
branding, marketing and customer acquisition costs, legal and accounting, human
resources, office facilities and other overhead costs.
Internet. Operating costs consist primarily of leased-line and network
development and management costs, as well as portal design and development,
local connectivity costs, help desk and customer care costs. Selling, general
and administrative expenses include branding, customer acquisition costs,
personnel-related costs, legal and accounting, office facilities and other
overhead.
Content. Operating costs include distribution costs such as transponder fees. A
significant portion of these costs are fixed in nature through contractual
commitments. Selling, general and administrative expenses include salaries,
marketing and subscription acquisition costs, legal and accounting, office
facilities and other overhead costs.
RESULTS OF OPERATIONS
REVENUE
NINE MONTHS ENDED TEN MONTHS
SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
------------------------- ------------------------- DECEMBER 31,
2001 2000 2000 1999 1998
------------ ---------- ------------ ---------- ------------
(IN THOUSANDS)
UPC.................. $ 924,372 $652,896 $ 918,634 $473,422 $172,287
Austar United........ 132,925 133,248 177,313 151,722 74,209
VTR.................. 123,933 109,203 148,167 87,444 -
Other Latin
America............ 4,488 5,623 6,818 7,655 4,757
Corporate and
other.............. 142 78 102 277 -
Other Asia/Pacific... - - - 242 3,213
---------- -------- ---------- -------- --------
Total
revenue.... $1,185,860 $901,048 $1,251,034 $720,762 $254,466
========== ======== ========== ======== ========
IV-32
Revenue increased $284.8 million, or 31.6%, for the nine months ended September
30, 2001 compared to the nine months ended September 30, 2000, and increased
$530.3 million, or 73.6%, and $466.3 million, or 183.2%, during the years ended
December 31, 2000 and 1999, respectively, the detail of which is as follows:
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------- ------------------------------------------------
2001 2000 2000 1999 1998
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS)
UPC revenue:
Video...................... $ 564,993 $ 470,457 $ 641,071 $ 392,569 $ 189,863
Voice...................... 227,778 120,877 187,103 42,606 267
Internet................... 113,714 52,560 77,655 26,507 4,756
Content.................... 7,232 4,239 4,606 3,853 677
Other...................... 10,655 4,763 8,199 7,887 9,955
------------ ------------ ------------ ------------ ------------
Consolidated UPC
revenue.............. $ 924,372 $ 652,896 $ 918,634 $ 473,422 $ 205,518
============ ============ ============ ============ ============
Consolidated UPC
revenue in euros..... E 1,033,385 E 695,466 E 1,000,825 E 447,501 E 185,582
============ ============ ============ ============ ============
Austar United revenue:(1)
Video...................... $ 113,989 $ 125,240 $ 163,938 $ 146,881 $ 89,819
Voice...................... 2,451 3,166 3,898 4,107 -
Internet................... 8,061 2,532 5,067 - -
Content.................... 8,210 - - - -
Other...................... 214 2,310 4,410 734 -
------------ ------------ ------------ ------------ ------------
Consolidated Austar
United revenue....... $ 132,925 $ 133,248 $ 177,313 $ 151,722 $ 89,819
============ ============ ============ ============ ============
Consolidated Austar
United revenue in
A$................... A$ 256,600 A$ 222,600 A$ 305,260 A$ 232,080 A$ 138,765
============ ============ ============ ============ ============
VTR revenue:(2)
Video...................... $ 81,643 $ 86,325 $ 113,400 $ 113,004 $ 116,488
Voice...................... 38,308 22,412 33,497 14,467 2,516
Internet................... 3,982 466 1,270 - -
------------ ------------ ------------ ------------ ------------
Consolidated VTR
revenue.............. $ 123,933 $ 109,203 $ 148,167 $ 127,471 $ 119,004
============ ============ ============ ============ ============
Consolidated VTR
revenue in Chilean
pesos................ CP76,475,615 CP57,713,492 CP80,028,242 CP63,665,347 CP54,806,926
============ ============ ============ ============ ============
- ------------
(1)As a result of the sale of 50.0% of our interest in the holding company
through which we held the largest portion of our interest in Austar United,
we will de-consolidate the results of operations of Austar United effective
November 15, 2001.
(2)Represents 100% of the operating results of VTR for all periods reflected. We
began consolidating the results of operations of VTR effective May 1, 1999.
The first nine months of 2001 compared to the first nine months of
2000. Revenue for UPC in U.S. dollar terms increased $71.4 million, or 30.6%,
from $233.5 million for the three months ended September 30, 2000 to $304.9
million for the three months ended September 30, 2001. Revenue for UPC in U.S.
dollar terms increased $271.5 million, or 41.6%, from $652.9 million for the
nine months ended September 30, 2000 to $924.4 million for the nine months ended
September 30, 2001. On a functional currency basis, UPC's revenue increased
E84.5 million, or 32.8%, from E257.9 million for the three months ended
September 30, 2000 to E342.4 million for the three months ended September 30,
2001. UPC's revenue increased E337.9 million, or 48.6%, from E695.5 million for
the nine months ended September 30, 2000 to E1,033.4 million for the nine months
ended September 30, 2001. Video revenue accounted for E31.1 and E130.9 million
of this increase for the three and nine months ended September 30, 2001,
respectively, primarily due to organic subscriber growth, increases in average
revenue per subscriber and new revenue from UPC's acquisition of K&T (The
IV-33
Netherlands), which we included in our consolidated results effective March 31,
2000, and the acquisition of EWT (Germany), which we included in our
consolidated results effective October 1, 2000. Video revenue also increased due
to the launch of DTH services in Hungary, the Czech Republic and the Slovak
Republic, offset by increased churn in Poland due to a significant rate increase
for UPC's DTH service. UPC will deconsolidate the results of its DTH operations
in Poland upon closure of the announced transaction with Canal+. Voice revenue
accounted for E24.9 million and E125.6 million of the total increase in revenue
for the three and nine months ended September 30, 2001, respectively, primarily
due to the acquisition of Cignal, and organic subscriber growth (445,600
subscribers at September 30, 2001 compared to 365,300 subscribers at September
30, 2000), offset by Priority Telecom's decision in the third quarter to exit
the wholesale voice business in order to refocus on the high margin data
business. The increase in Internet revenue for the three and nine months ended
September 30, 2001 compared to the same periods in the prior year was primarily
due to organic subscriber growth in Internet access services (507,200
subscribers at September 30, 2001 compared to 278,100 subscribers at September
30, 2000).
Revenue for Austar United in Australian dollars increased A$9.7 million, or
12.6%, from A$76.8 ($44.1) million for the three months ended September 30, 2000
to A$86.5 ($44.3) million for the three months ended September 30, 2001, due
primarily to the launch of its mobile telephone business in the fourth quarter
2000 and revenue from TVSN, a national shopping channel in Australia and New
Zealand, acquired in October 2000. Revenue for Austar United increased A$34.0
million, or 15.3%, from A$222.6 ($133.2) million for the nine months ended
September 30, 2000 to A$256.6 ($132.9) million for the nine months ended
September 30, 2001. Video revenue accounted for A$10.5 million of this increase,
due to organic subscriber growth (average of 428,691 subscribers for the nine
months ended September 30, 2001 compared to an average of 401,216 subscribers
for the nine months ended September 30, 2000), offset by a reduction in the
average monthly revenue per video subscriber from A$55.78 ($33.04) for the nine
months ended September 30, 2000 to A$54.74 ($28.36) for the nine months ended
September 30, 2001, due to lower premium revenues in the current period. The
remaining increase was due to the launch of wireless data services in late first
quarter 2000, the launch of its mobile telephone business in the fourth quarter
2000 and revenue from TVSN. The total increase in revenue for the nine months
ended September 30, 2001 compared to the same period in the prior year was
offset by a A$7.9 ($4.9) million reduction in revenue as a result of the
de-consolidation of TelstraSaturn effective April 1, 2000.
Revenue for VTR in U.S. dollar terms increased $4.2 million, or 11.4%, from
$37.0 million for the three months ended September 30, 2000 to $41.2 million for
the three months ended September 30, 2001. Revenue for VTR in U.S. dollar terms
increased $14.7 million, or 13.5% from $109.2 million for the nine months ended
September 30, 2000 to $123.9 million for the nine months ended September 30,
2001. On a functional currency basis, VTR's revenue increased CP7.22 billion, or
35.4%, from CP20.42 billion for the three months ended September 30, 2000 to
CP27.64 billion for the three months ended September 30, 2001. VTR's revenue
increased CP18.77 billion, or 32.5%, from CP57.71 billion for the nine months
ended September 30, 2000 to CP76.48 billion for the nine months ended September
30, 2001. Voice revenue accounted for CP4.32 billion and CP11.84 billion of this
increase for the three and nine months ended September 30, 2001, respectively,
primarily due to telephone subscriber growth (173,000 subscribers at September
30, 2001 compared to 102,700 subscribers at September 30, 2000), as well as an
increase in the average monthly revenue per telephone subscriber from CP15,399
and CP15,166 for the three and nine months ended September 30, 2000,
respectively, to CP16,316 and CP15,933 for the three and nine months ended
September 30, 2001, respectively. On a functional currency basis, video revenue
for the three and nine months ended September 30, 2001 compared to the prior
periods increased 12.4% and 10.3%, respectively, primarily due to an increase in
the number of video subscribers from 408,500 subscribers as of September 30,
2000 to 445,100 subscribers as of September 30, 2001. Average monthly revenue
per video subscriber remained flat on a functional currency basis.
2000 Compared to 1999. Revenue for UPC in U.S. dollar terms increased $445.2
million, or 94.0%, from $473.4 million for the year ended December 31, 1999 to
$918.6 million for the year ended December 31, 2000, despite a 14.0% devaluation
of the euro to the U.S. dollar from year to year. On a functional currency
basis, UPC's revenue increased E553.3 million, or 123.6%, from E447.5 million
for the year ended December 31,
IV-34
1999 to E1,000.8 million for the year ended December 31, 2000. This increase was
primarily due to acquisitions. The increase in video revenue for the year ended
December 31, 2000 compared to the prior year attributable to acquisitions
totaled 90.3% of the total increase. Of this increase, acquisitions in The
Netherlands represent 40.8%, the acquisition in Poland represents 21.8%,
acquisitions in France represent 12.5%, the acquisition in Sweden represents
9.9%, the acquisition in the Czech Republic represents 9.4% and other
acquisitions represent 5.6%. The remaining increase in video revenue of 9.7%
came from organic subscriber growth and increased revenue per subscriber. The
increase in telephone revenue for the year ended December 31, 2000 compared to
the prior year is primarily from its acquisitions of A2000 in The Netherlands
(September 1999), Kabel Plus in the Czech Republic (November 1999) and Monor in
Hungary (December 1999), which total approximately 51.2% of the increase. The
remaining increase in telephone revenue is due to organic subscriber growth in
UPC's Austrian, Dutch, French, Norwegian and Swedish systems. The increase in
Internet revenue for the year ended December 31, 2000 compared to the prior year
is primarily due to organic subscriber growth in its residential and business
high-speed cable modem Internet access services.
Revenue for Austar United in U.S. dollar terms increased $25.6 million, or
16.9%, from $151.7 million for the year ended December 31, 1999 to $177.3
million for the year ended December 31, 2000, despite a 12.2% devaluation of the
Australian dollar to the U.S. dollar from year to year. This increase was
primarily due to video subscriber growth (421,200 at December 31, 2000 compared
to 381,800 at December 31, 1999). The average monthly revenue per video
subscriber remained flat from an average per subscriber of A$53.71 ($34.71) for
the year ended December 31, 1999 to an average of A$53.68 ($30.92) per
subscriber for the year ended December 31, 2000.
Revenue for VTR in U.S. dollar terms increased $20.7 million, or 16.2%, from
$127.5 million for the year ended December 31, 1999 to $148.2 million for the
year ended December 31, 2000, despite a 6.3% devaluation of the Chilean peso to
the U.S. dollar from year to year. This increase was primarily due to telephone
subscriber growth (135,500 at December 31, 2000 compared to 66,700 at December
31, 1999), as well as an increased average monthly revenue per telephone
subscriber of $28.97 for the year ended December 31, 2000, compared to $26.09
for the prior year. Video revenue remained flat on a U.S. dollar basis, despite
a 9.2% increase in the number of video subscribers from 387,000 as of December
31, 1999 to 422,700 as of December 31, 2000, due to the weakening Chilean peso.
Average monthly revenue per video subscriber also remained relatively flat on a
U.S. dollar basis ($23.94 for the year ended December 31, 2000 compared to
$23.64 for the prior year), but increased 7.3% on a functional currency basis.
1999 Compared to 1998. Revenue for UPC in U.S. dollar terms increased $267.9
million, or 130.4%, from $205.5 million for the year ended December 31, 1998 to
$473.4 million for the year ended December 31, 1999, despite a 5.5% devaluation
of the euro to the U.S. dollar from year to year. On a functional currency
basis, UPC's revenue increased E261.9 million, or 141.1%, from E185.6 million
for the year ended December 31, 1998 to E447.5 million for the year ended
December 31, 1999, primarily due to the increase in video revenue, of which
83.8% related to acquisitions. Of this increase, acquisitions in The Netherlands
represent 59.3%, the acquisition in Poland represents 15.8%, acquisitions in
France represent 12.7% and acquisitions in Sweden and other countries represent
12.2%. The remaining increase in video revenue of 16.2% came from organic
subscriber growth, increased revenue per subscriber in Austria, Norway, France,
and Eastern Europe and the inclusion of a full year of operations in 1999 for
acquisitions completed in 1998. The increase in telephone revenue for the year
ended December 31, 1999 compared to the prior year is primarily due to the
launch of local telephone services in our Austrian, Dutch, French and Norwegian
systems. In addition, A2000, which we consolidated effective September 1, 1999,
had an existing telephone service. The increase in Internet revenue for the year
ended December 31, 1999 compared to the prior year is primarily due to the
launch of residential and business high-speed cable modem Internet access
services in Austria, Belgium, France, The Netherlands, Norway and Sweden in
1999.
Revenue for Austar United in U.S. dollar terms increased $61.9 million, or
68.9%, from $89.8 million for the year ended December 31, 1998 to $151.7 million
for the year ended December 31, 1999, including a 3.0% strengthening of the
Australian dollar to the U.S. dollar from year to year. This increase was
primarily due to video subscriber growth (381,800 at December 31, 1999 compared
to 288,700 at December 31, 1998), as well as an increased average monthly
revenue per video subscriber as Austar United continued to expand the
IV-35
content of its television service. The average monthly revenue per video
subscriber increased from A$47.00 ($29.45) for the year ended December 31, 1998
to A$53.71 ($34.71) per subscriber for the year ended December 31, 1999, a 14.3%
increase.
Revenue for VTR in U.S. dollar terms increased $8.5 million, or 7.1%, from
$119.0 million for the year ended December 31, 1998 to $127.5 million for the
year ended December 31, 1999, despite a 6.3% devaluation in the Chilean peso to
the U.S. dollar from year to year. This increase was primarily due to telephone
subscriber growth (66,700 at December 31, 1999 compared to 21,000 at December
31, 1998), as well as an increased average monthly revenue per telephone
subscriber of $26.09 for the year ended December 31, 1999, compared to $22.78
for the prior year. VTR experienced increased churn and lower sales volume than
expected for its video service during the year ended December 31, 1999 due to an
economic recession in Chile and increased competition. The number of video
subscribers decreased from 393,900 as of December 31, 1998 to 387,000 as of
December 31, 1999. The average monthly revenue per video subscriber also
decreased on a U.S. dollar basis ($23.64 for the year ended December 31, 1999,
compared to $25.63 for the prior year).
ADJUSTED EBITDA
NINE MONTHS ENDED TEN MONTHS
SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
------------------------- ------------------------- DECEMBER 31,
2001 2000 2000 1999 1998
----------- ----------- ----------- ----------- ------------
(IN THOUSANDS)
UPC.................... $(135,579) $(217,741) $(334,498) $(125,763) $ 42,608
Austar United.......... (36,129) (28,077) (45,304) (16,511) (31,093)
VTR.................... 18,591 11,620 12,582 15,140 -
Corporate.............. (17,713) (10,063) (13,020) 109 (2,907)
Eliminations and
other................ (1,871) 7,334 11,776 (6,152) (12,153)
--------- --------- --------- --------- --------
Consolidated
Adjusted
EBITDA....... $(172,701) $(236,927) $(368,464) $(133,177) $ (3,545)
========= ========= ========= ========= ========
Adjusted EBITDA increased $64.2 million and decreased $235.3 and $129.6 million
during the nine months ended September 30, 2001 compared to the nine months
ended September 30, 2000 and during the years ended December 31, 2000 and 1999,
respectively, the detail of which is as follows:
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- --------------------------------------
2001 2000 2000 1999 1998
----------- ----------- ----------- ----------- ----------
(IN THOUSANDS)
UPC Adjusted EBITDA:
Video.................... $ 180,844 $ 148,793 $ 199,405 $ 94,503 $ 84,828
Voice.................... (91,150) (77,883) (131,787) (44,185) (5,813)
Internet................. (53,660) (129,138) (170,538) (80,045) (12,493)
Content.................. (69,256) (70,292) (107,218) (52,581) (5,061)
Corporate and other...... (102,357) (89,221) (124,360) (43,455) (5,463)
--------- --------- --------- --------- --------
Consolidated UPC
Adjusted EBITDA..... $(135,579) $(217,741) $(334,498) $(125,763) $ 55,998
========= ========= ========= ========= ========
IV-36
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- --------------------------------------
2001 2000 2000 1999 1998
----------- ----------- ----------- ----------- ----------
(IN THOUSANDS)
Austar United Adjusted
EBITDA:
Video.................... $ (9,783) $ (10,054) $ (12,586) $ (10,923) $(27,166)
Voice.................... (1,235) (1,260) (3,839) (1,160) -
Internet................. (16,715) (14,914) (21,007) - -
Content.................. (5,984) - - - -
Management fees and
other.................. (2,412) (1,849) (7,872) (4,428) (4,124)
--------- --------- --------- --------- --------
Consolidated Austar
United Adjusted
EBITDA............ $ (36,129) $ (28,077) $ (45,304) $ (16,511) $(31,290)
========= ========= ========= ========= ========
VTR Adjusted EBITDA:(1)
Video.................... $ 13,754 $ 18,634 $ 36,672 $ 27,725 $ 30,763
Voice.................... 8,959 2,033 (8,890) (4,388) (2,741)
Internet................. (1,872) (2,103) (2,350) - -
Management fees and
other.................. (2,250) (6,944) (12,850) (5,218) -
--------- --------- --------- --------- --------
Consolidated VTR
Adjusted EBITDA... $ 18,591 $ 11,620 $ 12,582 $ 18,119 $ 28,022
========= ========= ========= ========= ========
- ------------
(1)Represents 100% of the operating results of VTR for all periods reflected. We
began consolidating the results of operations of VTR effective May 1, 1999.
The First Nine Months of 2001 Compared to the First Nine Months of
2000. Adjusted EBITDA for UPC in U.S. dollar terms increased $54.6 million,
from negative $87.4 million for the three months ended September 30, 2000 to
negative $32.8 million for the three months ended September 30, 2001. Adjusted
EBITDA for UPC increased $82.1 million, from negative $217.7 million for the
nine months ended September 30, 2000 to negative $135.6 million for the nine
months ended September 30, 2001. On a functional currency basis, UPC's Adjusted
EBITDA increased E59.8 million from negative E96.6 million for the three months
ended September 30, 2000 to negative E36.8 million for the three months ended
September 30, 2001. UPC's Adjusted EBITDA increased E80.0 million, from negative
E232.0 million for the nine months ended September 30, 2000 to negative E152.0
million for the nine months ended September 30, 2001. Video Adjusted EBITDA
accounted for E21.0 million and E44.2 million of this increase for the three and
nine months ended September 30, 2001, respectively, due to the acquisitions of
K&T and EWT, improved Adjusted EBITDA generally due to a continued focus on
costs controls, improved Adjusted EBITDA from the DTH systems in Hungary and the
Czech Republic as they gained subscribers and realized economies of scale and
improved Adjusted EBITDA from its DTH operations in Poland due to lower
marketing and customer acquisition costs. UPC will deconsolidate the results of
its DTH operations in Poland upon closure of the announced transaction with
Canal+. The deterioration in UPC's Adjusted EBITDA from its voice business for
the three and nine months ended September 30, 2001 compared to the same periods
in the prior year was primarily due to the acquisition of Cignal and associated
costs for the development and launch of products within new markets, offset by
achieving certain economies of scale in the cable telephone business, lower
start-up costs and cost savings achieved from continued integration and
restructuring of operations. The improvement in UPC's Adjusted EBITDA from its
Internet business for the three and nine months ended September 30, 2001
compared to the same periods in the prior year was primarily due to continued
subscriber growth and achieving certain economies of scale in its Internet
access business, in addition to lower start-up costs and cost savings from
continued integration and restructuring of operations. UPC's corporate and other
Adjusted EBITDA decreased for the nine months ended September 30, 2001. The
decrease was primarily due to costs incurred for the development of UPC's
digital set-top computer, as well as investigation of new technologies such as
near video-on-demand and voice-over Internet Protocol telephone. UPC also
continued to incur system costs for the development and rollout of UPC's
pan-European financial and customer care
IV-37
systems. UPC ended the broadcasting of the paid sports channel, Sport 1, in the
Czech Republic and Slovakia as of October 31, 2001.
Adjusted EBITDA for Austar United improved A$2.6 million, from negative A$22.9
($14.2) million for the three months ended September 30, 2000 to negative A$20.3
($10.4) million for the three months ended September 30, 2001, due primarily to
improved video EBITDA from the reduction of programming cost per subscriber
effective July 1, 2001, as a result of negotiations with XYZ Entertainment.
Adjusted EBITDA for Austar United decreased A$23.9 million, from negative A$45.9
($28.1) million for the nine months ended September 30, 2000 to negative A$69.8
($36.1) million for the nine months ended September 30, 2001, primarily due to
an incremental increase in video programming costs, as the Australian dollar
continued to weaken from period to period and development and start-up costs
associated with TVSN, offset by the de-consolidation of TelstraSaturn and the
resulting removal of approximately A$2.5 ($1.7) million of negative Adjusted
EBITDA.
Adjusted EBITDA for VTR in U.S. dollar terms increased $5.1 million and $7.0
million for the three and nine months ended September 30, 2001, respectively,
compared to the prior periods. On a functional currency basis, VTR's Adjusted
EBITDA increased CP3.76 billion from CP1.58 billion for the three months ended
September 30, 2000 to CP5.34 billion for the three months ended September 30,
2001. VTR's Adjusted EBITDA increased CP5.5 billion from CP6.11 billion for the
nine months ended September 30, 2000 to CP11.61 billion for the nine months
ended September 30, 2001. Telephone Adjusted EBITDA accounted for CP2.41 billion
and CP4.55 billion for the total increase for the three and nine months ended
September 30, 2001, respectively, primarily due to telephone subscriber growth
outpacing development costs. Video Adjusted EBITDA on a functional currency
basis remained flat from period to period. Although VTR experienced revenue
growth, additional promotional and marketing costs were incurred as a result of
increased competition for video subscribers. Internet Adjusted EBITDA on a
functional currency basis also remained flat from period to period, as
development costs kept pace with revenue growth. We expect these costs as a
percentage of revenue to decline in future periods because development costs in
general will taper off and certain costs have already been incurred and are
fixed in relation to subscriber volumes.
2000 Compared to 1999. Adjusted EBITDA for UPC in U.S. dollar terms decreased
$208.7 million, from negative $125.8 million for the year ended December 31,
1999 to negative $334.5 million for the year ended December 31, 2000. On a
functional currency basis, UPC's Adjusted EBITDA decreased E243.4 million from a
negative E119.8 million for the year ended December 31, 1999 to negative E363.2
million for the year ended December 31, 2000. Video Adjusted EBITDA in U.S.
dollar terms increased 111.0% for the year ended December 31, 2000 compared to
the prior year, primarily due to acquisitions made during 1999 and 2000. These
acquisitions generated 67.7% of the increase from year to year. The remaining
increase is due to achieving certain operating efficiencies while continuing
incremental organic subscriber growth. The increase in UPC's negative Adjusted
EBITDA from its telephone service and Internet service for the year ended
December 31, 2000 compared to the prior year was primarily due to high customer
acquisition costs. In order to achieve high growth from early market entry, UPC
prices its services at a discount compared to services offered by incumbent
telecommunications operators. UPC may also waive or discount installation fees.
The increase in UPC's negative Adjusted EBITDA from its content business is
primarily due to significant start up and restructuring costs related to UPC
Polska. UPC expects to incur additional operating losses related to its content
business for at least the next two years, while UPC develops and expands it
subscriber base. UPC's $80.9 million increase in corporate and other negative
Adjusted EBITDA primarily relates to costs incurred for the development of UPC's
digital set-top computer, as well as investigation of new technologies such as
near video on demand and IP telephony. UPC also continued to incur system costs
for the development of UPC's pan-European IT platform, as well as continued
branding and facilities costs. Salary costs also increased due to the necessary
growth of UPC's corporate functions such as investor relations, finance, legal
and engineering.
Adjusted EBITDA for Austar United in U.S. dollar terms decreased $28.8 million,
or 174.5%, from negative $16.5 million for the year ended December 31, 1999 to
negative $45.3 million for the year ended December 31, 2000. This decrease was
primarily due to development and start-up costs associated with the launch of
Austar United's Internet business, increased programming costs payable in U.S.
dollars as the
IV-38
Australian dollar continued to weaken during the year, higher costs for new
branding and product launch, higher costs for marketing and advertising during
the Olympics, increased churn following the Olympics and increased churn from
partial absorption of the new Australian goods and services tax.
Adjusted EBITDA for VTR in U.S. dollar terms decreased $5.5 million, or 30.4%,
from $18.1 million for the year ended December 31, 1999 to $12.6 million for the
year ended December 31, 2000. Video Adjusted EBITDA increased $8.9 million, or
32.3%, for the year ended December 31, 2000 compared to the prior year as
revenue growth outpaced expenses. VTR's Adjusted EBITDA from its telephone
business continued to be negative during the year 2000. Although revenues from
telephone services increased significantly from the comparable period in 1999,
development expenses of this new business continue to exist. We expect these
operating and selling, general and administrative expenses as a percentage of
telephone revenue to decline in future periods because development costs in
general will taper off and certain costs have already been incurred and are
fixed in relation to subscriber volumes. VTR's Adjusted EBITDA is also affected
by management fees payable to ULA. These fees increased from $5.2 million in
1999 to $12.9 million for the year ended December 31, 2000. As VTR's revenues
increase, these fees will continue to increase.
1999 Compared to 1998. Adjusted EBITDA for UPC in U.S. dollar terms decreased
$181.8 million from $56.0 million for the year ended December 31, 1998 to
negative $125.8 million for the year ended December 31, 1999. On a functional
currency basis, UPC's Adjusted EBITDA decreased E170.4 million from E50.6
million for the year ended December 31, 1998 to negative E119.8 million for the
year ended December 31, 1999, primarily due to the continued introduction of its
telephone and Internet businesses. In addition, as a percentage of revenue,
operating expense for video increased 6.9% from 32.5% for the year ended
December 31, 1998 to 39.4% for the year ended December 31, 1999. This increase
is primarily due to higher operating costs as a percentage of revenue for
systems we acquired during 1999. As a percentage of revenue, operating expenses
in our new acquisitions was approximately 38.3%. We expect to reduce this
percentage in future years through revenue growth and operating efficiencies.
During the year ended December 31, 1999, UPC's significant negative Adjusted
EBITDA from its local telephone services was due to high customer acquisition
costs related to the launch of Priority Telecom in its Austrian, Dutch, French
and Norwegian systems. During the year ended December 31, 1999, UPC's
significant negative Adjusted EBITDA from its Internet service was due to high
customer acquisition costs related to the launch of chello broadband on the
upgraded portion of its networks in Austria, Belgium, France, The Netherlands,
Norway and Sweden in 1999. UPC expects to incur substantial operating losses
related to its content business while it develops and expands its subscriber
base.
Adjusted EBITDA for Austar United in U.S. dollar terms increased $14.8 million,
or 47.3%, from negative $31.3 million for the year ended December 31, 1998 to
negative $16.5 million for the year ended December 31, 1999. This increase was
primarily due to Austar United achieving incremental video subscriber growth
while keeping certain costs fixed, such as its national customer operations
center, corporate management staff and media-related marketing costs.
Adjusted EBITDA for VTR in U.S. dollar terms decreased $9.9 million, or 35.4%,
from $28.0 million for the year ended December 31, 1998 to $18.1 million for the
year ended December 31, 1999. This decrease was primarily due to management fees
of $5.2 million incurred in 1999 compared to nil in the prior year, as well as
increases in operating expense and selling, general and administrative expense
that outpaced the revenue increases, primarily due to the focus on the continued
development of telephone services and an increase in senior management personnel
hired from the former shareholders of VTR.
IV-39
STOCK-BASED COMPENSATION
NINE MONTHS ENDED TEN MONTHS
SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
---------------------- ----------------------- DECEMBER 31,
2001 2000 2000 1999 1998
--------- ---------- ---------- ---------- ------------
(IN THOUSANDS)
UPC and subsidiaries....... $ 448 $(25,849) $(68,616) $202,227 $162,124
Austar United.............. 4,010 6,685 9,439 4,910 -
ULA........................ (4,729) 9,218 8,024 (1,033) 2,669
VTR........................ 1,253 8,986 7,970 - -
Other Asia/Pacific......... - - - 17,630 -
------- -------- -------- -------- --------
Total stock-based
compensation..... $ 982 $ (960) $(43,183) $223,734 $164,793
======= ======== ======== ======== ========
Comparison of the first nine months of 2001 to the first nine months of
2000. Stock-based compensation credit (included in selling, general and
administrative expense) increased $4.1 million and $1.9 million for the three
and nine months ended September 30, 2001, respectively, compared to the prior
periods. Stock-based compensation expense (credit) is recorded as a result of
applying variable-plan accounting to our subsidiaries' stock-based compensation
plans. These plans include the UPC phantom stock option plan, the chello phantom
stock option plan, the Priority Telecom stock option plan, the Austar United
stock option plan, the ULA phantom stock option plan and the VTR phantom stock
option plan. Under variable-plan accounting, increases in the fair market value
of these vested options result in non-cash compensation charges to the statement
of operations, while decreases in the fair market value to these vested options
will cause a reversal of previous charges taken.
Comparison of Fiscal Years 2000, 1999 and 1998. Stock-based compensation
decreased $266.9 million for the year ended December 31, 2000, compared to an
increase of $58.9 million in the prior year, due primarily to decreases in the
market value of UPC's common stock during the year 2000. Stock-based
compensation is recorded as a result of applying variable plan accounting to our
subsidiaries' stock-based compensation plans. These plans include the UPC
phantom stock option plan, the chello phantom stock option plan, the Priority
Telecom stock option plan, the Austar United stock option plan, the ULA phantom
stock option plan and the VTR phantom stock option plan. Under variable plan
accounting, increases in the fair market value of these vested options result in
non-cash compensation charges to the statement of operations, while decreases in
the fair market value of these vested options will cause a reversal of previous
charges taken.
DEPRECIATION AND AMORTIZATION
NINE MONTHS ENDED TEN MONTHS
SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
----------------------- ----------------------- DECEMBER 31,
2001 2000 2000 1999 1998
---------- ---------- ---------- ---------- ------------
(IN THOUSANDS)
Europe.................... $686,971 $447,386 $657,470 $280,442 $ 76,550
Asia/Pacific.............. 87,509 79,642 105,629 104,723 79,746
Latin America............. 48,053 38,136 50,909 32,142 1,637
Corporate and other....... 1,291 1,132 1,514 1,407 1,112
-------- -------- -------- -------- --------
Total depreciation
and amortization
expense......... $823,824 $566,296 $815,522 $418,714 $159,045
======== ======== ======== ======== ========
IV-40
Comparison of the First Nine Months of 2001 to the First Nine Months of
2000. Depreciation and amortization expense increased $68.1 and $257.5 million
for the three and nine months ended September 30, 2001, respectively, compared
to the prior periods. On a functional currency basis, UPC's depreciation and
amortization expense increased E75.0 million from E187.4 million for the three
months ended September 30, 2000 to E262.4 million for the three months ended
September 30, 2001. UPC's depreciation and amortization expense increased E290.7
million from E477.3 million for the nine months ended September 30, 2000 to
E768.0 million for the nine months ended September 30, 2001. The increase
resulted primarily from amortization of goodwill created in connection with
acquisitions in 2000, as well as additional depreciation related to additional
capital expenditures to upgrade the network in UPC's Western European systems
and new-build for developing systems.
Comparison of Fiscal Years 2000, 1999 and 1998. UPC's depreciation and
amortization expense in U.S. dollar terms increased $377.1 million, from $280.4
million for the year ended December 31, 1999 to $657.5 million for the year
ended December 31, 2000. On a functional currency basis, UPC's depreciation and
amortization expense increased E452.6 million, or 170.1%, from E266.1 million
for the year ended December 31, 1999 to E718.7 million for the year ended
December 31, 2000. The increase resulted primarily from goodwill created in
connection with acquisitions completed during 1999 in The Netherlands and
Poland, as well as additional depreciation related to additional capital
expenditures to upgrade the network in UPC's Western European systems and
new-build for developing systems.
UPC's depreciation and amortization expense in U.S. dollars increased $186.1
million, or 197.3%, from $94.3 million for the year ended December 31, 1998 to
$280.4 million for the year ended December 31, 1999, including a positive impact
from the 5.5% devaluation of the euro to the U.S. dollar from period to period.
On a functional currency basis, UPC's depreciation and amortization expense
increased E180.9 million, or 212.3%, from E85.2 million for the year ended
December 31, 1998 to E266.1 million for the year ended December 31, 1999. This
increase resulted primarily from acquisitions completed during 1999 in the
Netherlands and Poland, as well as additional depreciation related to additional
capital expenditures to upgrade the network in UPC's Western European systems
and new-build for developing systems.
IMPAIRMENT AND RESTRUCTURING CHARGES
2001. During the second quarter of 2001, UPC identified indicators of possible
impairment of long-lived assets, principally Indefeasible Rights of Use, or
"IRUs," and related goodwill within its subsidiary, Priority Telecom. Such
indicators included significant declines in the market value of publicly traded
telecommunications providers and a change, subsequent to the acquisition of
Cignal, in the way that certain assets from the Cignal acquisition would be used
within Priority Telecom because of reduced levels of private equity funding
activity for CLEC businesses generally and UPC's inability to obtain financing
for Priority Telecom in the second half of 2001 as previously planned. The
changes in strategic plans included a decision to phase-out the legacy
international wholesale voice operations of Cignal. When UPC and Priority
Telecom reached an agreement to acquire Cignal in the second quarter of 2000,
the companies originally intended to continue the international wholesale voice
operations of Cignal for the foreseeable future. This original plan for the
international wholesale voice operations was considered in the determination of
the consideration to be paid for Cignal and the subsequent allocation of the
purchase price. This allocation was completed by an independent third party in
November 2000. Using the strategic plan prepared for the contemplated financing,
an impairment assessment test and measurement in accordance with SFAS No. 121
was completed, resulting in the recording of a write-down of tangible assets and
related goodwill and other impairment charges of E319.0 ($278.9) million.
Priority Telecom recorded restructuring and other impairment charges in
connection with operations in Spain and other countries of E10.3 ($9.2) million
for the three months ended September 30, 2001.
A subsidiary of UPC has impaired the value of DTH boxes leased to certain former
customers for which the recovery of the value of the boxes is unlikely. The
amount of the impairment is based on the number of disconnected customers to
whom the DTH boxes were rented, decreased by the number of collected boxes
IV-41
and multiplied by the net book value of the box at the end of the corresponding
period. The amount of impairment charges for the three months ended September
30, 2001 totaled E19.4 ($17.3) million.
GAIN ON ISSUANCE OF COMMON EQUITY SECURITIES BY SUBSIDIARIES
TEN MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------- DECEMBER 31,
2000 1999 1998
---------- ------------ ------------
(IN THOUSANDS)
Austar United secondary offering................ $ 66,771 $ - $ -
Stjarn note conversion.......................... 54,085 - -
UPC initial public offering..................... - 822,067 -
UPC secondary offering.......................... - 403,500 -
Austar United initial public offering........... - 248,361 -
Other........................................... 6,875 34,911 -
-------- ---------- ---
Total gain on issuance of common equity
securities by subsidiaries............ $127,731 $1,508,839 $ -
======== ========== ===
2000. 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
$5.20 per share of $104.0 and $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 $66.8 million from the resulting step-up in the carrying
amount of our investment in Austar United. In August 2000, Stjarn exercised its
option to convert its $100.0 million note into 4.1 million ordinary shares of
UPC. Based on the carrying value of our investment in UPC as of August 23, 2000,
we recognized a gain of $54.1 million from the resulting step-up in the carrying
amount of our investment in UPC. No deferred taxes were recorded related to
these gains due to our intent to hold our investment in UPC and Austar United
indefinitely.
1999. In February 1999, UPC successfully completed an initial public offering
selling 133.8 million shares on Euronext Amsterdam, N.V. and Nasdaq, raising
gross and net proceeds at $10.93 per share of $1,463.0 and $1,364.1 million,
respectively. Concurrent with the offering, a third party exercised an option
and acquired approximately 4.7 million ordinary shares of UPC, resulting in
proceeds to UPC of $45.0 million. Based on the carrying value of our investment
in UPC as of February 11, 1999, we recognized a gain of $822.1 million from the
resulting step-up in the carrying amount of our investment in UPC. In October
1999, UPC completed a second public offering of 45.0 million ordinary shares,
raising gross and net proceeds at $21.58 per share of $970.9 and $922.4 million,
respectively. Based on the carrying value of our investment in UPC as of October
19, 1999, we recognized a gain of $403.5 million from the resulting step-up in
the carrying amount of our investment in UPC. In July 1999, Austar United
successfully completed an initial public offering selling 103.5 million shares
on the Australian Stock Exchange, raising gross and net proceeds at $3.03 per
share of $313.6 and $292.8 million, respectively. Based on the carrying value of
our investment in Austar United as of July 27, 1999, we recognized a gain of
$248.4 million from the resulting step-up in the carrying amount of our
investment in Austar United. No deferred taxes were recorded related to these
gains due to our intent to hold our investment in UPC and Austar United
indefinitely.
IV-42
INTEREST INCOME
NINE MONTHS ENDED TEN MONTHS
SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
---------------------- ------------------------ DECEMBER 31,
2001 2000 2000 1999 1998
--------- ---------- ----------- ---------- ------------
(IN THOUSANDS)
Europe................. $40,252 $ 30,090 $ 42,134 $29,458 $ 3,440
Asia/Pacific........... 4,690 13,419 16,600 7,296 1,069
Latin America.......... 1,790 536 784 181 1,121
Corporate and other.... 41,416 57,168 73,779 17,440 5,051
------- -------- -------- ------- -------
Total interest
income....... $88,148 $101,213 $133,297 $54,375 $10,681
======= ======== ======== ======= =======
Comparison of Fiscal Years 2000, 1999 and 1998. Interest income increased $78.9
and $43.7 million during the years ended December 31, 2000 and 1999,
respectively, compared to the corresponding periods in the prior year, due to
higher cash and short-term investment balances related to the issuance of new
debt and equity in late 1999 and early 2000.
INTEREST EXPENSE
NINE MONTHS ENDED TEN MONTHS
SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
------------------------- ------------------------- DECEMBER 31,
2001 2000 2000 1999 1998
----------- ----------- ----------- ----------- ------------
(IN THOUSANDS)
Europe...................... $(615,306) $(456,057) $(682,321) $(194,512) $ (38,524)
Asia/Pacific................ (68,296) (59,620) (80,303) (69,511) (47,164)
Latin America............... (14,792) (19,458) (28,332) (19,068) (1,175)
Corporate and other......... (113,524) (102,010) (137,827) (116,908) (76,364)
--------- --------- --------- --------- ---------
Total interest
expense............ $(811,918) $(637,145) $(928,783) $(399,999) $(163,227)
========= ========= ========= ========= =========
IV-43
Interest expense increased $174.8, $528.8 and $236.8 million during the nine
months ended September 30, 2001 compared to the nine months ended September 30,
2000, and the years ended December 31, 2000 and 1999, respectively, the detail
of which is as follows:
NINE MONTHS ENDED TEN MONTHS
SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
------------------------- ------------------------- DECEMBER 31,
2001 2000 2000 1999 1998
----------- ----------- ----------- ----------- ------------
(IN THOUSANDS)
Cash Pay:
UPC Senior Notes.......... $(196,919) $(198,850) $(258,752) $ (57,556) $ -
UPC Bank Facility and
other................... (194,998) (68,494) (155,001) (48,643) (32,190)
UPC other................. - (13,843) (25,127) (5,522) (1,498)
UAP Notes................. (25,876) - - - -
VTR Bank Facility......... (9,538) (14,443) (19,166) (16,918) -
Austar Bank Facility...... (15,484) (13,543) (18,463) (13,426) (5,337)
Other Latin America....... (2,493) (2,489) (5,218) (559) (894)
Other Asia/Pacific........ - - - - (44)
--------- --------- --------- --------- ---------
(445,308) (311,662) (481,727) (142,624) (39,963)
--------- --------- --------- --------- ---------
Non Cash:
UPC Senior Discount Notes
accretion............... (177,866) (154,850) (208,479) (59,475) -
United 1998 and 1999 Notes
accretion............... (110,535) (99,526) (134,513) (114,052) (74,731)
UAP Notes accretion....... (24,512) (43,323) (58,296) (51,305) (40,060)
Amortization of deferred
financing costs......... (35,102) (19,182) (44,952) (20,503) (7,467)
Exchangeable Loan......... (17,648) - - - -
Other..................... (947) (8,602) (816) (12,040) (1,006)
--------- --------- --------- --------- ---------
(366,610) (325,483) (447,056) (257,375) (123,264)
--------- --------- --------- --------- ---------
Total interest
expense............ $(811,918) $(637,145) $(928,783) $(399,999) $(163,227)
========= ========= ========= ========= =========
FOREIGN CURRENCY EXCHANGE (LOSS) GAIN
NINE MONTHS ENDED TEN MONTHS
SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
------------------------- ------------------------ DECEMBER 31,
2001 2000 2000 1999 1998
----------- ----------- ----------- ---------- ------------
(IN THOUSANDS)
Europe..................... $ 115,257 $(262,849) $(180,157) $(13,714) $ 3,244
Asia/Pacific............... 1,552 (4,151) (2,212) 270 (1,832)
Latin America.............. (146,452) (25,606) (33,531) (26,057) 170
--------- --------- --------- -------- -------
Total foreign
currency exchange
(loss) gain,
net............... $ (29,643) $(292,606) $(215,900) $(39,501) $ 1,582
========= ========= ========= ======== =======
Comparison of First Nine Months of 2001 to the First Nine Months of
2000. Foreign currency exchange loss improved $353.4 million and $263.0 million
for the three and nine months ended September 30, 2001, respectively, compared
to the same periods in the prior year, primarily due to significant gains on
UPC's derivatives. These gains were offset by the strengthening of the U.S.
dollar to the Chilean peso during the three and nine months ended September 30,
2001 compared to the same periods in the prior year, as well as a
IV-44
loss of $41.9 million related to our entering into foreign currency exchange
forward contracts during the nine months ended September 30, 2001 to reduce our
currency exposure to the euro.
Comparison of Fiscal Years 2000, 1999, and 1998. Foreign currency exchange loss
increased $176.4 million, from $39.5 million for the year ended December 31,
1999 to $215.9 million for the year ended December 31, 2000. This increase was
primarily due to UPC, which has E2.4 billion ($2.2 billion) of senior notes as
of December 31, 2000 that are denominated in U.S. dollars. Foreign currency
exchange loss increased $41.1 million from a $1.6 million gain for the ten
months ended December 31, 1998 to a $39.5 million loss for the year ended
December 31, 1999, primarily due to VTR, which has notes payable that are
denominated in U.S. dollars.
PROCEEDS FROM LITIGATION SETTLEMENT
2001. In May 2001, the United States Supreme Court affirmed the decision of the
10th Circuit U.S. Court of Appeals, which in April 2000 found in favor of us in
our lawsuit against Wharf Holdings Limited. The lawsuit consisted of our claims
of fraud, breach of fiduciary duty, breach of contract and negligent
misrepresentation related to Wharf's grant to us in 1992 of an option to
purchase a 10.0% equity interest in Wharf's cable television franchise in Hong
Kong. The United States Supreme Court's decision affirms the 1997 U.S. District
Court judgment in our favor, which, together with accrued interest, totaled
gross and net proceeds of approximately $201.2 and $194.8 million, respectively,
which was received during the second and third quarter of 2001.
PROVISION FOR LOSS ON INVESTMENTS
We evaluate our investments in publicly traded securities accounted for under
the equity method for impairment in accordance with APB 18 and SAB 59. Under APB
18, a loss in value of an investment accounted for under the equity method which
is other than a temporary decline should be recognized as a realized loss,
establishing a new carrying value for the investment. Based on our analysis of
specific quantitative and qualitative factors as of September 30, 2001, we
determined the decline in market value of SBS and PrimaCom to be other than
temporary, and as a result, we recorded a write-down of the book value of our
investment in SBS and PrimaCom of E114.6 $(102.0) million and E261.3 ($232.6)
million, respectively.
MINORITY INTERESTS IN SUBSIDIARIES
NINE MONTHS ENDED TEN MONTHS
SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
----------------------- ----------------------- DECEMBER 31,
2001 2000 2000 1999 1998
---------- ---------- ---------- ---------- ------------
(IN THOUSANDS)
UPC............................ $ 54,050 $650,735 $862,663 $344,185 $ -
Subsidiaries of UPC............ 98,855 6,548 21,160 1,719 793
Austar United.................. 36,750 35,417 49,781 13,610 -
Other.......................... 3,043 235 944 930 617
-------- -------- -------- -------- ------
Total minority interests
in subsidiaries....... $192,698 $692,935 $934,548 $360,444 $1,410
======== ======== ======== ======== ======
Comparison of the First Nine Months of 2001 to the First Nine Months of
2000. The minority interests' share of losses decreased $250.1 million and
$500.2 million for the three and nine months ended September 30, 2001,
respectively, compared to the prior periods, primarily due to the reduction of
the minority interests' basis in the common equity of UPC to nil in January
2001. We can no longer allocate a portion of UPC's net losses to the minority
shareholders once the minority shareholders' common equity basis has been
exhausted. We
IV-45
will consolidate 100% of the net losses of UPC until such time as the preference
shareholders convert their holdings into common equity, or until additional
common equity is contributed by third-party investors.
Comparison of Fiscal Years 2000, 1999 and 1998. The minority interests' share
of losses increased $574.1 million, or 159.3% from $360.4 million for the year
ended December 31, 1999 to $934.5 million for the year ended December 31, 2000,
due to increased net losses by UPC and Austar United. The initial public
offering of UPC in February 1999 and subsequent issuances of UPC's common stock
reduced our ownership interest in UPC from 100% to a cumulative 52.6% as of
December 31, 2000. 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 72.9% as of December 31, 2000. For accounting
purposes, we continue to consolidate 100% of the results of operations of UPC
and Austar United, then deduct the minority interests' share of (loss) income
before arriving at net (loss) income.
SHARE IN RESULTS OF AFFILIATES
NINE MONTHS ENDED TEN MONTHS
SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
----------------------- ------------------------ DECEMBER 31,
2001 2000 2000 1999 1998
---------- ---------- ----------- ---------- ------------
(IN THOUSANDS)
Europe....................... $(97,072) $(66,942) $(106,099) $(31,908) $(25,679)
Asia/Pacific................. (24,849) (9,189) (18,156) (6,586) (13,769)
Latin America................ (816) (3,201) (5,659) (11,755) (15,333)
-------- -------- --------- -------- --------
Total share in results
of affiliates,
net................. $(122,737) $(79,332) $(129,914) $(50,249) $(54,781)
======== ======== ========= ======== ========
Comparison of the First Nine Months of 2001 to the First Nine Months of
2000. Our share in results of affiliates increased $9.6 million and $43.4
million for the three and nine months ended September 30, 2001, respectively,
compared to the same periods in the prior year, primarily due to the recognition
of increased losses for TelstraSaturn, SBS, PrimaCom and Tevel.
Comparison of Fiscal Years 2000, 1999 and 1998. The increase in losses from
recording our share in results of affiliates of $79.7 million for the year ended
December 31, 2000 is primarily due to the recognition of losses for SBS and
PrimaCom for the entire year of 2000, compared to five months and none in 1999
for SBS and PrimaCom, respectively.
IV-46
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES
We have financed our acquisitions and funding of our video, voice, Internet and
content businesses in the three main regions of the world in which we operate
primarily through public and private debt and equity as well as cash received
from the sale of non-strategic assets by certain subsidiaries. These resources
have also been used to refinance certain debt instruments and facilities as well
as to cover corporate overhead. The following table outlines the sources and
uses of cash, cash equivalents, restricted cash and short-term liquid
investments (for purposes of this table only, "cash") for United (parent only)
from inception to date:
INCEPTION TO NINE MONTHS ENDED
DECEMBER 31, 2000 SEPTEMBER 30, 2001 TOTAL
----------------- -------------------- ----------
(IN MILLIONS)
UNITED (PARENT ONLY)
Financing Sources:
Gross bond proceeds............... $1,347.0 $ - $1,347.0
Gross equity proceeds............. 1,697.4 0.3 1,697.7
Asset sales, dividends and note
payments....................... 369.9 0.3 370.2
Interest income and other......... 181.5 33.6 215.1
-------- ------- --------
Total sources................ 3,595.8 34.2 3,630.0
-------- ------- --------
Application of Funds:
Investment in:
UPC............................ (717.8) - (717.8)
Asia/Pacific................... (320.3) (101.7) (422.0)
ULA............................ (1,049.3)(1) (432.5)(2) (1,481.8)
Other.......................... (44.5) (2.2) (46.7)
-------- ------- --------
Total........................ (2,131.9) (536.4) (2,668.3)
Repayment of bonds................ (532.1) - (532.1)
Offering costs.................... (102.2) - (102.2)
Litigation settlement............. - 195.5 195.5
Corporate equipment and
development.................... (31.0) - (31.0)
Corporate overhead and other...... (166.0) (28.9) (194.9)
-------- ------- --------
Total uses................... (2,963.2) (369.8) (3,333.0)
-------- ------- --------
Period change in cash............. 632.6 (335.6) 297.0
Cash, beginning of period......... - 632.6 -
-------- ------- --------
Cash, end of period............... $ 632.6 $ 297.0 $ 297.0
======== ======= --------
UNITED'S SUBSIDIARIES
Cash, end of period:
UPC............................... 822.6
Asia/Pacific...................... 63.5
ULA............................... 26.8
Other............................. 8.2
--------
Total United's
subsidiaries.............. 921.1
--------
Total consolidated cash, cash
equivalents, restricted
cash and short-term liquid
investments............... $1,218.1
========
- ------------
(1)Includes loans to Liberty totaling $242.4 million.
(2)Includes loans to Liberty totaling $267.6 million.
IV-47
United Parent. We had $297.0 million of cash, cash equivalents, restricted cash
and short-term liquid investments on hand as of September 30, 2001. The primary
use of cash in the next year will include continued funding to the Latin America
region to meet the existing growth plans of our systems. We and/or our
shareholders are considering making purchases of our outstanding equity and debt
securities on the open market or in negotiated transactions. The timing and
amount of such purchases, if any, will depend upon cash needs and market
conditions, among other things. We believe that our existing capital resources
will enable us to assist in satisfying the operating and development
requirements of our subsidiaries and to cover corporate overhead for the next 12
months. To the extent we pursue new acquisitions or development opportunities,
we will need to raise additional capital or seek strategic partners. As we do
not currently generate positive operating cash flow, our ability to repay our
long-term obligations will be dependent on developing one or more additional
sources of cash.
In April 1999, we sold $355.0 million principal amount of our senior discount
notes for net proceeds of $208.9 million to a small group of institutions. On
December 3, 2001, we repurchased all of the United 1999 Notes for $20.0 million.
As part of the original distribution arrangements for the United 1999 Notes, we
agreed to assist the group in reselling the United 1999 Notes and to pay them
the difference if the notes are sold for less than the price the institutions
paid plus the then additional accreted value and they agreed in turn to pay us
the difference (less reimbursable expenses) if the notes were resold for a
greater price than the institutions paid plus the then additional accreted
value. Pursuant to a subsequent agreement, the parties agreed that the payment
obligation would be satisfied for an amount equal to the difference between the
fair market value of the United 1999 Notes and the accreted value of the United
1999 Notes as of December 2, 2001. Accordingly, on December 3, 2001 we paid
$241.3 million to these institutions in satisfaction of this obligation.
UPC. UPC had $822.6 million in cash, cash equivalents, restricted cash and
short-term liquid investments on hand as of September 30, 2001. UPC has incurred
substantial operating losses and negative cash flows from operations which have
been driven by its continuing development efforts, including the introduction of
new services such as digital video, telephone and Internet. Additionally,
substantial capital expenditures have been required to deploy these services and
to acquire businesses. UPC expects to incur operating losses at least through
2003, primarily as a result of the continued introduction of these new services
and continued depreciation and amortization expense. UPC's business plan calls
for substantial growth in the number of subscribers that will use these new
services. In order for UPC to achieve consolidated operating profitability and
positive operating cash flows, this growth requires the availability of capital
resources that are sufficient to fund expected capital expenditures and
operating losses. The Company believes that UPC can achieve the anticipated
growth in subscribers and that the required capital resources will be available
to fund expected capital expenditures and operating losses. UPC intends to
continue to access the same sources of capital that it accessed in 1999 and
2000, as well as other less traditional sources, including vendor financing
and/or obtaining equity partners in some of UPC's assets. UPC may also obtain
funds from the sale of assets. UPC'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 by UPC to evaluate its ability to realize its investments.
Asia/Pacific. Asia/Pacific had $63.5 million of cash, cash equivalents and
short-term liquid investments on hand as of September 30, 2001, held almost
exclusively by Austar United. The UAP Notes began to accrue interest on a
cash-pay basis May 15, 2001, with the first payment of $34.5 million due
November 15, 2001. UAP did not have enough cash to make this interest payment on
November 15, 2001. If the failure to pay continues for a period of 30 days or
more, the trustee under the Indenture governing the UAP Notes, on its own
initiative or at the request of the holders of the UAP Notes, can declare the
entire unpaid principal and accrued interest of the UAP Notes to be due and
payable. The trustee, either independently or at the request of the UAP Note
holders, could initiate bankruptcy proceedings against UAP, sue to recover the
amount of the UAP Notes or take any other action available to creditors. Based
upon current market prices, the value of UAP's assets is significantly less than
the amount of the outstanding principal and accrued interest on the UAP Notes.
IV-48
We believe Austar United's working capital and projected operating cash flow as
of September 30, 2001 are sufficient to fund Austar United's operations and meet
Austar United's budgeted capital expenditure requirements through the remainder
of 2001. Management expects Austar United to continue to incur operating losses
in the near future, especially from its newer services such as Content,
telephone and Internet. Given its liquidity needs, Austar United may need to
consider slowing the growth of its Internet or other businesses to conserve
cash. We cannot be assured that Austar United will be able to achieve
consolidated operating profitability and/or positive operating cash flows from
its video, telephone and Internet businesses. Austar United is in the process of
restructuring its A$400.0 ($196.6) million Austar Bank Facility, and expects
that such restructuring can be completed by the end of 2001. If Austar United is
unable to refinance this facility, it is likely that certain of the financial
covenants required by the facility will not be met as of December 31, 2001.
Austar United may need to negotiate a waiver of the financial covenants, sell
assets or obtain funding from external sources to repay this amount if it
becomes due and payable in the first quarter of 2002, and continue to pay its
other liabilities when due. We cannot be assured that Austar United will be
successful in obtaining a waiver of financial covenants or be successful in
renegotiating or otherwise refinancing this facility. If the Austar Bank
Facility indebtedness is accelerated, the acceleration may constitute an event
of default under the UAP Notes and the holders of the UAP Notes would have
certain remedies discussed above.
ULA. ULA had $26.8 million of cash, cash equivalents, restricted cash and
short-term liquid investments on hand as of September 30, 2001, held almost
exclusively by VTR. We believe VTR's working capital and projected operating
cash flow as of September 30, 2001 are sufficient to fund its operations through
the remainder of 2001. To the extent VTR's budgeted capital expenditures exceed
net projected operating cash flow, VTR will need to seek funding from us or
reduce its planned expenditures. VTR intends to refinance its $176.0 million VTR
Bank Facility by the end of first quarter 2002. If VTR is unable to refinance
this facility, it will become due and payable on April 29, 2002. VTR may need to
sell assets or obtain funding from external sources to repay this amount when
due. To the extent ULA pursues additional acquisitions or development
opportunities, ULA will need to raise additional capital or seek strategic
partners.
IV-49
STATEMENTS OF CASH FLOWS
We had cash and cash equivalents of $1,010.2 million as of September 30, 2001, a
decrease of $866.6 million from $1,876.8 million as of December 31, 2000. Cash
and cash equivalents of $444.6 million as of September 30, 2000 represented a
decrease of $1,481.3 million from $1,925.9 million as of December 31, 1999. We
had cash and cash equivalents of $1,876.8 million as of December 31, 2000, a
decrease of $49.1 million from $1,925.9 million as of December 31, 1999. Cash
and cash equivalents as of December 31, 1999 represented an increase of $1,890.3
million from $35.6 million as of December 31, 1998, and cash and cash
equivalents as of December 31, 1998 represented a decrease of $267.8 million
from $303.4 million as of February 28, 1998.
NINE MONTHS ENDED YEAR ENDED FOR THE TEN
SEPTEMBER 30, DECEMBER 31, MONTHS ENDED
---------------------------- ----------------------------- DECEMBER 31,
2001 2000 2000 1999 1998
------------ ------------- ------------- ------------- ------------
(IN THOUSANDS)
Cash flows from
operating
activities........... $ (619,310) $ (522,278) $ (504,912) $ (116,361) $ 1,988
Cash flows from
investing
activities........... (980,289) (3,280,833) (3,869,193) (4,354,087) (433,460)
Cash flows from
financing
activities........... 717,420 2,470,690 4,427,924 6,308,415 158,815
Effect of exchange
rates on cash........ (38,201) (148,867) (102,906) 52,340 4,824
---------- ----------- ----------- ----------- ---------
Net (decrease) increase
in cash and cash
equivalents.......... (920,380) (1,481,288) (49,087) 1,890,307 (267,833)
Cash and cash
equivalents at
beginning of
period............... 1,876,828 1,925,915 1,925,915 35,608 303,441
---------- ----------- ----------- ----------- ---------
Cash and cash
equivalents at end of
period............... $ 956,448 $ 444,627 $ 1,876,828 $ 1,925,915 $ 35,608
========== =========== =========== =========== =========
Nine Months Ended September 30, 2001. The principle source of cash during the
nine months ended September 30, 2001 was proceeds from UPC's Exchangeable Loan
of $856.8 million. Additional sources of cash included $584.1 million of
borrowings on the UPC Bank Facility, $274.7 million of net proceeds from the
sale of short-term liquid investments, $4.6 million from the exercise of stock
options and $9.3 million from affiliate dividends and other investing and
financing sources.
Principal uses of cash during the nine months ended September 30, 2001 included
$706.5 million for the repayment of debt, $703.3 million of capital
expenditures, $274.6 million in loans to Liberty and other affiliates and $38.2
million negative exchange rate effect on cash. Additional uses of cash included
$98.4 million cash put on deposit with one of the institutions that hold the
United 1999 Notes, $87.5 million cash put on deposit as collateral for our
forward foreign exchange contracts and for the VTR Bank Facility, $59.8 million
for investments in affiliates, $39.9 million for new acquisitions, $22.4 million
for deferred financing costs and $619.3 million for operating activities.
Nine Months Ended September 30, 2000. Principal sources of cash during the nine
months ended September 30, 2000 included $1,612.2 million in proceeds from the
issuance of senior notes and senior discount notes by UPC and $1,215.4 million
of borrowings, including $469.3 million under a UPC bridge loan and $620.2
million under various UPC subsidiary bank facilities. Additional sources of cash
included net proceeds of $102.4 million from Austar United's second public
offering of common equity securities,
IV-50
$11.5 million from the exercise of stock options and $13.7 million from
affiliate dividends and other investing and financing sources.
Principal uses of cash during the nine months ended September 30, 2000 included
$1,006.0 million for the acquisition of the K&T Group in The Netherlands, $381.5
million for other acquisitions, $1,186.2 million of capital expenditures for
system upgrade and new-build activities, $389.2 million of net cash invested in
short-term liquid investments, $414.7 million for repayments of debt, $160.6
million for an additional investment in SBS, $122.1 million for shares in
Primacom, $48.9 million of other investments in affiliates, $148.9 million
negative exchange rate effect on cash, $56.1 million for deferred financing
costs and $522.3 million for operating activities.
Year Ended December 31, 2000. Principal sources of cash during the year ended
December 31, 2000 included $4,328.3 million of borrowings on various subsidiary
facilities, $1,612.2 million in proceeds from the issuance of senior notes and
senior discount notes by UPC and $990.0 million in proceeds from UPC's issuance
of convertible preference shares. The borrowings under subsidiary facilities
included $2,206.7 million under UPC's bank facilities, $1,151.2 million from
UPC's bridge loans, $259.2 million from the UPC senior credit facility, $213.1
million from the new A2000 facility, $209.4 million under the UPC corporate
facility and $136.3 million under the new France facility. Additional sources of
cash included $194.9 million of net proceeds from short-term liquid investments,
$102.4 million from Austar United's second public offering of common equity
securities, $13.3 million from the exercise of stock options and $57.2 million
from payments on notes receivable, affiliate dividends and other investing
sources.
Principal uses of cash during the year ended December 31, 2000 included $2,468.9
million for repayments of debt, $1,813.4 million of capital expenditures for
system upgrade and new-build activities, $1,006.0 million for the acquisition of
the K&T Group in The Netherlands, $207.4 million for EWT/TSS in Germany, $490.3
million for other acquisitions and $348.1 million for investments in affiliates,
including $160.6 million for additional investments in SBS and $122.1 million
for shares in PrimaCom. Additional uses of cash included $256.2 million in loans
to affiliates, $149.3 million for deferred financing costs, $102.9 million
negative exchange rate effect on cash and $504.9 million for operating
activities.
Year Ended December 31, 1999. Principal sources of cash during the year ended
December 31, 1999 included $2,540.8 million in proceeds from the issuance of
senior notes and senior discount notes by UPC, $1,409.1 million in proceeds from
UPC's initial public offering and a related exercise of an option to acquire
shares in UPC, $922.4 million in net proceeds from UPC's second public offering
of equity securities, $571.4 million in net proceeds from the issuance of our
Class A Common Stock in a public offering, $381.6 million in net proceeds from
the issuance of our Series C Convertible Preferred Stock, $375.3 million of
borrowings on UPC's senior credit facility, $292.8 million in net proceeds from
the Austar United initial public offering, $257.2 million of borrowings on the
Telekabel Group facility, $259.9 million in net proceeds from the issuance of
our Series D Convertible Preferred Stock, $229.9 million of borrowings on
Austar's bank facility and Saturn's bank facility, $208.9 million in proceeds
from the private issuance of our debt securities due 2009, $61.0 million of
borrowings on VTR's bank facility, $141.2 million of other borrowings, $50.0
million from the exercise of stock options and warrants, $18.0 million of
proceeds from the sale of UPC's Hungarian programming assets, $52.3 million
positive exchange rate effect on cash and $3.1 million from other investing and
financing sources.
Principal uses of cash during the year ended December 31, 1999 included $848.2
million of net cash invested in short-term liquid investments, $794.2 million of
capital expenditures for system upgrade and new-build activities, $744.5 million
for the acquisition of UPC Polska, $521.7 million for the repayment of UPC's
existing senior revolving credit facility, $306.1 million for the repayment of
an existing facility at UPC Nederland, $293.2 million for the acquisition of
Stjarn, $252.7 million for the acquisition of the additional 66.0% interest in
VTR, $252.0 million for the acquisition of the additional 49.0% interest in UTH,
$228.5 million for the acquisition of A2000, $150.0 million for the acquisition
of Kabel Plus, $109.7 million for the acquisition of GelreVision, $291.2 million
for other acquisitions, $373.5 million of investments in affiliates, including
UPC's acquisition of an interest in PrimaCom for $227.9 million and SBS for
$100.2 million, $129.1 million for the repayment of Austar United's existing
bank facility, $320.1 million for the repayment of
IV-51
other loans, $100.7 million for deferred financing costs, $18.0 million for
payment of a note, and $151.2 million for operating activities and other
investing and financing uses.
Ten Months Ended December 31, 1998. Principal sources of cash during the ten
months ended December 31, 1998 included $321.2 million from short-term and
long-term borrowings, primarily on UPC's senior revolving credit facility and
Austar United's bank facility, $27.9 million from the net release of restricted
funds, $20.0 million from the sale of systems in Portugal and other systems,
$12.2 million from the issuance of our equity securities and $6.8 million from
operating activities and other investing and financing sources.
Principal uses of cash during the ten months ended December 31, 1998 included
capital expenditures totaling $217.1 million for system upgrades and new-build
activities, $168.4 million of debt repayments, primarily on UPC's bridge bank
facility and other bank facilities, $139.0 million of funding to our operating
systems including the acquisition of additional interests in Tevel, Melita, and
TV Show Brasil, $109.9 million primarily for the new acquisitions of Combivisie
(The Netherlands) and Kabelkom (Hungary) and $21.5 million for other investing
and financing uses.
CONSOLIDATED CAPITAL EXPENDITURES
In recent years we have been upgrading our existing cable television system
infrastructure and constructing our new-build infrastructure with two-way
high-speed capacity technology to support digital video, telephone and Internet
access services. Capital expenditures for the upgrade and new-build construction
can be reduced at our discretion, although such reductions require lead time in
order to complete work in progress and can result in higher total costs of
construction. In addition to the network infrastructure and related equipment
and capital resources described above, development of UPC's newer businesses
such as chello broadband, Priority Telecom, its digital distribution platform
and DTH require capital expenditures. In addition, expansion into Central
Europe, construction and development of UPC's pan-European distribution and
programming facilities, network operating center and related support systems
require capital expenditures.
RESTRICTIONS UNDER INDENTURES
Our subsidiaries, unless designated as "unrestricted subsidiaries," are
restricted by the covenants in our indenture dated February 5, 1998. We have
designated certain of our subsidiaries, such as UAP, as "unrestricted
subsidiaries" pursuant to the terms of our indenture. Our indenture places
certain limitations on our subsidiaries from borrowing money, paying dividends
or repurchasing stock, making investments, creating certain liens, engaging in
certain transactions with affiliates, and selling certain assets or merging with
or into other companies. This indenture generally places limitations on the
additional amount of debt that our subsidiaries may borrow, preferred shares
that they may issue, and the amount and type of investments our subsidiaries may
make. Furthermore, UPC's activities are restricted by the covenants under UPC's
indentures dated July 30, 1999, October 29, 1999 and January 20, 2000 and UAP's
activities are restricted by the covenants under UAP's indentures dated May 14,
1996 and September 23, 1997. UPC's and UAP's indentures place similar
limitations on their activities.
INFORMATION ABOUT UPC STOCK LISTING
As of September 30, 2001 UPC has negative shareholders equity. We believe this
does not affect the fundamentals of UPC's business and is a function of the
significant capital investment that is typical of the telecommunications
industry, that results in large depreciation and amortization charges. Upon
occurrence of the event, UPC reported this deficit to the Euronext. It is
expected that the Euronext will put UPC's shares on the "penalty bench" until
such moment that UPC returns to positive shareholders equity. UPC's shares could
be removed from the AEX index after three months. This would not, however,
result in a delisting of UPC's shares. UPC believes this trading measure will
not have an impact on its business operations. In accordance with the Dutch
Civil Code, UPC will address the issue of its negative equity at the next
general shareholders' meeting.
UPC's ordinary shares A are traded in the form of American Depositary Shares on
the Nasdaq National Market under the symbol "UPCOY". Nasdaq has traditionally
maintained certain rules regarding bid prices
IV-52
for continued listing on the market. The minimum bid applicable to UPC for
continued listing has been $1.00. On September 27, 2001, Nasdaq announced a
suspension of the minimum bid requirements for continued listing. The suspension
of these requirements will remain in effect until at least January 2, 2002.
After that date, we are not certain whether Nasdaq will re-institute the minimum
bid requirements for continued listing on the market. On August 16, 2001, UPC's
stock began trading below the $1.00 minimum bid price and has not traded above
$1.00 to date. UPC will not be considered deficient in our continued listing
requirements with Nasdaq while the suspension of the requirement remains in
effect. Should Nasdaq reinstate the minimum bid requirement and if UPC's shares
continue to trade below that minimum bid requirement, UPC would potentially be
subject to having its ADRs no longer eligible for trading on Nasdaq's National
Market.
SELECTED QUARTERLY FINANCIAL DATA
The following table presents selected unaudited operating results for each of
the last eleven quarters through September 30, 2001. The Company believes that
all necessary adjustments have been included in the amounts stated to present
fairly the quarterly results when read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere herein.
Results of operations for any particular quarter are not necessarily indicative
of results of operations for a full year or predictive of future periods.
THREE MONTHS ENDED
-------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2000 2000 2000 2000
------------- ------------- ------------- -------------
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenue.......................................... $ 281,856 $ 303,201 $ 316,153 $ 349,824
=========== =========== =========== ===========
Operating loss................................... $ (296,584) $ (195,380) $ (305,184) $ (343,655)
=========== =========== =========== ===========
Net loss......................................... $ (244,938) $ (285,966) $ (353,937) $ (336,049)
=========== =========== =========== ===========
Net loss per common share:
Basic net loss................................. $ (2.70) $ (3.12) $ (3.81) $ (3.61)
=========== =========== =========== ===========
Diluted net loss............................... $ (2.70) $ (3.12) $ (3.81) $ (3.61)
=========== =========== =========== ===========
Weighted-average number of common shares
outstanding:
Basic.......................................... 95,529,552 95,939,285 96,348,642 96,633,957
=========== =========== =========== ===========
Diluted........................................ 95,529,552 95,939,285 96,348,642 96,633,957
=========== =========== =========== ===========
THREE MONTHS ENDED
---------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30,
2001 2001 2001
------------- ------------- -------------
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 394,745 $ 399,250 $ 391,865
=========== =========== ===========
Operating loss.............................................. $ (345,426) $ (592,841) $ (355,408)
=========== =========== ===========
Net loss.................................................... $ (603,422) $ (746,622) $ (748,738)
=========== =========== ===========
Net loss per common share:
Basic net loss............................................ $ (6.33) $ (7.72) $ (7.66)
=========== =========== ===========
Diluted net loss.......................................... $ (6.33) $ (7.72) $ (7.66)
=========== =========== ===========
Weighted-average number of common shares outstanding:
Basic..................................................... 97,439,092 98,328,251 99,485,929
=========== =========== ===========
Diluted................................................... 97,439,092 98,328,251 99,485,929
=========== =========== ===========
IV-53
THREE MONTHS ENDED
-------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
------------- ------------- ------------- -------------
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenue.............................. $ 107,918 $ 145,996 $ 206,732 $ 260,116
=========== =========== =========== ===========
Operating loss....................... $ (72,317) $ (122,574) $ (155,105) $ (425,629)
=========== =========== =========== ===========
Net income (loss).................... $ 688,351 $ (146,488) $ 61,993 $ 32,462
=========== =========== =========== ===========
Net income (loss) per common share:
Basic net income (loss)............ $ 8.82 $ (1.82) $ 0.66 $ 0.27
=========== =========== =========== ===========
Diluted net income (loss).......... $ 8.17 $ (1.82) $ 0.61 $ 0.25
=========== =========== =========== ===========
Weighted-average number of common
shares outstanding:
Basic.............................. 77,935,846 80,976,454 82,545,254 86,538,469
=========== =========== =========== ===========
Diluted............................ 84,254,290 80,976,454 89,670,968 92,961,177
=========== =========== =========== ===========
UNITED 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.
EQUITY PRICES
We are exposed to equity price fluctuations related to our investment in equity
securities. Changes in the price of the stock are reflected as unrealized gains
(losses) in our statement of shareholders' deficit until such time as the stock
is sold and any unrealized gain (loss) will be reflected in the statement of
operations and comprehensive income (loss). The table below provides information
about these equity securities.
NUMBER FAIR VALUE
OF SHARES SEPTEMBER 30, 2001
---------- ------------------
(IN THOUSANDS)
PrimaCom.................................................... 4,948,039 $ 18,456
SBS......................................................... 6,000,000 $ 96,000
IV-54
As of September 30, 2001, we are also exposed to equity price fluctuations
related to UPC's debt which is convertible into UPC ordinary shares. The table
below provides information about this convertible debt, including expected cash
flows and related weighted-average interest rates.
EXPECTED REPAYMENT
SEPTEMBER 30, 2001 AS OF DECEMBER 31,
----------------------- ---------------------
BOOK VALUE FAIR VALUE 2001 2002
---------- ---------- --------- ---------
(IN THOUSANDS)
DIC Loan, 10.0% per annum................ $49,024 $49,024 $ - $49,024
IMPACT OF FOREIGN CURRENCY RATE CHANGES
The functional currency of our major systems UPC, Austar United and VTR is the
Euro, Australian dollar and Chilean peso, respectively. We are exposed to
foreign exchange rate fluctuations related to our 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. Foreign currency rate changes also affect our
share in results of our unconsolidated affiliates. 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. The relationship between these foreign currencies and the
U.S. dollar, which is our reporting currency, is shown below, per one U.S.
dollar:
SPOT RATE QUARTER-TO-DATE AVERAGE RATE YEAR-TO-DATE AVERAGE RATE
-------------------------------- -------------------------------- --------------------------------
AUSTRALIAN CHILEAN AUSTRALIAN CHILEAN AUSTRALIAN CHILEAN
EURO DOLLAR PESO EURO DOLLAR PESO EURO DOLLAR PESO
------- ---------- --------- ------- ---------- --------- ------- ---------- ---------
September 30, 2001.... 1.0932 2.0348 693.1500 1.1233 1.9507 670.9250 1.1212 1.9305 617.6969
September 30, 2000.... - - - 1.1046 1.7408 522.9413 1.0654 1.6882 528.7113
December 31, 2000..... 1.0770 1.7897 573.7500 - - - 1.0858 1.7361 539.6638
December 31, 1999..... 0.9938 1.5244 529.7500 - - - 0.9528 1.5475 507.8951
December 31, 1998..... 0.8576 1.6332 472.5000 - - - 0.9030 1.5958 459.7378
The table below presents the impact of foreign currency fluctuations on revenue
and Adjusted EBITDA.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
2001 2000 2001 2000
---------- ---------- ----------- -----------
(IN THOUSANDS)
UPC:
Revenue............................. $304,855 $233,457 $ 924,372 $ 652,896
======== ======== ========= =========
Adjusted EBITDA..................... $(32,791) $(87,413) $(135,579) $(217,741)
======== ======== ========= =========
Revenue based on prior year exchange
rates............................ $310,016 $233,457 $ 969,950 $ 652,896
======== ======== ========= =========
Adjusted EBITDA based on prior year
exchange rates................... $(33,346) $(87,413) $(142,679) $(217,741)
======== ======== ========= =========
Revenue impact...................... $ (5,161) $ - $ (45,578) $ -
======== ======== ========= =========
Adjusted EBITDA impact.............. $ 555 $ - $ 7,100 $ -
======== ======== ========= =========
IV-55
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
2001 2000 2001 2000
---------- ---------- ----------- -----------
(IN THOUSANDS)
Austar United:
Revenue............................. $ 44,325 $ 44,053 $ 132,925 $ 133,248
======== ======== ========= =========
Adjusted EBITDA..................... $(10,387) $(14,185) $ (36,129) $ (28,077)
======== ======== ========= =========
Revenue based on prior year exchange
rates............................ $ 49,670 $ 44,053 $ 151,996 $ 133,248
======== ======== ========= =========
Adjusted EBITDA based on prior year
exchange rates................... $(11,640) $(14,185) $ (41,317) $ (28,077)
======== ======== ========= =========
Revenue impact...................... $ (5,345) $ - $ (19,071) $ -
======== ======== ========= =========
Adjusted EBITDA impact.............. $ 1,253 $ - $ 5,188 $ -
======== ======== ========= =========
VTR:
Revenue............................. $ 41,244 $ 36,960 $ 123,933 $ 109,203
======== ======== ========= =========
Adjusted EBITDA..................... $ 7,965 $ 2,882 $ 18,591 $ 11,620
======== ======== ========= =========
Revenue based on prior year exchange
rates............................ $ 49,996 $ 36,960 $ 144,645 $ 109,203
======== ======== ========= =========
Adjusted EBITDA based on prior year
exchange rates................... $ 9,659 $ 2,882 $ 21,958 $ 11,620
======== ======== ========= =========
Revenue impact...................... $ (8,752) $ - $ (20,712) $ -
======== ======== ========= =========
Adjusted EBITDA impact.............. $ (1,694) $ - $ (3,367) $ -
======== ======== ========= =========
The table below presents the foreign currency translation adjustments arising
from translating our foreign subsidiaries' assets and liabilities into U.S.
dollars for the three quarters ended September 30, 2001 and 2000.
FOR THE THREE MONTHS ENDED
---------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30,
----------------------- ---------------------- ------------------------
2001 2000 2001 2000 2001 2000
---------- ---------- --------- ---------- ----------- ----------
(IN THOUSANDS)
Foreign Currency
Translation
Adjustments............ $(43,753) $(23,149) $46,833 $(42,599) $(125,208) $(30,627)
======== ======== ======= ======== ========= ========
IV-56
Certain of our operating companies have notes payable and notes receivable which
are denominated in a currency other than their own functional currency, as
follows:
SEPTEMBER 30, 2001
------------------
(IN THOUSANDS)
U.S. dollar-denominated debt:
UPC 12.5% Senior Discount Notes due 2009(1)............... $ 521,240
UPC 13.375% Senior Discount Notes due 2009(1)............. 320,601
UPC 13.75% Senior Discount Notes due 2010(1).............. 642,335
UPC 11.25% Senior Discount Notes due 2010(1).............. 596,267
UPC Polska Senior Discount Notes(1)....................... 337,399
UPC Bank Facility(1)...................................... --
Exchangeable Loan(1)...................................... 874,166
VTR Bank Facility(2)...................................... 176,000
Intercompany Loan to VTR(2)............................... 326,475
----------
$3,794,483
==========
- ------------
(1)Functional currency is euros.
(2)Functional currency is Chilean Pesos.
Occasionally we will execute hedge transactions to reduce our exposure to
foreign currency exchange rate risk. In connection with UPC's offering of senior
notes in July 1999, October 1999 and January 2000, UPC entered into
cross-currency swap agreements, exchanging dollar-denominated notes into
euro-denominated notes. In connection with the anticipated closing of the
Liberty transaction and the previously anticipated rights offering of UPC, we
entered into forward contracts with Toronto Dominion Securities to purchase E1.0
billion at a fixed conversion rate of 1.0797. For the nine months ended
September 30, 2001, the total unrealized and realized loss on the forward
contracts was $41.9 million. Subsequent to September 30, 2001, the remaining
notional amount was settled for $0.9 million, resulting in a cumulative realized
loss of $42.8 million.
IV-57
INTEREST RATE SENSITIVITY
The table below provides information about our primary debt obligations. The
variable-rate financial instruments are sensitive to changes in interest rates.
The information is presented in U.S. dollar equivalents, which is our reporting
currency.
AS OF SEPTEMBER 30, 2001 EXPECTED PAYMENT AS OF DECEMBER 31,
------------------------------- -----------------------------------------------
BOOK VALUE FAIR VALUE 2001 2002 2003 2004
------------- --------------- ---------- --------- --------- ----------
(IN THOUSANDS, EXCEPT INTEREST RATES)
Fixed rate United 1998
Notes (dollar)....... $ 1,190,955 $ 398,750 $ - $ - $ - $ -
Average interest
rate............... 10.75% -
Fixed rate United 1999
Notes (dollar)....... $ 270,087 $ 35,500 $ - $ - $ - $ -
Average interest
rate............... 10.875% -
Variable rate UPC
Senior Notes due 2009
(dollar)............. $ 799,996 $ 118,000 $ - $ - $ - $ -
Average interest
rate............... 10.875% -
Fixed rate UPC Senior
Notes due 2009
(euro)............... $ 274,424 $ 38,419 $ - $ - $ - $ -
Average interest
rate............... 10.875% -
Fixed rate UPC Senior
Discount Notes due
2009 (dollar)........ $ 521,240 $ 32,574 $ - $ - $ - $ -
Average interest
rate............... 12.5% -
Variable rate UPC
Senior Notes due 2007
(dollar)............. $ 199,999 $ 29,500 $ - $ - $ - $ -
Average interest
rate............... 10.875% -
Fixed rate UPC Senior
Notes due 2007
(euro)............... $ 91,475 $ 12,806 $ - $ - $ - $ -
Average interest
rate............... 10.875% -
Variable rate UPC
Senior Notes due 2009
(dollar)............. $ 250,495 $ 37,170 $ - $ - $ - $ -
Average interest
rate............... 11.25% -
Fixed rate UPC Senior
Notes due 2009
(euro)............... $ 91,838 $ 12,935 $ - $ - $ - $ -
Average interest
rate............... 11.25% -
Fixed rate UPC Senior
Discount Notes due
2009 (dollar)........ $ 320,601 $ 20,029 $ - $ - $ - $ -
Average interest
rate............... 13.375% -
Fixed rate UPC Senior
Discount Notes due
2009 (euro).......... $ 117,247 $ 8,785 $ - $ - $ - $ -
Average interest
rate............... 13.375% -
Fixed rate UPC Senior
Notes due 2010
(dollar)............. $ 596,267 $ 88,500 $ - $ - $ - $ -
Average interest
rate............... 11.25% -
Fixed rate UPC Senior
Notes due 2010
(euro)............... $ 181,812 $ 25,613 $ - $ - $ - $ -
Average interest
rate............... 11.25% -
Fixed rate UPC Senior
Notes due 2010
(dollar)............. $ 298,151 $ 44,250 $ - $ - $ - $ -
Average interest
rate............... 11.5% -
Fixed rate UPC Senior
Discount Notes due
2010 (dollar)........ $ 642,335 $ 39,323 $ - $ - $ - $ -
Average interest
rate............... 13.75% -
EXPECTED PAYMENT AS OF DECEMBER 31,
-----------------------------------------
2005 THEREAFTER TOTAL
---------- ------------ -------------
(IN THOUSANDS, EXCEPT INTEREST RATES)
Fixed rate United 1998
Notes (dollar)....... $ - $1,190,955 $ 1,190,955
Average interest
rate...............
Fixed rate United 1999
Notes (dollar)....... $ - $ 270,087 $ 270,087
Average interest
rate...............
Variable rate UPC
Senior Notes due 2009
(dollar)............. $ - $ 799,996 $ 799,996
Average interest
rate...............
Fixed rate UPC Senior
Notes due 2009
(euro)............... $ - $ 274,424 $ 274,424
Average interest
rate...............
Fixed rate UPC Senior
Discount Notes due
2009 (dollar)........ $ - $ 521,240 $ 521,240
Average interest
rate...............
Variable rate UPC
Senior Notes due 2007
(dollar)............. $ - $ 199,999 $ 199,999
Average interest
rate...............
Fixed rate UPC Senior
Notes due 2007
(euro)............... $ - $ 91,475 $ 91,475
Average interest
rate...............
Variable rate UPC
Senior Notes due 2009
(dollar)............. $ - $ 250,495 $ 250,495
Average interest
rate...............
Fixed rate UPC Senior
Notes due 2009
(euro)............... $ - $ 91,838 $ 91,838
Average interest
rate...............
Fixed rate UPC Senior
Discount Notes due
2009 (dollar)........ $ - $ 320,601 $ 320,601
Average interest
rate...............
Fixed rate UPC Senior
Discount Notes due
2009 (euro).......... $ - $ 117,247 $ 117,247
Average interest
rate...............
Fixed rate UPC Senior
Notes due 2010
(dollar)............. $ - $ 596,267 $ 596,267
Average interest
rate...............
Fixed rate UPC Senior
Notes due 2010
(euro)............... $ - $ 181,812 $ 181,812
Average interest
rate...............
Fixed rate UPC Senior
Notes due 2010
(dollar)............. $ - $ 298,151 $ 298,151
Average interest
rate...............
Fixed rate UPC Senior
Discount Notes due
2010 (dollar)........ $ - $ 642,335 $ 642,335
Average interest
rate...............
IV-58
AS OF SEPTEMBER 30, 2001 EXPECTED PAYMENT AS OF DECEMBER 31,
------------------------------- -----------------------------------------------
BOOK VALUE FAIR VALUE 2001 2002 2003 2004
------------- --------------- ---------- --------- --------- ----------
(IN THOUSANDS, EXCEPT INTEREST RATES)
Fixed rate UPC DIC
Loan (dollar)........ $ 49,024 $ 49,024 $ - $49,024 $ - $ -
Average interest
rate............... 10.0% -
Fixed rate UPC Polska
Senior Discount
Notes................ $ 337,399 $ 42,220 $ - $ - $14,506 $ -
Average interest
rate............... 7.0% - 14.5% -
Fixed rate UAP
Notes................ $ 490,753 $ 73,930 $ - $ - $ - $ -
Average interest
rate............... 14.0% -
Exchangeable Loan..... $ 874,166 $ 874,166 $ - $ - $ - $ -
Average interest
rate............... 6.0% -
Variable rate UPC Bank
Facility............. $ 2,721,273 $ 2,721,273 $ - $ - $ - $290,202
Average interest
rate............... 7.46% -
Variable rate VTR Bank
Facility............. $ 176,000 $ 176,000 $176,000 $ - $ - $ -
Average interest
rate............... 9.74% -
Variable rate Austar
Bank Facility
(Australian
dollar).............. $ 196,580 $ 196,580 $ - $ 6,313 $34,719 $ 55,462
Average interest
rate............... 6.68% -
----------- ------------- -------- ------- ------- --------
$10,692,117 $ 5,075,347 $176,000 $55,337 $49,225 $345,664
=========== ============= ======== ======= ======= ========
EXPECTED PAYMENT AS OF DECEMBER 31,
-----------------------------------------
2005 THEREAFTER TOTAL
---------- ------------ -------------
(IN THOUSANDS, EXCEPT INTEREST RATES)
Fixed rate UPC DIC
Loan (dollar)........ $ - $ - $ 49,024
Average interest
rate...............
Fixed rate UPC Polska
Senior Discount
Notes................ $ - $ 322,893 $ 337,399
Average interest
rate...............
Fixed rate UAP
Notes................ $ - $ 490,753 $ 490,753
Average interest
rate...............
Exchangeable Loan..... $ - $ 874,166 $ 874,166
Average interest
rate...............
Variable rate UPC Bank
Facility............. $518,889 $1,912,182 $ 2,721,273
Average interest
rate...............
Variable rate VTR Bank
Facility............. $ - $ - $ 176,000
Average interest
rate...............
Variable rate Austar
Bank Facility
(Australian
dollar).............. $ 66,734 $ 33,352 $ 196,580
Average interest
rate...............
-------- ---------- -----------
$585,623 $9,480,268 $10,692,117
======== ========== ===========
OTHER FINANCIAL INSTRUMENTS
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 the
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 interest rate swaps managing
interest rate exposure on the UPC Bank Facility and the Austar Bank Facility.
INFLATION AND FOREIGN INVESTMENT RISK
Certain of our operating companies operate in countries where the rate of
inflation is extremely high relative to that in the United States. While our
affiliated companies attempt to increase their subscription rates to offset
increases in operating costs, there is no assurance that they will be able to do
so. Therefore, operating costs may rise faster than associated revenue,
resulting in a material negative impact on reported earnings. We are also
impacted by inflationary increases in salaries, wages, benefits and other
administrative costs, the effects of which to date have not been material.
Our foreign operating companies are all directly affected by their respective
countries' government, economic, fiscal and monetary policies and other
political factors. We believe that our operating companies' financial conditions
and results of operations have not been materially adversely affected by these
factors.
IV-59
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF NEW UNITED
Because existing United stockholders will receive the same number and kind of
shares in New United that they presently hold in United (or the right to acquire
such shares), the ownership of New United will differ from that of United only
to the extent that additional equity is issued to Liberty and its affiliates in
connection with the contribution of assets and the stock price of United and
some of its subsidiaries. Following the transaction, Liberty and its affiliates
will own an approximate 71.9% economic interest in New United. Liberty and its
affiliates will have the right to vote approximately 94.0% of the total vote of
New United, for matters other than the election of directors, although Liberty
is subject to voting arrangements and restrictions pursuant to the stockholders
agreement. Please read "The Merger Transaction -- The Merger Related Agreements,
Ownership of New United After Closing of Merger." The standstill agreement will
limit Liberty's and its affiliates' ownership of New United common stock and
require Liberty and its affiliates to vote their shares in accordance with that
agreement. See "The Merger Transaction -- The Merger and Related Agreements,
Standstill Agreement."
MANAGEMENT
OUR DIRECTORS
The number of members of our board of directors is currently fixed at 11, but
following the merger, our board of directors will be reduced to no more than
eight members. Following the merger, New United, as holder of all of our Class B
common stock, will be entitled to elect half of our directors, and the Founders,
as holders of all of our Class A common stock, will be entitled to elect the
other half of our directors. We anticipate that some of our existing directors
will continue as our directors following the merger.
NEW UNITED DIRECTORS
New United currently has only two directors: Gene W. Schneider and Michael T.
Fries. Following the merger, seven more of United's existing directors, together
with three other persons, will also become directors of New United. Holders of
New United Class A common stock and Class B common stock, voting as a single
class, will elect eight of New United's directors and holders of New United
Class C common stock will elect the remaining four of New United's directors.
New United will also have a classified board of three classes, with each class
having at least one member elected by the holders of New United Class C stock.
Each director serves for a term ending on the date of the third annual
stockholders' meeting after his or her election or until his or her successor
shall have been duly elected and qualified. Following the transaction, holders
of New United Class C common stock, voting as a separate class, will have the
right to appoint four members, or the "Class C directors," to New United's 12
member board of directors. Through their ownership of Class C common stock,
Liberty and its affiliates will control the appointment of the Class C
directors. The other eight directors will be appointed by the holders of the
Class A common stock and Class B common stock voting as a single class. At such
time as all the shares of Class C common stock have been converted to Class A
common stock or Class B common stock, all 12 directors will be elected by Class
A and B common stock voting as a single class. See "The Merger
Transaction -- The Merger Agreement, Stockholders Agreement."
IV-60
The Initial board of directors of New United will consist of the following
individuals:
NEW UNITED CLASS I DIRECTORS NEW UNITED CLASS II DIRECTORS NEW UNITED CLASS III DIRECTORS
(TERM EXPIRES AT 2002 (TERM EXPIRES AT 2003 (TERM EXPIRES AT 2004
ANNUAL MEETING) ANNUAL MEETING) ANNUAL MEETING)
- ---------------------------- ----------------------------- ------------------------------
Gary S. Howard* Robert R. Bennett* John C. Malone*
John F. Riordan Albert M. Carollo, Sr. Gene W. Schneider
Tina M. Wildes Curtis Rochelle Michael T. Fries
Person to be named* Mark L. Schneider John P. Cole
- ------------
*Directors elected by New United Class C stockholders
Gene W. Schneider, 75, became Chairman of United in May 1989 and has served as
Chief Executive Officer since 1995. He also serves as an officer and/or director
of various direct and indirect subsidiaries of United, including a director of
Austar United since 1999; a director of UAP since 1996; a director of ULA since
1998; and an advisor to the supervisory board of UPC since 1999. In addition,
from 1995 until 1999, Mr. Schneider served as a member of the UPC Supervisory
Board. Mr. Schneider has been with United since its inception. Mr. Schneider is
also the Chairman of the Board for Advanced Displayed Technologies, Inc.
Robert R. Bennett, 43, will become a director of United upon the closing of the
merger. He serves as an officer and/or director of various direct and indirect
subsidiaries of Liberty, and he has served as the President and Chief Executive
Officer of Liberty since 1997. Prior to being named President in 1997, Mr.
Bennett served in numerous executive capacities at Liberty, including as
principal financial officer. Mr. Bennett's directorships include: Liberty,
USANi, LLC, Telewest Communications plc, Liberty Livewire Corporation, Liberty
Satellite and Technology, Inc. or "LSAT," and Chairman of the Board of Liberty
Digital, Inc.
Albert M. Carollo, 88, became a director of United in 1993. Mr. Carollo is the
Chairman of Sweetwater Television Co., a cable television company, and served as
its President until 1997.
John P. Cole, Jr., 71, became a director of United in 1998 and became a member
of the UPC Supervisory Board in 1999. Mr. Cole is a principal of the law firm of
Cole, Raywind and Braverman, a firm he founded in 1966, which specializes in all
aspects of telecommunications and media law. Over the years Mr. Cole has been
counsel in many landmark proceedings before the U.S. Federal Communications
Commission, reflecting the development of the cable television industry.
Michael T. Fries, 38, became a director of United in November 1999 and has
served as the President and Chief Operating Officer of United since 1998. He
also serves as an officer and/or director of various direct and indirect
subsidiaries of United, including as a member of the UPC Supervisory Board since
September 1998 and as Chairman thereof since 1999; Executive Chairman of Austar
United since 1999; a member of the Priority Telecom Supervisory Board since
November 2000; and President of ULA since 1998 and a director thereof since
1999. Through these positions, Mr. Fries is responsible for overseeing the
day-to-day operations of United on a global basis and for the development of
United's business opportunities worldwide. Mr. Fries has been with United since
1990.
Gary Howard, 50, will become a director of United upon the closing of the
merger. Mr. Howard has served as Executive Vice President and Chief Operating
Officer of Liberty since 1998. He also serves as an officer and/or director of
various direct and indirect subsidiaries of Liberty. From June 1997 to March
1999, Mr. Howard served as Chairman and Chief Executive Officer of United Video
Satellite Group, now known as Gemstar-TV Guide International, Inc., and, during
the past five years, he served, at different times, as Chief Executive Officer
and President of LSAT. From December 1997 until March 1999, Mr. Howard served as
President and Chief Executive Officer of TCI Ventures Group, a technology
business development unit. Mr. Howard is a director of Liberty; LSAT, Liberty
Livewire, Liberty Digital and On Command Corporation.
John C. Malone, 60, became a director of United in November 1999. He has served
as Chairman of Liberty since 1990. From 1996 to 1999, Mr. Malone served as
Chairman of TCI, and from 1994 to 1999, he served as
IV-61
Chief Executive Officer of TCI. Mr. Malone is also a director of Liberty, The
Bank of New York, USANi, LLC and Cendant Corporation.
John F. Riordan, 59, became a director of United in 1998 and has served as
Chairman of UPC's Board of Management since September 2001 and President of UPC
since June 1999. From September 1998 until September 1999, he served as Vice
Chairman of UPC's Board of Management. Mr. Riordan is also a director and
officer of various subsidiaries of UPC, including a member of the Supervisory
Board of Priority Telecom since November 2000, and has been a director of Austar
United since June 1999. From March 1998 to June 1999, Mr. Riordan served as
Executive Vice President of UPC and from September 1998 to June 1999, he also
served as President of Advanced Communications for UPC. Prior to joining UPC,
Mr. Riordan served as Chief Executive Officer of Princess Holdings Ltd., a
multi-channel television operating company in Ireland, since 1992.
Curtis W. Rochelle, 86, became a director of United in April 1993. Mr. Rochelle
is a rancher in Rawlins, Wyoming and the owner of Rochelle Livestock.
Mark L. Schneider, 46, became a director of United in April 1993, and served as
the Chairman of the Management Committee of UPC from April 1997 until August
2001. Mr. Schneider also served as Chairman of the Supervisory Board of chello
broadband from March 1998 until August 2001. From April 1997 to September 1998,
he served as President of UPC and from May 1996 to December 1996 he served as
the Chief of Strategic Planning and Operations Oversight for United. Mr.
Schneider is a director of Advanced Display Technologies, Inc. and of SBS
Broadcasting S.A. and is a member of the Supervisory Board of Priority Telecom.
Mr. Schneider has been with United since its inception.
Tina M. Wildes, 41, became a director of United in November 1999 and, except for
one year during which Ms. Wildes served a consultant to United, she has served
as Senior Vice President of Development Oversight and Administration of United
since May 1998. From October 1997 until May 1998, Ms. Wildes served as Senior
Vice President of Programming for United, providing oversight of United's
programming operations for various European subsidiaries.
Gene W. Schneider is the father of Mark L. Schneider and Tina M. Wildes, who are
brother and sister. No other family relationships exist between any other named
executive officer or director of United or New United. Ms. Wildes has been with
United since its inception.
NEW UNITED BOARD COMMITTEES
New United's board of directors has an audit committee and a compensation
committee. There is no standing nomination committee of the board of directors.
Audit Committee. The audit committee will operate under a charter substantially
identical to the charter adopted by United's board of directors in May 2000. We
expect the members of the audit committee to be Messrs. Carollo, Cole and
Rochelle, all of whom are independent as required by the audit committee charter
and the listing standards of the National Association of Securities Dealers. The
audit committee is charged with reviewing and monitoring our financial reports
and accounting practices to ascertain that they are within acceptable limits of
sound practice, to receive and review audit reports submitted by our independent
auditors and to make such recommendations to the board of directors as may seem
appropriate by the audit committee to assure that our interests are adequately
protected and to review all related party transactions and potential
conflict-of-interest situations.
Compensation Committee. We expect the members of the compensation committee to
include Messrs. Bennett, Carollo, Cole, Howard, Malone and Rochelle. The
committee will administer New United's employee stock option plans, and in this
capacity will approve all option grants to executive officers and management.
The committee will also make recommendations to the board of directors with
respect to the compensation of the Chairman of the Board and Chief Executive
Officer and approve the compensation paid to other senior executives.
IV-62
EXECUTIVE OFFICERS
The following lists the executive officers of United. All officers are appointed
for an indefinite term, serving at the pleasure of the board of directors. All
of these officers will become officers of New United following the merger.
NAME AGE
---- ---
Gene W. Schneider........................................... 75
Michael T. Fries............................................ 38
Mark L. Schneider........................................... 46
John F. Riordan............................................. 59
Charles H.R. Bracken........................................ 35
Mr. Bracken became a member of UPC's Board of Management in July 1999 and a
member of Priority Telecom's Supervisory Board in July 2000. Mr. Bracken has
been the Chief Financial Officer of UPC since November 1999. From March 1999 to
November 1999, Mr. Bracken served as Managing Director of Strategy, Acquisitions
and Corporate Development of UPC. From 1994 until joining UPC, he held a number
positions at Goldman Sachs International in London, most recently as Executive
Director, Communications, Media and Technology. While at Goldman Sachs
International, he was responsible for providing merger and corporate finance
advice to a number of communications companies, including UPC.
SENIOR MANAGEMENT
The following lists other officers who are not executive officers of United or
New United but who make significant contributions to United and it subsidiaries.
We expect all of these officers to continue in their positions following the
merger.
James Clark, 47, became Vice President, Regional Operations, on May 1, 1999,
where he oversees all operations in Asia/Pacific and Latin America. Mr. Clark
has also served as a Vice President of UAP since August 1999 and of ULA since
June 1999. Prior to his current positions he served as the Regional Manager for
Austar Entertainment Pty Limited ("Austar") from 1997 to May 1999. From January
1996 to 1997, Mr. Clark served as Satellite Operations Manager at Austar where
he was responsible for launching direct broadcast satellite service in rural
Australia.
Valerie L. Cover, 44, became the Controller for United in October 1990 and a
Vice President of United in December 1996. Ms. Cover is responsible for the
accounting, financial reporting and information technology functions of United.
She has also served as a Vice President and Controller for UAP since January
1997. Ms. Cover has been with United since 1990.
John C. Porter, 44, became the Chief Executive Officer and a director of Austar
United in June 1999. He served as the Managing Director of Austar from July 1997
to December 1999. In these positions, Mr. Porter is senior operating liaison for
telecommunications projects in the Asia/Pacific region. From January 1997 to
August 1999, he also served as the Chief Operating Officer of UAP. From 1995
until January 1997, Mr. Porter served as the Chief Operating Officer for Austar,
where he was responsible for the design and deployment of that company's
multi-channel multi-point distribution system/satellite/cable television
network. Mr. Porter has been with United since 1995.
Ellen P. Spangler, 53, became Senior Vice President of Business and Legal
Affairs and Secretary of United in December 1996 and a member of the Supervisory
Board of UPC in February 1999. Ms. Spangler is responsible for the legal
operations of United. Ms. Spangler has been with United since 1991.
Blas Tomic, 51, became the President of VTR in April 1999. From 1994 to 1999,
Mr. Tomic served as Executive Member of the board of VTR, Cia. Nacional de
Telefonos and Cia. Telefonos de Coyhaique S.A. During 1996 and 1997, Mr. Tomic
served as Executive Member of the board of CTC-VTR Comunicaciones Moviles S.A.
Mr. Tomic has also represented the Government of Chile, Ministry of Finance, in
the United
IV-63
States and served as executive director of, and Chilean representative at, the
Inter-American Development Bank.
Frederick G. Westerman III, 35, became Chief Financial Officer of United in June
1999. His responsibilities include oversight and planning of United's financial
and treasury operations. He also serves as an officer and/or director of various
subsidiaries, including Vice President and Treasurer of UAP and of ULA. From
December 1997 to June 1999, Mr. Westerman served as Treasurer for EchoStar
Communications Corporation where he was responsible for strategic planning,
financial analysis, treasury operations, risk management, corporate budgeting
and institutional investor relations. From June 1993 to September 1997, Mr.
Westerman served as Vice President of Equity Research for UBS Securities LLC (a
subsidiary of Union Bank of Switzerland) where he was responsible for primary
research coverage of cable television and satellite communications and secondary
coverage of media and entertainment.
Tina M. Wildes, 41, became a director of United in November 1999 and, except for
one year during which Ms. Wildes served as a consultant to United, she has
served as Senior Vice President of Development Oversight and Administration of
United since May 1998. From October 1997 until May 1998, Ms. Wildes served as
Senior Vice President of Programming for United, providing oversight of United's
programming operations for various European subsidiaries. Ms. Wildes has been
with United since its inception.
UNITED EXECUTIVE COMPENSATION
The following table sets forth the aggregate annual compensation for United's
Chief Executive Officer and each of the four other most highly compensated
executive officers for services rendered during the fiscal years ended December
31, 2000 and December 31, 1999, and the ten months ended December 31, 1998
("Fiscal 2000," "Fiscal 1999" and "Fiscal 1998," respectively). In February
1999, the board of directors approved a change in United's fiscal year end from
the last day in February to December 31, commencing December 31, 1998. As a
result, the information in the table for Fiscal 1998 reflects only the 10-month
period of March 1, 1998 through December 31, 1998. In addition, the information
in this section reflects compensation received by the named executive officers
for all services performed for United and its subsidiaries. We do not anticipate
IV-64
that the compensation of New United's management following the merger will
differ from the compensation of United's management before the merger.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -------------------------------
------------------------------------------ SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION(1) OPTIONS(#)(2) COMPENSATION($)
- ------------------------------- ----- ---------- ---------- --------------- ------------- ---------------
Gene W. Schneider.............. 2000 $558,413 $ - $ - 100,000(3) $ 6,371(4)
Chairman of the Board, 1999 $498,548 $ - $ - 2,568,839(5) $ 6,155(4)
President (until 9/98) and 1998 $375,000 $ - $ 5,793(6) 762,500(7) $ 4,327(4)
Chief Executive Officer
Michael T. Fries............... 2000 $448,173 $ - $ 2,714(6) 200,000(8) $ 6,371(9)
President (from 9/98) and 1999 $332,365 $ - $ 4,497(6) 6,204,285(10) $ 6,155(9)
Senior Vice President 1998 $250,000 $275,000(11) $ 217(6) 725,000(12) $ 4,309(9)
(until 9/98)
Mark L. Schneider.............. 2000 $516,585 $ - $136,772(13) 300,000(14) $ 6,356(15)
Executive Vice President 1999 $415,421 $ - $113,815(16) 258,419(17) $ 6,140(15)
(until 12/99) Chief Executive 1998 $301,923 $ - $112,699(18) 2,925,000(19) $ 5,412(15)
Officer, UPC
John F. Riordan................ 2000 $493,350 $ - $ 57,598(20) 200,000(21) $ -
President, UPC (from 6/99) 1999 $336,599(22) $ - $ 31,008(23) 300,000(24) $25,420(25)
and Executive Vice President, 1998 $251,507(22) $ - $ 40,000(23) 1,675,000(26) $ -
UPC until 6/99)
Charles H.R. Bracken........... 2000 $409,683 $ - $ 14,819(28) - $29,166(30)
Chief Financial Officer, UPC 1999 $316,665(27) $ - $ 13,544(28) 775,000(29) $21,091(30)
(from 11/99) and Managing
Director, UPC (from 3/99 to
11/99)
- ------------
(1)With respect to U.S. employees on foreign assignment, United tax equalizes
them for taxes due at the foreign location and in the U.S. When such tax
equalization results in a net payment by United for the employee in a
particular year, it will be included in "Other Annual Compensation" and the
benefit will be so noted in a footnote for such employee.
(2)The number of shares underlying options have been adjusted for (i) United's
2-for-1 stock split on November 30, 1999, (ii) the relinquishment of options
under UAP's phantom stock option plan in exchange for options under the
Austar United Executive Share Option Plan (the "Austar United Plan") in July
1999, and (iii) UPC's 3-for-1 stock split on March 20, 2000.
(3)Pursuant to the ULA Stock Option Plan, Mr. Schneider was granted phantom
options based on 100,000 shares of ULA Class A common stock on December 6,
2000.
(4)Amounts consist of matching employer contributions made by United under the
401(k) Plan of $5,100, $4,800, and $3,734 for Fiscal 2000, Fiscal 1999 and
Fiscal 1998, respectively, with the remainder consisting of term life
insurance premiums paid by United for Mr. Schneider's benefit.
(5)Pursuant to United's Employee Plan, Mr. Schneider was granted options to
acquire 290,523 shares of Class A common stock on December 17, 1999.
Pursuant to the Austar United Plan, Mr. Schneider was granted options to
acquire 2,153,316 ordinary shares of Austar United on July 20, 1999.
Pursuant to the chello broadband Phantom Stock Option Plan, Mr. Schneider
was granted phantom options based on 125,000 ordinary shares of chello
broadband on June 11, 1999.
(6)Represents the value of the personal use of United's airplane.
IV-65
(7)Pursuant to the Employee Plan, Mr. Schneider was granted options to acquire
200,000 shares of Class A common stock on October 8, 1998. Pursuant to the
UPC Phantom Stock Option Plan, Mr. Schneider was granted phantom options
based on 562,500 ordinary shares A of UPC on September 24, 1998.
(8)Pursuant to the ULA Stock Option Plan, Mr. Fries was granted phantom options
based on 200,000 shares of ULA Class A common stock on December 6, 2000.
(9)Amounts consist of matching employer contributions made by United under
United's 401(k) Plan of $5,100, $4,800 and $3,616 for Fiscal 2000, Fiscal
1999 and Fiscal 1998, respectively, with the remainder consisting of term
life insurance premiums paid by United for Mr. Fries' benefit.
(10)Pursuant to the Employee Plan, Mr. Fries was granted options to acquire
100,000 shares of Class A common stock on December 17, 1999. Pursuant to the
Austar United Plan, Mr. Fries was granted options to acquire 6,029,285
ordinary shares of Austar United on July 20, 1999. Pursuant to the chello
broadband Phantom Stock Option Plan, Mr. Fries was granted phantom options
based on 75,000 ordinary shares of chello broadband on June 11, 1999.
(11)Includes a $25,000 moving allowance when Mr. Fries was relocated from
United's Australia offices back to its principal office in Denver, Colorado.
(12)Pursuant to the Employee Plan, Mr. Fries was granted options to acquire
200,000 shares of Class A common stock on September 18, 1998. Pursuant to
the UPC Phantom Stock Option Plan, Mr. Fries was granted phantom options
based on 225,000 ordinary shares A of UPC on September 24, 1998. Pursuant to
the ULA Stock Option Plan, Mr. Fries was granted phantom options based on
300,000 shares of ULA Class A common stock on September 18, 1998.
(13)Includes $21,270, which represents the value of the personal use of UPC's
airplane based on the Standard Industry Fare Level method for valuing
flights for personal use. Also includes payments related to foreign
assignment consisting of a housing allowance of $114,507 and tax preparation
fees.
(14)Pursuant to the Employee Plan, Mr. Schneider was granted options based on
300,000 shares of Class A common stock on December 6, 2000.
(15)Amounts consist of matching employer contributions made by United under
United's 401(k) Plan of $5,100, $4,800, and $4,800 for Fiscal 2000, Fiscal
1999, and Fiscal 1998, respectively, with the remainder consisting of term
life insurance premiums paid by United for Mr. Schneider's benefit.
(16)Includes $4,430, which represents the value of Mr. Schneider's personal use
of United's airplane, and includes payments related to foreign assignment
consisting of a housing allowance of $109,385.
(17)Pursuant to the Employee Plan, Mr. Schneider was granted options to acquire
8,419 shares of Class A common stock on December 17, 1999, and pursuant to
the chello broadband Stock Option Plan, Mr. Schneider was granted options to
acquire 250,000 ordinary shares of chello broadband on March 26, 1999.
(18)Includes $723, which represents the value of Mr. Schneider's personal use of
United's airplane, and includes payments related to foreign assignment
consisting of a housing allowance of $111,976.
(19)Pursuant to UPC's Stock Option Plan, Mr. Schneider was granted options to
acquire 2,925,000 ordinary shares of UPC on September 24, 1998.
(20)Includes $19,110, which represents of the value of the personal use of
United's airplane based on the Standard Industry Fare Level method for
valuing flights for personal use. Also includes $38,488, which represents
monthly payments for the housing allowance provided by UPC.
(21)Pursuant to the Employee Plan, Mr. Riordan was granted options based on
200,000 shares of Class A common stock on December 6, 2000.
IV-66
(22)For Fiscal 1998, represents monthly consulting fees paid to Mr. Riordan and
for Fiscal 1999 includes consulting fees paid to Mr. Riordan in January
through March 1999. Mr. Riordan became an employee of UPC on April 1, 1999.
(23)Consists of monthly payments for the housing allowance provided by UPC.
(24)Pursuant to the chello broadband Stock Option Plan, Mr. Riordan was granted
options to acquire 300,000 ordinary shares of chello broadband on March 26,
1999.
(25)Includes pension contributions made by UPC for Fiscal 1999.
(26)Pursuant to the Employee Plan, Mr. Riordan was granted options to acquire
100,000 shares of Class A common stock on October 8, 1998, and pursuant to
UPC's Stock Option Plan, he was granted options to acquire 1,575,000
ordinary shares A of UPC on September 24, 1998.
(27)Mr. Bracken commenced his employment with United in March 1999. Accordingly,
the salary information included in the table represents only ten months of
employment during Fiscal 1999.
(28)Consists of car allowance provided by UPC.
(29)Pursuant to the UPC Stock Option Plan, Mr. Bracken was granted options to
acquire 750,000 ordinary shares A of UPC on March 25, 1999, and pursuant to
the chello broadband Phantom Stock Option Plan, Mr. Bracken was granted
phantom options based on 25,000 ordinary shares of chello broadband on
December 17, 1999.
(30)Includes $19,147 of pension contributions made by UPC for Fiscal 1999, and
$25,308 of pension contributions made by UPC for fiscal 2000, with the
remainder consisting of health, life and disability insurance payments.
The following table sets forth information concerning options granted to each of
the executive officers named in the Summary Compensation Table above during
Fiscal 2000. The table sets forth information concerning options to purchase
shares of Class A common stock, ordinary shares A of UPC, ordinary shares of
Austar United, ordinary shares of chello broadband and shares of ULA Class A
common stock granted to such officers in Fiscal 2000.
OPTION GRANTS IN LAST FISCAL YEAR(1)
---------------------------------------------------------------
INDIVIDUAL GRANTS
---------------------------------------------------------------
PERCENTAGE
OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE MARKET
OPTIONS IN FISCAL PRICE PRICE ON EXPIRATION
GRANTED(#) YEAR(3) ($/SH) GRANT DATE DATE
----------- ---------- ---------- ---------- ----------
Gene W. Schneider
ULA Shares.................... 100,000(3) 15.87% $ 19.23 $ 19.23(4) 12/06/10
Michael T. Fries
ULA Shares.................... 200,000(3) 31.75% $ 19.23 $ 19.23(4) 12/06/10
Mark L. Schneider
Class A Common Stock.......... 272,996(5) 21.10% $14.8125 $14.8125 12/06/10
Class A Common Stock.......... 27,004(5) 2.08% $16.2938 $14.8125 12/06/05
John F. Riordan
Class A Common Stock.......... 200,000(5) 15.46% $14.8125 $14.8125 12/06/10
Charles H. R. Bracken
Class A Common Stock.......... - - - - -
OPTION GRANTS IN LAST FISCAL YEAR(1)
----------------------------------------
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATE OF STOCK PRICE APPRECIATION
FOR OPTION TERM(2)
----------------------------------------
0%($) 5%($) 10%($)
------ -------------- --------------
Gene W. Schneider
ULA Shares.................... - $ 1,209,364 $ 3,064,767
Michael T. Fries
ULA Shares.................... - $ 2,418,729 $ 6,129,534
Mark L. Schneider
Class A Common Stock.......... - $ 2,543,095 $ 6,444,701
Class A Common Stock.......... - $ 70,511 $ 204,201
John F. Riordan
Class A Common Stock.......... - $ 1,863,100 $ 4,721,462
Charles H. R. Bracken
Class A Common Stock.......... - - -
IV-67
- ------------
(1)Except as otherwise noted, all the stock options and phantom options granted
during Fiscal 2000 vest in 48 equal monthly increments following the date of
the grant. Vesting of the options granted would be accelerated upon a change
of control of United as defined in the respective option plans.
(2)The potential gains shown are net of the option exercise price and do not
include the effect of any taxes associated with exercise. The amounts shown
are for the assumed rates of appreciation only, do not constitute projections
of future stock price performance and may not necessarily be realized. Actual
gains, if any, on stock option exercises depend on the future performance of
the underlying securities of the respective options, continued employment of
the optionee through the term of the options and other factors.
(3)Upon exercise, ULA may pay these phantom options in cash, shares of Class A
common stock of United or, if publicly traded, its shares of Class A common
stock.
(4)Market price based on fair market value of ULA shares of common stock as
determined by its board of directors at the time of grant.
(5)Options vest as to 1/8th of the shares six months after grant date and
thereafter in 42 equal monthly increments.
The following table sets forth information concerning the exercise of options
and concerning unexercised options held by each of the executive officers named
in the Summary Compensation Table above as of the end of Fiscal 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT FY-END(#)(1)
SHARES ACQUIRED VALUE ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE
- -------------------------------- --------------- ------------- ----------- -------------
Gene W. Schneider
Class A common stock........... - - 753,421 241,666(3)
UPC Shares(3).................. - - 515,625 46,875
Austar United Shares........... - - 1,635,345 517,971
ULA common stock(4)............ - - 109,375 115,625
chello Shares(5)............... - - 46,875 78,125
Michael T. Fries
Class A common stock........... 140,792(6) $ 5,060,616(6) 326,708 162,500(3)
UPC Shares(3).................. - - 121,875 103,125
Austar United Shares........... - - 4,578,964 1,450,321
ULA common stock(4)............ - $ 1,665,625 6,250 331,250
chello Shares(5)............... - $ 654,425 9,275 46,875
Mark L. Schneider
Class A common stock........... - - 43,878 300,000
UPC Shares..................... - - 2,681,250 243,750
chello Shares.................. 88,541 $ 3,073,922 20,834 140,625
John F. Riordan
Class A common stock........... 33,280 $ 3,356,078 20,886 245,834
UPC Shares..................... 1,115,625 $45,251,647 328,125 131,250
chello Shares.................. 131,250 168,750
Charles H.R. Bracken
Class A common stock........... - - - -
UPC Shares..................... - - 328,125 421,875
chello Shares.................. - - 6,250 18,750
VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END($)(2)
----------------------------------
NAME EXERCISABLE UNEXERCISABLE
- -------------------------------- ---------------- ---------------
Gene W. Schneider
Class A common stock........... $ 5,655,015 $ 847,959
UPC Shares(3).................. $ 4,532,043 $ 412,004
Austar United Shares........... A$ 588,724 A$ 186,470
ULA common stock(4)............ $ 1,637,344 $ 233,906
chello Shares(5)............... E 558,964 E 931,607
Michael T. Fries
Class A common stock........... $ 2,414,690 $ 738,281
UPC Shares(3).................. $ 1,043,989 $ 883,375
Austar United Shares........... A$ 1,648,427 A$ 522,116
ULA common stock(4)............ $ 64,063 $ 1,345,313
chello Shares(5)............... E 110,600 E 558,964
Mark L. Schneider
Class A common stock........... $ 297,727 $ -
UPC Shares..................... $ 23,566,623 $ 2,142,420
chello Shares.................. E 248,436 E 1,676,892
John F. Riordan
Class A common stock........... $ 197,763 $ 433,988
UPC Shares..................... $ 2,884,027 $ 1,153,611
chello Shares.................. E 1,565,099 E 2,012,270
Charles H.R. Bracken
Class A common stock........... - -
UPC Shares..................... $ 456,069 $ 586,375
chello Shares.................. E 62,103 E 236,011
- ------------
(1)The number of securities underlying options have been adjusted to reflect
United's 2-for-1 stock split on November 30, 1999, the relinquishment of
options under UAP's phantom stock option plan in exchange for options under
the Austar United Plan in July 1999, and UPC's 3-for-1 stock split on March
20, 2000.
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(2)The value of the options reported above is based on the following December
31, 2000 closing prices: $13.625 per share of Class A common stock as
reported by NASDAQ; $10.50 per UPC ordinary A share (in the form of American
Depositary Receipts) as reported by NASDAQ; and A$2.16 (US$1.21 based on a
1.7897 conversion rate on December 31, 2000) per Austar United ordinary share
as reported by the Australian Stock Exchange Limited. In addition, the
exercise prices for UPC options have been converted from euro to U.S. dollars
based on a conversion rate of 1.0611 on December 31, 2000. The value for the
phantom options of ULA is based on the fair market value of $19.23 per share
as determined by the board of directors at or prior to December 31, 2000, and
the value for the options of chello broadband is based on the fair market
value of E21.00 per share (US$19.79 based on a conversion rate of 1.0611 on
December 31, 2000) as determined by the Supervisory Board of chello
broadband.
(3)Represents the number of shares underlying phantom stock options, which UPC
may pay in cash or shares of Class A common stock of United or ordinary
shares A of UPC, at its election upon exercise thereof.
(4)Represents the number of shares underlying phantom stock options, which ULA
may pay in cash or shares of Class A common stock of United or, if publicly
traded, shares of ULA, at its election upon exercise thereof.
(5)Represents the number of shares underlying phantom stock options, which
chello broadband may pay in cash or shares of Class A common stock of United
or ordinary shares of UPC or, if publicly traded, ordinary shares of chello
broadband, at its election upon exercise thereof.
(6)Options exercised by the Fries Family Partnership LLLP, of which the general
partner is a trust and the trustee of the trust may be replaced at Mr. Fries'
option.
UNITED EXECUTIVE OFFICER AGREEMENTS
Charles H.R. Bracken. On March 5, 1999, UPC entered into an Executive Service
Agreement with Charles H.R. Bracken in connection with Mr. Bracken becoming the
Managing Director of Development, Strategy and Acquisitions of UPC.
Subsequently, Mr. Bracken became a member of the UPC Board of Management and
Chief Financial Officer for UPC. Mr. Bracken's Executive Service Agreement is
for a term expiring March 5, 2003. Under the Executive Service Agreement, Mr.
Bracken's initial base salary is L250,000 per year. Such salary is subject to
periodic adjustments and in January 2000 UPC adjusted Mr. Bracken's salary to
L282,486 per year. In addition to his salary, Mr. Bracken received UPC options
for 750,000 ordinary shares A (adjusted for UPC's 3-for-1 stock split) and
participation in a pension plan. In addition to his salary, UPC provides a car
to Mr. Bracken for his use valued at L8,400 per year.
The Executive Service Agreement may be terminated for cause by UPC. Also, UPC
may suspend Mr. Bracken's employment for any reason. If his employment is
suspended, Mr. Bracken will be entitled to receive the balance of payments due
under the Executive Service Agreement until such Agreement is terminated. In the
event Mr. Bracken becomes incapacitated, by reason of injury or ill-health for
an aggregate of 130 working days or more in any 12-month period, UPC may
discontinue future payments under the Executive Service Agreement, in whole or
in part, until such incapacitation ceases.
UNITED STOCK OPTION PLANS
Employee Plan. On June 1, 1993, the board of directors adopted United's
Employee Plan. The stockholders of United approved and ratified the Plan which
is effective as of June 1, 1993. The Employee Plan provides for the grant of
options to purchase shares of Class A common stock to United's employees and
consultants who are selected for participation in the Employee Plan. The
Employee Plan is construed, interpreted and administered by United's
Compensation Committee. The committee has discretion to determine the employees
and consultants to whom options are granted, the number of shares subject to the
options, the exercise price of the options (which may be below fair market value
of the Class A common stock on the date of grant), the period over which the
options become exercisable, the term of the options (including the period
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after termination of employment during which an option may be exercised), and
certain other provisions relating to the options.
At September 30, 2001, United had options to purchase an aggregate of 4,865,147
shares of Class A common stock outstanding under the Employee Plan at exercise
prices ranging from $2.2500 to $86.5000 per share; however, incentive options
must be at least equal to fair market value of the Class A common stock on the
date of grant (at least equal to 110% of fair market value in the case of an
incentive option granted to an employee who owns common stock having more than
10% of the voting power).
UPC Stock Option Plan. UPC adopted a Stock Option Plan on June 13, 1996, as
amended, or the "UPC Plan." Under the UPC Plan, UPC's Supervisory Board may
grant stock options to UPC employees. At September 30, 2001, UPC had options for
approximately 25,531,230 total ordinary shares A outstanding under the UPC Plan.
UPC may from time to time increase the number of shares available for grant
under the UPC Plan. Options under the UPC Plan are granted at fair market value
at the time of the grant unless determined otherwise by UPC's Supervisory Board.
The ordinary shares A available under the UPC Plan are held by Stichting
Administratiekantoor UPC, a stock option foundation, which administers the UPC
Plan. Each option represents the right to acquire from the foundation a
certificate representing the economic value of one share.
All options are exercisable upon grant and for the next five years. In order to
introduce the element of "vesting" of the options, the UPC Plan provides that
the options are subject to repurchase rights reduced by equal monthly amounts
over a "vesting" period of 36 months for options granted in 1996 and 48 months
for all other options. If the employee's employment terminates other than in the
case of death, disability or the like, all unvested options previously exercised
must be resold to the foundation at the original purchase price and all vested
options must be exercised within 30 days of the termination date.
UPC Phantom Stock Option Plan. Effective March 20, 1998, UPC adopted a Phantom
Stock Option Plan, or the "UPC Phantom Plan." Under the UPC Phantom Plan, UPC's
Supervisory Board may grant employees the right to receive an amount in cash or
stock, at UPC's option, equal to the difference between the fair market value of
the ordinary shares A and the stated grant price for a specified number of
phantom options. Through September 30, 2001, options based on approximately
3,391,012 ordinary shares remained outstanding. The phantom options have a
four-year vesting period and vest 1/48th each month. The phantom options may be
exercised during the period specified in the option certificate, but in no event
later than 10 years following the date of the grant. Upon exercise of the
phantom options, UPC may elect to issue such number of ordinary shares A or
shares of Class A common stock as is equal to the value of the cash difference
in lieu of paying the cash.
chello broadband Foundation Stock Option Plan. chello broadband adopted its
Foundation Stock Option Plan, or the "chello Plan," on June 23, 1999. Under the
chello Plan, chello broadband's Supervisory Board may grant stock options to
employees subject to approval of chello broadband's priority shareholders. To
date chello broadband has granted options for 550,000 ordinary shares B under
its Plan. Options under the chello Plan are granted at fair market value at the
time of grant unless determined otherwise by its Supervisory Board. All the
shares underlying the chello Plan are held by Stichting Administratiekantoor
chello broadband, a stock option foundation, which administers the chello Plan.
Each option represents the right to acquire from the foundation a certificate
representing the economic value of one share.
All options are exercisable upon grant and for the next five years. In order to
introduce the element of "vesting" of the options, the chello Plan provides that
the options are subject to repurchase rights reduced by equal monthly amounts
over a "vesting" period of 48 months following the date of grant. If the
employee's employment terminates other than in the case of death, disability or
the like, all unvested options previously exercised must be resold to the
foundation at the original purchase price and all vested options must be
exercised within 30 days of the termination date.
chello broadband Phantom Stock Option Plan. Effective June 19, 1998, chello
broadband adopted its Phantom Stock Option Plan, or the "chello Phantom Plan."
The chello Phantom Plan is administered by its Supervisory Board. The phantom
options have a four-year vesting period and vest 1/48th each month and may
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be exercised during the period specified in the option certificate. All options
must be exercised within 90 days after the end of employment. If such employment
continues, all options must be exercised not more than 10 years following the
effective date of grant. The chello Phantom Plan gives the employee the right to
receive payment equal to the difference between the fair market value of a share
and the exercise price for the portion of the rights vested. chello broadband,
at its sole discretion, may make the required payment in cash, freely tradable
shares of Class A common stock or UPC ordinary shares A, or, if chello
broadband's shares are publicly traded, its freely tradable ordinary shares A.
At September 30, 2001, options representing approximately 1,271,941 phantom
shares remained outstanding.
Priority Telecom Stock Option Plan. In 2000, Priority Telecom adopted a stock
option plan or the "Priority Telecom Plan" for its employees and those of its
subsidiaries. There are approximately 20.0 million shares available for the
granting of options under the Priority Telecom Plan, which are held by the
Priority Telecom Foundation, which administers the Priority Telecom Plan. Each
option represents the right to acquire from the Priority Telecom Foundation a
certificate representing the economic value of one share. Priority Telecom
appoints the board members of the Priority Telecom Foundation and thus controls
the voting of the Priority Telecom Foundation's common stock. The options are
granted at fair market value at the time of grant. The maximum term that the
options can be exercised is five years from the date of grant. The vesting
period for any new grants of options is four years, vesting in equal monthly
increments. The Priority Telecom Plan provides that, in the case of a change of
control, the acquiring company has the right to require Priority Telecom to
acquire all of the options outstanding at the per share value determined in the
transaction giving rise to the change of control. At September 30, 2001,
approximately 439,865 (post-split) options were outstanding under the Priority
Telecom Plan.
United Latin America Stock Option Plan. Effective June 6, 1997, ULA adopted a
stock option plan for its employees, or the "ULA Plan." The ULA Plan permits
grants of phantom stock options and incentive stock options. To date, only
phantom stock options have been granted. The ULA Plan is administered by
United's board of directors. The number of shares available for grant under the
ULA Plan are 2,500,000. Phantom options may be granted for a term of up to 10
years and have a four-year vesting period and vest 1/48th each month. Upon
exercise and at the sole discretion of ULA, the options may be awarded in cash
or in shares of Class A common stock, or, if publicly traded, shares of ULA
stock. If the employee's employment terminates other than in the case of death,
disability or the like, all unvested options lapse and all vested options must
be exercised within 90 days of the termination date. At September 30, 2001,
approximately 1,167,285 options were outstanding under the ULA Plan.
VTR GlobalCom Phantom Stock Option Plan. Effective May 1, 1999 VTR adopted a
stock option plan or the "VTR Plan." Under the VTR Plan, VTR's Board of
Directors may grant stock options to purchase up to 1,505,000 shares of VTR's
common stock. The options vest in equal monthly increments over a four-year
period following the date of grant. Concurrent with approval of the VTR Plan,
VTR's Board granted phantom stock options to certain employees which gives the
employee the right with respect to vested options to receive a cash payment
equal to the difference between the fair market value of a share of VTR stock
and the option base price per share. The phantom options may be exercised during
the period specified in the option certificate, but in no event later than 10
years following the date of grant. At September 30, 2001, approximately 716,593
options were outstanding under the VTR plan.
COMPENSATION OF UNITED'S DIRECTORS
New United will compensate its directors similarly to how United's directors
have been compensated. United compensates its outside directors at $500 per
month and $1,000 per board and committee meeting ($500 for certain telephonic
meetings) attended. Directors who are also employees of United receive no
additional compensation for serving as directors. United reimburses all of its
directors for travel and out-of-pocket expenses in connection with their
attendance at meetings of the board of directors. In addition, under the Stock
Option Plan for Non-Employee Directors effective June 1, 1993, or the "1993
Plan," each non-employee director received options for 20,000 shares of Class A
common stock upon the effective date of the 1993 Plan or upon election to the
board of directors, as the case may be. Options for an aggregate of
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960,000 shares of Class A common stock may be granted under the 1993 Plan. As of
September 30, 2001, under the 1993 Plan, United has granted options for an
aggregate of 820,000 shares of Class A common stock, adjusted for United's stock
splits in 1994 and in 1999. In addition, options for 171,667 shares have been
cancelled, and 311,667 are available for future grants. Options granted under
the 1993 Plan vest 25.0% on the first anniversary of the respective dates of
grant and thereafter in 36 equal monthly increments. Such vesting is accelerated
upon a "change of control" of United. Upon becoming directors of New United,
each of Messrs. Bennett and Howard will be granted options to acquire an
aggregate of 20,000 shares of New United Class A common stock under the 1993
Plan.
The non-employee directors also participate in United's Stock Option Plan for
Non-Employee Directors Plan effective March 20, 1998, or the "1998 Plan."
Pursuant to the 1998 Plan, Messrs. Carollo, DeGeorge and Rochelle have each been
granted options to acquire an aggregate of 40,000 shares of Class A common
stock. Messrs. Cole and Malone have each been granted options for an aggregate
of 80,000 shares of Class A common stock. All options under the 1998 Plan have
been granted at the fair market value of the shares at the time of grant.
Additional participation in the 1998 Plan is at the discretion of the board of
directors. Options for an aggregate of 1,000,000 shares of Class A common stock
may be granted under the 1998 Plan. At September 30, 2001, options for an
aggregate of 420,000 shares of Class A common stock had been granted, adjusted
for the two-for-one stock split in November 1999. In addition, options for
97,500 shares have been cancelled, and 677,500 shares are available for future
grants. All options under the 1998 Plan vest in 48 equal monthly installments
commencing the respective dates of grant. Upon becoming directors of New United,
each of Messrs. Bennett and Howard will be granted an aggregate of 80,000 shares
of New United Class A common stock under the 1998 Plan.
There are no other arrangements whereby any of United's directors received
compensation for services as a director during Fiscal 2000 in addition to or in
lieu of that specified by the aforementioned standard arrangement.
UNITED COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
United's board of directors in April 1993 established the compensation committee
composed of members of the board of directors who are not employees of United.
In June 1997, the board of directors passed a resolution appointing all outside
directors of United to be members of the committee. During Fiscal 2000, United's
committee consisted of Messrs. Carollo, Cole, DeGeorge, Malone, Rochelle and
Henry P. Vigil (from his March 2000 appointment until his resignation in
November 2001). Each of such committee members is not and has not been an
officer of United or any of its subsidiaries. Mr. Fries, an executive officer
and director of United, is a member of UPC's compensation committee and Mr.
Riordan, an executive officer of UPC, is a member of United's board of
directors. Except as stated in the foregoing sentence, none of the executive
officers of United has served as a director or member of a compensation
committee of another company that had an executive officer also serving as a
director or member of United's compensation committee.
LIMITATION OF LIABILITY AND INDEMNIFICATION
New United's certificate of incorporation will eliminate the personal liability
of its directors to United and its stockholders for monetary damages for breach
of the directors' fiduciary duties in certain circumstances. New United's
certificate of incorporation and bylaws provide that New United shall indemnify
its officers and directors to the fullest extent permitted by law. New United
believes that such indemnification covers at least negligence and gross
negligence on the part of indemnified parties.
During the past five years, neither the above named executive officers nor any
director of United has had any involvement in such legal proceedings as would be
material to an evaluation of his ability or integrity.
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CERTAIN TRANSACTIONS
TRANSACTIONS WITH LIBERTY
The Merger Transaction. For a discussion of the merger transaction and related
transactions with Liberty, see "Proposal 1: The Merger Transaction -- Background
and Overview of the Transaction," and "Proposal 1: The Merger Transaction -- The
Merger Agreement and Related Agreements."
Loan Transaction. Pursuant to the letter agreement dated December 7, 2000,
between us and Liberty, we agreed to loan Liberty up to $510.0 million. The
purpose of the loan was to provide Liberty with funds to satisfy certain
obligations it had with respect to its Argentina assets. Pursuant to the terms
of the letter agreement, we have loaned all of the $510.0 million, as evidenced
by a Promissory Note of Liberty dated December 8, 2000, for $200.0 million, a
Promissory Note of Liberty Argentina, Inc. dated December 27, 2000, for
$42,405,760, a Promissory Note of Liberty Argentina, Inc. dated February 5,
2001, for $33,827,447 and a Promissory Note of Liberty Argentina, Inc. dated
April 30, 2001 for $233,766,793. Liberty has guaranteed the notes of its
subsidiary Liberty Argentina, Inc. The notes bear interest at 8.0% per annum and
are due and payable on the closing date of the merger, but if the merger
agreement is terminated then the notes will be due and payable on the
termination of the merger agreement. Liberty repaid $241.3 million in principal
and accrued interest of the loans on December 3, 2001. The aggregate outstanding
principal balance of the loan is approximately $287.6 million.
United Class A Common Stock Purchase. On December 3, 2001, United issued
11,991,018 shares of Class A common stock to Liberty in consideration of $20.0
million of cash.
STOCKHOLDER ARRANGEMENTS
In the event of any termination of the merger agreement, Liberty, United and the
Founders have agreed to negotiate agreements for stockholder and standstill
obligations substantially similar to the stockholders agreement and standstill
agreement described above with certain modifications. See "Proposal 1: The
Merger Transaction -- The Merger Agreement and Related
Agreements -- Stockholders Agreement", and "Proposal 1: The Merger
Transaction -- The Merger Agreement and Related Agreements -- Standstill
Agreement."
RIORDAN TRANSACTIONS
Company Loans. Pursuant to the terms of four promissory notes, United loaned
$4,000,000 on November 22, 2000, $1,200,000 on January 29, 2001, and $3,500,000
on April 4, 2001, respectively, to John F. Riordan, a director and named
executive officer. Such loans allowed Mr. Riordan to meet certain personal
obligations in lieu of selling his shares in United or in UPC. The notes are
payable upon demand and in any event on November 22, 2002. The notes accrue
interest until paid at 90-day LIBOR plus either 2.5% or 3.5% as determined in
accordance with the terms of each note.
Mr. Riordan has pre-paid to United $93,794 in the aggregate for interest accrued
through February 22, 2001 on the loans. The aggregate outstanding balance on the
loans as of November 21, 2001 is $9,181,446.
RCL Transaction. In November 1998, Riordan Communications Limited ("RCL"), a
company controlled by a discretionary trust for the benefit of certain family
members of John Riordan, a director and named executive officer of United,
acquired 769,062 shares of Class A common stock. In March 1999, RCL and United
entered into a Registration Rights Agreement, which provides, among other
things, that upon request of RCL, United will register under the Securities Act
of 1933, as amended, at least 50% of the 769,062 shares of Class A common stock
acquired by RCL in accordance with RCL's intended method of disposition thereof.
RCL has the right to request two such registrations. United has agreed to pay
all registration expenses (other than underwriting discounts and commissions) in
connection with such registrations. The Registration Rights Agreement will
terminate when all such shares of Class A common stock acquired by RCL can be
sold in any 90-day period pursuant to Rule 144 of said Act.
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M. SCHNEIDER TRANSACTIONS
Indebtedness. At December 31, 2000, Mr. Mark L. Schneider, a director and named
executive officer, was indebted to United for an aggregate of $653,210. Such
debt occurred from the settlement of his tax equalization for the years 1999 and
1998. On March 21, 2001, Mr. Schneider paid this debt in full. Also at December
31, 2000, Mr. Schneider was indebted to UPC for an aggregate of L291,298. Such
debt was incurred through UPC making payments on behalf of Mr. Schneider's for
his housing costs and taxes in the United Kingdom. On February 14, 2001, Mr.
Schneider paid L196,298 on this debt, leaving an outstanding balance of L95,000.
Company Loans. Pursuant to the terms of two promissory notes, United loaned
$1,110,866 on November 22, 2000 and $330,801 on December 21, 2000 to Mark L.
Schneider, a director and named executive officer. Such loans allowed Mr.
Schneider to meet certain personal obligations in lieu of selling his shares in
United or in UPC. The notes are payable upon demand and in any event on November
22, 2002. The notes accrue interest until paid at 90-day LIBOR plus either 2.5%
or 3.5% as determined in accordance with the terms of each note.
Mr. Schneider has pre-paid to United $30,876 in the aggregate for interest
accrued through February 22, 2001 on the loans. The aggregate outstanding
balance on the loans, including accrued interest, as of November 22, 2001 is
$1,526,936.
House Loan. In September 1999, United loaned to Mark L. Schneider, a director
and named executive officer of United, $723,356 in connection with the purchase
of his home. The loan bears interest at 9.0% per annum and is payable monthly.
Interest payments are deducted monthly from the cost of living differentials
paid by United to Mr. Schneider related to his foreign assignment. Following the
sale of the home, Mr. Schneider paid the loan in full, including interest, in
December 2001.
chello broadband Loan. On August 5, 1999, chello broadband loaned Mark L.
Schneider E2,268,901 to enable Mr. Schneider to acquire ordinary shares of
chello broadband pursuant to stock options granted to Mr. Schneider in 1999.
This recourse loan bears no interest. Interest, however, is imputed and the tax
payable on the imputed interest is added to the principal amount of the loan.
This loan is payable upon exercise or expiration of the options. On September
28, 2000, Mr. Schneider exercised chello broadband options through the sale of
the shares acquired with the loan proceeds. Of the funds received, E823,824 was
withheld for payment of the portion of the loan associated with the options
exercised. As of May 31, 2001, the outstanding balance is E1,719,392.
FRIES TRANSACTIONS
Pursuant to the terms of various promissory notes, United loaned $186,941 on
November 22, 2000, $205,376 on December 21, 2000 and $24,750 on June 25, 2001 to
Michael T. Fries, a director and named executive officer, and $668,069 on
November 22, 2000, $450,221 on December 21, 2000, $275,000 on April 4, 2001, and
$1,366,675 on June 25, 2001 to The Fries Family Partnership LLLP, a limited
liability limited partnership (the "Fries Partnership"), for the benefit,
directly and indirectly, of Mr. Fries and members of his family. Such loans
allowed Mr. Fries and the Fries Partnership to meet certain obligations in lieu
of selling their shares in United. Mr. Fries has guaranteed the loans to the
Fries Partnership if the Fries Partnership fails to pay. The notes are payable
upon demand and in any event on November 22, 2002. The notes accrue interest
until paid at 90-day LIBOR plus either 2.5% or 3.5% as determined in accordance
with the terms of each note.
Mr. Fries has pre-paid to United $7,542 and the Fries Partnership has pre-paid
to United $22,507 in the aggregate for interest accrued through February 22,
2001 on the loans. The aggregate outstanding balance on the loans as of November
22, 2001 is $439,929 for Mr. Fries, and $2,875,966 for the Fries Partnership.
MLS FAMILY PARTNERSHIP TRANSACTIONS
Pursuant to the terms of two promissory notes, United loaned $1,916,305 on
November 22, 2000 and $1,349,599 on December 21, 2000 to the MLS Partnership, a
limited liability limited partnership of which a
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trust is the general partner. The trustees of said trust are Gene W. Schneider,
Chief Executive Officer and Chairman of United, and John Riordan, a director and
a named executive officer of United. Such loans allowed the MLS Partnership to
meet certain obligations in lieu of selling its shares in United. In connection
with the foregoing loans, Mr. Mark L. Schneider has guaranteed the loans to the
MLS Partnership if the MLS Partnership fails to pay. The notes are payable upon
demand and in any event on November 22, 2002. The notes accrue interest until
paid at 90-day LIBOR plus either 2.5% or 3.5% as determined in accordance with
the terms of each note.
The MLS Partnership has paid to United $65,472 in the aggregate for interest
accrued through February 22, 2001 on the loans. The aggregate outstanding
balance on the loans as of November 21, 2001 is $3,459,069.
G. SCHNEIDER TRANSACTION
On February 8, 2001, United's board of directors approved a "Split-Dollar"
policy on the lives of Gene W. Schneider, Chairman and Chief Executive Officer
of United, and his wife, Louise Schneider, for a total amount of $30.0 million.
United will pay the premium for such policy which is anticipated to be
approximately $1.8 million annually, with a roll-out period of approximately
fifteen years. The Gene W. Schneider 2001 Trust (the "Trust") is the sole owner
and beneficiary of the policy, but will assign to United policy benefits in the
amount of the premiums paid by United. The Trust will contribute an amount equal
to the annual economic benefit provided the policy. The trustees of the Trust
are Mark Schneider, a director and named executive officer of United, Tina
Wildes, a director of United, and Carla Shankle. Upon termination of the policy,
United will recoup the premiums that it has paid. Such policy will terminate
upon the death of both insureds, on the elapse of the roll-out period or at such
time as the Trust fails to make its contributions towards the premiums due on
the policy.
WILDES TRANSACTION
On October 1, 2000, United entered into a Consulting Agreement with Tina M.
Wildes, a director and former officer of United. The Consulting Agreement was
for a term of one year and expired on October 1, 2001. United engaged Ms. Wildes
based on her prior experience in United and its telecommunications operations.
The Consulting Agreement provided for payment of a consulting fee by United to
Ms. Wildes in the amount of $15,000 per month. In addition, all options
previously awarded to Ms. Wildes continued to vest in accordance with their
terms. In addition to the consulting fee, for the period of October 1, 2000 to
January 31, 2001, United paid the monthly premium amount for a whole life policy
on the life of Ms. Wildes for an aggregate of $3,064. Upon expiration of the
Consulting Agreement, Ms. Wildes rejoined United as Senior Vice President of
Development Oversight and Administration.
DESCRIPTION OF NEW UNITED CAPITAL STOCK
New United's authorized capital stock consists of:
- -800,000,000 shares of Class A common stock;
- - 564,075,000 shares of Class B common stock;
- - 400,000,000 shares of Class C common stock; and
- - 10,000,000 shares of preferred stock, all $0.01 par value per share.
As of the date of this proxy statement/prospectus, New United had only nominal
capital stock outstanding. Pro forma for the transaction and assuming the
transaction closes on January 30, 2002, New United will have outstanding:
- - 108,860,310 shares of Class A common stock;
- - 8,870,332 shares of Class B common stock;
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- - 303,240,166 shares of Class C common stock; and
- - no shares of preferred stock
The description of New United's capital stock in this proxy statement/prospectus
is a summary of the terms of the certificate of incorporation of New United. A
form of the certificate of incorporation is included as Appendix C.
COMMON STOCK
New United's Class A common stock, Class B common stock and Class C common stock
will have identical economic rights. They will, however, differ in the following
respects:
- - Each share of Class A common stock, Class B common stock and Class C common
stock will entitle the holders thereof to one, ten and ten votes,
respectively, on each matter to be voted on by New United's stockholders other
than the election of directors;
- - Each share of Class B common stock will be convertible, at the option of the
holder, into one share of Class A common stock. At the option of the holder,
each share of Class C common stock will be convertible into one share of Class
A common stock at any time or, under certain circumstances, into one share of
Class B common stock. The Class A common stock will not be convertible into
Class B or Class C common stock.
- - The approval of a majority of Class C directors will be required for certain
acquisitions or dispositions of assets, issuances of equity or debt
securities, selection of a New United CEO not previously approved by Liberty,
amendment of New United's charter or bylaws in a manner adverse to holders of
Class B or Class C common stock, and certain related party transactions.
Holders of New United Class A, Class B and Class C common stock will vote as one
class on all matters, excluding the election of directors, to be voted on by New
United's stockholders, with certain exceptions listed below or specified by the
Delaware General Corporation Law. Shares of New United's Class C common stock,
as long as there are any outstanding, will vote separately to elect four of New
United's 12 person board of directors. New United's Class A common stock and
Class B common stock will not, however, be able to vote in the election of Class
C directors. Holders of Class A and B common stock, voting together, will elect
the other eight directors. After all shares of Class C common stock become
convertible in full into shares of Class B common stock, all 12 of New United's
12 person board of directors will be elected by the holders of shares of Class A
common stock, Class B common and Class C common stock voting together.
Holders of New United Class A, Class B and Class C common stock will be entitled
to receive any dividends that are declared by New United's board of directors
out of funds legally available for that purpose. In the event of New United's
liquidation, dissolution or winding up, holders of New United Class A, Class B
and Class C common stock will be entitled to share in all assets available for
distribution to holders of common stock. Holders of New United Class A and Class
B common stock will have no preemptive rights. Shares of Class C common stock
will have preemptive rights to prevent the dilution of the voting power of Class
C common stock by 10.0% or more of its voting power immediately following
issuance. New United's Certificate of Incorporation provides that if there is
any dividend, subdivision, combination or reclassification of any class of
common stock, a proportionate dividend, subdivision, combination or
reclassification of the other class of common stock will be made at the same
time.
New United has appointed Mellon Investor Services LLC as the transfer agent and
registrar for its Class A common stock.
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PREFERRED STOCK
New United is authorized to issue 10,000,000 shares of preferred stock. New
United's board of directors is authorized, without any further action by the
stockholders, to determine the following for any unissued series of preferred
stock:
- - voting rights;
- - dividend rights;
- - dividend rates;
- - liquidation preferences;
- - redemption provisions;
- - sinking fund terms;
- - conversion or exchange rights;
- - the number of shares in the series; and
- - other rights, preferences, privileges and restrictions.
In addition, the New United preferred stock could have other rights, including
economic rights senior to New United's common stock, so that the issuance of the
New United preferred stock could adversely affect the market value of New
United's common stock. The issuance of New United preferred stock may also have
the effect of delaying, deferring or preventing a change in control of New
United without any action by the stockholders. New United has no current plans
to issue any preferred shares other than as contemplated by the Liberty
transaction.
MARKET LISTINGS
New United's Class A common stock will be listed for trading on The Nasdaq
National Market. New United's Class B common stock and Class C common stock will
have no established trading market. New United may elect to list any series of
securities on an exchange, and in the case of the common stock, on any
additional exchange, but, is not obligated to do so. No assurance can be given
as to the liquidity of the trading market for any of the securities.
CERTIFICATE OF INCORPORATION AND BYLAWS
The provisions of New United's certificate of incorporation and bylaws
summarized below may have an anti-takeover effect and may delay or prevent a
tender offer or takeover attempt that a stockholder might consider in its best
interest, including attempts that might result in a premium over the market
price for the shares held by stockholders.
New United's certificate of incorporation or bylaws provide:
- - for a classified board of directors, with each class containing as nearly as
possible one-third of the number of directors on the board and the members of
each class serving for three-year terms;
- - that vacancies on the board of directors may be filled only by the remaining
directors;
- - that the stockholders may take action only at an annual or special meeting of
stockholders, and not by written consent of the stockholders;
- - that special meetings of stockholders generally can be called only by the
board of directors;
- - that our stockholders may adopt, amend or repeal the bylaws only with the
approval of holders of at least 66 2/3% of the voting power; and
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- -for an advance notice procedure for the nomination, other than by the board of
directors or a committee of the board of directors, of candidates for election
as directors as well as for other stockholder proposals to be considered at
annual meetings of stockholders. In general, we must receive notice of intent
to nominate a director or raise business at meetings not less than 90 nor more
than 120 days before the meeting, and must contain certain information
concerning the person to be nominated or the matters to be brought before the
meeting and concerning the stockholder submitting the proposal. The affirmative
vote of the holders of at least 66 2/3% of the voting power is required to
amend or repeal these provisions or to provide for cumulative voting.
DELAWARE GENERAL CORPORATION LAW, SECTION 203
New United has elected not to be governed by Section 203 of the Delaware General
Corporation Law.
COMPARATIVE PER SHARE MARKET INFORMATION
Our Class A common stock trades on The Nasdaq National Market under the symbol
"UCOMA." On November 11, 1999, our board of directors authorized a two-for-one
stock split effected in the form of a stock dividend distributed on November 30,
1999, to shareholders of record on November 22, 1999. The effect of the stock
split has been recognized retroactively in all share and per share amounts in
this report. The following table shows the range of high and low sales prices
reported on The Nasdaq National Market for the periods indicated:
UNITED
--------------------
HIGH LOW
--------- --------
Year ending December 31, 1999
First Quarter............................................. $ 33.00 $ 9.38
Second Quarter............................................ $ 37.56 $21.75
Third Quarter............................................. $ 46.00 $32.00
Fourth Quarter............................................ $ 72.50 $35.50
Year ended December 31, 2000
First Quarter............................................. $114.63 $56.06
Second Quarter............................................ $ 74.38 $31.31
Third Quarter............................................. $ 62.00 $26.31
Fourth Quarter............................................ $ 33.81 $11.50
Year ended December 31, 2001
First Quarter............................................. $ 22.61 $ 8.38
Second Quarter............................................ $ 17.44 $ 7.07
Third Quarter............................................. $ 9.09 $ 1.35
Fourth Quarter (through December 11, 2001)................ $ 4.22 $ 0.78
The closing price for United's Class A common stock on December 11, 2001 was
$4.12.
The following table sets forth the closing prices per share of United Class A
common stock as reported on The Nasdaq National Market, on:
- - June 23, 2000, the last full trading day prior to the public announcement of
the June 25 agreement;
- - May 25, 2001, the last full trading day prior to the public announcement of
the revised terms of the May 25 agreement;
- - November 30, 2001, the last full trading day prior to the public announcement
of the execution of the merger agreement; and
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- - , 2001, the last full trading day for which closing prices were
available at the time of the printing of this proxy statement/prospectus.
June 23, 2000............................................... $ 43.56
May 25, 2001................................................ $ 13.83
November 30, 2001........................................... $ 1.40
December , 2001........................................... $
You are advised to obtain current market quotations for United Class A common
stock. No assurance can be given as to the market prices of United Class A
common stock at any time before the consummation of the transaction or as to the
market price of New United Class A common stock at any time after the
transaction.
COMPARISON OF STOCKHOLDERS' RIGHTS
Both United and New United are incorporated under the laws of the State of
Delaware, and the holders of Class A common stock of New United, except as
described below, will have similar rights and preferences as the holders of
Class A common stock of United. See "-- Description of New United Capital
Stock." Though holders of United's Class A common stock participate in the
election of each of United's directors, the holders of New United's Class A
common stock will not participate in the election of those directors who, by the
terms of New United's certificate of incorporation, are elected only by the
holders of New United's Class C common stock. In addition, following the
closing, New United will be restricted from taking certain actions unless such
actions have been approved by a majority of the directors elected by the holders
of the Class C common stock. See "Proposal 1: The Merger
Transaction -- Background and Overview of the Transaction, Certain Other Rights
of Holders of Class C Common Stock." No particular set of stockholders of United
is entitled to elect directors who have similar approval authority.
IV-79
CHAPTER V -- AMENDMENT OF STOCK OPTION PLANS
PROPOSAL 2: AMENDMENT OF THE 1993 STOCK OPTION PLAN
United's 1993 Stock Option Plan, or the "Employee Plan," provides for the grant
of options to purchase shares of United Class A common stock to employees and
consultants who are selected for participation in the Employee Plan. The board
of directors has adopted an amendment to the Employee Plan to:
- - increase the number of shares of common stock reserved for issuance under the
Employee Plan by an aggregate of 30,000,000 from 9,200,000 shares of Class A
common stock to 39,200,000 shares, which may be Class A common stock or Class
B common stock (but no more than 3,000,000 shares of which may be Class B
common stock);
- - increase the maximum number of shares subject to options that may be granted
to any one participant in any calendar year from 500,000 shares to an
aggregate of 5,000,000 shares of Class A common stock and Class B common
stock; and
- - permit the grant of options to acquire, or permit the amendment of outstanding
options granted after December 3, 2001 to provide for the issuance of an
aggregate of, up to 3,000,000 shares of Class B common stock as well as Class
A common stock.
Upon completion of the merger, United's obligations under the Employee Plan will
be assumed by New United, and stock options for United common stock will be
replaced with substitute stock options for New United common stock. Each New
United stock option will have the same terms and conditions, exercise price,
vesting and restrictions as the United stock option it replaces.
As of the record date, options have been granted under the Employee Plan to
purchase a total of shares, of which options for shares have been
cancelled, leaving only shares of United Class A common stock available for
option grants under the Employee Plan. The board of directors believes that it
is in the best interest of United, and in the best interest of New United
following the merger, to increase the number of shares available for option
grants under the Employee Plan. The increase will allow United and, following
the merger, New United, to grant options to attract and retain new employees who
have not received grants of options under the Employee Plan, and to further
compensate, where appropriate, employees who have been previously awarded
options under the Employee Plan.
On December 7, 2001, the Board of Directors of United granted options to acquire
an aggregate of 17,500,000 million shares of United common stock. This grant is
subject to stockholder approval of the amendment to increase the number of
shares reserved for issuance under the Employee Plan.
Upon the closing of the merger, New United will assume the Employee Plan and all
obligations under the Employee Plan and the Employee Plan will become the stock
option plan for employees of New United.
Approval of the amendment to the Employee Plan requires the affirmative vote of
the holders of a majority of the combined voting power of our Class A common
stock and Class B common stock as of the record date, represented in person or
by proxy at the special meeting of stockholders.
The board of directors recommends that stockholders approve the amendment to the
Employee Plan. The principal features of the Employee Plan are summarized below:
Administration of the Employee Plan. The compensation committee of the board of
directors, or the "Committee," administers and interprets the Employee Plan. The
Committee must be structured at all times so that it satisfies the
"disinterested administration" requirement of Rule 16b-3 under the Securities
Act of 1934, as amended, and the "outside director" requirement for the
exemption pursuant to Section 162(m) of the Internal Revenue Code of 1986, as
amended.
Number of Shares: Amendment to Increase Number of Shares. The number of shares
is subject to adjustment on account of stock splits, stock dividends,
recapitalizations and other dilutive changes in the Class A common stock. As a
result of the two-for-one stock split effected on November 30, 1999, the number
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of shares was increased from 4,600,000 to 9,200,000. The amendment will increase
the number of shares of common stock by 30,000,000 shares of Class A and Class B
common stock to 39,200,000 shares and permit the grant of options exercisable
for Class B common stock as well as Class A common stock. No more than 3,000,000
of the 30,000,000 additional shares may be Class B shares.
Options Granted Under the Employee Plan. The Employee Plan provides for the
grant of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code, or "Incentive Options," and options that are not
Incentive Options, or "Non-Qualified Options." Incentive Options may be granted
only to employees. Approximately employees are eligible to participate in
the Employee Plan. We refer to Incentive Options and Non-Qualified Options
collectively as "Employee Options." Employee Options granted under the Employee
Plan are non-transferable, except by will or pursuant to the laws of descent and
distribution.
The Committee has the sole discretion to determine the employees and consultants
to whom Employee Options may be granted and the manner in which the Employee
Options will vest. Approximately consultants are eligible to participate
in the Employee Plan. However, an Incentive Option can vest each year with
respect to no more than $100,000 in value of common stock based upon fair market
value of the common stock on the date of grant of the Incentive Options. Options
covering no more than 500,000 shares of common stock may be granted to a single
participant during any calendar year. The amendment will increase to 5,000,000
the number of shares of Class A common stock and Class B common stock in the
aggregate that may be granted to a single participant during any calendar year.
Term of Employee Options. The Committee determines the Employee Option term,
which can be no longer than 10 years (five years in case of an Incentive Option
granted to an employee who owns common stock having more than 10.0% of voting
power). Unless the Committee specifies otherwise, the following provisions apply
with respect to the exercisability of an option following the termination of the
option holder's employment or consulting relationship. An Employee Option will
terminate prior to its stated term upon termination of employment or death. If
an option holder's employment or consulting relationship terminates within six
months after the Employee Option's grant date for any reason other than death or
disability, or if the employment of the option holder is terminated for cause,
the Employee Option is void for all purposes. If the option holder's employment
or consulting relationship terminates because the option holder becomes
disabled, the Employee Option will terminate one year after termination. If the
option holder's employment or consulting relationship terminates other than for
cause, disability or death and such termination occurs more than six months
after the date of grant, the Employee Option will expire three months from the
date of termination. If the option holder dies while employed, while a
consultant, or within the three-month period described in the preceding
sentence, the Employee Option will terminate one year after the date of death.
In all cases the Employee Option may be exercised only to the extent it was
vested at the date the employment or consulting relationship is terminated, and
only if it has not expired according to its terms.
The amendment will permit the Committee to amend, with the consent of the
holder, outstanding options granted after December 3, 2001 to allow for the
issuance of Class B common stock in lieu of Class A common stock upon exercise,
subject to the 3,000,000 share limit on the number of options to purchase shares
of Class B common stock that may be granted.
Exercise. The Committee determines the exercise price for each Employee Option;
however, Incentive Options must have an exercise price that is at least equal to
fair market value of the Class A common stock on the date the Incentive Option
is granted (at least equal to 110.0% of fair market value in the case of an
Incentive Option granted to an employee who owns common stock having more than
10.0% of the voting power).
An option holder may exercise an Employee Option by written notice and payment
of the exercise price (i) in cash or certified funds (ii) by the surrender of a
number of shares of common stock already owned by the option holder for at least
six months (or other periods specified by the Committee) and with a fair market
value equal to the exercise price, or (iii) through a broker's transaction by
directing the issuance of a certificate for the common stock to a broker who
will sell all or a portion of the common stock to pay the exercise price or make
a loan to the option holder to permit the option holder to pay the exercise
price. Option
V-2
holders who are subject to withholding of federal and state income tax as a
result of exercising an Employee Option may satisfy the income tax withholding
obligation through the withholding of a portion of the common stock to be
received upon the exercise of the Employee Option. Approximately people
are eligible to participate in the Employee Plan.
Merger and Reorganization. Upon the occurrence of (i) the merger or
consolidation of United (other than a merger or consolidation in which United is
the continuing company and that does not result in any changes in the
outstanding shares of common stock), (ii) the sale of all or substantially all
of the assets of United (other than a sale in which United continues as the
holding company of an entity that conducts the business formerly conducted by
United), or (iii) the dissolution or liquidation of United, all outstanding
Employee Options will terminate automatically when the event occurs, if United
gives the option holders 30 days prior written notice of the event. Notice is
not required for a merger or consolidation or for a sale if United, the
successor or the purchaser makes adequate provision for the assumption of the
outstanding Employee Options or the substitution of new options on terms
comparable to the outstanding Employee Options. When the notice is given, all
outstanding Employee Options fully vest and can be exercised prior to the event.
Because New United will assume the obligations under the Employee Plan, United
will not give notice and none of the outstanding Employee Options will terminate
automatically.
Change in Control. Upon a "change in control" of United, all outstanding
Employee Options vest fully. A "change in control" occurs if (i) 30.0% or more
of United's voting stock is acquired by persons or entities without the approval
of a majority of the board of directors unrelated to the acquirer or (ii)
individuals who are members of the board of directors at the beginning of the
24-month period cease to make up at least two-thirds of the board of directors
at anytime during that period, unless the election of new members was approved
by the majority of the board of directors in office immediately prior to the
24-month period and of new members who were so approved.
Amendment and Termination. The board of directors may amend the Employee Plan
in any respect at any time, but no amendment can impair any Employee Option
previously granted or deprive an option holder of any common stock acquired
without the option holder's consent. The Employee Plan will terminate on June 1,
2003, unless sooner terminated by the board of directors.
Federal Income Tax Consequences. When a Non-Qualified Option is granted, there
are no income tax consequences for the option holder or United. When a
Non-Qualified Option is exercised, in general, the option holder recognizes
compensation equal to the excess of the fair market value of the common stock on
the date of exercise over the exercise price. The compensation recognized by an
employee is subject to income tax withholding. United is entitled to a deduction
equal to the compensation recognized by the option holder for United's taxable
year that ends with or within the taxable year in which the option holder
recognized the compensation.
When an Incentive Option is granted, there are no income tax consequences for
the option holder or United. When an Incentive Option is exercised, the option
holder does not recognize income and United does not receive a deduction.
However, the option holder must treat the excess of the fair market value of the
common stock on the date of exercise over the exercise price as an item of
adjustment for purposes of the alternative minimum tax. If the option holder
makes a "disqualifying disposition" of the common stock (described below) in the
same taxable year that the Incentive Option was exercised, there are no
alternative minimum tax consequences.
If the option holder disposes of the common stock after the option holder has
held the common stock for at least two years after the Incentive Option was
granted and 12 months after the Incentive Option was exercised, the amount the
option holder receives upon disposition over the exercise price is treated as
long-term capital gain for the option holder. United is not entitled to a
deduction. If the option holder makes a "disqualifying disposition" of the
common stock by disposing of the common stock before it has been held for at
least two years after the Incentive Option was granted and one year after the
date the Incentive Option was exercised, the option holder recognizes
compensation income equal to the excess of (i) fair market value of the common
stock on the date the Incentive Option was exercised or, if less, the amount
received on the disposition over (ii) the exercise price. At present, United is
not required to withhold. United is entitled to a
V-3
deduction equal to the compensation recognized by the option holder for United's
taxable year that ends with or within the taxable year in which the option
holder recognized the compensation.
Under Section 162(m) of the Internal Revenue Code, United may be limited as to
federal income tax deductions to the extent that the total annual compensation
in excess of $1,000,000 is paid to the Chief Executive Officer or any one of the
other four highest-paid executive officers who are employed by United on the
last day of the taxable year. However, certain "performance-based compensation,"
the material terms of which are disclosed to and approved by stockholders, is
not subject to this limitation on deductibility. United has structured the
Employee Plan with the intention that the compensation paid under it would be
qualified performance-based compensation and would be deductible without regard
to the limitations otherwise imposed by Section 162(m) of the Internal Revenue
Code.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENTS TO THE 1993 STOCK OPTION PLAN.
PROPOSAL 3: AMENDMENT OF 1998 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
United's 1998 Stock Option Plan for Non-Employee Directors, or the "Director
Plan," provides for the grant of options to purchase shares of United Class A
common stock to certain members of the board of directors who are not also
employees of United. The board of directors of United has adopted an amendment
to the Director Plan to increase the number of shares of Class A common stock
reserved for issuance under the Director Plan by an aggregate of 2,000,000
shares from 1,000,000 shares of Class A common stock to 3,000,000 shares of
Class A common stock.
Upon completion of the merger, New United will assume United's obligations under
the Director Plan, and stock options for United common stock will be replaced
with substitute stock options for New United common stock. Each New United stock
option will have the same terms and conditions, exercise price, vesting and
restrictions as the United stock option it replaces.
As of the record date, options have been granted under the Director Plan to
purchase a total of shares, of which shares have
been cancelled, leaving only shares of United Class A common
stock available for option grants under the Director Plan. The board of
directors believes that it is in the best interest of United, and in the best
interest of New United following the merger, to increase the number of shares
available for option grants under the Director Plan. The increase will allow
United and, following the merger, New United, to grant options to encourage
non-employee directors to continue as directors and to invest in the capital
stock of United and, following the merger, New United, thereby increasing their
personal interests in our continued success and progress.
Upon the closing of the merger, New United will assume the Director Plan and all
obligations under the Director Plan and the Director Plan will become a stock
option plan for non-employee directors of New United. Approval of the amendment
to the Director Plan requires the affirmative vote of the holders of a majority
of the combined voting power of United's Class A common stock and Class B common
stock as of the record date, represented in person or by proxy at the special
meeting of stockholders.
The board of directors recommends that stockholders approve the amendment to the
Director Plan. The principal features of the Director Plan are summarized below:
Administration. The Director Plan is administered by the board of directors.
Members of the board who are eligible for Director Options may vote on matters
affecting administration of the Director Plan. Only non-employee directors of
United may receive awards, or "Director Options," under the Director Plan.
Number of Shares: Amendment to Increase Number of Shares. The number of shares
reserved for issuance under the Director Plan is subject to adjustment on
account of stock splits, stock dividends, recapitalization and other dilutive
changes in United Class A common stock. As a result of the stock split effected
on November 30, 1999, the number of shares was increased from 500,000 to
1,000,000. The amendment will increase the number of shares of Class A common
stock by 2,000,000 shares of United Class A common stock to 3,000,000 shares of
United Class A common stock reserved for issuance under the Director Plan.
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Option Grants and Exercises. The board of directors may make grants under the
Director Plan to non-employee directors at any time. Such grants are in the sole
discretion of the board of directors as to number and date of grant and vesting
thereof. The Director Plan provides that the per share exercise price of any
Director Option granted under the Director Plan will be equal to the fair market
value of the United Class A common stock on the date the Director Option is
granted. In general, fair market value is determined by reference to the last
sale price for shares of United's Class A common stock as reported on the Nasdaq
National Stock Market on the date of the grant. Director Options granted
pursuant to the Director Plan will be non-qualified stock options, which do not
qualify under Section 422 of the Internal Revenue Code of 1986, as amended, or
the "Code."
Director Options granted under the Director Plan will vest and become
exercisable evenly over a 48-month period or as otherwise determined by the
board of directors at the time of grant. The method of payment of the exercise
price of a Director Option may consist of (i) cash or certified funds, (ii) the
surrender of a number of shares of United Class A common stock that have been
held by the option holder for more than six months, (iii) a broker's transaction
by directing United to issue the certificate for the Class A common stock to a
broker who will sell all or a portion of the stock to pay the exercise price or
make a loan to the option holder to permit him to pay the exercise price, or
(iv) any combination of these methods, at the election of the option holder.
Shares so surrendered in payment in whole or in part of the Director Option
exercise price and applicable withholding taxes will be valued at their fair
market value on the date the notice of exercise is delivered to United.
Distributions. If United shall at any time distribute with respect to the
United Class A common stock assets or securities of another, then the exercise
price of the outstanding Director Options will be adjusted to reflect the fair
market value (as determined by the board of directors) of the assets or
securities distributed. If United shall at any time distribute with respect to
the United Class A common stock shares of its capital stock (other than United
Class A common stock) or evidences of indebtedness, then a proportionate part of
such capital stock or evidences of indebtedness shall be set aside for each
outstanding Director Option.
Term of Director Options. Each Director Option granted pursuant to the Director
Plan will terminate upon the earliest to occur of the following: (i) the
expiration of 10 years following the date of grant of the Director Option, (ii)
removal from the board of directors for cause, (iii) the expiration of one year
following the date upon which the option holder ceases to be a director of
United by reason of death or disability, or (iv) the expiration of three months
following the date on which the option holder voluntarily ceases his or her
status as a director. In the event an option holder ceases to serve as a
director of United by reason of death or disability, the vesting of each
outstanding Director Option held by such option holder shall be accelerated. In
the event the option holder voluntarily ceases to be a director, the Director
Option may be exercised only to the extent it was vested at the date the
director relationship terminated and only if it had not expired according to its
terms.
Merger and Reorganization. In the event of (i) any consolidation or merger of
United (other than a merger or consolidation in which United is the continuing
company and that does not result in any changes in the outstanding United Class
A common stock), with another corporation or entity, (ii) the sale of all or
substantially all of the property of United (other than a sale in which United
continues as a holding company of an entity that conducts the business formerly
conducted by United), or (iii) the dissolution or liquidation of United, all
outstanding Director Options will automatically terminate when the event occurs
if United gives the option holders 30 days' prior written notice of the event.
Notice is not required, however, if the successor or purchaser, as the case may
be, makes adequate provision for the assumption of the outstanding Director
Options or substitution of new options on terms comparable to the Director
Options. When the notice is given, all outstanding Director Options fully vest
and can be exercised prior to the event.
Change in Control. Upon a "change in control", the vesting of all outstanding
Director Options will be accelerated effective as of the change in control. A
change in control will be deemed to have occurred if (i) 30.0% or more of the
total number of votes that may be cast for the election of directors of United
is acquired by persons or entities without the prior approval of at least a
majority of the members of the board of directors unaffiliated with such
acquiror, or (ii) individuals who constitute the directors of United at the
beginning of a 24-month period cease to constitute at least two-thirds of all
directors at any time during such
V-5
period, unless the election of any new directors was approved by at least a
majority of the members of the board of directors in office immediately prior to
such period and of the new directors so approved. Notwithstanding the foregoing,
no Director Option will become exercisable by virtue of the occurrence of a
change in control if the option holder or any group of which that option holder
is a member is the person whose acquisition constituted the change in control.
Amendment and Termination. The board of directors may amend the Director Plan
in any respect at any time, except that no such amendment (i) shall impair any
Director Option theretofore granted without the consent of the option holder
thereof, or (ii) shall be effective prior to approval by United's stockholders
to the extent such approval is then required pursuant to Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (or any successor applicable rule),
or to the extent stockholder approval is otherwise required by applicable legal
requirements. The Director Plan will terminate when the board of directors
adopts a resolution to that effect.
Federal Income Tax Consequences. The following summary generally describes the
principal Federal (but not state and local) income tax consequences of the
Director Plan. It is general in nature and is not intended to cover all tax
consequences that may apply to a particular option holder or United. The
provisions of the Code relating to these matters are complex and their impact in
any case may depend upon the particular circumstances.
In general, the grant of a Director Option will not result in taxable income to
the option holder or a deduction to United for Federal income tax purposes. Upon
exercise of a Director Option, United will be entitled, for Federal income tax
purposes, to a tax deduction and the option holder will recognize ordinary
income. The amount of such deduction and income generally will equal the amount
by which the fair market value of the shares acquired on the date the Director
Option is exercised exceeds the Director Option exercise price of the shares if
the shares received on exercise are transferable and not subject to a
substantial risk of forfeiture at such time.
In general, the shares received on exercise of a Director Option will be
transferable and will not be subject to a substantial risk of forfeiture.
However, if the sale of shares acquired upon exercise of a Director Option would
subject the option holder to liability under Section 16(b) of the Securities
Exchange Act of 1934, as amended, which requires certain "insiders" to pay to
United any profits received from certain purchases and sales of equity
securities of United, the option holder will recognize ordinary income (and
United will be entitled to a corresponding tax deduction) equal to the amount by
which the fair market value of the shares acquired exceeds the Director Option
exercise price for the shares on the earlier of (i) the date that the option
holder is no longer subject to liability under said Section 16(b) or (ii) six
months after the date the Director Option is exercised. An option holder subject
to liability under Section 16(b) of the Securities Exchange Act of 1934, as
amended, may, however, recognize ordinary income (and United will be entitled to
a corresponding tax deduction) at the time the Director Option is exercised if
the option holder makes an election under Section 83(b) of the Code. If a
Director Option is exercised through the delivery of shares previously owned by
the option holder, such exercise generally will not be considered a taxable
disposition of the previously owned shares and thus no gain or loss will be
recognized with respect to such shares upon such exercise. Any difference
between the basis of the shares acquired through the exercise of a Director
Option and the amount realized upon a subsequent sale of such shares will be
treated as a short-term or long-term capital gain or loss, depending on the
length of the period such shares are held prior to sale. Currently, long-term
capital gains are taxed to an individual at a maximum rate of 20.0% as opposed
to a maximum rate of 38.6% for ordinary income.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE 1998 STOCK
OPTION PLAN FOR NON-EMPLOYEE DIRECTORS.
V-6
CHAPTER VI -- CERTAIN LEGAL INFORMATION
LEGAL MATTERS
The validity of the shares of New United stock offered by this proxy
statement/prospectus will be passed upon for us by Holme Roberts & Owen LLP,
Denver, Colorado.
EXPERTS
Our consolidated financial statements included in this proxy
statement/prospectus and elsewhere in the registration statement for the years
ended December 31, 2000 and 1999 and the ten months ended December 31, 1998 have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
New United's balance sheet as of September 30, 2001 included in this proxy
statement/prospectus and elsewhere in the registration statement has been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and is included herein in reliance upon the
authority of said firm as experts in giving said reports.
VI-1
CHAPTER VII -- WHERE YOU CAN FIND MORE INFORMATION
New United has filed with the SEC a registration statement on Form S-4 that
register the securities New United is offering. The registration statement,
including the attached exhibits and schedules, contains additional relevant
information about us and New United's securities. The rules and regulations of
the SEC allow us to omit certain information included in the registration
statement from this proxy statement/ prospectus.
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission under the Securities
Exchange Act of 1934. You may read and copy this information as well as the
complete New United S-4 registration statement at the following locations of the
SEC:
Judiciary Plaza, Room 10024
450 Fifth Street, N.W. Street
Washington, D.C. 20549
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661
You can also obtain copies of this information by mail from the Public Reference
Room of the SEC, 450 Fifth Street, N.W., Room 10024, Washington D.C. 20549, at
prescribed rates. You may obtain information on the operation of the Public
Reference Room by calling the SEC at (800) SEC-0330.
The SEC also maintains an internet world wide web site that contains reports,
proxy statements and other information about issuers, like us that file
electronically with the SEC. The address of that site is
http://www.sec.gov. Our Class A common stock is traded on The Nasdaq National
Market, and copies of reports, proxy statements and other information can be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
VII-1
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE
-----
NEW UNITEDGLOBALCOM, INC.
Report of Independent Public Accountants.................... F-2
Balance Sheet as of September 30, 2001...................... F-3
UNITEDGLOBALCOM, INC.
Report of Independent Public Accountants.................... F-4
Consolidated Balance Sheets as of September 30, 2001
(Unaudited) and December 31, 2000 and 1999................ F-5
Consolidated Statements of Operations and Comprehensive
(Loss) Income for the Nine Months Ended September 30, 2001
and 2000 (Unaudited) and for the Years ended December 31,
2000 and 1999 and the Ten Months Ended December 31,
1998...................................................... F-6
Consolidated Statements of Stockholders' (Deficit) Equity
for the Nine Months Ended September 30, 2001 (Unaudited)
and for the Years ended December 31, 2000 and 1999 and the
Ten Months Ended December 31, 1998........................ F-7
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2001 and 2000 (Unaudited) and for the
Years ended December 31, 2000 and 1999 and the Ten Months
Ended December 31, 1998................................... F-11
Notes to Consolidated Financial Statements.................. F-13
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To New UnitedGlobalCom, Inc.:
We have audited the accompanying balance sheet of New UnitedGlobalCom, Inc. (a
Delaware corporation) as of September 30, 2001. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of New UnitedGlobalCom, Inc. as of
September 30, 2001, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Denver, Colorado
December 7, 2001
F-2
NEW UNITEDGLOBALCOM, INC.
BALANCE SHEET
SEPTEMBER 30, 2001
------------------
ASSETS
Related party receivable.................................... $100
====
STOCKHOLDER'S EQUITY
Common stock, $0.01 par value, 1 share authorized, issued
and outstanding........................................... $ -
Additional paid-in capital.................................. 100
----
Total stockholder's equity........................... $100
====
New UnitedGlobalCom, Inc. ("New United") was formed under Delaware law on
February 5, 2001, for the purpose of effectuating the merger of UnitedGlobalCom,
Inc. ("United") and a newly created subsidiary of New United ("Merger"). New
United will issue its own stock in connection with this Merger and the
transaction with Liberty Media Corporation ("Liberty"). Liberty or some of its
subsidiaries will contribute to New United an approximate $891.7 million loan
(including accrued interest of $34.9 million through January 30, 2002, the
assumed closing date of the transaction) to one of United's subsidiaries, $200.0
million cash and senior notes and senior discount notes of one of United's
subsidiaries, all in exchange for approximately 281.4 million shares of New
United Class C common stock. In addition, on December 3, 2001, Liberty purchased
11,991,018 shares of United Class A common stock for approximately $20.0 million
in cash, and repaid approximately $241.3 million of its outstanding debt to
United. United used the cash proceeds of the stock sale to repurchase all of its
senior notes due 2009. United also paid $241.3 million in satisfaction of a
contractual obligation in connection with these senior notes. New United's
operations will be conducted through United, which currently owns, manages and
develops video, voice and data operations outside the United States.
As of September 30, 2001, the only transaction of New United was the issuance of
one share of common stock to United International Properties, Inc. ("UIPI") for
$100.00.
On December 2, 2001, UIPI sold to Gene W. Schneider its one share of outstanding
common stock for $10.
F-3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UnitedGlobalCom, Inc.:
We have audited the accompanying consolidated balance sheets of UnitedGlobalCom,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999
and the related consolidated statements of operations and comprehensive (loss)
income, stockholders' (deficit) equity and cash flows for the years ended
December 31, 2000 and 1999 and the ten months ended December 31, 1998 (see Note
2). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform these
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of UnitedGlobalCom,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years ended December 31, 2000 and 1999
and the ten months ended December 31, 1998 in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 30, 2001
F-4
UNITEDGLOBALCOM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE AND NUMBER OF SHARES)
AS OF DECEMBER 31,
AS OF SEPTEMBER 30, ----------------------------
2001 2000 1999
------------------- ------------- ------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents................................. $ 956,448 $ 1,876,828 $1,925,915
Restricted cash........................................... 197,621 11,612 18,217
Short-term liquid investments............................. 64,008 347,084 629,689
Subscriber receivables, net of allowance for doubtful
accounts of $92,182, $66,559 and $27,808,
respectively............................................ 116,717 169,532 83,388
Notes receivable, related party........................... 560,510 256,947 723
Other receivables, including related party receivables of
$17,202, $21,478 and $26,578, respectively.............. 101,910 175,198 151,547
Inventory................................................. 129,513 131,853 82,995
Deferred taxes............................................ 7,584 2,896 2,119
Prepaid expenses and other current assets................. 129,172 108,250 91,673
----------- ----------- ----------
Total current assets.................................. 2,263,483 3,080,200 2,986,266
Marketable equity securities and other investments.......... 37,276 38,560 235,917
Investments in affiliates, accounted for under the equity
method, net............................................... 345,421 756,322 309,509
Property, plant and equipment, net of accumulated
depreciation of $1,393,498, $920,972 and $482,524,
respectively.............................................. 3,743,597 3,748,804 2,379,837
Goodwill and other intangible assets, net of accumulated
amortization of $725,231, $448,012 and $170,133,
respectively.............................................. 4,490,339 5,154,907 2,944,802
Deferred financing costs, net of accumulated amortization of
$72,492, $52,180 and $17,062,
respectively.............................................. 188,434 207,573 130,704
Derivative securities....................................... 306,277 - -
Deferred taxes.............................................. 6,142 5,057 3,698
Other assets................................................ 29,406 12,350 12,120
----------- ----------- ----------
Total assets.......................................... $11,410,375 $13,003,773 $9,002,853
=========== =========== ==========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities
Accounts payable, including related party payables of
$438, $1,555 and $390, respectively..................... $ 304,616 $ 578,399 $ 306,760
Accrued liabilities....................................... 565,909 619,609 324,431
Subscriber prepayments and deposits....................... 140,213 96,296 41,466
Short-term debt........................................... 35,908 51,208 173,296
Current portion of other long-term debt................... 202,729 193,923 52,180
Other current liabilities................................. 16,636 14,330 10,567
----------- ----------- ----------
Total current liabilities............................. 1,266,011 1,553,765 908,700
Senior discount notes and senior notes...................... 6,675,074 6,190,741 4,385,004
Other long-term debt........................................ 4,024,603 3,354,185 1,604,451
Deferred compensation....................................... 9,149 27,460 54,825
Deferred taxes.............................................. 90,310 8,237 17,074
Other long-term liabilities................................. 52,943 30,918 23,603
----------- ----------- ----------
Total liabilities..................................... 12,118,090 11,165,306 6,993,657
----------- ----------- ----------
Commitments and contingencies (Notes 16 and 17)
Minority interests in subsidiaries.......................... 1,557,373 1,884,568 867,970
----------- ----------- ----------
Series B Convertible Preferred Stock, stated at liquidation
value, 113,983, 113,983 and 116,185 shares issued and
outstanding, respectively................................. 29,510 28,117 26,920
----------- ----------- ----------
Stockholders' (deficit) equity
Class A Common Stock, $0.01 par value, 210,000,000 shares
authorized, 86,104,679, 83,820,633 and 81,574,815 shares
issued and outstanding, respectively.................... 862 838 816
Class B Common Stock, $0.01 par value, 30,000,000 shares
authorized, 19,027,134, 19,221,940 and 19,323,940 shares
issued and outstanding, respectively.................... 190 192 193
Series C Convertible Preferred Stock, 425,000 shares
issued and outstanding.................................. 425,000 425,000 410,125
Series D Convertible Preferred Stock, 287,500 shares
issued and outstanding.................................. 287,500 287,500 268,773
Additional paid-in capital................................ 1,538,284 1,542,609 1,416,635
Deferred compensation..................................... (87,393) (117,136) (119,996)
Treasury stock, at cost, 5,604,948, 5,604,948 and
5,569,240 shares of Class A Common Stock,
respectively............................................ (29,984) (29,984) (29,061)
Accumulated deficit....................................... (4,028,894) (1,892,706) (621,941)
Other cumulative comprehensive income (loss).............. (400,163) (290,531) (211,238)
----------- ----------- ----------
Total stockholders' (deficit) equity.................. (2,294,598) (74,218) 1,114,306
----------- ----------- ----------
Total liabilities and stockholders' (deficit)
equity.............................................. $11,410,375 $13,003,773 $9,002,853
=========== =========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES)
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED FOR THE TEN
SEPTEMBER 30, DECEMBER 31, MONTHS ENDED
----------------------------- ----------------------------- DECEMBER 31,
2001 2000 2000 1999 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
Revenue.................................. $ 1,185,860 $ 901,048 $ 1,251,034 $ 720,762 $ 254,466
Operating expense........................ (841,080) (630,867) (876,234) (458,748) (122,811)
Selling, general and administrative
expense................................ (518,463) (506,148) (700,081) (618,925) (299,993)
Depreciation and amortization............ (823,824) (566,296) (815,522) (418,714) (159,045)
Impairment and restructuring charges..... (305,368) - - - -
----------- ----------- ----------- ----------- -----------
Operating loss....................... (1,302,875) (802,263) (1,140,803) (775,625) (327,383)
Gain on issuance of common equity
securities by subsidiaries............. - 127,731 127,731 1,508,839 -
Interest income, including related party
income of $25,735, $524, $1,918, $561
and $497, respectively................. 88,148 101,213 133,297 54,375 10,681
Interest expense......................... (811,918) (637,145) (928,783) (399,999) (163,227)
Foreign currency exchange (loss) gain,
net.................................... (29,643) (292,606) (215,900) (39,501) 1,582
Proceeds from litigation settlement...... 194,830 - - - -
Provision for losses on investment
related costs.......................... (334,660) - (5,852) (7,127) (9,686)
Gain on sale of investments in
affiliates............................. 1,764 - 6,194 - -
Other expense, net....................... (7,736) (2,306) (4,305) (14,641) (3,518)
----------- ----------- ----------- ----------- -----------
(Loss) income before income taxes and
other items........................ (2,202,090) (1,505,376) (2,028,421) 326,321 (491,551)
Income tax benefit (expense), net........ 773 6,932 2,897 (198) (610)
Minority interests in subsidiaries....... 192,698 692,935 934,548 360,444 1,410
Share in results of affiliates, net...... (122,737) (79,332) (129,914) (50,249) (54,781)
----------- ----------- ----------- ----------- -----------
(Loss) income before cumulative
effect of change in accounting
principle.......................... (2,131,356) (884,841) (1,220,890) 636,318 (545,532)
----------- ----------- ----------- ----------- -----------
Cumulative effect of change in accounting
principle.............................. 32,574 - - - -
----------- ----------- ----------- ----------- -----------
Net (loss) income.................... $(2,098,782) $ (884,841) $(1,220,890) $ 636,318 $ (545,532)
=========== =========== =========== =========== ===========
Foreign currency translation
adjustments............................ $ (122,128) $ (96,375) $ (47,625) $ (127,154) $ (24,713)
Unrealized holding gains (losses) arising
during period.......................... 36,625 (10,898) (31,668) 6,858 (505)
Change in fair value of derivative
assets................................. (24,471) - - - -
Cumulative effect of change in accounting
principle.............................. 523 - - - -
Amortization of cumulative effect of
change in accounting principle......... (181) - - - -
----------- ----------- ----------- ----------- -----------
Comprehensive (loss) income.......... $(2,208,414) $ (992,114) $(1,300,183) $ 516,022 $ (570,750)
=========== =========== =========== =========== ===========
Basic net (loss) income attributable to
common stockholders.................... $(2,137,581) $ (923,567) $(1,272,482) $ 617,926 $ (547,155)
=========== =========== =========== =========== ===========
Diluted net (loss) income attributable to
common stockholders.................... $(2,137,581) $ (923,567) $(1,272,482) $ 636,318 $ (547,155)
=========== =========== =========== =========== ===========
Net (loss) income per common share:
Basic net (loss) income before
cumulative effect of change in
accounting principle................. $ (21.99) $ (9.63) $ (13.24) $ 7.53 $ (7.43)
Cumulative effect of change in
accounting principle................. 0.33 - - - -
----------- ----------- ----------- ----------- -----------
Basic net (loss) income................ $ (21.66) $ (9.63) $ (13.24) $ 7.53 $ (7.43)
=========== =========== =========== =========== ===========
Diluted net (loss) income before
cumulative effect of change in
accounting principle................. $ (21.99) $ (9.63) $ (13.24) $ 6.67 $ (7.43)
Cumulative effect of change in
accounting principle................. 0.33 - - - -
----------- ----------- ----------- ----------- -----------
Diluted net (loss) income.............. $ (21.66) $ (9.63) $ (13.24) $ 6.67 $ (7.43)
=========== =========== =========== =========== ===========
Weighted-average number of common shares
outstanding:
Basic.................................. 98,683,319 95,940,658 96,114,927 82,024,077 73,644,728
=========== =========== =========== =========== ===========
Diluted................................ 98,683,319 95,940,658 96,114,927 95,331,929 73,644,728
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- -------------------- PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
----------- ------ ----------- ------ ---------- ------------
Balances, February 28, 1998....... 52,762,186 $528 25,726,646 $257 $351,860 $ (42)
Issuance of Class A Common Stock
in connection with public
offering, net of offering
costs........................... 900,000 9 - - 7,395 -
Issuance of Class A Common Stock
in connection with Company's
stock option plan............... 906,288 9 - - 4,779 -
Issuance of Class A Common Stock
in connection with Company's
401(k) plan..................... 35,716 - - - 260 -
Exchange of Class B Common Stock
for Class A Common Stock........ 5,894,886 59 (5,894,886) (59) - -
Exchange of Series A Convertible
Preferred Stock for Class A
Common Stock.................... 850,914 9 - - 7,436 -
Accrual of dividends on
convertible preferred stock..... - - - - (1,623) -
Repricing of stock options........ - - - - 1,380 (1,380)
Amortization of deferred
compensation.................... - - - - - 743
Gain on deemed issuance of stock
by subsidiary................... - - - - 5,786 -
Class A Common Stock issued by
subsidiary for additional
interest in Ireland systems..... - - - - 918 -
Elimination of historical two
month reporting difference due
to change in fiscal year........ - - - - - -
Net loss.......................... - - - - - -
Change in cumulative translation
adjustments..................... - - - - - -
Change in unrealized gain on
available-for-sale securities... - - - - - -
---------- ---- ---------- ---- -------- -------
Balances, December 31, 1998....... 61,349,990 $614 19,831,760 $198 $378,191 $ (679)
========== ==== ========== ==== ======== =======
OTHER
TREASURY STOCK CUMULATIVE
----------------------- ACCUMULATED COMPREHENSIVE
SHARES AMOUNT DEFICIT LOSS TOTAL
---------- ---------- ------------- ------------- -----------
Balances, February 28, 1998....... 6,338,302 $(33,074) $ (646,085) $(65,724) $(392,280)
Issuance of Class A Common Stock
in connection with public
offering, net of offering
costs........................... - - - - 7,404
Issuance of Class A Common Stock
in connection with Company's
stock option plan............... - - - - 4,788
Issuance of Class A Common Stock
in connection with Company's
401(k) plan..................... - - - - 260
Exchange of Class B Common Stock
for Class A Common Stock........ - - - - -
Exchange of Series A Convertible
Preferred Stock for Class A
Common Stock.................... - - - - 7,445
Accrual of dividends on
convertible preferred stock..... - - - - (1,623)
Repricing of stock options........ - - - - -
Amortization of deferred
compensation.................... - - - - 743
Gain on deemed issuance of stock
by subsidiary................... - - - - 5,786
Class A Common Stock issued by
subsidiary for additional
interest in Ireland systems..... (769,062) 4,013 - - 4,931
Elimination of historical two
month reporting difference due
to change in fiscal year........ - - (50,369) - (50,369)
Net loss.......................... - - (545,532) - (545,532)
Change in cumulative translation
adjustments..................... - - - (24,713) (24,713)
Change in unrealized gain on
available-for-sale securities... - - - (505) (505)
--------- -------- ----------- -------- ---------
Balances, December 31, 1998....... 5,569,240 $(29,061) $(1,241,986) $(90,942) $(983,665)
========= ======== =========== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
CLASS A CLASS B SERIES C
COMMON STOCK COMMON STOCK PREFERRED STOCK
-------------------- -------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------ ----------- ------ -------- ----------
Balances, December 31, 1998....................... 61,349,990 $614 19,831,760 $198 - $ -
Exchange of Class B Common Stock for Class A
Common Stock..................................... 507,820 5 (507,820) (5) - -
Issuance of Class A Common Stock in connection
with exercise of warrants........................ 2,883,600 29 - - - -
Issuance of Class A Common Stock in connection
with Company's stock option plans................ 1,838,089 18 - - - -
Issuance of Class A Common Stock in connection
with Company's 401(k) plan....................... 1,502 - - - - -
Exchange of Series A Convertible Preferred Stock
for Class A Common Stock......................... 3,006,404 30 - - - -
Exchange of Series B Convertible Preferred Stock
for Class A Common Stock......................... 487,410 5 - - - -
Issuance of Series C Convertible Preferred Stock,
net of offering costs............................ - - - - 425,000 395,250
Issuance of Class A Common Stock in connection
with public offering, net of offering costs...... 11,500,000 115 - - - -
Issuance of Series D Convertible Preferred
Stock............................................ - - - - - -
Accrual of dividends on Series A, B, C and D
Convertible Preferred Stock...................... - - - - - 14,875
Equity transactions of subsidiaries............... - - - - - -
Amortization of deferred compensation............. - - - - - -
Net income........................................ - - - - - -
Change in cumulative translation adjustments...... - - - - - -
Change in unrealized gain on available-for-sale
securities....................................... - - - - - -
---------- ---- ---------- ---- ------ --------
Balances, December 31, 1999....................... 81,574,815 $816 19,323,940 $193 425,000 $410,125
========== ==== ========== ==== ====== ========
SERIES D
PREFERRED STOCK ADDITIONAL
--------------------- PAID-IN DEFERRED
SHARES AMOUNT CAPITAL COMPENSATION
-------- ---------- ------------ ------------
Balances, December 31, 1998....................... - $ - $ 378,191 $ (679)
Exchange of Class B Common Stock for Class A
Common Stock..................................... - - - -
Issuance of Class A Common Stock in connection
with exercise of warrants........................ - - 21,598 -
Issuance of Class A Common Stock in connection
with Company's stock option plans................ - - 10,184 -
Issuance of Class A Common Stock in connection
with Company's 401(k) plan....................... - - 51 -
Exchange of Series A Convertible Preferred Stock
for Class A Common Stock......................... - - 26,276 -
Exchange of Series B Convertible Preferred Stock
for Class A Common Stock......................... - - 5,173 -
Issuance of Series C Convertible Preferred Stock,
net of offering costs............................ - - (13,642) -
Issuance of Class A Common Stock in connection
with public offering, net of offering costs...... - - 571,325 -
Issuance of Series D Convertible Preferred
Stock............................................ 287,500 267,375 (7,446) -
Accrual of dividends on Series A, B, C and D
Convertible Preferred Stock...................... - 1,398 (2,119) -
Equity transactions of subsidiaries............... - - 427,044 (221,640)
Amortization of deferred compensation............. - - - 102,323
Net income........................................ - - - -
Change in cumulative translation adjustments...... - - - -
Change in unrealized gain on available-for-sale
securities....................................... - - - -
------- -------- ---------- ---------
Balances, December 31, 1999....................... 287,500 $268,773 $1,416,635 $(119,996)
======= ======== ========== =========
OTHER
TREASURY STOCK CUMULATIVE
----------------------- ACCUMULATED COMPREHENSIVE
SHARES AMOUNT DEFICIT LOSS TOTAL
---------- ---------- ------------- ------------- ------------
Balances, December 31, 1998....................... 5,569,240 $(29,061) $(1,241,986) $ (90,942) $ (983,665)
Exchange of Class B Common Stock for Class A
Common Stock..................................... - - - - -
Issuance of Class A Common Stock in connection
with exercise of warrants........................ - - - - 21,627
Issuance of Class A Common Stock in connection
with Company's stock option plans................ - - - - 10,202
Issuance of Class A Common Stock in connection
with Company's 401(k) plan....................... - - - - 51
Exchange of Series A Convertible Preferred Stock
for Class A Common Stock......................... - - - - 26,306
Exchange of Series B Convertible Preferred Stock
for Class A Common Stock......................... - - - - 5,178
Issuance of Series C Convertible Preferred Stock,
net of offering costs............................ - - - - 381,608
Issuance of Class A Common Stock in connection
with public offering, net of offering costs...... - - - - 571,440
Issuance of Series D Convertible Preferred
Stock............................................ - - - - 259,929
Accrual of dividends on Series A, B, C and D
Convertible Preferred Stock...................... - - (16,273) - (2,119)
Equity transactions of subsidiaries............... - - - - 205,404
Amortization of deferred compensation............. - - - - 102,323
Net income........................................ - - 636,318 - 636,318
Change in cumulative translation adjustments...... - - - (127,154) (127,154)
Change in unrealized gain on available-for-sale
securities....................................... - - - 6,858 6,858
--------- -------- ----------- --------- ----------
Balances, December 31, 1999....................... 5,569,240 $(29,061) $ (621,941) $(211,238) $1,114,306
========= ======== =========== ========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
CLASS A CLASS B SERIES C SERIES D
COMMON STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK
---------------------- ---------------------- ----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------- ------------ ------- --------- ----------- --------- -----------
Balances, December 31,
1999...................... 81,574,815 $ 816 19,323,940 $ 193 425,000 $ 410,125 287,500 $ 268,773
Exchange of Class B Common
Stock for Class A Common
Stock..................... 102,000 1 (102,000) (1) - - - -
Issuance of Class A Common
Stock in connection with
Company's stock option
plans..................... 1,024,325 10 - - - - - -
Issuance of Class A Common
Stock in connection with
Company's 401(k) plan..... 3,497 - - - - - - -
Conversion of Series B
Convertible Preferred
Stock into Class A Common
Stock..................... 48,996 1 - - - - - -
Accrual of dividends on
Series B, C and D
Convertible Preferred
Stock..................... - - - - - 29,750 - 23,758
Issuance of Class A Common
Stock as dividends on
Series C Convertible
Preferred Stock........... 722,359 7 - - - (14,875) - -
Issuance of Class A Common
Stock as dividends on
Series D Convertible
Preferred Stock........... 344,641 3 - - - - - (5,031)
Equity transactions of
subsidiaries.............. - - - - - - - -
Amortization of deferred
compensation.............. - - - - - - - -
Purchase of treasury
shares.................... - - - - - - - -
Net loss................... - - - - - - - -
Change in cumulative
translation adjustments... - - - - - - - -
Change in unrealized gain
on available-for-sale
securities................ - - - - - - - -
---------- ----- ---------- ----- ------- --------- ------- ---------
Balances, December 31,
2000...................... 83,820,633 $ 838 19,221,940 $ 192 425,000 $ 425,000 287,500 $ 287,500
========== ===== ========== ===== ======= ========= ======= =========
OTHER
ADDITIONAL TREASURY STOCK CUMULATIVE
PAID-IN DEFERRED ------------------------- ACCUMULATED COMPREHENSIVE
CAPITAL COMPENSATION SHARES AMOUNT DEFICIT LOSS
------------- ------------- ----------- ----------- -------------- -------------
Balances, December 31,
1999...................... $ 1,416,635 $ (119,996) 5,569,240 $ (29,061) $ (621,941) $ (211,238)
Exchange of Class B Common
Stock for Class A Common
Stock..................... - - - - - -
Issuance of Class A Common
Stock in connection with
Company's stock option
plans..................... 7,934 - - - - -
Issuance of Class A Common
Stock in connection with
Company's 401(k) plan..... 59 - - - - -
Conversion of Series B
Convertible Preferred
Stock into Class A Common
Stock..................... 519 - - - - -
Accrual of dividends on
Series B, C and D
Convertible Preferred
Stock..................... (1,717) - - - (49,875) -
Issuance of Class A Common
Stock as dividends on
Series C Convertible
Preferred Stock........... 14,868 - - - - -
Issuance of Class A Common
Stock as dividends on
Series D Convertible
Preferred Stock........... 5,028 - - - - -
Equity transactions of
subsidiaries.............. 127,927 7,467 - - - -
Amortization of deferred
compensation.............. (28,644) (4,607) - - - -
Purchase of treasury
shares.................... - - 35,708 (923) - -
Net loss................... - - - - (1,220,890) -
Change in cumulative
translation adjustments... - - - - - (47,625)
Change in unrealized gain
on available-for-sale
securities................ - - - - - (31,668)
----------- ----------- --------- --------- ------------ -----------
Balances, December 31,
2000...................... $ 1,542,609 $ (117,136) 5,604,948 $ (29,984) $ (1,892,706) $ (290,531)
=========== =========== ========= ========= ============ ===========
TOTAL
--------------
Balances, December 31,
1999...................... $ 1,114,306
Exchange of Class B Common
Stock for Class A Common
Stock..................... -
Issuance of Class A Common
Stock in connection with
Company's stock option
plans..................... 7,944
Issuance of Class A Common
Stock in connection with
Company's 401(k) plan..... 59
Conversion of Series B
Convertible Preferred
Stock into Class A Common
Stock..................... 520
Accrual of dividends on
Series B, C and D
Convertible Preferred
Stock..................... 1,916
Issuance of Class A Common
Stock as dividends on
Series C Convertible
Preferred Stock........... -
Issuance of Class A Common
Stock as dividends on
Series D Convertible
Preferred Stock........... -
Equity transactions of
subsidiaries.............. 135,394
Amortization of deferred
compensation.............. (33,251)
Purchase of treasury
shares.................... (923)
Net loss................... (1,220,890)
Change in cumulative
translation adjustments... (47,625)
Change in unrealized gain
on available-for-sale
securities................ (31,668)
------------
Balances, December 31,
2000...................... $ (74,218)
============
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
(UNAUDITED)
CLASS A CLASS B SERIES C SERIES D
COMMON STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK
-------------------- -------------------- --------------------- --------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
----------- ------ ----------- ------ -------- ---------- --------
Balances, December 31, 2000................. 83,820,633 $838 19,221,940 $192 425,000 $425,000 287,500
Exchange of Class B Common Stock for Class A
Common Stock............................... 194,806 2 (198,806) (2) - - -
Issuance of Class A Common Stock in
connection with Company's stock option
plans...................................... 72,783 1 - - - - -
Issuance of Class A Common Stock in
connection with Company's 401(k) plan...... 57,213 1 - - - - -
Accrual of dividends on Series B, C and D
Convertible Preferred Stock................ - - - - - 14,875 -
Issuance of Class A Common Stock in lieu of
cash dividends on Series C Convertible
Preferred Stock............................ 1,168,673 12 - - - (14,875) -
Issuance of Class A Common Stock in lieu of
cash dividends on Series D Convertible
Preferred Stock............................ 790,571 8 - - - - -
Equity transactions of subsidiaries......... - - - - - - -
Amortization of deferred compensation....... - - - - - - -
Net loss.................................... - - - - - - -
Cumulative effect of change in accounting
principle.................................. - - - - - - -
Amortization of cumulative effect of change
in accounting principle.................... - - - - - - -
Change in fair value of derivative assets... - - - - - - -
Change in cumulative translation
adjustments................................ - - - - - - -
Change in unrealized gain on
available-for-sale securities.............. - - - - - - -
---------- ---- ---------- ---- ------ -------- -------
Balances, September 30, 2001................ 86,104,679 $862 19,027,134 $190 425,000 $425,000 287,500
========== ==== ========== ==== ====== ======== =======
ERIES D
FERRED STOCK
------------- PAID-IN DEFERRED ------------------------
AMOUNT CAPITAL COMPENSATION SHARES AMOUNT
---------- ------------ ------------ ----------- ----------
Balances, December 31, 2000................. $287,500 $1,542,609 $(117,136) 5,604,948 $(29,984)
Exchange of Class B Common Stock for Class A
Common Stock............................... - - - - -
Issuance of Class A Common Stock in
connection with Company's stock option
plans...................................... - 315 - - -
Issuance of Class A Common Stock in
connection with Company's 401(k) plan...... - 286 - - -
Accrual of dividends on Series B, C and D
Convertible Preferred Stock................ 10,063 (1,393) - - -
Issuance of Class A Common Stock in lieu of
cash dividends on Series C Convertible
Preferred Stock............................ - 14,863 - - -
Issuance of Class A Common Stock in lieu of
cash dividends on Series D Convertible
Preferred Stock............................ (10,063) 10,055 - - -
Equity transactions of subsidiaries......... - (27,210) 15,978 - -
Amortization of deferred compensation....... - (1,241) 13,765 - -
Net loss.................................... - - - - -
Cumulative effect of change in accounting
principle.................................. - - - - -
Amortization of cumulative effect of change
in accounting principle.................... - - - - -
Change in fair value of derivative assets... - - - - -
Change in cumulative translation
adjustments................................ - - - - -
Change in unrealized gain on
available-for-sale securities.............. - - - - -
-------- ---------- --------- --------- --------
Balances, September 30, 2001................ $287,500 $1,538,284 $ (87,393) 5,604,948 $(29,984)
======== ========== ========= ========= ========
OTHER
CUMULATIVE
ACCUMULATED COMPREHENSIVE
DEFICIT LOSS TOTAL
------------- ------------- -------------
Balances, December 31, 2000................. $(1,892,706) $(290,531) $ (74,218)
Exchange of Class B Common Stock for Class A
Common Stock............................... - - -
Issuance of Class A Common Stock in
connection with Company's stock option
plans...................................... - - 316
Issuance of Class A Common Stock in
connection with Company's 401(k) plan...... - - 287
Accrual of dividends on Series B, C and D
Convertible Preferred Stock................ (37,406) - (13,861)
Issuance of Class A Common Stock in lieu of
cash dividends on Series C Convertible
Preferred Stock............................ - - -
Issuance of Class A Common Stock in lieu of
cash dividends on Series D Convertible
Preferred Stock............................ - - -
Equity transactions of subsidiaries......... - - (11,232)
Amortization of deferred compensation....... - - 12,524
Net loss.................................... (2,098,782) - (2,098,782)
Cumulative effect of change in accounting
principle.................................. - 523 523
Amortization of cumulative effect of change
in accounting principle.................... - (181) (181)
Change in fair value of derivative assets... - (24,471) (24,471)
Change in cumulative translation
adjustments................................ - (122,128) (122,128)
Change in unrealized gain on
available-for-sale securities.............. - 36,625 36,625
----------- --------- -----------
Balances, September 30, 2001................ $(4,028,894) $(400,163) $(2,294,598)
=========== ========= ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED FOR THE TEN
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, MONTHS ENDED
----------------------------- ------------------------------- DECEMBER 31,
2001 2000 2000 1999 1998
------------- ------------- -------------- -------------- ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income................................ $(2,098,782) $ (884,841) $(1,220,890) $ 636,318 $(545,532)
Elimination of historical two month reporting
difference due to change in fiscal year........ - - - - (50,369)
Adjustments to reconcile net (loss) income to net
cash flows from operating activities:
Gain on issuance of common equity securities by
subsidiaries................................. - (127,731) (127,731) (1,508,839) -
Share in results of affiliates, net............ 122,737 79,332 129,914 49,638 66,326
Minority interests in subsidiaries............. (192,698) (692,935) (934,548) (360,444) (1,186)
Unrealized foreign exchange gains and losses... 79,493 263,915 165,173 35,820 (6,359)
Impairment and restructuring charges........... 305,368 - - - -
Cumulative effect of change in accounting
principle.................................... (32,574) - - - -
Unrealized gain on derivative assets........... (48,862) - - - -
Depreciation and amortization.................. 823,824 566,296 815,522 418,714 192,968
Accretion of interest on senior notes and
amortization of deferred financing costs..... 365,403 334,840 488,257 224,569 130,803
Stock-based compensation expense (credit)...... 982 (960) (43,183) 223,734 164,793
Gain on sale of investments in affiliates...... (1,764) - (6,194) - -
Provision for losses on investment related
costs........................................ 334,660 - 5,852 7,127 9,473
Decrease (increase) in receivables, net........ 39,820 (119,654) (67,984) (82,888) (12,755)
Decrease (increase) in other assets............ 11,154 (130,716) (61,220) (28,918) (8,528)
(Decrease) increase in accounts payable,
accrued liabilities and other................ (328,071) 190,176 352,120 268,808 62,354
----------- ----------- ----------- ----------- ---------
Net cash flows from operating activities... (619,310) (522,278) (504,912) (116,361) 1,988
----------- ----------- ----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term liquid investments........ (1,024,127) (2,734,064) (3,049,476) (988,380) (149,601)
Proceeds from sale of short-term liquid
investments.................................... 1,298,874 2,344,894 3,244,389 140,216 141,834
Restricted cash (deposited) released, net........ (185,898) (5) 3,801 (3,259) 27,904
Investments in affiliates and other
investments.................................... (59,816) (331,576) (348,077) (373,526) (139,011)
Proceeds from sale of investments in affiliated
companies...................................... 1,539 - - 18,000 19,968
New acquisitions, net of cash acquired........... (39,920) (1,387,548) (1,703,660) (2,321,799) (109,881)
Capital expenditures............................. (703,332) (1,186,244) (1,813,380) (794,177) (217,057)
Increase in notes receivable from affiliates..... (274,616) - (256,224) (723) -
Other............................................ 7,007 13,710 53,434 (30,439) (7,616)
----------- ----------- ----------- ----------- ---------
Net cash flows from investing activities... (980,289) (3,280,833) (3,869,193) (4,354,087) (433,460)
----------- ----------- ----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock by subsidiaries......... 731 102,403 102,403 2,624,306 -
Issuance of common stock in connection with
public offerings, net of financing costs....... - - - 571,440 7,402
Issuance of Series C Convertible Preferred
Stock.......................................... - - - 381,608 -
Issuance of Series D Convertible Preferred
Stock.......................................... - - - 259,929 -
Issuance of convertible preferred stock by
subsidiary..................................... - - 990,000 - -
Issuance of common stock in connection with
Company's and subsidiaries' stock option
plans.......................................... 4,593 11,509 13,263 28,355 4,789
Issuance of common stock in connection with
exercise of warrants........................... - - - 21,627 -
Proceeds from offering of senior notes and senior
discount notes................................. - 1,612,200 1,612,200 2,749,752 -
Retirement of existing senior notes.............. - - - (435) -
Proceeds from short-term and long-term
borrowings..................................... 1,440,916 1,215,360 4,328,269 1,064,579 321,167
Deferred financing costs......................... (22,371) (56,089) (149,259) (100,679) (5,932)
Repayments of short-term and long-term
borrowings..................................... (706,449) (414,693) (2,468,561) (1,277,038) (168,358)
Payment of sellers notes......................... - - (391) (18,000) -
Cash contributed from (paid to) minority interest
partners....................................... - - - 2,971 (253)
----------- ----------- ----------- ----------- ---------
Net cash flows from financing activities... 717,420 2,470,690 4,427,924 6,308,415 158,815
----------- ----------- ----------- ----------- ---------
EFFECT OF EXCHANGE RATES ON CASH................. (38,201) (148,867) (102,906) 52,340 4,824
----------- ----------- ----------- ----------- ---------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.................................... (920,380) (1,481,288) (49,087) 1,890,307 (267,833)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD... 1,876,828 1,925,915 1,925,915 35,608 303,441
----------- ----------- ----------- ----------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD......... $ 956,448 $ 444,627 $ 1,876,828 $ 1,925,915 $ 35,608
=========== =========== =========== =========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
FOR THE NINE MONTHS FOR THE YEAR ENDED FOR THE TEN
ENDED SEPTEMBER 30, DECEMBER 31, MONTHS ENDED
----------------------- ----------------------- DECEMBER 31,
2001 2000 2000 1999 1998
---------- ---------- ---------- ---------- ------------
(UNAUDITED)
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest...................... $437,807 $283,943 $363,594 $101,121 $40,929
======== ======== ======== ======== =======
Cash received for interest.................. $ 59,442 $ 90,767 $125,943 $ 41,633 $ 9,074
======== ======== ======== ======== =======
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of EWT/TSS via issuance of
subsidiary shares......................... $ - $ - $622,261 $ - $ -
======== ======== ======== ======== =======
Acquisition of Cignal Global Communications
via issuance of subsidiary shares......... $ - $ - $205,117 $ - $ -
======== ======== ======== ======== =======
Issuance of preferred stock utilized in
purchase of Australian investments........ $ - $ - $ - $ - $29,544
======== ======== ======== ======== =======
Seller note for purchase of system in
Hungary................................... $ - $ - $ - $ - $18,000
======== ======== ======== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
UnitedGlobalCom, Inc. (together with its majority-owned subsidiaries, the
"Company" or "United") provides video, telephone and Internet access services,
which the Company refers to as "Distribution," in numerous countries worldwide,
and related content and other media services in a growing number of
international markets. The following chart presents a summary of the Company's
significant investments in telecommunications as of December 31, 2000.
United
100.0% 100.0%
United Europe, Inc. ("UEI") United International Properties, Inc. ("UIPI")
52.6% 100.0% 100.0%
United Pan-Europe Communications, United Asia/Pacific United Latin America, Inc.
N.V. Communications, Inc. ("ULA")
("UPC") ("Asia/Pacific")*
100.0%
United Australia/Pacific,
Inc. Distribution
Distribution ("UAP") Brazil:
Austria: TV Show Brasil 100.0%
Telekabel Group 95.0% Jundiai 49.0%
Belgium: 72.9% Chile:
UPC Belgium 100.0% VTR 100.0%
Czech Republic: Austar United Communications Mexico:
UPC Czech 100.0% Limited Telecable 90.3%
France: ("Austar United") Peru:
UPC France 92.0% Star GlobalCom 100.0%
Germany: Uruguay:
PrimaCom 25.0% Multitel 100.0%
EWT/TSS Group 51.0%
Hungary: Distribution Content
UPC Magyarorszag 100.0% Australia: Latin America
Monor 98.9% Austar 100.0% Programming:
Israel: Austar United MGM Networks LA 50.0%
Tevel 46.6% Broadband 100.0%
Malta: New Zealand:
Melita 50.0% TelstraSaturn 50.0%
The Netherlands:
UPC Nederland 100.0%
Norway: Content
UPC Norge 100.0% Australia:
Poland: XYZ Entertainment 50.0%
UPC Polska 100.0%
Romania: - Other Asia/Pacific
UPC Romania 51.0%-70.0%
Slovak Republic: China:
UPC Slovak 95.0%-100.0% Human International
Sweden: TV 49.0%
UPC Sweden 100.0% Philippines:
Pilipino Cable
CLEC Corporation 19.6%
Spain:
Munditelecom 50.1%
Norway:
El Tele Ostfold 100.0%
The Netherlands:
Priority Telecom 100.0%
Media, Content and
Other
Czech Republic/Slovak
Republic/Hungary:
UPC Direct
Programming 100.0%
Ireland:
Tara 80.0%
The Netherlands:
UPCtv 100.0%
Spain/Portugal:
Iberian Programming 50.0%
United
Kingdom/Central
Europe/Poland:
UPC Broadcast
Centre 100.0%
United Kingdom:
Xtra Music 50.0%
Other:
SBS Broadcasting
("SBS") 23.5%
chello broadband 100.0%
(Chart)
F-13
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
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, 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.
For the nine months ended September 30, 2001 (Unaudited). 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 nine months ended
September 30, 2001 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2001. Certain prior year amounts have
been reclassified to conform with the current year presentation.
PRINCIPLES OF CONSOLIDATION
The accompanying 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 following illustrates
those subsidiaries for which the Company did not consolidate the results of
operations for the entire fiscal years ended December 31, 2000, 1999 and the ten
months ended December 31, 1998:
EFFECTIVE DATE
ENTITY OF CONSOLIDATION REASON
- ------ ---------------- ------
K&T Group (UPC Nederland) March 31, 2000 Acquisition
El Tele Ostfold March 1, 2000 Acquisition
Intercomm (UPC France) February 1, 2000 Acquisition of 92.0% interest
Tebecai (UPC Nederland) February 1, 2000 Acquisition
Monor December 1, 1999 Acquisition
Kabel Plus (UPC Czech) October 1, 1999 Acquisition
A2000 (UPC Nederland) September 1, 1999 Acquisition of remaining 50.0% interest
Time Warner Cable France (UPC France) September 1, 1999 Acquisition
@Entertainment (UPC Polska) August 1, 1999 Acquisition
Saturn(1) August 1, 1999 Acquisition of remaining 35.0% interest
Stjarn (UPC Sweden) August 1, 1999 Acquisition
Videopole (UPC France) August 1, 1999 Acquisition
GelreVision (UPC Nederland) June 1, 1999 Acquisition
RCF (UPC France) June 1, 1999 Acquisition
UPC Slovensko (UPC Slovak) June 1, 1999 Acquisition
VTR May 1, 1999 Acquisition of remaining 66.0% interest
UTH (UPC Nederland)(2) February 1, 1999 Acquisition of remaining 49.0% interest
- ------------
(1)Saturn was deconsolidated effective April 1, 2000 in connection with the
formation of the 50/50 joint venture, TelstraSaturn.
(2) Prior to the acquisition date, the equity method of accounting was used
because of certain minority shareholder's rights.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
F-14
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CHANGE IN FISCAL YEAR-END
Prior to the ten months ended December 31, 1998, the Company's fiscal year-end
was February 28, and it accounted for its share of the income or loss of its
operating companies based on the calendar year results of each operating
company. This created a two month delay in reporting the operating company
results in the Company's consolidated results for its fiscal year-end. On
February 24, 1999, the Company changed its fiscal year-end from the last day in
February to the last day in December, effective December 31, 1998. To effect the
transition to the new fiscal year, the combined results of operations of the
operating companies for January and February 1998, a loss of $50.4 million, has
been reported as a one-time adjustment to retained deficit as of March 1, 1998
in the consolidated statement of stockholders' (deficit) equity. Consequently,
the consolidated statement of operations and comprehensive (loss) income
presents the consolidated results of the Company and its subsidiaries for the
ten months ended December 31, 1998. For comparative purposes, the Company's
consolidated revenue, net operating loss and net loss were $84.3, $125.4 and
$206.4 million, respectively, for the ten months ended December 31, 1997 and the
Company's consolidated revenue, net operating loss and net loss were $298.6,
$350.7 and $595.9 million, respectively, for the year ended December 31, 1998.
CASH AND CASH EQUIVALENTS AND SHORT-TERM LIQUID INVESTMENTS
Cash and cash equivalents include cash and investments with original maturities
of less than three months. Short-term liquid investments include certificates of
deposit, commercial paper, corporate bonds and government securities which have
original maturities greater than three months but less than twelve months.
Short-term liquid investments are classified as available-for-sale and are
reported at fair market value.
RESTRICTED CASH
Cash held as collateral for letters of credit and other loans is classified
based on the expected expiration of such facilities. Cash held in escrow and
restricted to a specific use is classified based on the expected timing of such
disbursement.
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out basis) or market.
INVESTMENTS IN AFFILIATES, ACCOUNTED FOR UNDER THE EQUITY METHOD
For those investments in unconsolidated subsidiaries and companies in which the
Company's voting interest is 20.0% to 50.0%, its investments are held through a
combination of voting common stock, preferred stock, debentures or convertible
debt and/or the Company exerts significant influence through board
representation and management authority, the equity method of accounting is
used. Under this method, the investment, originally recorded at cost, is
adjusted to recognize the Company's proportionate share of net earnings or
losses of the affiliate, limited to the extent of the Company's investment in
and advances to the affiliate, including any debt guarantees or other
contractual funding commitments. The Company's proportionate share of net
earnings or losses of affiliates includes the amortization of the excess of its
cost over its proportionate interest in each affiliate's net assets.
INVESTMENT IN PUBLICLY TRADED SECURITIES ACCOUNTED FOR UNDER THE EQUITY
METHOD -- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
The Company evaluates its investments in publicly traded securities accounted
for under the equity method for impairment in accordance with Accounting
Principles Board Opinion No. 18, "The Equity Method of
F-15
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accounting for Investments in Common Stock" ("APB 18") and Staff Accounting
Bulletin No. 59, "Accounting for Noncurrent Marketable Equity Securities" ("SAB
59"). Under APB 18, a loss in value of an investment accounted for under the
equity method which is other than a temporary decline should be recognized as a
realized loss, establishing a new carrying value for the investment. Factors the
Company considers in making this evaluation include: the length of time and the
extent to which the market value has been less than cost, the financial
condition and near-term prospects of the issuer, including any specific events
which may influence the operations of the issuer and the intent and ability of
the Company to retain its investments for a period of time sufficient to allow
for any anticipated recovery in market value.
MARKETABLE EQUITY SECURITIES AND OTHER INVESTMENTS
The cost method of accounting is used for the Company's other investments in
affiliates in which the Company's ownership interest is less than 20.0% and
where the Company does not exert significant influence, except for those
investments in marketable equity securities. The Company classifies its
investments in marketable equity securities in which its interest is less than
20.0% and where the Company does not exert significant influence as
available-for-sale and reports such investments at fair market value. Unrealized
gains and losses are charged or credited to equity, and realized gains and
losses and other-than-temporary declines in market value are included in
operations.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Additions, replacements,
installation costs and major improvements are capitalized, and costs for normal
repair and maintenance of property, plant and equipment are charged to expense
as incurred. Assets constructed include overhead expense and interest charges
incurred during the period of construction; investment subsidies are deducted.
Depreciation is calculated using the straight-line method over the economic life
of the asset.
The economic lives of property, plant and equipment at acquisition are as
follows:
Cable distribution networks................................. 3-20 years
Subscriber premises equipment and converters................ 3-10 years
Microwave multi-point distribution system ("MMDS") and
satellite direct-to-home ("DTH") facilities............... 5-20 years
Office equipment, furniture and fixtures.................... 3-10 years
Buildings and leasehold improvements........................ 3-33 years
Other....................................................... 3-10 years
Leasehold improvements are depreciated over the shorter of the expected life of
the improvements or the initial lease term.
GOODWILL AND OTHER INTANGIBLE ASSETS
The excess of investments in consolidated subsidiaries over the net tangible
asset value at acquisition is amortized on a straight-line basis over 15 years.
Licenses in newly-acquired companies are recognized at the fair market value of
those licenses at the date of acquisition. Licenses in new franchise areas
include the capitalization of direct costs incurred in obtaining the license.
The license value is amortized on a straight-line basis over the initial license
period, up to a maximum of 20 years.
F-16
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECOVERABILITY OF TANGIBLE AND INTANGIBLE ASSETS
The Company evaluates the carrying value of all long-lived tangible and
intangible assets whenever events or circumstances indicate the carrying value
of assets may exceed their recoverable amounts. An impairment loss is recognized
when the estimated future cash flows (undiscounted and without interest)
expected to result from the use of an asset are less than the carrying amount of
the asset. Measurement of an impairment loss is based on fair value of the asset
computed using discounted cash flows if the asset is expected to be held and
used. Measurement of an impairment loss for an asset held for sale would be
based on fair market value less estimated costs to sell.
DEFERRED FINANCING COSTS
Costs to obtain debt financing are capitalized and amortized over the life of
the debt facility using the effective interest method.
SUBSCRIBER PREPAYMENTS AND DEPOSITS
Payments received in advance for distribution services are deferred and
recognized as revenue when the associated services are provided. Deposits are
recorded as a liability upon receipt and refunded to the subscriber upon
disconnection.
REVENUE RECOGNITION
Revenue from the provision of video, voice and Internet access services to
customers is recognized in the period the related services are provided.
Initial installation fees are recognized as revenue in the period in which the
installation occurs, to the extent installation fees are equal to or less than
direct selling costs, which are expensed. To the extent installation fees exceed
direct selling costs, the excess fees are deferred and amortized over the
average contract period. All installation fees and related costs with respect to
reconnections and disconnections are recognized in the period in which the
reconnection or disconnection occurs because reconnection fees are charged at a
level equal to or less than related reconnection costs.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of subscriber receivables. Concentrations of
credit risk with respect to subscriber receivables are limited due to the
Company's large number of customers and their dispersion across many different
countries worldwide.
SEC STAFF ACCOUNTING BULLETIN NO. 51 ("SAB 51") ACCOUNTING POLICY
Gains realized as a result of common stock sales by the Company's subsidiaries
are recorded in the consolidated statements of operations and comprehensive
(loss) income, except for any transactions which must be credited directly to
equity in accordance with the provisions of SAB 51.
STOCK-BASED COMPENSATION
Stock-based compensation is recognized using the intrinsic value method for the
Company's stock option plans, which results in compensation expense for the
difference between the grant price and the fair market
F-17
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
value of vested options at each new measurement date. UPC, chello broadband,
Priority Telecom and Austar United have also adopted similar stock-based
compensation plans for their employees whereby compensation expense is
recognized for the difference between the grant price and the fair market value
of vested options at each new measurement date. UPC, chello broadband, ULA and
VTR have also adopted phantom stock-based compensation plans for their employees
whereby the rights conveyed to employees are the substantive equivalents to
stock appreciation rights. Accordingly, compensation expense is recognized at
each financial statement date based on the difference between the grant price
and the estimated fair value of the respective subsidiary's common stock.
Subsequent decreases in the estimated fair value of these vested options will
cause a reversal of previous charges taken, until the options are exercised or
expire.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method which
requires recognition of deferred tax assets and liabilities for the expected
future income tax consequences of transactions which have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and income tax basis of assets, liabilities and loss carryforwards
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Net deferred tax assets are then reduced by a valuation
allowance if management believes it more likely than not they will not be
realized. Withholding taxes are taken into consideration in situations where the
income of subsidiaries is to be paid out as dividends in the near future. Such
withholding taxes are generally charged to income in the year in which the
dividend income is generated.
BASIC AND DILUTED NET (LOSS) INCOME PER SHARE
Basic net (loss) income per share is determined by dividing net (loss) income
available to common stockholders by the weighted-average number of common shares
outstanding during each period. Net (loss) income available to common
stockholders includes the accrual of dividends on convertible preferred stock
which is charged directly to additional paid-in capital and/or accumulated
deficit. Diluted net (loss) income per share includes the effects of potentially
issuable common stock, but only if dilutive. On November 11, 1999 the Board of
Directors authorized a two-for-one stock split effected in the form of a stock
dividend distributed on November 30, 1999 to stockholders of record on November
22, 1999. All historical weighted-average share and per share amounts have been
restated to reflect the stock split.
FOREIGN OPERATIONS AND FOREIGN EXCHANGE RATE RISK
The functional currency for the Company's foreign operations is the applicable
local currency for each affiliate company, except for countries which have
experienced hyper-inflationary economies. For countries which have
hyper-inflationary economies, the financial statements are prepared in U.S.
dollars. Assets and liabilities of foreign subsidiaries for which the functional
currency is the local currency are translated at exchange rates in effect at
period-end, and the statements of operations are translated at the average
exchange rates during the period. Exchange rate fluctuations on translating
foreign currency financial statements into U.S. dollars that result in
unrealized gains or losses are referred to as translation adjustments.
Cumulative translation adjustments are recorded as a separate component of
stockholders' (deficit) equity and are included in Other Cumulative
Comprehensive Loss. Transactions denominated in currencies other than the local
currency are recorded based on exchange rates at the time such transactions
arise. Subsequent changes in exchange rates result in transaction gains and
losses which are reflected in income as unrealized (based on period-end
translations) or realized upon settlement of the transactions. Cash flows from
the Company's operations in foreign countries are translated at actual exchange
rates when known, or at the average rate for the period. As a result, amounts
related to assets and liabilities reported in the consolidated statements of
cash flows will not agree to changes in the corresponding balances in the
consolidated balance sheets. The effects of exchange
F-18
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
rate changes on cash balances held in foreign currencies are reported as a
separate line below cash flows from financing activities. Certain of the
Company's foreign operating companies have notes payable and notes receivable
that are denominated in a currency other than their own functional currency.
Accordingly, the Company may experience economic loss and a negative impact on
earnings and equity with respect to its holdings solely as a result of foreign
currency exchange rate fluctuations.
NEW ACCOUNTING PRINCIPLE
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet at fair market
value. Under SFAS 133, accounting for changes in fair market value of a
derivative depends on its intended use and designation. In June 1999, the FASB
approved Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133" ("SFAS 137"). SFAS 137 amends the effective date of
SFAS 133, which will now be effective for the Company's first quarter 2001.
For the nine months ended September 30, 2001 (Unaudited). Effective January 1,
2001, the Company adopted SFAS 133, as amended. UPC has cross-currency swaps
related to its dollar-denominated senior notes, as well as warrants in a
publicly traded company that qualify as derivatives under SFAS 133. The impact
of recording the cross-currency swaps and the warrants at fair market value
effective January 1, 2001 was a gain (loss) of $66.3 million and $(33.7)
million, respectively, which was recorded in the condensed consolidated
statement of operations as a cumulative effective of a change in accounting
principle.
NEW ACCOUNTING PRINCIPLES IN 2001 (UNAUDITED)
In June 2001, the Financial Accounting Standards Board authorized the issuance
of Statement of Financial Accounting Standards No. 141, Business Combinations
("SFAS No. 141"). SFAS No. 141 requires the use of the purchase method of
accounting for all business combinations initiated after June 30, 2001. SFAS No.
141 requires intangible assets acquired in a business combination to be
recognized if they arise from contractual or legal rights or are "separable",
that is, feasible that they may be sold, transferred, licensed, rented,
exchanged or pledged. As a result, it is likely that more intangible assets will
be recognized under SFAS No. 141 than its predecessor, Accounting Principles
Board Opinion No. 16 although in some instances previously recognized
intangibles will be subsumed into goodwill. The Company is currently evaluating
the potential impact, if any, the adoption of SFAS 141 will have on its
financial position and results of operations, as well as the impact on future
business combinations that are currently being negotiated or contemplated.
In June 2001, the Financial Accounting Standards Board authorized the issuance
of Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). Under SFAS No. 142, goodwill and intangible
assets with indefinite lives will no longer be amortized, but will be tested for
impairment on an annual basis and whenever indicators of impairment arise. The
goodwill impairment test, which is based on fair value, is to be performed on a
reporting unit level. Goodwill will no longer be tested for impairment under No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of ("SFAS 121"). Additionally, goodwill on equity method
investments will no longer be amortized; however, it will continue to be tested
for impairment in accordance with Accounting Principles Board Opinion No. 18,
The Equity Method of Accounting for Investments in Common Stock. Under SFAS No.
142, intangible assets with indefinite lives will not be amortized. Instead they
will be carried at the lower of cost or market value and tested for impairment
at least annually. All other recognized intangible assets will continue to be
amortized over their estimated useful lives. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001, although goodwill on business
combinations consummated after July 1, 2001 will not be amortized. On adoption,
the Company expects to record a cumulative effect adjustment to reflect the
F-19
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
impairment of previously recognized goodwill and other intangible assets. While
the Company has not yet determined what the impact will be on its financial
position and results of operations, it is possible that a substantial cumulative
effect adjustment may be required.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS 144"), which is effective for fiscal
periods beginning after December 15, 2001, and interim periods within those
fiscal years. SFAS 144 supercedes SFAS 121, and establishes an accounting model
for impairment or disposal of long-lived assets to be disposed of by sale. Under
SFAS 144 there is no longer a requirement to allocate goodwill to long-lived
assets to be tested for impairment. It also establishes a probability weighted
cash flow estimation approach to deal with situations in which there are a range
of cash flows that may be generated by the asset being tested for impairment.
SFAS 144 also establishes criteria for determining when an asset should be
treated as held for sale. The Company is currently evaluating the potential
impact, if any, the adoption of SFAS 144 will have on its financial position and
results of operations.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
RISKS AND UNCERTAINTIES -- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
UPC. UPC has incurred substantial operating losses and negative cash flows from
operations which has been driven by its continuing development efforts including
the introduction of new services such as digital video, telephone and Internet.
Additionally, substantial capital expenditures have been required to deploy
these services and to acquire businesses. UPC expects to incur operating losses
at least through 2003, primarily as a result of the continued introduction of
these new services and continued depreciation and amortization expense. UPC's
business plan calls for substantial growth in the number of subscribers that
will use these new services. In order for UPC to achieve consolidated operating
profitability and positive operating cash flows, this growth requires the
availability of capital resources that are sufficient to fund expected capital
expenditures and operating losses. The Company believes that UPC can achieve the
anticipated growth in subscribers and that the required capital resources will
be available to fund expected capital expenditures and operating losses. UPC'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 by UPC to evaluate
its ability to realize its investments.
In July 2001, UPC engaged a strategic consultant to review its current and
long-term strategic plan for all segments of the business. The final conclusions
are currently being prepared and will be presented to UPC's Supervisory Board
for consideration in due course. As a result of this strategic review and
related decisions made by the Supervisory Board, further reorganization of UPC's
business might occur and significant charges for asset impairments and various
organizational restructuring measures may be recorded. UPC intends to conclude
this project by the end of 2001.
UAP. UAP's senior discount notes (the "UAP Notes") began to accrue interest on
a cash-pay basis May 15, 2001, with the first payment of $34.5 million due
November 15, 2001. UAP does not have enough cash to make this interest payment
therefore, the payment has not been made. If UAP does not make the interest
payment on November 15, 2001, the holders of the UAP Notes will have various
remedies. If a failure to pay continues for a period of 30 days or more, the
trustee under the Indenture governing the UAP Notes, on its own initiative or at
the request of the holders of the UAP Notes, can declare the entire unpaid
principal of the UAP Notes to be due and payable. The trustee, either
independently or at the request of the UAP Note holders, could initiate
bankruptcy proceedings against UAP, sue to recover the amount of the UAP Notes
or take any other action available to creditors. Based upon current market
prices, the value of UAP's assets is
F-20
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
significantly less than the amount of the outstanding principal and accrued
interest on the UAP Notes. While UAP has sought financing from United, at this
point it is unlikely United will make such contribution.
Austar United. Management believes Austar United's working capital and
projected operating cash flow as of September 30, 2001 are sufficient to fund
Austar United's operations and meet Austar United's budgeted capital expenditure
requirements through the remainder of 2001. Management expects Austar United to
continue to incur operating losses in the near future, especially from its newer
services such as Content, telephone and Internet. Given its liquidity needs,
Austar United may need to consider slowing the growth of its Internet or other
businesses to conserve cash. The Company cannot be assured that Austar United
will be able to achieve operating profitability and/or positive operating cash
flows from its video, telephone and Internet businesses. Austar United is in the
process of restructuring its A$400.0 ($196.6) million facility (the "Austar Bank
Facility"), and expects that such restructuring can be completed by the end of
2001. If Austar United is unable to refinance this facility, it is likely that
certain of the financial covenants required by the facility will not be met as
of December 31, 2001. Austar United may need to negotiate a waiver of the
financial covenants, sell assets or obtain funding from external sources to
repay this amount if it becomes due and payable in the first quarter of 2002,
and continue to pay its other liabilities when due. The Company cannot be
assured that Austar United will be successful in obtaining a waiver of financial
covenants or be successful in renegotiating or otherwise refinancing this
facility. If the Austar Bank Facility indebtedness is accelerated, the
acceleration may constitute an event of default under the UAP Notes and the
holders of the UAP Notes would have certain remedies as discussed above.
VTR. Management believes VTR's working capital and projected operating cash
flow as of September 30, 2001 are sufficient to fund its operations through the
remainder of 2001. To the extent VTR's budgeted capital expenditures exceed net
projected operating cash flow, VTR will need to seek funding from external
sources or reduce its planned expenditures. VTR intends to refinance its $176.0
million VTR Bank Facility by the end of first quarter 2002. If VTR is unable to
refinance this facility, it will become due and payable on April 29, 2002. VTR
may need to sell assets or obtain funding from external sources to repay this
amount when due.
3. ACQUISITIONS AND OTHER
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
In January 2001, UPC acquired DeAlkmaarse Kabel in The Netherlands for a
purchase price of $46.2 million. The purchase price was paid in cash of $21.5
million and a note, bearing interest at 8.0% per annum. The note is due in one
year, and is payable in cash or shares of UPC, at UPC's option.
In March 2001, UPC announced an agreement with PrimaCom to merge its German
assets, including EWT/ TSS and the TeleColumbus option, as well as its Alkmaar
subsidiary located in the Netherlands, with those of PrimaCom. The TeleColumbus
option expired at the end of August 2001 and no longer forms part of the
discussions. UPC's interest in EWT is held through its 51.0% owned subsidiary,
UPC Germany. Due to changes in market conditions, the parties are currently
re-evaluating the merger. UPC's carrying value of the assets subject to this
proposed transaction, (E939.1 ($859.0) million), is significantly greater than
the fair value of the consideration that would be received should the PrimaCom
transaction be completed. As a result, UPC Germany could record a significant
write-down if the transaction is closed.
In August 2001, UPC and Canal+ Group ("Canal+"), the television and film
division of Vivendi Universal, announced the signing of definitive agreements to
merge their respective Polish direct-to-home ("DTH") satellite television
platforms, as well as the Canal+ Polska premium channel, to form a common Polish
DTH platform. In the merger agreements, UPC Polska agreed to contribute its
Polish and United Kingdom DTH assets to TKP, the Polish subsidiary of Canal+,
and fund a maximum of E30.0 ($27.4) million in the form of a note receivable
from TKP at closing. For this, UPC Polska will receive a 25.0% ownership
interest in TKP and E150.0 ($137.2) million in cash. As part of this
transaction, through a carriage agreement, the Canal+ Polska
F-21
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
premium channel will also be available on UPC Polska's cable network. TKP will
be managed and controlled by Canal+, who will own 75.0%. UPC will own the
remaining 25.0%. For accounting purposes, TKP will be deemed the acquirer. UPC
Polska's investment in the merged companies will be recorded at fair value as of
the date of the transaction. UPC Polska's carrying value of the Polish DTH
assets being contributed may be significantly higher than the determined fair
value of its investment in the merged companies if and when the transaction is
consummated, leading to a write-down at the date the transaction is consummated.
On November 13, 2001, the Company received the regulatory approval necessary for
merger completion, which, subject to certain formal judicial registrations, is
anticipated to close by December 31, 2001. UPC will deconsolidate the DTH
operations upon closure of the merger.
On September 27, 2001, Priority Telecom listed its 3,986,519 issued and
outstanding ordinary shares on the Euronext Amsterdam ("Euronext"). UPC owns
2,596,021 of these ordinary shares and all of the 2,728,605 Priority Telecom
class A shares, for an ownership interest (not including shares held by the
Priority Telecom Foundation) of 87.0%.
In May 2001, Austar United successfully completed a rights offering selling
214.2 million shares and raising gross and net proceeds at A$0.95 ($0.49) per
share of A$203.5 ($106.3) million and A$202.3 ($105.7) million, respectively.
Asia/Pacific and United Austar, Inc. accepted their full entitlement under the
pro rata rights offer and United Austar, Inc. accepted the shortfall
subscriptions by other rights holders for a total share acquisition of 213.3
million shares, increasing United's indirect interest in Austar United from
73.4% to 81.3%.
In May 2001, the Company announced a revised transaction with Liberty, the terms
of which have been disclosed. The Company is continuing to work towards closing
this binding transaction. The Company is also continuing to review some
alternative transaction ideas proposed by Liberty.
In October 2000, UPC acquired, through its subsidiary, UPC Germany, 100% of EWT
for a preliminary purchase price of E238.4 million in cash and 49.0% of UPC
Germany. In the third quarter of 2001, the purchase price was finalized and UPC
recorded the necessary adjustments to the initial purchase price allocation.
Under the UPC Germany Shareholders Agreement, the 49.0% shareholder has an
option to put his interest in UPC Germany to UPC in exchange for approximately
10.6 million of UPC's ordinary shares A as adjusted for final settlement. The
option expires March 31, 2003. UPC has the option to pay for the put, if
exercised, in either its 10.6 million shares or the equivalent value of cash on
such date. If the option is not exercised, upon its expiration, the 49.0%
shareholder has the right to demand that UPC contribute cash and/or other assets
(including stock) to UPC Germany equal to approximately E358.8 ($328.2) million,
representing the remainder of UPC's contribution obligation to UPC Germany.
The minority shareholders in UPC Romania have exercised their option which
requires UPC to purchase all of their partnership interests effective December
31, 2001 for consideration of approximately E22.7 ($20.8) million, which is
payable before February 15, 2002.
In November 2000, UPC's subsidiary, Priority Telecom, acquired through a merger
and exchange offer Cignal Global Communications ("Cignal"). In the stock-based
transaction, Priority Telecom acquired 100.0% of Cignal in exchange for a 16.0%
interest in Priority Telecom. Under the terms of the Shareholder's Agreement,
UPC granted the Cignal shareholders an option to put their interest in Priority
Telecom back to UPC if a public listing for Priority Telecom is not consummated
by October 1, 2001. The value to be paid by UPC upon exercise of the put is the
greater of the fair market value of the Cignal shareholder's interest in
Priority Telecom or $200.0 million. UPC has the option to pay for the put, if
exercised, in either its shares or cash.
2000
In February 2000, UPC acquired Intercomm France Holding S.A. for $35.6 million
in cash and shares in UPC France. Following the transaction, UPC controls 92.0%
of UPC France. In connection with this acquisition, UPC issued shares worth
$20.0 million. Based on the carrying value of United's investment in
F-22
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UPC as of February 23, 2000, United recognized a gain of $6.8 million from the
resulting step-up in the carrying amount of United's investment in UPC, in
accordance with SAB 51.
In February 2000, UPC acquired 100% of Tebecai in The Netherlands for $70.4
million.
In February 2000, UPC acquired 100% of the equity of El Tele Ostfold and
Vestfold from certain energy companies in Norway for $39.2 million.
In March 2000, UPC acquired 100% of Kabel Haarlem in The Netherlands for $59.8
million.
In March 2000, UPC acquired K&T Group in The Netherlands for consideration of
$1.0 billion. Details of the net assets acquired, based on the preliminary
purchase price allocation, were as follows (in thousands):
Property, plant and equipment............................... $ 227,845
Investments in affiliated companies......................... 8,430
Goodwill.................................................... 786,436
Long-term liabilities....................................... (225,439)
Net current liabilities..................................... (8,129)
Receivables acquired........................................ 216,904
------------
Net cash paid.......................................... $ 1,006,047
============
In March 2000, Austar United sold 20.0 million shares to the public, raising
gross and net proceeds at $5.20 per share of $104.0 and $102.4 million,
respectively. Based on the carrying value of the Company's investment in Austar
United as of March 29, 2000, United recognized a gain of $66.8 million from the
resulting step-up in the carrying amount of United's investment in Austar
United, in accordance with SAB 51. No deferred taxes were recorded related to
this gain due to the Company's intent to hold its investment in Austar United
indefinitely.
In April 2000, Saturn merged with Telstra New Zealand Limited, a wholly owned
subsidiary of Telstra Corporation Limited, to form TelstraSaturn.
In October 2000, UPC acquired, through its subsidiary UPC Germany, 100% of the
EWT/TSS Group for $829.7 million in cash and 49.0% of UPC Germany. Under the UPC
Germany shareholders agreement, the 49.0% shareholder has been provided with an
option to put his interest in UPC Germany to UPC in exchange for 13.2 million of
UPC's ordinary shares A. The option expires March 31, 2003. UPC has the option
to pay for the put, if exercised, in either its shares or cash. Details of the
net assets acquired, based on the preliminary purchase price allocation, were as
follows (in thousands):
Property, plant and equipment............................... $ 67,930
Goodwill and other intangibles.............................. 828,689
Long-term liabilities....................................... (40,286)
Net current liabilities and other........................... (26,651)
-----------
Total consideration....................................... 829,682
UPC Germany shares.......................................... (622,261)
-----------
Net cash paid............................................. $ 207,421
===========
In November 2000, Priority Telecom acquired through a merger and exchange offer
Cignal Global Communications ("Cignal"), a United States based provider of
global network services. In the stock-based deal, Priority Telecom acquired 100%
of Cignal in exchange for a 16.0% interest in Priority Telecom. Under the terms
of the shareholder's agreement, UPC granted the Cignal shareholders an option to
put their interest in Priority Telecom back to UPC if an initial public offering
for Priority Telecom is not consummated by
F-23
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
October 1, 2001. The value to be paid by UPC upon exercise of the put is the
greater of the fair market value of the Cignal shareholders' interest in
Priority Telecom or $200.0 million. UPC has the option to pay for the put, if
exercised, in either UPC shares or cash.
1999
In February 1999, UPC successfully completed an initial public offering selling
133.8 million shares on the Amsterdam Stock Exchange and The Nasdaq Stock
Market, Inc. ("Nasdaq"), raising gross and net proceeds at $10.93 per share of
$1,463.0 and $1,364.1 million, respectively. Concurrent with the offering, a
third party exercised an option and acquired approximately 4.7 million ordinary
shares of UPC, resulting in proceeds to UPC of $45.0 million. Based on the
carrying value of the Company's investment in UPC as of February 11, 1999,
United recognized a gain of $822.1 million from the resulting step-up in the
carrying amount of United's investment in UPC, in accordance with SAB 51. No
deferred taxes were recorded related to this gain due to the Company's intent to
hold its investment in UPC indefinitely.
In August 1998, UPC merged its Dutch cable television and telecommunications
assets with those of the Dutch energy company NUON, forming a new company, UTH
(the "UTH Transaction"). The transaction was accounted for as a formation of a
joint venture with NUON's and UPC's net assets recorded at their historical
carrying values. Although UPC retained a 51.0% economic and voting interest in
UTH, because of joint governance on most significant operating decisions, UPC
accounted for its investment in UTH using the equity method of accounting.
Details of the net assets contributed were as follows (in thousands):
Working capital............................................. $ 1,871
Investments in affiliated companies......................... (96,866)
Property, plant and equipment............................... (85,037)
Goodwill and other intangible assets........................ (78,515)
Senior secured notes and other debt......................... 111,553
Other liabilities........................................... 17,417
---------
Total net assets contributed........................... $(129,577)
=========
On February 17, 1999, UPC acquired the remaining 49.0% of UTH from NUON (the
"NUON Transaction") for $265.7 million. In addition, UPC repaid NUON a $17.1
million subordinated loan, including accrued interest, dated December 23, 1998,
owed by UTH to NUON. The purchase of NUON's interest and payment of the loan
were funded with proceeds from UPC's initial public offering. Effective February
1, 1999, UPC began consolidating the results of operations of UTH. Details of
the net assets acquired were as follows (in thousands):
Property, plant and equipment............................... $ 210,013
Investments in affiliated companies......................... 46,830
Goodwill.................................................... 256,749
Long-term liabilities....................................... (242,536)
Net current liabilities..................................... (5,384)
---------
Total cash paid........................................ 265,672
Cash acquired............................................... (13,629)
---------
Net cash paid.......................................... $ 252,043
=========
The following unaudited pro forma condensed consolidated operating results for
the year ended December 31, 1999 and the ten months ended December 31, 1998 give
effect to the UTH Transaction and the NUON
F-24
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Transaction as if they had occurred at the beginning of the periods presented.
This unaudited pro forma condensed consolidated financial information does not
purport to represent what the Company's results of operations would actually
have been if such transactions had in fact occurred on such dates. The pro forma
adjustments are based upon currently available information and upon certain
assumptions that management believes are reasonable.
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------- -------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
-------------- -------------- -------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Revenue.................... $ 720,762 $ 730,879 $ 254,466 $ 335,474
============ ============ ============ ============
Net income (loss).......... $ 636,318 $ 631,623 $ (545,532) $ (581,388)
============ ============ ============ ============
Net income (loss) per
common share:
Basic net income
(loss)................ $ 7.53 $ 7.48 $ (7.43) $ (7.92)
============ ============ ============ ============
Diluted net income
(loss)................ $ 6.67 $ 6.63 $ (7.43) $ (7.92)
============ ============ ============ ============
Weighted-average number of
common shares
outstanding:
Basic.................... 82,024,077 82,024,077 73,644,728 73,644,728
============ ============ ============ ============
Diluted.................. 95,331,929 95,331,929 73,644,728 73,644,728
============ ============ ============ ============
In April 1999, an indirect wholly owned subsidiary of ULA acquired a 66.0%
interest in VTR. This acquisition, combined with the interest in VTR that is
owned by another indirect wholly owned subsidiary of the Company, gives the
Company an indirect 100% interest in VTR. The purchase price for the 66.0%
interest in VTR was approximately $258.2 million in cash. In addition, the
Company provided capital for VTR to prepay approximately $125.8 million of
existing bank indebtedness and a promissory note from the Company to one of the
other shareholders of VTR. Details of the net assets acquired were as follows
(in thousands):
Working capital............................................. $ 10,381
Property, plant and equipment............................... 203,154
Goodwill and other intangible assets........................ 244,981
Other long-term assets...................................... 14,685
Elimination of equity investment in Chilean joint venture... (69,381)
Long-term liabilities....................................... (145,641)
---------
Total cash paid........................................ 258,179
Cash acquired............................................... (5,498)
---------
Net cash paid.......................................... $ 252,681
=========
In June 1999, UPC acquired SKT spol s.r.o. in the Slovak Republic for $43.3
million.
F-25
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In June 1999, UPC acquired 100% of GelreVision in The Netherlands for $109.8
million. Details of the net assets acquired were as follows (in thousands):
Property, plant and equipment............................... $ 49,407
Goodwill.................................................... 67,335
Net current liabilities..................................... (2,682)
Long-term liabilities....................................... (4,236)
----------
Total cash paid........................................ 109,824
Cash acquired............................................... (136)
----------
Net cash paid.......................................... $ 109,688
==========
In June 1999, UPC acquired 95.7% of RCF in France for $27.1 million.
In June 1999, the Company's interest in Austar, XYZ Entertainment and Saturn
were contributed to Austar United in exchange for new shares issued by Austar
United. On July 27, 1999, Austar United acquired a 35.0% interest in Saturn in
exchange for approximately 13.7 million of Austar United's shares, thereby
increasing Austar United's ownership interest in Saturn from 65.0% to 100%. In
addition, Austar United successfully completed an initial public offering
selling 103.5 million shares on the Australian Stock Exchange, raising gross and
net proceeds at $3.03 per share of $313.6 and $292.8 million, respectively.
Based on the carrying value of the Company's investment in Austar United as of
July 27, 1999, United recognized a gain of $248.4 million from the resulting
step-up in the carrying amount of United's investment in Austar United, in
accordance with SAB 51. No deferred taxes were recorded related to this gain due
to the Company's intent to hold its investment in Austar United indefinitely.
In July 1999, UPC acquired UPC Sweden (formerly known as Stjarn) for a purchase
price of $397.0 million, of which $100.0 million was paid in the form of a
one-year note with interest at 8.0% per year, and the balance was paid in cash.
Details of the net assets acquired were as follows (in thousands):
Property, plant and equipment............................... $ 43,171
Goodwill.................................................... 442,094
Net current liabilities..................................... (55,997)
Long-term liabilities....................................... (32,268)
-----------
Total purchase price................................. 397,000
Seller's note............................................... (100,000)
-----------
Total cash paid...................................... 297,000
Cash acquired............................................... (3,792)
-----------
Net cash paid........................................ $ 293,208
===========
In August 1999, UPC acquired through UPC France 100% of Videopole for a total
purchase price of $135.1 million. The purchase price was paid in cash ($69.9
million) and 2.9 million ordinary shares of UPC ($65.2 million). Based on the
carrying value of the Company's investment in UPC as of July 31, 1999, United
recognized a gain of $34.9 million from the resulting step-up in the carrying
amount of United's investment in UPC, in accordance with SAB 51. No deferred
taxes were recorded related to this gain due to the Company's intent to hold its
investment in UPC indefinitely.
F-26
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In August 1999, UPC acquired 100% of UPC Polska (formerly known as
@Entertainment) for $807.0 million in cash. Details of the net assets acquired
were as follows (in thousands):
Net current assets.......................................... $ 51,239
Property, plant and equipment............................... 196,178
Goodwill.................................................... 986,814
Long-term liabilities....................................... (448,566)
Other....................................................... 21,335
------------
Total cash paid........................................ 807,000
Cash acquired............................................... (62,507)
------------
Net cash paid.......................................... $ 744,493
============
The following unaudited pro forma condensed consolidated operating results for
the year ended December 31, 1999 and the ten months ended December 31, 1998 give
effect to the acquisition of UPC Polska as if it had occurred at the beginning
of each period presented. This unaudited pro forma condensed consolidated
financial information does not purport to represent what the Company's results
of operations would actually have been if such transaction had in fact occurred
on such dates. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable.
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------- -----------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Revenue....................... $ 720,762 $ 767,741 $ 254,466 $ 304,844
=========== =========== =========== ===========
Net income (loss)............. $ 636,318 $ 444,151 $ (545,532) $ (725,398)
=========== =========== =========== ===========
Net income (loss) per common
share:
Basic net income (loss)..... $ 7.53 $ 5.19 $ (7.43) $ (9.87)
=========== =========== =========== ===========
Diluted net income (loss)... $ 6.67 $ 4.66 $ (7.43) $ (9.87)
=========== =========== =========== ===========
Weighted-average number of
common shares outstanding:
Basic....................... 82,024,077 82,024,077 73,644,728 73,644,728
=========== =========== =========== ===========
Diluted..................... 95,331,929 95,331,929 73,644,728 73,644,728
=========== =========== =========== ===========
In August 1999, UPC acquired through UPC France 100% of Time Warner Cable France
for $71.1 million in cash. Simultaneous with the acquisition of Time Warner
Cable France, UPC acquired an additional 47.6% interest in one of its operating
systems, RCF, in which Time Warner Cable France had a 49.9% interest, for $14.6
million, increasing UPC's ownership in that system to 97.5%.
F-27
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In September 1999, UPC acquired through UPC Nederland the remaining 50.0% of
A2000 that it did not already own for $229.0 and $13.1 million in cash and
assumed receivables, respectively. Details of the net assets acquired were as
follows (in thousands):
Receivables assumed......................................... $ 13,062
Property, plant and equipment............................... 96,539
Goodwill.................................................... 274,361
Net current liabilities..................................... (25,044)
Long-term liabilities....................................... (129,918)
-----------
Total cash paid........................................ 229,000
Cash acquired............................................... (521)
-----------
Net cash paid.......................................... $ 228,479
===========
In October 1999, UPC acquired a 94.6% interest in Kabel Plus in the Czech
Republic for a purchase price of $150.0 million.
In October 1999, UPC completed a second public offering of 45.0 million ordinary
shares, raising gross and net proceeds at $21.58 per share of $970.9 and $922.4
million, respectively. Based on the carrying value of the Company's investment
in UPC as of October 19, 1999, United recognized a gain of $403.5 million from
the resulting step-up in the carrying amount of United's investment in UPC, in
accordance with SAB 51. No deferred taxes were recorded related to this gain due
to the Company's intent to hold its investment in UPC indefinitely.
In December 1999, UPC acquired an additional 48.0% economic interest in Monor
from its partner and several small minority shareholders for $45.0 million,
increasing UPC's ownership to 97.1%.
1998
In January 1998, UPC acquired certain assets (including the Dutch cable systems)
of Combivisie for $88.0 million. Subsequent to the transaction, the assets and
liabilities of UPC's other Dutch systems and Combivisie were merged, forming
CNBH, a wholly-owned subsidiary of UPC Nederland. Details of the assets acquired
were as follows (in thousands):
Property, plant and equipment and other long-term assets.... $ 51,632
Goodwill and other intangible assets........................ 36,416
---------
Total cash paid...................................... $ 88,048
=========
In May 1998, ULA entered into a joint venture with a division of
Metro-Goldwyn-Mayer, Inc. ("MGM") to form MGM Networks LA. Under the terms of
the joint venture, ULA contributed its 100% interest in a Latin American
programming venture for a 50.0% interest in MGM Networks LA, and MGM acquired a
50.0% interest in MGM Networks LA by contributing its Brazil channel (MGM Gold
Brazil) and committing to fund the first $9.9 million ($6.7 million of which was
funded at closing) required by MGM Networks LA. MGM Networks LA has also entered
into a trademark license agreement with MGM for the use of the MGM brand name
and also into a program license agreement to acquire programming from MGM.
In June 1998, UPC acquired certain Hungarian multi-channel television system
assets for $9.5 million in cash and a non-interest bearing promissory note in
the amount of $18.0 million. These assets are now part of UPC Magyarorszag.
F-28
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In July 1998, Austar acquired certain Australian pay television assets for $6.1
million of the Company's Series B Convertible Preferred Stock.
In September 1998, Asia/Pacific acquired an additional 25.0% interest in XYZ
Entertainment, increasing its ownership interest to 50.0%. The purchase price
consisted of $1.2 million in cash and $23.4 million of the Company's Series B
Convertible Preferred Stock.
In October 1998, ULA increased its ownership interest in TV Show Brasil from
45.0% to 100% for $11.4 million, half of which was paid in cash, with the
remainder financed by the seller.
In November 1998, UPC (i) acquired from Tele-Communications International, Inc.
("TINTA") its indirect 23.3% and 25.0% interests in the Tevel and Melita
systems, respectively, for $91.5 million, doubling UPC's ownership interests to
46.6% and 50.0%, respectively, (ii) purchased an additional 5.0% interest in
Princes Holdings, an Irish telecommunications company, and 5.0% of Tara in
consideration for 769,062 shares of United Class A Common Stock held by UPC, and
(iii) sold the 5.0% interest in Princes Holdings, together with its existing
20.0% interest, to TINTA for $20.5 million.
4. CASH AND CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM LIQUID INVESTMENTS
AS OF DECEMBER 31, 2000
-------------------------------------------------------
SHORT-TERM
CASH AND CASH RESTRICTED LIQUID
EQUIVALENTS CASH INVESTMENTS TOTAL
------------- ---------- ----------- ------------
(IN THOUSANDS)
Cash............................... $1,500,570 $11,023 $ - $1,511,593
Certificates of deposit............ 48,685 120 126,029 174,834
Commercial paper................... 326,378 - 54,296 380,674
Corporate bonds.................... 1,195 - 142,763 143,958
Government securities.............. - 469 23,996 24,465
---------- ------- -------- ----------
Total....................... $1,876,828 $11,612 $347,084 $2,235,524
========== ======= ======== ==========
AS OF DECEMBER 31, 1999
-------------------------------------------------------
SHORT-TERM
CASH AND CASH RESTRICTED LIQUID
EQUIVALENTS CASH INVESTMENTS TOTAL
------------- ---------- ----------- ------------
(IN THOUSANDS)
Cash............................... $1,046,827 $18,217 $ - $1,065,044
Certificates of deposit............ 52,000 - 293,497 345,497
Commercial paper................... 803,088 - 182,486 985,574
Corporate bonds.................... 24,000 - 126,179 150,179
Government securities.............. - - 27,527 27,527
---------- ------- -------- ----------
Total....................... $1,925,915 $18,217 $629,689 $2,573,821
========== ======= ======== ==========
F-29
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN AFFILIATES
AS OF SEPTEMBER 30, 2001
----------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE CUMULATIVE
DIVIDENDS SHARE IN RESULTS TRANSLATION
CONTRIBUTIONS RECEIVED OF AFFILIATES ADJUSTMENTS IMPAIRMENT(1) TOTAL
------------- ---------- ---------------- ----------- ------------- ----------
(UNAUDITED)
(IN THOUSANDS)
Europe:
PrimaCom.............. $ 341,017 $ - $ (59,033) $(30,905) $(232,623) $ 18,456
SBS................... 264,675 - (66,523) (115) (102,037) 96,000
Tevel................. 120,877 (6,180) (76,931) 1,385 - 39,151
Melita................ 14,105 - (798) (3,553) - 9,754
Iberian Programming... 11,947 (2,560) 9,125 2,912 - 21,424
Xtra Music............ 14,546 - (6,978) (1,013) - 6,555
Other................. 54,148 (695) (10,879) (4,576) - 37,998
Asia/Pacific:
TelstraSaturn......... 100,073 - (51,557) (9,270) - 39,246
XYZ Entertainment..... 44,306 (11,712) (7,775) (4,379) - 20,440
Pilipino Cable
Corporation......... 18,354 - (3,623) (2,587) - 12,144
Hunan International
TV.................. 6,394 - (2,351) 16 - 4,059
Other................. 2,954 - (1,744) (493) - 717
Latin America:
Telecable............. 71,819 (20,862) (5,131) (9,480) - 36,346
MGM Networks LA....... 15,086 - (15,086) - - -
Jundiai............... 7,438 (1,572) 216 (2,951) - 3,131
---------- -------- --------- -------- -------- --------
Total............. $1,087,739 $(43,581) $(299,068) $(65,009) $(334,660) $345,421
========== ======== ========= ======== ======== ========
AS OF DECEMBER 31, 2000
------------------------------------------------------------------------
CUMULATIVE CUMULATIVE CUMULATIVE
DIVIDENDS SHARE IN RESULTS TRANSLATION
CONTRIBUTIONS RECEIVED OF AFFILIATES ADJUSTMENTS TOTAL
------------- ---------- ---------------- ----------- ----------
(IN THOUSANDS)
Europe:
PrimaCom........................... $ 341,017 $ - $ (28,482) $(21,114) $291,421
SBS................................ 264,675 - (36,433) (4,138) 224,104
Tevel.............................. 99,385 (6,180) (39,587) 3,848 57,466
Melita............................. 14,052 - 592 (3,480) 11,164
Iberian Programming................ 11,947 (2,560) 5,103 2,319 16,809
Xtra Music......................... 14,491 - (6,367) (986) 7,138
Other.............................. 44,900 (695) (9,772) (6,242) 28,191
Asia/Pacific:
XYZ Entertainment.................. 44,306 (5,464) (11,515) (1,387) 25,940
TelstraSaturn...................... 66,629 - (24,503) (5,007) 37,119
Pilipino Cable Corporation......... 17,346 - (3,388) (2,588) 11,370
Hunan International TV............. 6,061 - (2,181) 16 3,896
Other.............................. 2,860 - (614) (314) 1,932
Latin America:
Telecable.......................... 71,819 (20,862) (5,282) (10,135) 35,540
MGM Networks LA(2)................. 14,076 - (14,076) - -
Jundiai............................ 7,438 (1,572) 174 (1,808) 4,232
---------- -------- --------- -------- --------
Total.......................... $1,021,002 $(37,333) $(176,331) $(51,016) $756,322
========== ======== ========= ======== ========
F-30
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999
-------------------------------------------------------------------------
CUMULATIVE CUMULATIVE CUMULATIVE
DIVIDENDS SHARE IN RESULTS TRANSLATION
CONTRIBUTIONS RECEIVED OF AFFILIATES ADJUSTMENTS TOTAL
------------- ---------- ---------------- ----------- -----------
(IN THOUSANDS)
Europe:
SBS............................... $ 99,621 $ - $ (5,421) $ 2,858 $ 97,058
Tevel............................. 100,679 (6,180) (12,108) 3,761 86,152
Melita............................ 14,062 - 2,066 (2,417) 13,711
Iberian Programming............... 11,947 - (460) 2,828 14,315
Xtra Music........................ 9,913 - (2,476) (640) 6,797
Other............................. 27,447 - (65) (1,048) 26,334
Asia/Pacific:
XYZ Entertainment................. 44,306 - (18,564) 2,804 28,546
Pilipino Cable Corporation........ 14,950 - (3,004) (2,588) 9,358
Hunan International TV............ 6,061 - (2,477) 16 3,600
Other............................. 350 - - - 350
Latin America:
Telecable......................... 32,496 (1,408) (1,618) (9,382) 20,088
MGM Networks LA(2)................ 11,988 - (11,988) - -
Jundiai........................... 6,032 (1,572) 72 (1,334) 3,198
Other............................. 2 - - - 2
--------- -------- --------- -------- ---------
Total......................... $ 379,854 $ (9,160) $ (56,043) $ (5,142) $ 309,509
========= ======== ========= ======== =========
- ------------
(1)Based on our analysis of specific quantitative and qualitative factors as of
September 30, 2001, the Company determined the decline in market value of
PrimaCom and SBS to be other than temporary, and as a result, the Company
reduced its carrying value in these investments to market value as of
September 30, 2001. This provision has been separately presented as
"Provision for Loss on Investments" in the accompanying condensed
consolidated statement of operations.
(2)Includes an accrued funding obligation of $2.6 and $3.0 million at December
31, 2000 and 1999, respectively. The Company would face significant and
punitive dilution if it did not make the requested fundings.
F-31
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 2000 and 1999, the Company had the following differences
related to the excess of its cost over its proportionate interest in each
affiliate's net tangible assets included in the above table. Such differences
are being amortized over 15 years.
AS OF DECEMBER 31,
-------------------------------------------------------
2000 1999
-------------------------- --------------------------
BASIS ACCUMULATED BASIS ACCUMULATED
DIFFERENCE AMORTIZATION DIFFERENCE AMORTIZATION
----------- ------------ ----------- ------------
(IN THOUSANDS)
Europe:
PrimaCom....................... $ 251,167 $ (15,678) $ - $ -
SBS............................ 109,149 (17,364) 109,080 (2,828)
Tevel.......................... 83,271 (11,625) 82,010 (7,947)
Iberian Programming............ 11,586 (1,189) 11,941 (521)
Melita......................... 11,098 (1,349) 11,673 (1,242)
Xtra Music..................... 5,069 (462) 5,511 (246)
Asia/Pacific:
XYZ Entertainment.............. 22,483 (3,159) 25,791 (1,609)
TelstraSaturn.................. 21,405 (995) - -
Latin America:
Telecable...................... 33,392 (9,514) 20,518 (6,983)
--------- --------- --------- ---------
Total..................... $ 548,620 $ (61,335) $ 266,524 $ (21,376)
========= ========= ========= =========
6. PROPERTY, PLANT AND EQUIPMENT
AS OF DECEMBER 31,
AS OF SEPTEMBER 30, -----------------------------
2001 2000 1999
------------------- ------------- -------------
(UNAUDITED)
(IN THOUSANDS)
Cable distribution networks............. $ 3,318,393 $ 3,147,285 $ 1,913,511
Subscriber premises equipment and
converters............................ 967,207 757,385 451,505
MMDS/DTH distribution facilities........ 256,924 261,896 144,593
Information technology systems, office
equipment, furniture and fixtures..... 296,050 254,721 103,869
Buildings and leasehold improvements.... 166,738 142,334 127,584
Other................................... 131,783 106,155 121,299
----------- ----------- -----------
5,137,095 4,669,776 2,862,361
Accumulated depreciation........... (1,393,498) (920,972) (482,524)
----------- ----------- -----------
Net property, plant and
equipment........................ $ 3,743,597 $ 3,748,804 $ 2,379,837
=========== =========== ===========
F-32
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. GOODWILL AND OTHER INTANGIBLE ASSETS
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, -----------------------------
2001 2000 1999
------------- ------------- -------------
(UNAUDITED)
(IN THOUSANDS)
Europe:
UPC Nederland.............................. $ 1,258,622 $ 1,590,868 $ 763,714
UPC Polska................................. 959,415 951,225 935,867
UPC Germany................................ 819,769 883,928 -
Priority Telecom........................... 408,420 337,247 -
UPC Sweden................................. 352,883 388,884 430,606
UPC N.V. .................................. 192,639 193,630 29,406
Telekabel Group............................ 165,646 167,317 177,800
UPC France................................. 152,302 164,010 117,787
UPC Magyarorszag........................... 133,076 131,164 55,068
Priority Wireless.......................... 98,139 100,297 -
UPC Czech.................................. 95,729 95,161 85,330
UPC Norge.................................. 69,208 67,249 85,405
Other...................................... 122,824 89,914 81,372
Asia/Pacific:
Austar United.............................. 208,745 225,433 114,882
Latin America:
VTR........................................ 172,276 208,725 223,484
TV Show Brasil............................. 5,614 7,688 8,298
Star GlobalCom............................. - - 5,916
Multitel................................... 166 179 -
Other:
Corporate and other........................ 97 - -
----------- ----------- -----------
5,215,570 5,602,919 3,114,935
Accumulated amortization................ (725,231) (448,012) (170,133)
----------- ----------- -----------
Net goodwill and other intangible
assets................................ $ 4,490,339 $ 5,154,907 $ 2,944,802
=========== =========== ===========
8. SHORT-TERM DEBT
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, ------------------------
2001 2000 1999
------------- ---------- -----------
(UNAUDITED)
(IN THOUSANDS)
Other UPC......................................... $ 35,908 $ 48,151 $ 164,263
Other ULA and Asia/Pacific........................ - 3,057 9,033
-------- -------- ---------
Total short-term debt...................... $ 35,908 $ 51,208 $ 173,296
======== ======== =========
F-33
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SENIOR DISCOUNT NOTES AND SENIOR NOTES
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, -----------------------------
2001 2000 1999
------------- ------------- -------------
(UNAUDITED)
(IN THOUSANDS)
United 1998 Notes........................... $ 1,190,955 $ 1,101,010 $ 991,568
United 1999 Notes........................... 270,087 249,497 224,426
UPC July 1999 Senior Notes:
UPC 10.875% dollar Senior Notes due
2009................................... 799,996 700,759 759,442
UPC 10.875% euro Senior Notes due 2009.... 274,424 278,551 301,878
UPC 12.5% dollar Senior Discount Notes due
2009................................... 521,240 475,854 421,747
UPC October 1999 Senior Notes:
UPC 10.875% dollar Senior Notes due
2007................................... 199,999 177,027 191,852
UPC 10.875% euro Senior Notes due 2007.... 91,475 92,851 100,625
UPC 11.25% dollar Senior Notes due 2009... 250,495 221,411 239,905
UPC 11.25% euro Senior Notes due 2009..... 91,838 93,168 100,894
UPC 13.375% dollar Senior Discount Notes
due 2009............................... 320,601 290,974 255,786
UPC 13.375% euro Senior Discount Notes due
2009................................... 117,247 108,017 102,847
UPC January 2000 Senior Notes:
UPC 11.25% dollar Senior Notes due 2010... 596,267 595,742 -
UPC 11.25% euro Senior Notes due 2010..... 181,812 184,443 -
UPC 11.5% dollar Senior Notes due 2010.... 298,151 273,780 -
UPC 13.75% dollar Senior Discount Notes
due 2010............................... 642,335 581,253 -
UPC Polska Senior Discount Notes............ 337,399 300,163 286,089
UAP Notes (see Note 2)...................... 490,753 466,241 407,945
----------- ----------- -----------
Total senior discount notes and
senior notes...................... $ 6,675,074 $ 6,190,741 $ 4,385,004
=========== =========== ===========
For the nine months ended September 30, 2001 (Unaudited). The fair value
(derivative asset) of UPC's cross-currency swap derivatives embedded in the July
1999 Senior Notes, the October 1999 Senior Notes, the January 2000 Senior Notes
and UPC's Bank Facility as of September 30, 2001, was E334.8 ($306.3) million
(including both the fair value of the foreign currency portion and the interest
portion of the swaps) compared to nil at December 31, 2000. Of this amount,
E185.8 ($170.0) million has been added to the carrying value of the related
long-term debt, resulting from fluctuations in exchange rates subsequent to the
initial borrowings. All non-euro denominated borrowings are recorded each period
using the period-end spot rate with the result recorded as foreign exchange gain
or loss.
UNITED 1998 NOTES
In February 1998, the Company sold in a private transaction $1,375.0 million
principal amount at maturity of 10.75% senior secured discount notes due 2008.
The United 1998 Notes were issued at a discount from their principal amount at
maturity, resulting in gross proceeds to United of approximately $812.2 million.
The Company used approximately $531.8 million of the proceeds from the United
1998 Notes to complete a
F-34
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
tender offer for the Company's existing 14.0% senior secured discount notes due
1999 and the consent solicitation that the Company conducted concurrently
therewith.
The United 1998 Notes accrete at 10.75% per annum, compounded semi-annually to
an aggregate principal amount of $1,375.0 million on February 15, 2003, at which
time cash interest will commence to accrue. Commencing August 15, 2003, cash
interest on the United 1998 Notes will be payable on February 15 and August 15
of each year until maturity at a rate of 10.75% per annum. The United 1998 Notes
will mature on February 15, 2008, and will be redeemable at the option of the
Company on or after February 15, 2003.
The United 1998 Notes are senior secured obligations of the Company that rank
senior in right of payment to all future subordinated indebtedness of the
Company. The United 1998 Notes are effectively subordinated to all future
indebtedness and other liabilities and commitments of the Company's
subsidiaries. Under the terms of the indenture governing the United 1998 Notes
(the "Indenture"), the Company's subsidiaries are generally prohibited and/or
restricted from incurring any liens against their assets other than liens
incurred in the ordinary course of business, from paying dividends, and from
making investments in entities that are not "restricted" by the terms of the
Indenture. The Company has the option to invest in "unrestricted entities" in an
aggregate amount equal to the sum of $100.0 million plus the aggregate amount of
net cash proceeds from sales of equity, net of payments made on its preferred
stock plus net proceeds from certain litigation settlements. The Indenture
generally prohibits the Company from incurring additional indebtedness with the
exception of a general allowance of $75.0 million for debt maturing on or after
February 15, 2008, certain guarantees totaling $15.0 million, refinancing
indebtedness, normal indebtedness to restricted affiliates and other letters of
credit in the ordinary course of business. The Indenture also limits the amount
of additional debt that its subsidiaries or controlled affiliates may borrow, or
preferred shares that they may issue. Generally, additional borrowings, when
added to existing indebtedness, must satisfy, among other conditions, at least
one of the following tests: (i) 7.0 times the borrower's consolidated operating
cash flow; (ii) 1.75 times its consolidated interest expense; or (iii) 225% of
the borrower's consolidated invested equity capital. In addition, there must be
no existing default under the Indenture at the time of the borrowing. The
Indenture also restricts its subsidiaries' ability to make certain asset sales
and certain payments.
UNITED 1999 NOTES
On April 29, 1999, the Company sold in a private transaction $355.0 million
principal amount at maturity of 10.875% senior discount notes due 2009. The
United 1999 Notes were issued at a discount from their principal amount at
maturity, resulting in gross proceeds to United of approximately $208.9 million.
The United 1999 Notes will accrete at 10.875% per annum, compounded
semi-annually, to an aggregate principal amount of $355.0 million on May 1,
2004. Commencing November 1, 2004, cash interest on the United 1999 Notes will
begin to accrue, payable on May 1 and November 1 of each year until maturity at
a rate of 10.875% per annum. The United 1999 Notes will mature on May 1, 2009,
and are redeemable after May 1, 2004 at premiums declining to par on May 1,
2007. Additionally, subject to certain limitations, prior to May 1, 2002, United
may redeem an aggregate of 35.0% of the United 1999 Notes at the Company's
option with the net proceeds from one or more public offerings or certain asset
sales. The United 1999 Notes are senior, general, unsecured obligations, ranking
equally in right of payment to existing and future senior, unsecured
obligations, senior to all future junior obligations and effectively junior to
existing secured obligations, including the United 1998 Notes.
For the nine months ended September 30, 2001 (Unaudited). As part of the
original distribution arrangements for the United 1999 Notes, the Company agreed
to assist the group in reselling the United 1999 Notes and to pay them the
difference if the notes are sold for less than the price the institutions paid
plus the then additional accreted value and they agreed in turn to pay the
Company the difference if the notes were resold for a greater price than the
institutions paid plus the then additional accreted value. As of September 30,
2001, the accreted value of the United 1999 Notes was $270.1 million; the
current market value is substantially less
F-35
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
than the accreted value. In May 2001, the Company agreed to modifications of
these distribution arrangements that provide, among other things, that: (1) the
resale of the United 1999 Notes will not occur before May 23, 2002, except in
certain circumstances, (2) the Company or New United (the new holding company of
which the Company will become a subsidiary in connection with its transaction
with Liberty) will deposit and maintain up to $150.0 million in an account with
one of the institutions that hold the United 1999 Notes, and (3) New United and
certain of its subsidiaries will also guarantee the Company's obligations under
the United 1999 Notes and the Company's obligations to pay the institutions the
difference if the United 1999 Notes are sold for less than the price the
institutions paid plus the then accreted value. The Company is currently in the
process of negotiating the additional documents to further implement these
modifications.
UPC SENIOR NOTES JULY 1999 OFFERING
In July 1999, UPC completed a private placement bond offering consisting of
$800.0 million ten-year 10.875% Senior Notes due 2009, E300.0 million of
ten-year 10.875% Senior Notes due 2009 and $735.0 million aggregate principal
amount of ten-year 12.5% Senior Discount Notes due 2009. The UPC Senior Discount
Notes due 2009 were sold at 54.5% of face value amount yielding gross proceeds
of approximately $400.7 million, and will accrue but not pay interest until
2005. Interest payments on the Senior Notes due 2009 will be due semi-annually,
commencing February 1, 2000. Concurrent with the closing of the UPC July 1999
Notes offering, UPC entered into a cross-currency swap, swapping the $800.0
million UPC Senior Notes due 2009 into fixed and variable rate euro notes with a
notional amount totaling E754.7 million. One half of the euro notes have a fixed
interest rate of 8.54% through August 1, 2004, thereafter switching to a
variable interest rate of Euro Interbank Offered Rate ("EURIBOR") plus 4.15%,
for an initial rate of 7.1%. The indentures governing these notes place certain
limitations on UPC's ability, and the ability of its subsidiaries, to borrow
money, issue capital stock, pay dividends in stock or repurchase stock, make
investments, create certain liens, engage in certain transactions with
affiliates, and sell certain assets or merge with or into other companies.
UPC SENIOR NOTES OCTOBER 1999 OFFERING
In October 1999, UPC completed a private placement bond offering consisting of
six tranches: $200.0 million and E100.0 million of eight-year 10.875% Senior
Notes due 2007; $252.0 million and E101.0 million of ten-year 11.25% Senior
Notes due 2009 and $478.0 million and E191.0 million aggregate principal amount
of ten-year 13.375% Senior Discount Notes due 2009. The Senior Discount Notes
were sold at 52.3% of the face amount yielding gross proceeds of $250.0 million
and E100.0 million and will accrue but not pay interest until November 2004. UPC
then entered into cross-currency swaps, swapping the $252.0 million 11.25%
coupon into fixed-rate and variable-rate euro notes with a notional amount
totaling E240.2 million, and swapping the $200.0 million 10.875% coupon into
fixed-rate and variable-rate euro notes with a notional amount totaling E190.7
million. Of the former swap, E120.1 million have a fixed interest rate of 9.9%
through November 1, 2004, thereafter switching to a variable rate of EURIBOR +
4.8%. The remaining E120.1 million have a variable interest rate of EURIBOR +
4.8%. Of the latter swap, E95.4 million have a fixed interest rate of 9.9%
through November 1, 2004, thereafter switching to a variable rate of EURIBOR +
4.8%. The remaining E95.4 million have a variable interest rate of EURIBOR +
4.8%. The indentures governing these notes place certain limitations on UPC's
ability, and the ability of its subsidiaries, to borrow money, issue capital
stock, pay dividends in stock or repurchase stock, make investments, create
certain liens, engage in certain transactions with affiliates, and sell certain
assets or merge with or into other companies.
UPC SENIOR NOTES JANUARY 2000 OFFERING
In January 2000, UPC completed a private placement bond offering consisting of
$600.0 million and E200.0 million of ten-year 11.25% Senior Notes due 2010,
$300.0 million of ten-year 11.5% Senior Notes due
F-36
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2010 and $1.0 billion aggregate principal amount of ten-year 13.75% Senior
Discount Notes due 2010. The Senior Discount Notes were sold at 51.2% of the
face amount yielding gross proceeds of $512.2 million and will accrue but not
pay interest until 2005. UPC has entered into cross-currency swaps, swapping a
total of $300.0 million of the 11.25% Senior Notes into fixed euro notes with a
notional amount of E297.0 million. The indentures governing these notes place
certain limitations on UPC's ability, and the ability of its subsidiaries, to
borrow money, issue capital stock, pay dividends in stock or repurchase stock,
make investments, create certain liens, engage in certain transactions with
affiliates, and sell certain assets or merge with or into other companies.
UPC POLSKA SENIOR DISCOUNT NOTES
In January 1999, UPC Polska sold 256,800 units consisting of Senior Discount
Notes due 2009 and warrants to purchase 1,813,665 shares of UPC Polska's common
stock. The UPC Polska 1999 Senior Discount Notes were issued at a discount to
their aggregate principal amount at maturity yielding gross proceeds of
approximately $100.0 million. Cash interest on the UPC Polska 1999 Senior
Discount Notes will not accrue prior to February 1, 2004. Thereafter, cash
interest will accrue at a rate of 14.5% per annum, payable semi-annually in
arrears on August 1 and February 1 of each year, commencing August 1, 2004. In
connection with the acquisition of UPC Polska, UPC acquired all of the existing
warrants held in connection with the UPC Polska 1999 Senior Discount Notes. In
July 1998, UPC Polska sold 252,000 units, consisting of 14.5% Senior Discount
Notes due 2008 and warrants entitling the warrant holders to purchase 1,824,514
shares of UPC Polska common stock. This offering generated approximately $125.1
million in gross proceeds to UPC Polska. The UPC Polska 1998 Senior Discount
Notes are unsubordinated and unsecured obligations of UPC Polska. Cash interest
will not accrue prior to July 15, 2003. After that, cash interest will accrue at
a rate of 14.5% per year and will be payable semi-annually in arrears on January
15 and July 15 of each year, beginning January 15, 2004. The UPC Polska 1998
Senior Discount Notes will mature on July 15, 2008. In connection with the
acquisition of UPC Polska, UPC acquired all of the existing warrants held in
connection with the UPC Polska 1998 Senior Discount Notes. Pursuant to the terms
of the UPC Polska indenture, UPC Polska repurchased $49.1 million aggregate
principal amount at maturity of these notes for $26.5 million as a result of
UPC's acquisition of UPC Polska. In January 1999, UPC Polska sold $36.0 million
aggregate principal amount at maturity of Series C Senior Discount Notes
generating approximately $9.8 million of gross proceeds. The UPC Polska 1999
Series C Senior Discount Notes are senior unsecured obligations of UPC Polska.
Original issue discount will accrete from January 20, 1999, until maturity on
July 15, 2008. Cash interest will accrue beginning July 15, 2004 at a rate of
7.0% per year on the principal amount at maturity, and will be payable
semi-annually in arrears, on July 15 and January 15 of each year beginning
January 15, 2005. Poland Communications, Inc ("PCI"), UPC Polska's major
operating subsidiary, sold $130.0 million of discount notes in October 1996. The
PCI Discount Notes bear interest at 9.875%, payable on May 1 and November 1 of
each year. The PCI Discount Notes mature on November 1, 2003. Pursuant to the
terms of the PCI indenture, UPC Polska repurchased a majority of the PCI
Discount Notes in November 1999 as a result of UPC's acquisition of UPC Polska.
UAP NOTES
The 14.0% senior notes were issued by UAP 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 UAP 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, UAP consummated an equity sale resulting in gross
proceeds to UAP 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 UAP Notes will accrete to an
aggregate principal amount at maturity of $492.9 million.
F-37
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In November 1997, pursuant to the terms of the indentures governing the UAP
Notes, UAP 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 UAP 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.
10. OTHER LONG-TERM DEBT
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, -----------------------------
2001 2000 1999
------------- ------------- -------------
(UNAUDITED)
(IN THOUSANDS)
UPC Bank Facility............................. $ 2,721,273 $ 2,224,696 $ -
Exchangeable Loan............................. 874,166 - -
UPC Bridge Facility........................... - 696,379 -
DIC Loan...................................... 49,024 51,401 -
UPC Senior Credit Facility.................... - - 359,720
UPC Nederland Facilities...................... - - 588,310
UPC France Facilities......................... - - 146,157
Other UPC..................................... 202,409 170,801 123,199
VTR Bank Facility (see Note 2)................ 176,000 176,000 176,000
Austar Bank Facility (see Note 2)............. 196,580 223,501 202,703
Other UAP..................................... 4,310 4,759 59,948
Other ULA..................................... 3,570 571 594
----------- ----------- -----------
4,227,332 3,548,108 1,656,631
Less current portion..................... (202,729) (193,923) (52,180)
----------- ----------- -----------
Total other long-term debt............... $ 4,024,603 $ 3,354,185 $ 1,604,451
=========== =========== ===========
UPC BANK FACILITY
In October 2000, UPC closed a $3.4 billion operating and term loan facility with
a group of banks. The UPC Bank Facility is guaranteed by existing operating
companies, excluding Polish and German assets. The UPC Bank Facility bears
interest at EURIBOR +0.75% to 4.0% depending on certain ratios, and UPC pays an
annual commitment fee of 0.5% over the undrawn amount. The UPC Bank Facility
refinanced the UPC Senior Credit Facility, UPC Nederland Facilities, UPC France
Facilities and other existing operating company bank debt totaling $1.7 billion
and will finance further digital rollout and triple play by UPC's existing
companies, excluding Polish and German operations. Borrowing availability is
linked to certain performance criteria. Principal repayment will begin in 2004,
with final maturity in 2009. The UPC Bank Facility indenture contains certain
financial covenants and restrictions on UPC's companies regarding payment of
dividends, ability to incur indebtedness, dispose of assets and enter into
affiliate transactions.
For the nine months ended September 30, 2001 (Unaudited). UPC was in compliance
with these covenants as of September 30, 2001. Concurrent with the closing of
the facility, UPC entered into cross currency and interest rate swaps, pursuant
to which a $347.5 million obligation under the UPC Bank Facility was effectively
changed into a E408.1 million obligation until November 29, 2002. UPC entered
into an interest rate swap of E1,725.0 million to fix the EURIBOR portion of the
interest calculation to 4.55% for the period ending April 15, 2003.
F-38
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EXCHANGEABLE LOAN -- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
In May 2001, UPC completed a placement with Liberty of $1.2 billion 6.0%
Guaranteed Discount Notes due 2007, receiving proceeds of $856.8 (E1,000.0)
million ("the Exchangeable Loan"). Liberty has the right to exchange the notes,
which were issued by a wholly-owned subsidiary of UPC, into ordinary shares of
UPC under certain circumstances at E8.0 ($6.85) per share after May 29, 2002.
The principal terms of the Exchangeable Loan are as follows:
- -Exchangeable at any time into UPC ordinary shares at E8.0 ($6.85) per share.
- -Callable in cash at any time in the first year at accreted value, then not
callable until May 29, 2004, thereafter callable at descending premiums in
cash, ordinary shares or a combination (at UPC's option) at any time prior to
May 29, 2007.
- -UPC has the right, at its option, to require exchange of the Exchangeable Loan
into UPC ordinary shares at E8.00 per share on a E1.00 for E1.00 basis for any
equity raised by UPC at a price at or above E8.00 per share during the first
two years, E10.00 per share during the third year, E12.00 per share during the
fourth year, and E15.00 per share during and after the fifth year.
- -UPC has the right, at its option, to require exchange of the Exchangeable Loan
into UPC ordinary shares, if on or after November 15, 2002, its ordinary shares
trade at or above $10.28 for at least 20 out of 30 trading days, or if on or
after May 29, 2004, UPC ordinary shares trade at or above $8.91 for at least 20
out of 30 trading days.
FOREIGN EXCHANGE CONTRACT -- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
In connection with the anticipated closing of the Liberty transaction and the
previously anticipated rights offering of UPC, the Company entered into forward
contracts with Toronto Dominion Securities to purchase E1.0 billion at a fixed
conversion rate of 1.0797. For the nine months ended September 30, 2001, the
total unrealized and realized loss on the forward contracts was $41.9 million.
Subsequent to September 30, 2001, the remaining notional amount was settled for
$0.9 million, resulting in a cumulative realized loss of $42.8 million.
UPC BRIDGE FACILITY
In March 2000, a fully committed $1.9 billion standby revolving credit facility
was executed. The facility is guaranteed by UPC and certain subsidiaries. When
drawn, the facility bears interest at EURIBOR +6.0% to 7.0%, with periodic
increases after March 31, 2001, capped at an annual rate of 18.0% until maturity
in March 2007.
DIC LOAN
In November 1998, a subsidiary of Discount Investment Corporation ("DIC") loaned
UPC a total of $90.0 million to acquire the additional interests in Tevel and
Melita. In connection with the DIC Loan, UPC granted to an affiliate of DIC an
option to acquire a total of $90.0 million, plus accrued interest, of ordinary
shares of UPC at a price equal to 90.0% of UPC's initial public offering price.
In February 1999, the option agreement was amended, resulting in a grant of two
options of $45.0 million each to acquire ordinary shares of UPC. DIC then
exercised the first option for $45.0 million, paying in cash and acquiring 4.7
million ordinary shares of UPC. UPC repaid $45.0 million of the DIC Loan and
accrued interest with proceeds received from the option exercise. In October
2000, the remaining $45.0 million DIC Loan was refinanced by a two-year
F-39
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
convertible note in the amount of $51.1 million at an annual interest rate of
10.0%. The note is convertible into UPC shares at the average closing price for
30 trading days before the conversion date.
VTR BANK FACILITY
In April 1999, VTR entered into a $220.0 million term loan facility in
connection with the VTR Acquisition. The facility was amended in June 2000,
reducing the aggregate principal amount to $176.0 million. The VTR Bank Facility
bears interest at London Interbank Offered Rate ("LIBOR") plus a margin of 5.0%,
and matures on April 29, 2001. The VTR Bank Facility indenture restricts certain
investments and payments, including a ceiling on capital expenditures per fiscal
year, as well as requires VTR to maintain certain financial ratios on a
quarterly basis, such as total debt to EBITDA (as defined by the term loan
agreement), debt service coverage, senior debt to EBITDA, interest coverage and
minimum telephone revenue amounts.
AUSTAR BANK FACILITY
In April 1999, Austar executed a A$400.0 million 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,
Austar has drawn the entire amount of the facility.
F-40
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FAIR VALUE OF SENIOR DISCOUNT NOTES, SENIOR NOTES AND OTHER LONG-TERM DEBT
Fair value is based on market prices for the same or similar issues.
CARRYING VALUE FAIR VALUE
-------------- --------------
(IN THOUSANDS)
As of December 31, 2000:
United 1998 Notes......................................... $ 1,101,010 $ 591,250
United 1999 Notes......................................... 249,497 152,650
UPC Senior Notes July 1999 Offering:
UPC 10.875% dollar Senior Notes due 2009............... 700,759 525,447
UPC 10.875% euro Senior Notes due 2009................. 278,551 175,487
UPC 12.5% dollar Senior Discount Notes due 2009........ 475,854 227,850
UPC Senior Notes October 1999 Offering:
UPC 10.875% dollar Senior Notes due 2007............... 177,027 133,000
UPC 10.875% euro Senior Notes due 2007................. 92,851 59,424
UPC 11.25% dollar Senior Notes due 2009................ 221,411 165,196
UPC 11.25% euro Senior Notes due 2009.................. 93,168 60,019
UPC 13.375% dollar Senior Discount Notes due 2009...... 290,974 143,400
UPC 13.375% euro Senior Discount Notes due 2009........ 108,017 53,203
UPC Senior Notes January 2000 Offering:
UPC 11.25% dollar Senior Notes due 2010................ 595,742 387,000
UPC 11.25% euro Senior Notes due 2010.................. 184,443 120,706
UPC 11.5% dollar Senior Notes due 2010................. 273,780 195,000
UPC 13.75% dollar Senior Discount Notes due 2010....... 581,253 290,000
UPC Polska Senior Discount Notes.......................... 300,163 235,749
UAP Notes................................................. 466,241 320,365
UPC Bank Facility......................................... 2,224,696 2,224,696
UPC Bridge Facility....................................... 696,379 696,379
DIC Loan.................................................. 51,401 51,401
Other UPC................................................. 170,801 170,801
VTR Bank Facility......................................... 176,000 176,000
Austar Bank Facility...................................... 223,501 223,501
Other Asia/Pacific and ULA................................ 5,330 5,330
------------ ------------
Total................................................ $ 9,738,849 $ 7,383,854
============ ============
F-41
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CARRYING VALUE FAIR VALUE
-------------- ------------
(IN THOUSANDS)
As of December 31, 1999:
United 1998 Notes......................................... $ 991,568 $ 880,000
United 1999 Notes......................................... 224,426 205,265
UPC Senior Notes July 1999 Offering:
UPC 10.875% dollar Senior Notes due 2009............... 759,442 775,969
UPC 10.875% euro Senior Notes due 2009................. 301,878 305,652
UPC 12.5% dollar Senior Discount Notes due 2009........ 421,747 415,275
UPC Senior Notes October 1999 Offering:
UPC 10.875% dollar Senior Notes due 2007............... 191,852 206,525
UPC 10.875% euro Senior Notes due 2007................. 100,625 102,639
UPC 11.25% dollar Senior Notes due 2009................ 239,905 262,080
UPC 11.25% euro Senior Notes due 2009.................. 100,894 103,665
UPC 13.375% dollar Senior Discount Notes due 2009...... 255,786 272,460
UPC 13.375% euro Senior Discount Notes due 2009........ 102,847 106,669
UPC Polska Senior Discount Notes.......................... 286,089 322,253
UAP Notes................................................. 407,945 414,008
UPC Senior Credit Facility................................ 359,720 359,720
UPC Nederland Facilities.................................. 588,310 588,310
UPC France Facilities..................................... 146,157 146,157
Other UPC................................................. 123,199 123,199
VTR Bank Facility......................................... 176,000 176,000
Austar Bank Facility...................................... 202,703 202,703
Other Asia/Pacific and ULA................................ 60,542 60,542
---------- ----------
Total................................................ $6,041,635 $6,029,091
========== ==========
DEBT MATURITIES
The maturities of the Company's senior discount notes, senior notes and other
long-term debt are as follows (in thousands):
Year Ended December 31, 2001................................ $ 193,923
Year Ended December 31, 2002................................ 92,851
Year Ended December 31, 2003................................ 76,721
Year Ended December 31, 2004................................ 399,461
Year Ended December 31, 2005................................ 739,844
Thereafter.................................................. 8,236,049
------------
Total................................................ $ 9,738,849
============
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
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 interest rate swaps managing
F-42
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
interest rate exposure on the UPC Bank Facility and the Austar Bank Facility.
The swaps related to the UPC Bank Facility effectively convert a principal
amount of $1.6 billion of variable-rate debt into fixed-rate borrowings at
EURIBOR + 4.65%. The swaps related to the Austar Bank Facility effectively
convert an aggregate principal amount of $83.8 million of variable-rate,
long-term debt into fixed-rate borrowings.
UPC has entered into cross-currency swaps related to $1.8 billion of
dollar-denominated senior notes. Under SFAS 133 these cross-currency swaps will
not qualify for hedge accounting, and therefore the cross-currency swaps, as
well as the senior notes which they relate to, must be presented separately on
the balance sheet. The senior notes must be revalued at spot rates based on the
dollar/euro exchange rate at each balance sheet date, with changes recorded as
foreign exchange gains/losses in the consolidated statements of operations and
comprehensive (loss) income. The cross-currency swaps likewise must be marked to
market at each balance sheet date with changes recorded in the consolidated
statements of operations and comprehensive (loss) income. If the Company were to
implement SFAS 133 to cross-currency swaps in place at December 31, 2000, the
impact for the year ended December 31, 2000 would be a net gain of between $51.1
and $78.9 million.
11. CONVERTIBLE PREFERRED STOCK
SERIES A PREFERRED STOCK
In connection with the Company's acquisition of certain interests in Australia
in 1995, the Company issued 170,513 shares of par value $0.01 per share Series A
Preferred Stock. The Series A Preferred Stock had an initial liquidation value
of $175.00 per share and accrued dividends at a rate of 4.0% per annum,
compounded quarterly. Each share of Series A Preferred Stock was convertible
into the number of shares of the Company's Class A Common Stock equal to the
liquidation value at the time of conversion divided by $8.75. During the ten
months ended December 31, 1998 a total of 38,369 shares of Series A Preferred
Stock were converted into 850,914 shares of Class A Common Stock. During the
year ended December 31, 1999, the remaining 132,144 shares of Series A Preferred
Stock were converted into 3,006,404 shares of Class A Common Stock.
SERIES B PREFERRED STOCK
In connection with the Company's acquisition of certain assets in Australia in
July 1998, and the acquisition of an additional interest in XYZ Entertainment in
September 1998, the Company issued a total of 139,031 shares of par value $0.01
per share Series B Preferred Stock. The Series B Preferred Stock had an initial
liquidation value of $212.50 per share (approximately $29.5 million) and accrues
dividends at a rate of 6.5% per annum, compounded quarterly. Each share of
Series B Preferred Stock is convertible into the number of shares of the
Company's Class A Common Stock equal to the liquidation value at the time of
conversion divided by $10.63. The Company is required to redeem the Series B
Preferred Stock on June 30, 2008 at a redemption price equal to its then
liquidation value plus accrued dividends. During the year ended December 31,
1999 a total of 22,846 shares of Series B Preferred Stock were converted into
487,410 shares of Class A Common Stock. During the year ended December 31, 2000,
a total of 2,202 shares of Series B Preferred Stock were converted into 48,996
shares of Class A Common Stock. Assuming none of the remaining 113,983 shares of
Series B Preferred Stock is converted prior to redemption, the total cost to the
Company upon redemption would be approximately $45.6 million. The Company has
granted certain rights to holders of the Series B Preferred Stock to register
under the Securities Act of 1933 the sale of shares of Class A Common Stock into
which the Series B Preferred Stock may be converted.
F-43
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SERIES C PREFERRED STOCK
In July 1999, the Company issued 425,000 shares of par value $0.01 per share
Series C Preferred Stock, resulting in gross and net proceeds to the Company of
$425.0 and $381.6 million, respectively. The purchasers of the Series C
Preferred Stock deposited $29.75 million into an account from which the holders
were entitled to quarterly payments in an amount equal to $17.50 per preferred
share commencing on September 30, 1999 through June 30, 2000, in cash or Class A
Common Stock at United's option. On September 30, 1999, December 31, 1999, March
31, 2000 and June 30, 2000 the holders received their quarterly payment in cash.
The Series C Preferred Stock had an initial liquidation value of $1,000 per
share, and accrues dividends perpetually at a rate of 7.0% per annum, payable
quarterly on March 31, June 30, September 30 and December 31 of each year,
commencing September 30, 2000, payable in cash or Class A Common Stock at the
Company's option. On September 30, 2000 and December 31, 2000 the holders
received their quarterly payment in 212,889 and 509,470 shares of Class A Common
Stock, respectively. Each share of Series C Preferred Stock is convertible any
time at the option of the holder into the number of shares of the Company's
Class A Common Stock equal to the liquidation value at the time of conversion
divided by $42.15. The conversion price is subject to adjustment upon the
occurrence of certain events. The Company has the right to require conversion on
or after December 31, 2000 if the closing price of United's Class A Common Stock
has equaled or exceeded 150.0% of the conversion price for a certain period of
time, or on or after June 30, 2002 if the closing price of United's Common Stock
has equaled or exceeded 130.0% of the conversion price for a certain period of
time. On or after June 30, 2002, the Company has the option to redeem the Series
C Preferred Stock in certain circumstances in cash or Class A Common Stock. The
Series C Preferred Stock ranks senior to United's Class A Common Stock and pari
passu with the Company's existing preferred stock. The Company has registered
under the Securities Act of 1933 (i) the resale by holders of the Series C
Preferred Stock, (ii) the shares of Class A Common Stock issuable in lieu of
cash payment of amounts due on a change of control, redemption and dividend
payment date and (iii) the shares of Class A Common Stock issuable upon
conversion of the Series C Preferred Stock.
SERIES D PREFERRED STOCK
In December 1999, the Company issued 287,500 shares of par value $0.01 per share
Series D Preferred Stock, resulting in gross and net proceeds to the Company of
$287.5 and $259.9 million, respectively. The purchasers of the Series D
Preferred Stock deposited $20.1 million into an account from which the holders
will be entitled to quarterly payments in an amount equal to $17.50 per
preferred share per quarter commencing on December 31, 1999 through September
30, 2000 in cash or Class A Common Stock at United's option. On December 31,
1999, March 31, 2000, June 30, 2000 and September 30, 2000 the holders received
their payment in cash. The Series D Preferred Stock had an initial liquidation
value of $1,000 per share, and accrues dividends perpetually at a rate of 7.0%
per annum, payable quarterly on March 31, June 30, September 30 and December 31
of each year, commencing December 31, 2000, payable in cash or Class A Common
Stock at the Company's option. On December 31, 2000 the holders received their
quarterly payment in 344,641 shares of Class A Common Stock. Each share of
Series D Preferred Stock is convertible any time at the option of the holder
into the number of shares of the Company's Class A Common Stock equal to the
liquidation value at the time of conversion divided by $63.79. The conversion
price is subject to adjustment upon the occurrence of certain events. The
Company has the right to require conversion on or after June 30, 2001 if the
closing price of United's Common Stock has equaled or exceeded 150.0% of the
conversion price for a certain period of time, or on or after December 31, 2002
if the closing price of United's Common Stock has equaled or exceeded 130.0% of
the conversion price for a certain period of time. On or after December 31,
2002, the Company has the option to redeem the Series D Preferred Stock in
certain circumstances in cash or Class A common stock. The Series D Preferred
Stock ranks senior to United's common stock and pari passu with the Company's
existing preferred stock. The Company has registered under the Securities Act of
1933 (i) the resale by holders of the Series D Preferred Stock, (ii) the shares
of common stock issuable in lieu of
F-44
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
cash payment of amounts due on a change of control, redemption and dividend
payment date and (iii) the shares of common stock issuable upon conversion of
the Series D Preferred Stock.
For the nine months ended September 30, 2001 (Unaudited). Pursuant to the terms
of the Company's 7.0% Series C Senior Cumulative Convertible Preferred Stock and
7.0% Series D Senior Cumulative Convertible Preferred Stock, the dividends
thereon cumulate, whether or not earned or declared, on a quarterly basis on
March 31, June 30, September 30 and December 31 of each year. The dividends
accrue from the last dividend payment date until paid in arrears, in cash or
Class A Common Stock at United's option, although paying a cash dividend is
prohibited under the terms of the Company's indentures. The Company's Board of
Directors has not declared a dividend on the Series C Preferred Stock or Series
D Preferred Stock for the quarter ended September 30, 2001. Therefore, such
dividend will continue to accrue. In the event dividends on the Series C
Preferred Stock and Series D Preferred Stock are unpaid for six quarters, the
holders of the Series C Preferred Stock and the holders of Series D Preferred
Stock, voting as a separate class, will be entitled to elect two additional
Directors to the Company's Board at the next regular or special meeting of the
Company's stockholders.
12. STOCKHOLDERS' (DEFICIT) EQUITY
COMMON STOCK
In April 1993, the Company adopted a Restated Certificate of Incorporation
pursuant to which the Company authorized the issuance of two classes of common
stock, Class A Common Stock and Class B Common Stock. Each share of Class A
Common Stock is entitled to one vote per share while each share of Class B
Common Stock is entitled to ten votes per share. Each share of Class B Common
Stock is convertible at any time at the option of the holder into one share of
Class A Common Stock. The two classes of common stock are identical in all other
respects.
COMMON STOCK SPLIT
On November 11, 1999, the Board of Directors authorized a two-for-one stock
split effected in the form of a stock dividend distributed on November 30, 1999
to shareholders of record on November 22, 1999. The effect of the stock split
has been recognized retroactively in all share and per share amounts in the
accompanying consolidated financial statements and notes.
CUMULATIVE TRANSLATION ADJUSTMENTS
During the year ended December 31, 2000, the Company recorded a negative change
in cumulative translation adjustments of $47.6 million, primarily due to (i) the
strengthening of the U.S. dollar compared to the Australian dollar of
approximately 12.2% and (ii) the strengthening of the U.S. dollar compared to
the Chilean peso of approximately 6.3%.
EQUITY TRANSACTIONS OF SUBSIDIARIES
The issuance of warrants, the issuance of convertible debt with an equity
component, variable plan accounting for stock options and the recognition of
deferred compensation expense by the Company's subsidiaries affects
F-45
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the equity accounts of the Company. The following represents the effect on
additional paid-in capital and deferred compensation as a result of these equity
transactions:
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
-----------------------------------
AUSTAR
UPC UNITED TOTAL
---------- --------- ----------
(UNAUDITED)
(IN THOUSANDS)
Variable plan accounting for stock options............ $(15,784) $ (194) $(15,978)
Deferred compensation expense......................... 15,784 194 15,978
Amortization of deferred compensation................. 8,614 5,151 13,765
Amortization of deferred compensation (minority
interest)........................................... -- (1,241) (1,241)
Issuance of shares of subsidiary of UPC............... (11,232) -- (11,232)
-------- ------- --------
Total.......................................... $ (2,618) $ 3,910 $ 1,292
======== ======= ========
FOR THE YEAR ENDED DECEMBER 31, 2000
------------------------------------------------
AUSTAR UNITED
UPC UNITED CORPORATE TOTAL
----------- --------- --------- ----------
(IN THOUSANDS)
Variable plan accounting for stock
options............................... $ (7,467) $ - $ - $ (7,467)
Deferred compensation expense........... 7,467 - - 7,467
Amortization of deferred compensation... (14,046) 9,439 - (4,607)
Amortization of deferred compensation
(minority interest)................... (25,712) (2,932) - (28,644)
Issuance of warrants by UPC............. 59,912 - - 59,912
Issuance of shares by subsidiary of
UPC................................... 75,482 - - 75,482
--------- ------- ----- --------
Total............................ $ 95,636 $ 6,507 $ - $102,143
========= ======= ===== ========
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------
AUSTAR UNITED
UPC UNITED CORPORATE TOTAL
----------- ---------- --------- -----------
(IN THOUSANDS)
Variable plan accounting for stock
options................................ $ 338,261 $ 40,883 $ - $ 379,144
Deferred compensation expense............ (180,757) (40,883) - (221,640)
Amortization of deferred compensation.... 79,104 22,540 679 102,323
Issuance of warrants by UPC.............. 33,025 - - 33,025
Issuance of convertible debt (DIC
Loan).................................. 14,875 - - 14,875
--------- -------- ---- ---------
Total............................. $ 284,508 $ 22,540 $679 $ 307,727
========= ======== ==== =========
F-46
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OTHER CUMULATIVE COMPREHENSIVE LOSS
AS OF DECEMBER 31,
AS OF SEPTEMBER 30, -------------------------
2001 2000 1999
------------------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS)
Foreign currency translation adjustments..... $(387,695) $(265,567) $(217,942)
Unrealized gain (loss) on available-for-sale
securities................................. 11,661 (24,964) 6,704
Change in fair value of derivatives.......... (24,471) - -
Cumulative effect of change in accounting
principle.................................. 342 - -
--------- --------- ---------
Total................................. $(400,163) $(290,531) $(211,238)
========= ========= =========
UNITED STOCK OPTION PLANS
In May 1993, the Company adopted a stock option plan for certain of its
employees (the "Employee Plan"). The Employee Plan is construed, interpreted and
administered by the compensation committee (the "Committee"), consisting of all
members of the Board of Directors who are not employees of the Company. Members
of the Company's Board of Directors who are not employees are not eligible to
receive option grants under the Employee Plan. The Committee has the discretion
to determine the employees and consultants to whom options are granted, the
number of shares subject to the options, the exercise price of the options, the
period over which the options become exercisable, the term of the options
(including the period after termination of employment during which an option may
be exercised) and certain other provisions relating to the option. The maximum
number of shares subject to options that may be granted to any one participant
under the Employee Plan during any calendar year is 500,000 shares. The maximum
term of options granted under the Employee Plan is ten years. Options granted
may be either incentive stock options under the Internal Revenue Code of 1986,
as amended, or non-qualified stock options. For grants prior to December 1,
2000, options vest in equal monthly increments over 48 months. For grants
subsequent to December 1, 2000, options vest 12.5% six months from the date of
grant and then in equal monthly increments over the next 42 months. Vesting
would be accelerated upon a change of control in the Company as defined in the
Employee Plan. Under the Employee Plan, options to purchase a total of 9,200,000
shares of Class A Common Stock have been authorized, of which 498,929 were
available for grant as of December 31, 2000.
The Company adopted a stock option plan for non-employee directors effective
June 1, 1993 (the "1993 Director Plan"). The 1993 Director Plan provides for the
grant of an option to acquire 20,000 shares of the Company's Class A Common
Stock to each member of the Board of Directors who was not also an employee of
the Company (a "non-employee director") on June 1, 1993, and to each person who
is newly elected to the Board of Directors as a non-employee director after June
1, 1993, on the date of their election. To allow for additional option grants to
non-employee directors, the Company adopted a second stock option plan for non-
employee directors effective March 20, 1998 (the "1998 Director Plan," and
together with the 1993 Director Plan, the "Director Plans"). Options under the
1998 Director Plan are granted at the discretion of the Company's Board.
The maximum term of options granted under the Director Plans is ten years. Under
the 1993 Director Plan, options vest 25% on the first anniversary of the date of
grant and then evenly over the next 36-month period. Under the 1998 Director
Plan, options vest in equal monthly increments over the four-year period
following the date of grant. Vesting under both Director Plans would be
accelerated upon a change in control of the Company as defined in the respective
Director Plans. Under the Director Plans, options to purchase a total of
F-47
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1,960,000 shares of Class A Common Stock have been authorized, of which 989,167
were available for grant as of December 31, 2000.
Pro forma information regarding net (loss) income and net (loss) income per
share is required by Statement of Financial Accounting Standards No. 123 ("SFAS
123"). This information is required to be determined as if the Company had
accounted for its Employee Plan's and Director Plans' options granted on or
after March 1, 1995 under the fair value method of SFAS 123. The fair value of
options granted for the years ended December 31, 2000 and 1999 and the ten
months ended December 31, 1998 reported below has been estimated at the date of
grant using the Black-Scholes single-option pricing model and the following
weighted-average assumptions:
FOR THE YEAR
ENDED FOR THE TEN
DECEMBER 31, MONTHS ENDED
----------------- DECEMBER 31,
2000 1999 1998
------- ------- ------------
Risk-free interest rate.................................... 5.36% 6.24% 4.60%
Expected lives............................................. 6 years 5 years 7 years
Expected volatility........................................ 67.42% 70.44% 55.34%
Expected dividend yield.................................... 0% 0% 0%
Based on the above assumptions, the total fair value of options granted was
$16.8, $47.7, and $3.7 million for the years ended December 31, 2000 and 1999
and the ten months ended December 31, 1998, respectively. For purposes of the
pro forma disclosures, the estimated fair value of the options is amortized
using the straight-line method over the vesting period of the options. Had the
Company's Employee Plan and Director Plans been accounted for under SFAS 123,
net (loss) income and basic and diluted net (loss) income per share would have
been reduced to the following pro forma amounts:
FOR THE YEAR ENDED FOR THE TEN
DECEMBER 31, MONTHS ENDED
-------------------------- DECEMBER 31,
2000 1999 1998
------------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net (loss) income:
As reported.................................. $(1,220,890) $636,318 $(545,532)
=========== ======== =========
Pro forma.................................... $(1,233,516) $624,619 $(548,226)
=========== ======== =========
Net (loss) income per common share:
Basic........................................ $ (13.24) $ 7.53 $ (7.43)
=========== ======== =========
Diluted...................................... $ (13.24) $ 6.67 $ (7.43)
=========== ======== =========
Pro forma basic.............................. $ (13.37) $ 7.39 $ (7.47)
=========== ======== =========
Pro forma diluted............................ $ (13.37) $ 6.55 $ (7.47)
=========== ======== =========
F-48
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of stock option activity for the Employee Plan is as follows:
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------- FOR THE TEN MONTHS ENDED
2000 1999 DECEMBER 31, 1998
--------------------------- ----------------------------- ---------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
---------- -------------- ------------ -------------- ---------- --------------
Outstanding at beginning of the
period........................ 4,402,287 $14.84 5,309,526 $ 5.53 5,894,952 $5.92
Granted during the period....... 1,293,800 $16.96 1,467,445 $34.11 739,000 $4.94
Cancelled during the period..... (65,587) $20.51 (624,095) $ 6.75 (498,138) $9.34
Exercised during the period..... (860,284) $ 6.00 (1,750,589) $ 5.67 (826,288) $5.44
-------- ------ ---------- ------ -------- -----
Outstanding at end of the
period........................ 4,770,216 $16.95 4,402,287 $14.84 5,309,526 $5.53
======== ====== ========== ====== ======== =====
Exercisable at end of the
period........................ 2,305,039 $10.76 2,436,077 $ 6.17 3,362,324 $5.55
======== ====== ========== ====== ======== =====
A summary of stock option activity for the Director Plans is as follows:
FOR THE YEAR ENDED DECEMBER 31, FOR THE TEN MONTHS
------------------------------------------------------- ENDED DECEMBER 31,
2000 1999 1998
-------------------------- -------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
--------- -------------- --------- -------------- -------- --------------
Outstanding at beginning of the
period........................ 718,333 $15.84 770,000 $ 5.73 520,000 $ 6.08
Granted during the period....... 80,000 $38.66 150,000 $54.66 330,000 $ 4.94
Cancelled during the period..... (40,000) $52.94 (114,167) $ 4.30 - $ -
Exercised during the period..... (128,333) $ 7.27 (87,500) $ 8.47 (80,000) $ 4.75
--------- ------ -------- ------ ------- ------
Outstanding at end of the
period........................ 630,000 $18.13 718,333 $15.84 770,000 $ 5.73
========= ====== ======== ====== ======= ======
Exercisable at end of the
period........................ 386,874 $ 8.75 436,874 $ 5.67 463,956 $ 6.29
========= ====== ======== ====== ======= ======
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------- FOR THE TEN MONTHS ENDED
2000 1999 DECEMBER 31, 1998
-------------------------------- -------------------------------- -------------------------------
FAIR EXERCISE FAIR EXERCISE FAIR EXERCISE
EXERCISE PRICE NUMBER VALUE PRICE NUMBER VALUE PRICE NUMBER VALUE PRICE
- -------------------------- ---------- -------- -------- ---------- -------- -------- ---------- ------- --------
Less than market price.... 4,250 $38.22 $ 5.74 - $ - $ - 150,000 $6.61 $5.19
Equal to market price..... 1,342,546 $12.23 $18.30 1,486,279 $27.54 $38.41 919,000 $3.00 $4.90
Greater than market
price................... 27,004 $ 9.44 $16.29 131,166 $51.88 $ 8.92 - $ - $ -
--------- ------ ------ --------- ------ ------ --------- ----- -----
Total............... 1,373,800 $12.26 $18.22 1,617,445 $29.52 $36.02 1,069,000 $3.50 $4.94
========= ====== ====== ========= ====== ====== ========= ===== =====
F-49
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about employee and director stock
options outstanding and exercisable at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ---------------------------
WEIGHTED-AVERAGE
REMAINING WEIGHTED- WEIGHTED-
CONTRACTUAL LIFE AVERAGE AVERAGE
EXERCISE PRICE RANGE NUMBER (YEARS) EXERCISE PRICE NUMBER EXERCISE PRICE
- ------------------------------------- ---------- ---------------- -------------- ---------- --------------
$ 2.25 - $ 6.38..................... 2,337,126 5.63 $ 5.03 1,881,792 $ 5.08
$ 6.84 - $ 16.29..................... 1,726,079 8.45 $12.91 412,654 $ 7.57
$19.28 - $ 43.13..................... 634,176 8.53 $26.50 225,341 $25.22
$52.94 - $114.13..................... 702,835 8.92 $58.96 172,126 $57.14
--------- ---- ------ --------- ------
Total.......................... 5,400,216 7.30 $17.09 2,691,913 $10.48
========= ==== ====== ========= ======
SUBSIDIARY STOCK OPTION PLANS
UPC Plan
In June 1996, UPC adopted a stock option plan (the "UPC Plan") for certain of
its employees and those of its subsidiaries. There are 18,000,000 total shares
available for the granting of options under the UPC Plan, which are held by
Stichting Administratiekantoor UPC (the "Foundation"), which administers the UPC
Plan. Each option represents the right to acquire from the Foundation a
certificate representing the economic value of one share. Following consummation
of the initial public offering, any certificates issued to employees who have
exercised their options are convertible into UPC common stock. United appoints
the board members of the Foundation and thus controls the voting of the
Foundation's common stock. The options are granted at fair market value
determined by UPC's Supervisory Board at the time of the grant. The maximum term
that the options can be exercised is five years from the date of the grant. In
order to introduce the element of "vesting" of the options, the UPC Plan
provides that even though the options are exercisable immediately, the shares to
be issued for options granted in 1996 vest in equal monthly increments over a
three-year period from the effective date set forth in the option grant. In
March 1998, the UPC Plan was revised to increase the vesting period for any new
grants of options to four years, vesting in equal monthly increments. Upon
termination of an employee (except in the case of death, disability or the
like), all unvested options previously exercised must be resold to the
Foundation at the original purchase price, or all vested options must be
exercised, within 30 days of the termination date. UPC's Supervisory Board may
alter these vesting schedules in its discretion. An employee has the right at
any time to put his certificates or shares from exercised vested options to the
Foundation at a price equal to the fair market value. UPC can also call such
certificates or shares for a cash payment upon termination in order to avoid
dilution, except for certain awards, which cannot be called by UPC until
expiration of the underlying options. The UPC Plan also contains anti-dilution
protection and provides that, in the case of change of control, the acquiring
company has the right to require UPC to acquire all of the options outstanding
at the per share value determined in the transaction giving rise to the change
of control.
Pro forma information regarding net (loss) income and net (loss) income per
share is required by SFAS 123. This information is required to be determined as
if UPC had accounted for the UPC Plan under the fair value method of SFAS 123.
The fair value of options granted for the years ended December 31, 2000 and 1999
F-50
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
reported below has been estimated at the date of grant using the Black-Scholes
single-option pricing model and the following weighted-average assumptions:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
2000 1999
------- -------
Risk-free interest rate..................................... 4.60% 5.76%
Expected lives.............................................. 5 years 5 years
Expected volatility......................................... 74.14% 56.82%
Expected dividend yield..................................... 0% 0%
Based on the above assumptions, the total fair value of options granted was
approximately $129.7 and $38.8 million for the years ended December 31, 2000 and
1999, respectively. For purposes of the pro forma disclosures, the estimated
fair value of the options is amortized using the straight-line method over the
vesting period of the options. Had the UPC Plan been accounted for under SFAS
123, net (loss) income and basic and diluted net (loss) income per share would
have been reduced to the following pro forma amounts:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
2000 1999
------------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Net (loss) income:
As reported............................................... $(1,220,890) $636,318
=========== ========
Pro forma................................................. $(1,258,190) $630,126
=========== ========
Net (loss) income per common share:
Basic..................................................... $ (13.24) $ 7.53
=========== ========
Diluted................................................... $ (13.24) $ 6.67
=========== ========
Pro forma basic........................................... $ (13.63) $ 7.46
=========== ========
Pro forma diluted......................................... $ (13.63) $ 6.61
=========== ========
F-51
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of stock option activity for the UPC Plan is as follows:
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
2000 1999 1998
---------------------------- ----------------------------- ----------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
----------- -------------- ------------ -------------- ----------- --------------
(EUROS) (EUROS) (EUROS)
Outstanding at beginning of the
period........................... 10,955,679 E 6.94 12,586,500 E 1.72 6,724,656 E1.59
Granted during the period.......... 2,629,762 E27.97 4,338,000 E14.91 7,029,000 E1.83
Cancelled during the period........ (127,486) E21.39 (266,565) E 3.44 (42,156) E1.59
Exercised during the period........ (2,225,625) E 2.19 (5,702,256) E 1.65 (1,125,000) E1.59
--------- ------ ---------- ------ --------- -----
Outstanding at end of the period... 11,232,330 E12.62 10,955,679 E 6.94 12,586,500 E1.72
========= ====== ========== ====== ========= =====
Exercisable at end of the
period(1)........................ 5,803,659 E 7.62 4,769,595 E 3.10 12,586,500 E1.72
========= ====== ========== ====== ========= =====
- ------------
(1)Includes certificate rights as well as options.
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
2000 1999 1998
-------------------------------- ------------------------------- -------------------------------
FAIR EXERCISE FAIR EXERCISE FAIR EXERCISE
EXERCISE PRICE NUMBER VALUE PRICE NUMBER VALUE PRICE NUMBER VALUE PRICE
- --------------------- ---------- -------- -------- ---------- ------- -------- ---------- ------- --------
(EUROS) (EUROS) (EUROS)
Less than market
price.............. 2,124,486 E60.37 E24.23 375,000 E8.94 E16.12 - E - E -
Equal to market
price.............. 359,910 E24.25 E38.02 3,963,000 E8.95 E14.79 7,029,000 E1.83 E1.83
Greater than market
price.............. 145,366 E25.89 E57.75 - E - E - - E - E -
--------- ------ ------ --------- ----- ------ --------- ----- -----
Total.......... 2,629,762 E53.52 E27.97 4,338,000 E8.94 E14.91 7,029,000 E1.83 E1.83
========= ====== ====== ========= ===== ====== ========= ===== =====
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ----------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL LIFE EXERCISE EXERCISE
EXERCISE PRICE RANGE (EUROS) NUMBER (YEARS) PRICE NUMBER PRICE
- ------------------------------ ----------- ---------------- --------- ---------- ---------
(EUROS) (EUROS)
E 1.59-E 2.05............... 4,524,702 2.62 E 1.83 3,674,474 E 1.82
E 9.67-E 18.17............... 2,996,379 3.33 E12.98 1,180,152 E12.56
E 18.65-E 20.08............... 2,631,826 3.98 E19.41 753,900 E19.44
E 20.10-E 75.00............... 1,079,423 4.24 E40.30 195,133 E41.32
---------- ---- ------ --------- ------
Total................... 11,232,330 3.28 E12.62 5,803,659 E 7.62
========== ==== ====== ========= ======
F-52
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The UPC Plan was accounted for as a variable plan prior to UPC's initial public
offering in February 1999. Accordingly, compensation expense was recognized at
each financial statement date based on the difference between the grant price
and the estimated fair value of UPC's common stock. Thereafter, the UPC Plan has
been accounted for as a fixed plan. Compensation expense of $31.0, $6.2 and
$134.7 million was recognized for the years ended December 31, 2000 and 1999 and
the ten months ended December 31, 1998, respectively.
UPC Phantom Stock Option Plan
In March 1998, UPC adopted a phantom stock option plan (the "UPC Phantom Plan")
which permits the grant of phantom stock rights in up to 7,200,000 shares of
UPC's common stock. The rights are granted at fair market value determined by
UPC's Supervisory Board at the time of grant, and generally vest in equal
monthly increments over the four-year period following the effective date of
grant and may be exercised for ten years following the effective date of grant.
The UPC Phantom Plan gives the employee the right to receive payment equal to
the difference between the fair market value of a share of UPC common stock and
the option base price for the portion of the rights vested. UPC, at its sole
discretion, may make payment in (i) cash, (ii) freely tradable shares of United
Class A Common Stock or (iii) freely tradable shares of UPC's common stock. If
UPC chooses to make a cash payment, even though its stock is publicly traded,
employees have the option to receive an equivalent number of freely tradable
shares of stock instead. The UPC Phantom Plan contains anti-dilution protection
and provides that, in certain cases of a change of control, all phantom options
outstanding become fully exercisable.
A summary of stock option activity for the UPC Phantom Plan is as follows:
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
2000 1999 1998
---------------------- ----------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
---------- --------- ----------- --------- ---------- ---------
(EUROS) (EUROS) (EUROS)
Outstanding at beginning of the
period......................... 4,144,563 E 2.98 6,172,500 E1.91 - E -
Granted during the period........ 391,641 E17.49 585,000 E9.67 6,172,500 E1.91
Cancelled during the period...... (673,614) E 2.99 (1,540,128) E2.00 - E -
Exercised during the period...... (128,222) E 3.02 (1,072,809) E1.89 - E -
--------- ------ ---------- ----- --------- -----
Outstanding at end of the
period......................... 3,734,368 E 4.74 4,144,563 E2.98 6,172,500 E1.91
========= ====== ========== ===== ========= =====
Exercisable at end of the
period......................... 2,526,369 E 3.39 1,554,813 E2.47 1,411,407 E1.84
========= ====== ========== ===== ========= =====
F-53
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------ ----------------------------- -------------------------------
FAIR EXERCISE FAIR EXERCISE FAIR EXERCISE
EXERCISE PRICE NUMBER VALUE PRICE NUMBER VALUE PRICE NUMBER VALUE PRICE
- --------------------- -------- -------- -------- -------- ------- -------- ---------- ------- --------
(EUROS) (EUROS) (EUROS)
Less than market
price.............. 391,641 E39.40 E17.49 - E - E - - E - E -
Equal to market
price.............. - E - E - 585,000 E9.67 E9.67 6,172,500 E1.91 E1.91
------- ------ ------ ------- ----- ----- --------- ----- -----
Total.......... 391,641 E39.40 E17.49 585,000 E9.67 E9.67 6,172,500 E1.91 E1.91
======= ====== ====== ======= ===== ===== ========= ===== =====
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ------------------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-AVERAGE
REMAINING AVERAGE REMAINING
CONTRACTUAL LIFE EXERCISE CONTRACTUAL LIFE
EXERCISE PRICE RANGE (EUROS) NUMBER (YEARS) PRICE NUMBER (YEARS)
- ------------------------------ ----------- ---------------- --------- ----------- ----------------
(EUROS) (EUROS)
E 1.82....................... 1,925,713 7.21 E 1.82 1,702,495 E 1.82
E 2.05....................... 922,032 7.71 E 2.05 472,970 E 2.05
E 9.67....................... 472,500 8.11 E 9.67 225,938 E 9.67
E 11.40-E 28.67............... 414,123 9.23 E18.72 124,966 E18.47
---------- ---- ------ ---------- ------
Total................... 3,734,368 7.67 E 4.74 2,526,369 E 3.39
========== ==== ====== ========== ======
The UPC Phantom Plan is accounted for as a variable plan in accordance with its
terms, resulting in compensation expense for the difference between the grant
price and the fair market value at each financial statement date. Compensation
(credit) expense of $(75.9), $123.2 and $26.4 million was recognized for the
years ended December 31, 2000 and 1999 and the ten months ended December 31,
1998, respectively.
chello Phantom Stock Option Plan
In June 1998, UPC adopted a phantom stock option plan (the "chello Phantom
Plan"), which permits the grant of phantom stock rights of chello, a wholly
owned subsidiary of UPC. The rights are granted at an option price equal to the
fair market value at the time of grant, and generally vest in equal monthly
increments over the four-year period following the effective date of grant and
the option must be exercised, in all cases, not more than ten years from the
effective date of grant. The chello Phantom Plan gives the employee the right to
receive payment equal to the difference between the fair market value of a share
(as defined in the chello Phantom Plan) of chello and the option price for the
portion of the rights vested. UPC, at its sole discretion, may make the required
payment in (i) cash, (ii) freely tradable shares of United Class A Common Stock,
(iii) the common stock of UPC, which shall be valued at the closing price on the
day before the date the Company makes payment to the option holder, or (iv)
chello's common shares, if they are publicly traded and freely tradable ordinary
shares. If UPC chooses to make a cash payment, even though its stock is publicly
F-54
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
traded, employees have the option to receive an equivalent number of freely
tradable shares of chello's stock instead. It is the intention of UPC to settle
all phantom options through the issuance of ordinary shares.
A summary of stock option activity for the chello Phantom Plan is as follows:
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- --------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
---------- -------------- ---------- -------------- -------- --------------
(EUROS) (EUROS) (EUROS)
Outstanding at beginning of
the period.................. 2,330,129 E4.54 570,000 E4.54 - E -
Granted during the period..... - E - 235,000 E4.54 570,000 E4.54
Granted during the period..... 117,438 E9.08 1,309,838 E9.08 - E -
Granted during the period..... 804,525 E - (1) 355,500 E - (1) - E -
Cancelled during the period... (154,297) E6.27 (128,542) E4.71 - E -
Exercised during the period... (743,632) E6.68 (11,667) E4.54 - E -
-------- ----- -------- ----- ------ -----
Outstanding at end of the
period...................... 2,354,163 E8.16 (2) 2,330,129 E7.54 (2) 570,000 E4.54
======== ===== ======== ===== ====== =====
Exercisable at end of the
period...................... 412,768 E7.55 (2) 414,913 E6.13 (2) 70,625 E4.54
======== ===== ======== ===== ====== =====
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ---------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL LIFE EXERCISE EXERCISE
EXERCISE PRICE RANGE (EUROS) NUMBER (YEARS) PRICE NUMBER PRICE
- ------------------------------ ----------- ---------------- --------- --------- ---------
(EUROS) (EUROS)
E4.54......................... 246,722 6.97 E 4.54 69,482 E 4.54
E9.08......................... 973,116 8.56 E 9.08 137,363 E 9.08
(1)........................... 1,134,325 9.03 E - 205,923 E -
--------- ---- ------ ------- ------
Total.................. 2,354,163 8.62 E 8.16 412,768 E 7.55
========= ==== ====== ======= ======
- ------------
(1)Of the total number of options granted to date, the option price with respect
to these options is the chello broadband initial public offering price.
(2)Excluding the shares discussed in (1) above.
The chello Phantom Plan is accounted for as a variable plan in accordance with
its terms, resulting in compensation expense for the difference between the
grant price and the fair market value at each financial statement date.
Compensation (credit) expense of $(23.7), $72.8 and $1.1 million was recognized
for the years ended December 31, 2000, 1999 and 1998, respectively. The
Company's estimate of the fair value of its ordinary stock as of December 31,
2000 utilized in recording compensation (credit) expense and deferred
compensation expense under the chello Phantom Plan was $19.50 per share.
F-55
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
chello Stock Option Plan
In June 1999, the Company adopted a stock option plan (the "chello Plan"). Under
the chello Plan, the Company's Supervisory Board may grant stock options to the
Company's employees at fair market value determined by the Company's Supervisory
Board at the time of grant. All options are exercisable upon grant and for a
period of five years. In order to introduce the element of "vesting" of the
options, the chello Plan provides that even though the options are exercisable
immediately, the shares to be issued or options to be granted are deemed to vest
1/48th per month for a four-year period from the date of grant. If the
employee's employment terminates, other than in case of death, disability or the
like, for a so-called "urgent reason" under Dutch law or for documented and
material non-performance, all unvested options previously exercised must be
resold to the Company at the original purchase price, and all vested options
must be exercised, within 30 days of the termination date. The Supervisory Board
may alter these vesting schedules at its discretion. The chello Plan provides
that in the case of a change of control, the Company has the right to require a
foundation to acquire all of the options outstanding at a per-share value
determined in the transaction giving rise to the change in its control.
Pro forma information regarding net (loss) income and net (loss) income per
share is required by SFAS 123. This information is required to be determined as
if UPC had accounted for the chello Plan under the fair value method of SFAS
123. The fair value of options granted for the years ended December 31, 2000 and
1999 reported below has been estimated at the date of grant using the
Black-Scholes single-option pricing model and the following weighted-average
assumptions:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
2000 1999
------- -------
Risk-free interest rate..................................... 3.41% 3.41%
Expected lives.............................................. 5 years 5 years
Expected volatility......................................... 95.0% 95.0%
Expected dividend yield..................................... 0% 0%
F-56
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Based on the above assumptions, the total fair value of options granted under
the chello Plan was nil and $3.9 million for the years ended December 31, 2000
and 1999, respectively. For purposes of the pro forma disclosures, the estimated
fair value of the options is amortized using the straight-line method over the
vesting period of the options. Had the chello Plan been accounted for under SFAS
123, net (loss) income and basic and diluted net (loss) income per share would
have been reduced to the following pro forma amounts:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
2000 1999
------------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Net (loss) income:
As reported............................................... $(1,220,890) $636,318
=========== ========
Pro forma................................................. $(1,221,572) $635,556
=========== ========
Net (loss) income per common share:
Basic..................................................... $ (13.24) $ 7.53
=========== ========
Diluted................................................... $ (13.24) $ 6.67
=========== ========
Pro forma basic........................................... $ (13.25) $ 7.52
=========== ========
Pro forma diluted......................................... $ (13.25) $ 6.67
=========== ========
A summary of stock option activity for the chello Stock Option Plan is as
follows:
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2000 1999
---------------------------- ---------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
--------- -------------- ---------- --------------
(EUROS) (EUROS)
Outstanding at beginning of the
period........................... 300,000 E 9.08 - E -
Granted during the period.......... - E - 550,000 E 9.08
Cancelled during the period........ - E - - E -
Exercised during the period........ -(1) E - (250,000) E 9.08
------- ------- -------- -------
Outstanding at end of the period... 300,000 E 9.08 300,000 E 9.08
======= ======= ======== =======
Exercisable at end of the period... 240,625(1) E 9.08 103,125 E 9.08
======= ======= ======== =======
- ------------
(1)Of the number of vested options, 109,375 options are already exercised.
F-57
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ---------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL LIFE EXERCISE EXERCISE
EXERCISE PRICE RANGE (EUROS) NUMBER (YEARS) PRICE NUMBER PRICE
- ------------------------------- --------- ---------------- --------- --------- ---------
(EUROS) (EUROS)
E9.08.......................... 300,000 3.25 E 9.08 240,625 E 9.08
======= ==== ====== ======= ======
Priority Telecom Stock Option Plan
In 2000, Priority Telecom adopted a stock option plan (the "Priority Telecom
Plan") for its employees and those of its subsidiaries. There are approximately
20.0 million shares available for the granting of options under the Priority
Telecom Plan, which are held by the Priority Telecom Foundation, which
administers the Priority Telecom Plan. Each option represents the right to
acquire from the Priority Telecom Foundation a certificate representing the
economic value of one share. Following consummation of the initial public
offering, any certificates issued to employees who have exercised their options
are convertible into Priority Telecom common stock. Priority Telecom appoints
the board members of the Priority Telecom Foundation and thus controls the
voting of the Priority Telecom Foundation's common stock. The options are
granted at fair market value at the time of grant. The maximum term that the
options can be exercised is five years from the date of grant. The vesting
period for any new grants of options is four years, vesting in equal monthly
increments. The Priority Telecom Plan provides that, in the case of a change of
control, the acquiring company has the right to require Priority Telecom to
acquire all of the options outstanding at the per share value determined in the
transaction giving rise to the change of control.
In connection with the acquisition of Cignal by Priority Telecom, options were
granted to the former Cignal employees. No other grants were made under the
Priority Telecom Plan during 2000. The fair value of the exercisable portion of
the options granted to the former Cignal employees has been included in the
aggregate purchase price for Cignal.
A summary of stock option activity for the Priority Telecom Plan is as follows:
FOR THE YEAR ENDED
DECEMBER 31, 2000
----------------------
WEIGHTED-
AVERAGE
EXERCISE
NUMBER PRICE
---------- ---------
(EUROS)
Outstanding at beginning of the period...................... - E -
Granted during the period................................... 6,189,510 E3.65
Cancelled during the period................................. - E -
Exercised during the period................................. - E -
--------- -----
Outstanding at end of the period............................ 6,189,510 E3.65
========= =====
Exercisable at end of the period............................ 3,388,694 E2.23
========= =====
F-58
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Asia/Pacific Plan
In March 1998, Asia/Pacific's Board of Directors approved a stock option plan
(the "Asia/Pacific Plan") which permitted the grant of phantom stock options or
the grant of stock options to purchase up to 1,800,000 shares of Asia/Pacific's
Class A Common Stock. The options vested in equal monthly increments over a
four-year period following the date of grant, and gave the employee the right
with respect to vested options to receive a cash payment equal to the difference
between the fair market value of a share of Asia/Pacific stock and the option
base price per share. The Asia/Pacific Plan was cancelled effective July 22,
1999. Under variable plan accounting, a total of $17.6 million of compensation
expense was recognized during 1999 by Asia/Pacific through the cancellation
date.
A summary of phantom stock option activity for the Asia/Pacific Plan is as
follows:
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------------- ---------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
----------- -------------- ---------- --------------
Outstanding at beginning of the
period............................ 1,779,500 $10.00 - $ -
Granted during the period........... 65,000 $10.00 1,779,500 $10.00
Cancelled during the period......... (1,844,500) $10.00 - $ -
Exercised during the period......... - $ - - $ -
---------- ------ --------- ------
Outstanding at end of the period.... - $ - 1,779,500 $10.00
========== ====== ========= ======
Exercisable at end of the period.... - $ - 584,063 $10.00
========== ====== ========= ======
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------- --------------------------------
FAIR EXERCISE FAIR EXERCISE
EXERCISE PRICE NUMBER VALUE PRICE NUMBER VALUE PRICE
- ---------------------- ------- -------- -------- ---------- -------- --------
Equal to market
price............... 65,000 $10.00 $10.00 1,779,500 $10.00 $10.00
====== ====== ====== ========= ====== ======
Austar United Plan
On June 17, 1999, Austar United established a stock option plan (the "Austar
United Plan"). Effective on Austar United's initial public offering date of July
27, 1999, certain employees of United and Austar United were granted options
under the Austar United Plan in direct proportion to their previous holding of
Asia/Pacific options under the Asia/Pacific Plan along with retroactive vesting
through the initial public offering date to reflect vesting under the
Asia/Pacific Plan. The maximum term of options granted under the Austar United
Plan is ten years. The options vest in equal monthly increments over a four-year
period following the date of grant. Under the Austar United Plan, options to
purchase a total of 28,760,709 shares have been authorized, of which 1,115,580
were available for grant.
Pro forma information regarding net (loss) income and net (loss) income per
share is required by SFAS 123. This information is required to be determined as
if Austar United had accounted for its Austar United Plan under the fair value
method of SFAS 123. The fair value of options granted for the years ended
December 31,
F-59
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2000 and 1999 reported below has been estimated at the date of grant using the
Black-Scholes single-option pricing model and the following weighted-average
assumptions:
FOR THE YEAR ENDED
DECEMBER 31,
-------------------
2000 1999
-------- --------
Risk-free interest rate..................................... 5.27% 5.81%
Expected lives.............................................. 7 years 7 years
Expected volatility......................................... 55.48% 40.44%
Expected dividend yield..................................... 0% 0%
Based on the above assumptions, the total fair value of options granted was
approximately $3.1 and $57.7 million for the years ended December 31, 2000 and
1999, respectively. For purposes of the pro forma disclosures, the estimated
fair value of the options is amortized using the straight-line method over the
vesting period of the options. Had the Austar United Plan been accounted for
under SFAS 123, net (loss) income and basic and diluted net (loss) income per
share would have been reduced to/increased to the following pro forma amounts:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
2000 1999
------------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Net (loss) income:
As reported............................................... $(1,220,890) $636,318
=========== ========
Pro forma................................................. $(1,232,411) $644,257
=========== ========
Net (loss) income per common share:
Basic..................................................... $ (13.24) $ 7.53
=========== ========
Diluted................................................... $ (13.24) $ 6.67
=========== ========
Pro forma basic........................................... $ (12.82) $ 7.63
=========== ========
Pro forma diluted......................................... $ (12.82) $ 6.76
=========== ========
F-60
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of stock option activity for the Austar United Plan is as follows:
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2000 1999
---------------------------- ----------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
----------- -------------- ----------- --------------
(AUSTRALIAN (AUSTRALIAN
DOLLARS) DOLLARS)
Outstanding at beginning of the
period........................... 24,845,031 A$2.27 - A$ -
Granted during the period.......... 2,967,500 A$2.33 25,631,736 A$2.26
Cancelled during the period........ (851,652) A$4.39 (102,455) A$3.75
Exercised during the period........ (310,330) A$3.09 (684,250) A$1.83
---------- ------ ---------- ------
Outstanding at end of the period... 26,650,549 A$2.20 24,845,031 A$2.27
========== ====== ========== ======
Exercisable at end of the period... 17,279,095 A$2.01 11,564,416 A$1.90
========== ====== ========== ======
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2000 1999
---------------------------------- -----------------------------------
FAIR EXERCISE FAIR EXERCISE
EXERCISE PRICE NUMBER VALUE PRICE NUMBER VALUE PRICE
- ----------------------- ---------- --------- --------- ----------- --------- ---------
(AUSTRALIAN DOLLARS) (AUSTRALIAN DOLLARS)
Less than market
price................ 2,627,500 A$1.60 A$1.75 22,334,236 A$3.58 A$1.91
Equal to market
price................ 10,000 A$3.86 A$6.25 3,222,500 A$2.47 A$4.70
Greater than market
price................ 330,000 A$3.75 A$6.80 75,000 A$2.43 A$4.70
--------- ------ ------ ---------- ------ ------
Total............. 2,967,500 A$1.85 A$2.33 25,631,736 A$3.43 A$2.26
========= ====== ====== ========== ====== ======
F-61
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about the Austar United Plan options
outstanding and exercisable at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- -------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE PRICE RANGE CONTRACTUAL LIFE EXERCISE EXERCISE
(AUSTRALIAN DOLLARS) NUMBER (YEARS) PRICE NUMBER PRICE
- ---------------------- ----------- ---------------- ----------- ----------- -----------
(AUSTRALIAN (AUSTRALIAN
DOLLARS) DOLLARS)
A$1.75-A$1.80......... 23,166,646 8.71 A$1.79 16,090,607 A$1.80
A$4.70................ 3,163,174 8.59 A$4.70 1,114,790 A$4.70
A$6.25-A$6.43......... 250,729 9.30 A$6.42 61,875 A$6.42
A$7.55-A$8.28......... 70,000 9.30 A$8.18 11,823 A$8.27
---------- ---- ------ ---------- ------
Total............ 26,650,549 8.70 A$2.20 17,279,095 A$2.01
========== ==== ====== ========== ======
The Austar United Plan was accounted for as a variable plan prior to Austar
United's initial public offering, and as a fixed plan effective July 27, 1999.
For the years ended December 31, 2000 and 1999, $9.4 and $4.9 million,
respectively of compensation expense was recognized by Austar United in the
statement of operations and comprehensive (loss) income.
ULA Plan
In April 1998, ULA's Board of Directors approved a stock option plan (the "ULA
Plan") which permits the grant of phantom stock options or the grant of stock
options to purchase up to 2,500,000 shares of ULA's Class A Common Stock. The
options vest in equal monthly increments over a four-year period following the
date of grant. Concurrent with approval of the ULA Plan, ULA's Board granted
phantom stock options to certain employees which gives the employee the right
with respect to vested options to receive a cash payment equal to the difference
between the fair market value of a share of ULA stock and the option base price
per share. The ULA Plan is accounted for as a variable plan in accordance with
its terms, resulting in compensation expense for the difference between the
grant price and the fair market value at each financial statement date. For the
years ended December 31, 2000 and 1999 and the ten months ended December 31,
1998, ULA recognized $8.0, $(1.0) and $2.7 million in compensation expense
(credit) related to these phantom options, respectively. Actual cash paid upon
exercise of these phantom options was $1.8, $0.6 and $1.1 million for the years
ended December 31, 2000 and 1999 and the ten months ended December 31, 1998,
respectively.
F-62
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of phantom stock option activity for the ULA Plan is as follows:
FOR THE YEAR ENDED DECEMBER 31, FOR THE TEN
----------------------------------------------- MONTHS ENDED
2000 1999 DECEMBER 31, 1998
---------------------- ---------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
---------- --------- ---------- --------- ---------- ---------
Outstanding at beginning of the
period.............................. 1,062,687 $ 7.17 1,188,417 $5.77 - $ -
Granted during the period............. 630,000 $18.41 340,000 $8.86 1,785,500 $5.63
Cancelled during the period........... (5,834) $ 8.98 (328,647) $4.84 (317,296) $5.47
Exercised during the period........... (184,576) $ 8.77 (137,083) $4.81 (279,787) $5.19
--------- ------ --------- ----- --------- -----
Outstanding at end of the period...... 1,502,277 $11.68 1,062,687 $7.17 1,188,417 $5.77
========= ====== ========= ===== ========= =====
Exercisable at end of the period...... 472,109 $ 5.54 381,561 $5.87 268,730 $4.86
========= ====== ========= ===== ========= =====
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------- FOR THE TEN MONTHS ENDED
2000 1999 DECEMBER 31, 1998
------------------------------ ----------------------------- -------------------------------
FAIR EXERCISE FAIR EXERCISE FAIR EXERCISE
EXERCISE PRICE NUMBER VALUE PRICE NUMBER VALUE PRICE NUMBER VALUE PRICE
- -------------- -------- -------- -------- -------- ------- -------- ---------- ------- --------
Equal to market
price.............. 630,000 $18.41 $18.41 340,000 $8.86 $8.86 945,500 $5.81 $5.81
Greater than market
price.............. - - - - - - 840,000 $4.26 $5.43
------- ------ ------ ------- ----- ----- --------- ----- -----
Total............ 630,000 $18.41 $18.41 340,000 $8.86 $8.86 1,785,500 $5.08 $5.63
======= ====== ====== ======= ===== ===== ========= ===== =====
The following table summarizes information about the ULA Plan phantom options
outstanding and exercisable at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- --------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL LIFE EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER (YEARS) PRICE NUMBER PRICE
- ------------------------------ ---------- ---------------- --------- -------- ---------
$ 4.26........................ 304,672 6.43 $ 4.26 266,172 $4.26
$ 4.96........................ 100,000 6.43 $ 4.96 87,500 $4.96
$ 8.81........................ 85,105 8.42 $ 8.81 30,104 $8.81
$ 8.86........................ 295,000 9.01 $ 8.86 82,083 $8.86
$ 8.98........................ 137,500 7.72 $ 8.98 6,250 $8.98
$19.23........................ 580,000 9.93 $19.23 - -
--------- ---- ------ ------- -----
Total.................. 1,502,277 8.52 $11.68 472,109 $5.54
========= ==== ====== ======= =====
VTR Plan
VTR's Board of Directors approved a stock option plan (the "VTR Plan") effective
May 1, 1999 which permits the grant of phantom stock options or the grant of
stock options to purchase up to 1,505,000 shares of
F-63
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
VTR's Common Stock. The options vest in equal monthly increments over a
four-year period following the date of grant. Concurrent with approval of the
VTR Plan, VTR's Board granted phantom stock options to certain employees which
gives the employee the right with respect to vested options to receive a cash
payment equal to the difference between the fair market value of a share of VTR
stock and the option base price per share. The VTR Plan is accounted for as a
variable plan in accordance with its terms, resulting in compensation expense
for the difference between the grant price and the fair market value at each
financial statement date. For the year ended December 31, 2000, VTR recognized
$8.0 million in compensation expense related to these phantom options. Actual
cash paid upon exercise of these phantom options was $0.2 million for the year
ended December 31, 2000.
A summary of phantom stock option activity for the VTR Plan is as follows:
FOR THE YEAR ENDED
DECEMBER 31, 2000
---------------------------
WEIGHTED-
AVERAGE
NUMBER EXERCISE PRICE
---------- --------------
Outstanding at beginning of the period...................... - $ -
Granted during the period................................... 1,295,000 $16.49
Cancelled during the period................................. (73,022) $15.00
Exercised during the period................................. (71,978) $15.00
--------- ------
Outstanding at end of the period............................ 1,150,000 $16.67
========= ======
Exercisable at end of the period............................ 237,793 $15.76
========= ======
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
FOR THE YEAR ENDED
DECEMBER 31, 2000
--------------------------------
FAIR EXERCISE
EXERCISE PRICE NUMBER VALUE PRICE
- -------------------------------------------------------- ---------- -------- --------
Equal to market price................................... 1,295,000 $16.49 $16.49
========= ====== ======
The following table summarizes information about the VTR Plan phantom options
outstanding and exercisable at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- --------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL LIFE EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER (YEARS) PRICE NUMBER PRICE
- -------------------------- ---------- ---------------- --------- -------- ---------
$15.00.................... 1,025,000 8.89 $15.00 226,127 $15.00
$30.40.................... 125,000 9.54 $30.40 11,666 $30.40
--------- ---- ------ ------- ------
Total................ 1,150,000 8.97 $16.67 237,793 $15.76
========= ==== ====== ======= ======
F-64
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. BASIC AND DILUTED NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED FOR THE TEN
SEPTEMBER 31, DECEMBER 31, MONTHS ENDED
----------------------------- ---------------------------- DECEMBER 31,
2001 2000 2000 1999 1998
------------- ----------- ------------- ---------- ------------
(UNAUDITED)
(IN THOUSANDS)
Basic:
Net (loss) income............. $(2,098,782) $(884,841) $(1,220,890) $636,318 $(545,532)
Accrual of dividends on Series
A
Convertible Preferred
Stock..................... - - - (220) (968)
Accrual of dividends on Series
B
Convertible Preferred
Stock..................... (1,393) (1,319) (1,717) (1,899) (655)
Accrual of dividends on Series
C
Convertible Preferred
Stock..................... (22,313) (22,313) (29,750) (14,875) -
Accrual of dividends on Series
D
Convertible Preferred
Stock..................... (15,093) (15,094) (20,125) (1,398) -
----------- --------- ----------- -------- ---------
Basic net (loss) income
attributable to common
stockholders.............. $(2,137,581) $(923,567) $(1,272,482) $617,926 $(547,155)
=========== ========= =========== ======== =========
Diluted:
Accrual of dividends on Series
A
Convertible Preferred
Stock..................... - - -(1) 220 -(1)
Accrual of dividends on Series
B
Convertible Preferred
Stock..................... -(1) -(1) -(1) 1,899 -(1)
Accrual of dividends on Series
C
Convertible Preferred
Stock..................... -(1) -(1) -(1) 14,875 -(1)
Accrual of dividends on Series
D
Convertible Preferred
Stock..................... -(1) -(1) -(1) 1,398 -(1)
----------- --------- ----------- -------- ---------
Diluted net (loss) income
attributable to common
stockholders.............. $(2,137,581) $(923,567) $(1,272,482) $636,318 $(547,155)
=========== ========= =========== ======== =========
- ------------
(1) Excluded from the calculation of diluted net (loss) income attributable to
common stockholders because the effect is anti-dilutive.
14. COMMITMENTS
The Company has entered into various operating lease agreements for office
space, office furniture and equipment, and vehicles. Rental expense under these
lease agreements totaled $85.0, $25.9 and $5.8 million for the years ended
December 31, 2000 and 1999 and the ten months ended December 31, 1998,
respectively.
The Company has operating lease obligations and other non-cancelable commitments
as follows (in thousands):
Year ended December 31, 2001................................ $ 73,720
Year ended December 31, 2002................................ 58,675
Year ended December 31, 2003................................ 47,022
Year ended December 31, 2004................................ 38,929
Year ended December 31, 2005................................ 35,053
Thereafter.................................................. 106,178
----------
Total.................................................. $ 359,577
==========
F-65
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UPC has entered into various short- and long-term agreements with third parties,
varying in term from 3 to 15 years, for indefeasible rights of use ("IRU's") on
fiber optic cable as well as for operational leases. Under these agreements UPC
has commitments for discounted future minimum lease payments, and for operation
and maintenance charges, which total approximately $70.6 million as of December
31, 2000.
A subsidiary of UPC leases DTH technical equipment, conduit and satellite
transponder capacity, as well as several offices and warehouses. As of December
31, 2000, these leases had an aggregate maximum commitment of approximately
$208.1 million over the next seven years.
UPC has entered into an agreement for the long-term lease of satellite
transponder capacity providing service from Europe to Europe, North America and
South America. The term of the agreement is 156 months, with a minimum aggregate
total cost of approximately $107.9 million payable in monthly installments based
on capacity used.
UPC Polska has entered into long-term programming agreements and agreements for
the purchase of certain exhibition or broadcast rights with a number of third
party content providers for its digital DTH and cable systems. UPC Polska had
minimum commitments related to these agreements as follows (in thousands):
Year ended December 31, 2001................................ $ 65,200
Year ended December 31, 2002................................ 54,300
Year ended December 31, 2003................................ 35,000
Year ended December 31, 2004................................ 21,100
Year ended December 31, 2005................................ 13,400
Thereafter.................................................. 78,800
----------
Total.................................................. $ 267,800
==========
As of December 31, 2000, UPC Polska had an aggregate minimum commitment toward
the purchase of DTH reception systems from Philips Business Electronics B.V. of
approximately $18.8 million over the next year.
Austar United has minimum fixed MMDS license fees and programming license fees
payable annually as follows (in thousands):
Year ended December 31, 2001................................ $ 17,771
Year ended December 31, 2002................................ 17,771
Year ended December 31, 2003................................ 17,771
Year ended December 31, 2004................................ 17,771
Year ended December 31, 2005................................ 17,771
Thereafter.................................................. 35,543
----------
Total.................................................. $ 124,398
==========
Austar United has renegotiated a September 1997 five-year agreement to lease a
satellite transponder to include the leasing of an additional transponder.
Satellite fees payable annually are as follows (in thousands):
Year ended December 31, 2001................................ $ 6,070
Year ended December 31, 2002................................ 7,016
Year ended December 31, 2003................................ 7,711
Year ended December 31, 2004................................ 7,711
Year ended December 31, 2005................................ 7,711
Thereafter.................................................. 69,397
----------
Total.................................................. $ 105,616
==========
F-66
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. CONTINGENCIES
From time to time, the Company and/or its subsidiaries may become involved in
litigation relating to claims arising out of its operations in the normal course
of business. The Company is not a party to any material legal proceedings, nor
is it currently aware of any threatened material legal proceedings.
16. INCOME TAXES
In general, a United States corporation may claim a foreign tax credit against
its federal income tax expense for foreign income taxes paid or accrued. Because
the Company must calculate its foreign tax credit separately for dividends
received from each foreign corporation in which the Company owns 10.0% to 50.0%
of the voting stock, and because of certain other limitations, the Company's
ability to claim a foreign tax credit may be limited, particularly with respect
to dividends paid out of earnings subject to a high rate of foreign income tax.
Generally, the Company's ability to claim a foreign tax credit is limited to the
amount of U.S. taxes the Company pays with respect to its foreign source income.
In calculating its foreign source income, the Company is required to allocate
interest expense and overhead incurred in the United States between its United
States and foreign activities. Accordingly, to the extent United States
borrowings are used to finance equity contributions to its foreign subsidiaries,
the Company's ability to claim a foreign tax credit may be significantly
reduced. These limitations and the inability of the Company to offset losses in
one foreign jurisdiction against income earned in another foreign jurisdiction
could result in a high effective tax rate on the Company's earnings.
The primary differences between taxable income (loss) and net income (loss) for
financial reporting purposes relate to SAB 51 gains, the non-consolidation of
consolidated foreign subsidiaries for United States tax purposes, international
rate differences and the current non-deductibility of interest expense on UAP's
senior notes and the United 1999 Notes. For investments in foreign corporations
accounted for under the equity method, taxable income (loss) generated by these
affiliates does not flow through to the Company for United States federal and
state tax purposes, even though the Company records its allocable share of
affiliate income (losses) for financial reporting purposes. Accordingly, due to
the indefinite reversal of such amounts in future periods, no deferred tax asset
has been established for tax basis in excess of the Company's book basis
(approximately $264.7 and $70.3 million at December 31, 2000 and 1999,
respectively).
F-67
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's United States tax net operating losses, totaling approximately
$425.5 million at December 31, 2000, expire beginning in 2005 through 2020. The
Company's tax net operating loss carryforwards of its consolidated foreign
subsidiaries as of December 31, 2000 totaled $1,907.0, $205.1 and $169.0 million
for UEI, Asia/Pacific and ULA, respectively. The significant components of
deferred tax assets and liabilities are as follows:
AS OF DECEMBER 31,
---------------------------
2000 1999
------------- -----------
(IN THOUSANDS)
Deferred tax assets:
Tax net operating loss carryforward of consolidated
foreign subsidiaries................................... $ 767,478 $ 449,030
Company's U.S tax net operating loss carryforward......... 161,672 132,156
Accrued interest expense.................................. 124,148 72,345
Foreign currency translation adjustment................... 62,671 23,113
Stock-based compensation.................................. 11,671 36,735
Deferred compensation and severance....................... 3,615 3,398
Basis difference in marketable equity securities.......... 3,076 3,074
Investment valuation allowance and other.................. 2,490 2,768
Other..................................................... 12,612 21,082
----------- ---------
Total deferred tax assets.............................. 1,149,433 743,701
Valuation allowance....................................... (1,126,358) (723,914)
----------- ---------
Deferred tax assets, net of valuation allowance........ 23,075 19,787
----------- ---------
Deferred tax liabilities:
Property, plant and equipment, net........................ (6,069) (11,282)
Intangible assets......................................... (17,208) (18,745)
Other..................................................... (82) (1,017)
----------- ---------
Total deferred tax liabilities......................... (23,359) (31,044)
----------- ---------
Deferred tax liabilities, net.......................... $ (284) $ (11,257)
=========== =========
F-68
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Of the Company's 2000 consolidated (loss) income before income taxes and other
items, a loss of $2,039.2 million is derived from the Company's foreign
operations. The difference between income tax (benefit) expense provided in the
financial statements and the expected income tax (benefit) expense at statutory
rates is reconciled as follows:
FOR THE YEAR ENDED FOR THE TEN
DECEMBER 31, MONTHS ENDED
------------------------- DECEMBER 31,
2000 1999 1998
----------- ----------- ------------
(IN THOUSANDS)
Expected income tax benefit at the U.S.
statutory rate of 35%........................ $(709,947) $ 115,913 $(172,472)
Tax effect of permanent and other differences:
Change in valuation allowance................ 505,180 370,004 128,420
Gain on issuance of common equity securities
by subsidiaries........................... (48,538) (573,359) -
Non-deductible expenses...................... 26,079 77,490 49,497
Capitalized costs............................ (6,564) (49,402) -
International rate differences............... 128,929 45,416 619
Book/tax basis differences associated with
foreign investments....................... 90,394 788 1,176
State tax, net of federal benefit............ (60,853) 9,935 (14,783)
Non-deductible interest accretion............ 61,060 1,693 2,148
Gain on sale of equity investment in
subsidiary................................ - 5,877 -
Amortization of licenses..................... - 923 1,516
Other........................................ 11,363 (5,080) 4,489
--------- --------- ---------
Total income tax (benefit) expense........ $ (2,897) $ 198 $ 610
========= ========= =========
During 1996, the Austrian tax authorities passed legislation which had the
effect of eliminating approximately $237.7 million of tax basis associated with
certain amounts of goodwill recorded at Telekabel Group effective January 1,
1997. This change in tax law is expected to be challenged on constitutional
grounds. However, there can be no assurance of a successful repeal of such
legislation.
The Company through its subsidiaries maintains a presence in 26 countries. Many
of these countries maintain tax regimes that differ significantly from the
system of income taxation used in the United States, such as a value added tax
system. The Company has accounted for the effect of foreign taxes based on what
we believe is reasonably expected to apply to the Company and its subsidiaries
based on tax laws currently in effect and/or reasonable interpretations of these
laws. Because some foreign jurisdictions do not have systems of taxation that
are as well established as the system of income taxation used in the United
States or tax regimes used in other major industrialized countries, it may be
difficult to anticipate how foreign jurisdictions will tax current and future
operations of the Company and its subsidiaries.
17. SEGMENT INFORMATION
The Company provides video, voice and Internet access services in numerous
countries worldwide, and related content and other media services in a growing
number of international markets.
The Company evaluates performance and allocates resources based on the results
of these divisions. The key operating performance criteria used in this
evaluation include revenue growth and Adjusted EBITDA.
F-69
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Adjusted EBITDA represents net operating loss before depreciation, amortization
and stock-based compensation charges. Stock-based compensation charges result
from variable plan accounting of our subsidiaries' regular and phantom stock
option plans and are generally non-cash charges. 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 Adjusted EBITDA in the same manner.
As the Company increases its bundling of products, the allocation of indirect
operating and selling, general and administrative expenses between individual
products will become increasingly difficult and may not represent the actual
Adjusted EBITDA for individual products.
A summary of segment information by geographic area is as follows:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
---------------------------------------------------------------------------------
VIDEO VOICE INTERNET CONTENT OTHER TOTAL
---------- ----------- ----------- ----------- ----------- ------------
(UNAUDITED)
(IN THOUSANDS)
REVENUE:
Europe:
The Netherlands................. $165,358 $ 162,644 $ 53,405 $ 5,238 $ 2,476 $ 389,121
Austria......................... 56,665 27,530 32,197 - 316 116,708
Belgium......................... 10,307 - 6,108 - - 16,415
Czech Republic.................. 27,608 548 797 - 1,627 30,580
France.......................... 40,749 14,956 4,904 - 1,017 61,626
Hungary......................... 47,817 17,597 2,075 - - 67,489
Norway.......................... 33,130 4,474 5,762 - - 43,366
Poland.......................... 103,328 - 980 1,988 - 106,296
Sweden.......................... 22,594 - 7,024 - 307 29,925
Germany......................... 32,949 29 36 - 1,885 34,899
Corporate and other............. 24,488 - 426 6 3,027 27,947
-------- --------- --------- --------- --------- ----------
Total Europe.................. 564,993 227,778 113,714 7,232 10,655 924,372
-------- --------- --------- --------- --------- ----------
Asia/Pacific:
Australia....................... 113,989 2,451 8,061 8,210 214 132,925
Corporate and other............. - - - - - -
-------- --------- --------- --------- --------- ----------
Total Asia/Pacific............ 113,989 2,451 8,061 8,210 214 132,925
-------- --------- --------- --------- --------- ----------
Latin America:
Chile........................... 81,643 38,308 3,982 - - 123,933
Brazil.......................... 2,983 - - - - 2,983
Corporate and other............. 1,402 - 66 - 37 1,505
-------- --------- --------- --------- --------- ----------
Total Latin America........... 86,028 38,308 4,048 - 37 128,421
-------- --------- --------- --------- --------- ----------
Corporate and other............... - - - - 142 142
-------- --------- --------- --------- --------- ----------
Total Consolidated
Revenue................... $765,010 $ 268,537 $ 125,823 $ 15,442 $ 11,048 $1,185,860
======== ========= ========= ========= ========= ==========
F-70
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
---------------------------------------------------------------------------------
VIDEO VOICE INTERNET CONTENT OTHER TOTAL
---------- ----------- ----------- ----------- ----------- ------------
(UNAUDITED)
(IN THOUSANDS)
ADJUSTED EBITDA:
Europe:
The Netherlands................. $ 86,549 $ (89,394) $ (47,796) $ (42,187) $ (32,560) $ (125,388)
Austria......................... 24,456 2,566 7,019 - 1,078 35,119
Belgium......................... 4,556 - (590) - 3 3,969
Czech Republic.................. 7,823 13 (369) (1,354) 747 6,860
France.......................... (2,496) (9,831) (4,387) - 473 (16,241)
Hungary......................... 13,573 8,820 (607) (2,579) - 19,207
Norway.......................... 10,653 (3,230) (1,710) - 200 5,913
Poland.......................... 2,225 - (3,337) (23,231) (3,581) (27,924)
Sweden.......................... 7,878 (73) (1,776) - (441) 5,588
Germany......................... 18,702 (21) (483) - (957) 17,241
Corporate and other............. 6,925 - 376 95 (65,356) (57,960)
-------- --------- --------- --------- --------- ----------
Total Europe................ 180,844 (91,150) (53,660) (69,256) (100,394) (133,616)
-------- --------- --------- --------- --------- ----------
Asia/Pacific:
Australia....................... (9,783) (1,235) (16,715) (5,984) (2,412) (36,129)
Corporate and other............. - - - - 1,516 1,516
-------- --------- --------- --------- --------- ----------
Total Asia/Pacific.......... (9,783) (1,235) (16,715) (5,984) (896) (34,613)
-------- --------- --------- --------- --------- ----------
Latin America:
Chile........................... 13,754 8,959 (1,872) - (2,250) 18,591
Brazil.......................... (412) - - - - (412)
Corporate and other............. (976) - (760) - (3,202) (4,938)
-------- --------- --------- --------- --------- ----------
Total Latin America......... 12,366 8,959 (2,632) - (5,452) 13,241
-------- --------- --------- --------- --------- ----------
Corporate and other............... - - - - (17,713) (17,713)
-------- --------- --------- --------- --------- ----------
Total Consolidated
Adjusted EBITDA......... $183,427 $ (83,426) $ (73,007) $ (75,240) $(124,455) $ (172,701)
======== ========= ========= ========= ========= ==========
F-71
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------------------------------------------------
VIDEO VOICE INTERNET CONTENT OTHER TOTAL
----------- ---------- ------------ ---------- ------------ -----------
(UNAUDITED)
(IN THOUSANDS)
REVENUE:
Europe:
The Netherlands..................... $ 148,119 $ 74,655 $ 24,048 $ 2,830 $ 549 $ 250,201
Austria............................. 58,719 20,670 18,091 - - 97,480
Belgium............................. 11,260 958 2,935 - - 15,153
Czech Republic...................... 17,854 713 86 - 2,235 20,888
France.............................. 41,078 6,304 1,630 - - 49,012
Hungary............................. 33,350 15,242 220 - 10 48,822
Norway.............................. 34,451 2,060 1,671 - - 38,182
Poland.............................. 87,246 - - 1,409 - 88,655
Sweden.............................. 23,277 275 3,879 - - 27,431
Corporate and other................. 15,103 - - - 1,969 17,072
--------- -------- ---------- -------- ---------- ---------
Total Europe...................... 470,457 120,877 52,560 4,239 4,763 652,896
--------- -------- ---------- -------- ---------- ---------
Asia/Pacific:
Australia........................... 124,396 - 1,654 - 2,310 128,360
New Zealand......................... 844 3,166 878 - - 4,888
Corporate and other................. - - - - - -
--------- -------- ---------- -------- ---------- ---------
Total Asia/Pacific................ 125,240 3,166 2,532 - 2,310 133,248
--------- -------- ---------- -------- ---------- ---------
Latin America:
Chile............................... 86,325 22,412 466 - - 109,203
Brazil.............................. 4,062 - - - - 4,062
Corporate and other................. 1,512 - - - 49 1,561
--------- -------- ---------- -------- ---------- ---------
Total Latin America............... 91,899 22,412 466 - 49 114,826
--------- -------- ---------- -------- ---------- ---------
Corporate and other................... - - - - 78 78
--------- -------- ---------- -------- ---------- ---------
Total Consolidated Revenue...... $ 687,596 $146,455 $ 55,558 $ 4,239 $ 7,200 $ 901,048
========= ======== ========== ======== ========== =========
ADJUSTED EBITDA:
Europe:
The Netherlands..................... $ 73,222 $(54,316) $ (107,455) $(33,510) $ (9,647) $(131,706)
Austria............................. 30,692 (4,442) 955 - - 27,205
Belgium............................. 3,972 (159) (3,999) - - (186)
Czech Republic...................... (1,269) 45 57 - 828 (339)
France.............................. 9,891 (14,851) (6,150) - (284) (11,394)
Hungary............................. 7,808 8,381 (2,563) - 9 13,635
Norway.............................. 13,131 (8,419) (2,290) - (219) 2,203
Poland.............................. (4,369) - (279) (36,272) (1,292) (42,212)
Sweden.............................. 8,706 (2,632) (5,904) - (93) 77
Corporate and other................. 7,009 (1,490) (1,510) (510) (75,069) (71,570)
--------- -------- ---------- -------- ---------- ---------
Total Europe...................... 148,793 (77,883) (129,138) (70,292) (85,767) (214,287)
--------- -------- ---------- -------- ---------- ---------
Asia/Pacific:
Australia........................... (9,801) (903) (15,162) - (505) (26,371)
New Zealand......................... (253) (357) 248 - (1,344) (1,706)
Corporate and other................. - - - - 1,626 1,626
--------- -------- ---------- -------- ---------- ---------
Total Asia/Pacific................ (10,054) (1,260) (14,914) - (223) (26,451)
--------- -------- ---------- -------- ---------- ---------
Latin America:
Chile............................... 18,634 2,033 (2,103) - (6,944) 11,620
Brazil.............................. (68) - - - - (68)
Corporate and other................. (672) - - - 2,994 2,322
--------- -------- ---------- -------- ---------- ---------
Total Latin America............... 17,894 2,033 (2,103) - (3,950) 13,874
--------- -------- ---------- -------- ---------- ---------
Corporate and other................... - - - - (10,063) (10,063)
--------- -------- ---------- -------- ---------- ---------
Total Consolidated Adjusted
EBITDA........................ $ 156,633 $(77,110) $ (146,155) $(70,292) $ (100,003) $(236,927)
========= ======== ========== ======== ========== =========
F-72
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2000
---------------------------------------------------------------------------------
VIDEO VOICE INTERNET CONTENT OTHER TOTAL
---------- ----------- ----------- ----------- ----------- ------------
(IN THOUSANDS)
REVENUE:
Europe:
The Netherlands................. $199,592 $ 120,497 $ 35,968 $ 2,981 $ 525 $ 359,563
Austria......................... 76,264 31,489 25,438 - - 133,191
Belgium......................... 14,456 1,319 4,261 - - 20,036
Czech Republic.................. 24,718 886 250 - 2,937 28,791
France.......................... 53,822 9,365 2,574 - 5 65,766
Hungary......................... 44,869 19,991 421 - 10 65,291
Norway.......................... 45,020 3,546 2,852 - - 51,418
Poland.......................... 119,656 - 4 1,625 - 121,285
Sweden.......................... 30,803 - 5,871 - - 36,674
Germany......................... 9,656 10 16 - 1,361 11,043
Corporate and other............. 22,215 - - - 3,361 25,576
-------- --------- --------- --------- --------- ----------
Total Europe.................. 641,071 187,103 77,655 4,606 8,199 918,634
-------- --------- --------- --------- --------- ----------
Asia/Pacific:
Australia....................... 163,094 732 4,189 - 4,410 172,425
New Zealand..................... 844 3,166 878 - - 4,888
Corporate and other............. - - - - - -
-------- --------- --------- --------- --------- ----------
Total Asia/Pacific............ 163,938 3,898 5,067 - 4,410 177,313
-------- --------- --------- --------- --------- ----------
Latin America:
Chile........................... 113,400 33,497 1,270 - - 148,167
Brazil.......................... 4,797 - - - - 4,797
Corporate and other............. 1,945 - 1 - 75 2,021
-------- --------- --------- --------- --------- ----------
Total Latin America........... 120,142 33,497 1,271 - 75 154,985
-------- --------- --------- --------- --------- ----------
Corporate and other............... - - - - 102 102
-------- --------- --------- --------- --------- ----------
Total Consolidated
Revenue................... $925,151 $ 224,498 $ 83,993 $ 4,606 $ 12,786 $1,251,034
======== ========= ========= ========= ========= ==========
ADJUSTED EBITDA:
Europe:
The Netherlands................. $101,278 $ (99,598) $(138,897) $ (58,710) $ (16,802) $ (212,729)
Austria......................... 39,245 (6,979) 731 - - 32,997
Belgium......................... 4,187 (29) (4,966) - 91 (717)
Czech Republic.................. (789) 45 103 - 1,139 498
France.......................... 13,196 (22,270) (9,091) - (4,579) (22,744)
Hungary......................... 9,589 11,242 (3,322) - 10 17,519
Norway.......................... 16,969 (10,615) (2,882) - (317) 3,155
Poland.......................... (3,937) - (1,793) (48,508) (2,318) (56,556)
Sweden.......................... 9,193 (3,535) (7,977) - - (2,319)
Germany......................... 4,602 (48) (86) - 385 4,853
Corporate and other............. 5,872 - (2,358) - (95,110) (91,596)
-------- --------- --------- --------- --------- ----------
Total Europe.................. 199,405 (131,787) (170,538) (107,218) (117,501) (327,639)
-------- --------- --------- --------- --------- ----------
Asia/Pacific:
Australia....................... (12,333) (3,482) (21,255) - (6,528) (43,598)
New Zealand..................... (253) (357) 248 - (1,344) (1,706)
Corporate and other............. - - - - 1,980 1,980
-------- --------- --------- --------- --------- ----------
Total Asia/Pacific............ (12,586) (3,839) (21,007) - (5,892) (43,324)
-------- --------- --------- --------- --------- ----------
Latin America:
Chile........................... 36,672 (8,890) (2,350) - (12,850) 12,582
Brazil.......................... (854) - - - - (854)
Corporate and other............. (1,023) - - - 4,814 3,791
-------- --------- --------- --------- --------- ----------
Total Latin America........... 34,795 (8,890) (2,350) - (8,036) 15,519
-------- --------- --------- --------- --------- ----------
Corporate and other............... - - - - (13,020) (13,020)
-------- --------- --------- --------- --------- ----------
Total Consolidated Adjusted
EBITDA.................... $221,614 $(144,516) $(193,895) $(107,218) $(144,449) $ (368,464)
======== ========= ========= ========= ========= ==========
F-73
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------------
VIDEO VOICE INTERNET CONTENT OTHER TOTAL
---------- ---------- ---------- ---------- ---------- -----------
(IN THOUSANDS)
REVENUE:
Europe:
The Netherlands..................... $117,025 $ 32,029 $ 8,616 $ 1,112 $ 330 $ 159,112
Austria............................. 83,736 7,321 13,610 - - 104,667
Belgium............................. 15,737 - 2,497 - - 18,234
Czech Republic...................... 7,485 181 - - 1,042 8,708
France.............................. 27,522 2,710 590 - - 30,822
Hungary............................. 35,197 - 125 - - 35,322
Norway.............................. 49,185 365 565 - - 50,115
Poland.............................. $ 35,020 $ - $ - $ 2,741 $ - $ 37,761
Sweden.............................. 13,335 - 504 - - 13,839
Corporate and other................. 8,327 - - - 6,515 14,842
-------- -------- -------- -------- -------- ---------
Total Europe...................... 392,569 42,606 26,507 3,853 7,887 473,422
-------- -------- -------- -------- -------- ---------
Asia/Pacific:
Australia........................... 145,602 - - - - 145,602
New Zealand......................... 1,279 4,107 - - 734 6,120
Corporate and other................. - - - - 242 242
-------- -------- -------- -------- -------- ---------
Total Asia/Pacific................ 146,881 4,107 - - 976 151,964
-------- -------- -------- -------- -------- ---------
Latin America:
Chile............................... 77,476 9,881 87 - - 87,444
Brazil.............................. 4,637 - - - - 4,637
Corporate and other................. 2,428 - - - 590 3,018
-------- -------- -------- -------- -------- ---------
Total Latin America............... 84,541 9,881 87 - 590 95,099
-------- -------- -------- -------- -------- ---------
Corporate and other................... - - - - 277 277
-------- -------- -------- -------- -------- ---------
Total Consolidated Revenue...... $623,991 $ 56,594 $ 26,594 $ 3,853 $ 9,730 $ 720,762
======== ======== ======== ======== ======== =========
ADJUSTED EBITDA:
Europe:
The Netherlands..................... $ 47,513 $(19,622) $(65,631) $(16,471) $ 1,495 $ (52,716)
Austria............................. 44,318 (11,310) 231 - - 33,239
Belgium............................. 3,899 (54) (2,181) - - 1,664
Czech Republic...................... (1,114) 54 - - 401 (659)
France.............................. (1,741) (5,863) (2,339) - (66) (10,009)
Hungary............................. 11,575 - (257) - - 11,318
Norway.............................. 20,450 (7,053) (5,106) - - 8,291
Poland.............................. (37,009) - - (36,110) (2,975) (76,094)
Sweden.............................. 4,518 (133) (4,038) - - 347
Corporate and other................. 2,094 (204) (724) - (40,556) (39,390)
-------- -------- -------- -------- -------- ---------
Total Europe...................... 94,503 (44,185) (80,045) (52,581) (41,701) (124,009)
-------- -------- -------- -------- -------- ---------
Asia/Pacific:
Australia........................... (10,005) - - - (4,381) (14,386)
New Zealand......................... (918) (1,160) - - (47) (2,125)
Corporate and other................. - - - - 169 169
-------- -------- -------- -------- -------- ---------
Total Asia/Pacific................ (10,923) (1,160) - - (4,259) (16,342)
-------- -------- -------- -------- -------- ---------
Latin America:
Chile............................... 17,744 (2,604) - - - 15,140
Brazil.............................. (2,462) - - - - (2,462)
Corporate and other................. (1,210) - - - (4,403) (5,613)
-------- -------- -------- -------- -------- ---------
Total Latin America............... 14,072 (2,604) - - (4,403) 7,065
-------- -------- -------- -------- -------- ---------
Corporate and other................... - - - - 109 109
-------- -------- -------- -------- -------- ---------
Total Consolidated Adjusted
EBITDA........................ $ 97,652 $(47,949) $(80,045) $(52,581) $(50,254) $(133,177)
======== ======== ======== ======== ======== =========
F-74
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE TEN MONTHS ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------
VIDEO VOICE INTERNET CONTENT OTHER TOTAL
----------- ---------- ---------- ---------- ----------- -----------
(IN THOUSANDS)
REVENUE:
Europe:
The Netherlands........................... $ 13,854 $ 162 $ - $ - $ - $ 14,016
Austria................................... 71,396 61 3,172 - - 74,629
Belgium................................... 13,768 - 656 - 1,071 15,495
Czech Republic............................ 3,754 - - - - 3,754
France.................................... 3,395 - - - - 3,395
Hungary................................... 11,671 - - - - 11,671
Norway.................................... 38,879 - 161 - - 39,040
Corporate and other....................... 2,446 - - 567 7,274 10,287
--------- -------- -------- -------- --------- ---------
Total Europe............................ 159,163 223 3,989 567 8,345 172,287
--------- -------- -------- -------- --------- ---------
Asia/Pacific:
Australia................................. 74,209 - - - - 74,209
New Zealand............................... - - - - - -
Corporate and other....................... 3,213 - - - - 3,213
--------- -------- -------- -------- --------- ---------
Total Asia/Pacific...................... 77,422 - - - - 77,422
--------- -------- -------- -------- --------- ---------
Latin America:
Chile..................................... - - - - - -
Corporate and other....................... 4,135 - - - 622 4,757
--------- -------- -------- -------- --------- ---------
Total Latin America..................... 4,135 - - - 622 4,757
--------- -------- -------- -------- --------- ---------
Corporate and other......................... - - - - - -
--------- -------- -------- -------- --------- ---------
Total Consolidated Revenue............ $ 240,720 $ 223 $ 3,989 $ 567 $ 8,967 $ 254,466
========= ======== ======== ======== ========= =========
ADJUSTED EBITDA:
Europe:
The Netherlands........................... $ 8,445 $ (1,303) $ (6,103) $ (295) $ (4,401) $ (3,657)
Austria................................... 34,350 (1,636) (1,739) - - 30,975
Belgium................................... 5,755 - (799) - 114 5,070
Czech Republic............................ (721) - - - - (721)
France.................................... (954) (911) (77) - - (1,942)
Hungary................................... 3,820 - - - - 3,820
Norway.................................... 14,015 (573) (806) - - 12,636
Corporate and other....................... (167) - 19 (3,556) 131 (3,573)
--------- -------- -------- -------- --------- ---------
Total Europe............................ 64,543 (4,423) (9,505) (3,851) (4,156) 42,608
--------- -------- -------- -------- --------- ---------
Asia/Pacific:
Australia................................. (31,093) - - - - (31,093)
New Zealand............................... - - - - - -
Corporate and other....................... - - - - (2,134) (2,134)
--------- -------- -------- -------- --------- ---------
Total Asia/Pacific...................... (31,093) - - - (2,134) (33,227)
--------- -------- -------- -------- --------- ---------
Latin America:
Chile..................................... - - - - - -
Corporate and other....................... (2,969) - - - (7,050) (10,019)
--------- -------- -------- -------- --------- ---------
Total Latin America..................... (2,969) - - - (7,050) (10,019)
--------- -------- -------- -------- --------- ---------
Corporate and other......................... - - - - (2,907) (2,907)
--------- -------- -------- -------- --------- ---------
Total Consolidated Adjusted EBITDA.... $ 30,481 $ (4,423) $ (9,505) $ (3,851) $ (16,247) $ (3,545)
========= ======== ======== ======== ========= =========
F-75
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF SEPTEMBER 30, AS OF AND FOR THE PERIOD ENDED DECEMBER 31,
------------------- -------------------------------------------------------------------------
2001 2000 1999
------------------- ------------------------------------------- ---------------------------
LONG- LONG-
TOTAL CAPITAL LIVED TOTAL CAPITAL LIVED
ASSETS EXPENDITURES ASSETS ASSETS EXPENDITURES ASSETS
------------------- ------------ ------------ ------------- ------------ ------------
(UNAUDITED)
(IN THOUSANDS)
Europe:
The Netherlands....... $ 3,326,818 $ 607,791 $1,362,721 $ 3,400,264 $247,050 $ 774,045
Austria............... 410,350 132,064 251,855 430,988 94,240 179,652
Belgium............... 44,544 9,699 21,149 43,141 8,447 23,186
Czech Republic........ 207,979 28,631 108,406 214,598 2,491 80,347
France................ 837,468 223,814 530,013 849,011 70,666 319,454
Hungary............... 342,514 116,806 197,266 349,788 38,708 112,698
Norway................ 280,230 98,962 172,749 296,494 57,106 100,315
Poland................ 1,109,866 123,174 278,049 1,222,790 42,460 218,784
Sweden................ 358,639 15,111 63,553 420,827 12,495 48,182
Germany............... 859,009 3,781 73,344 969,679 - -
Corporate and other... 1,704,995 239,443 266,372 2,685,366 38,569 63,698
----------- ---------- ---------- ----------- -------- ----------
Total Europe........ 9,482,412 1,599,276 3,325,477 10,882,946 612,232 1,920,361
----------- ---------- ---------- ----------- -------- ----------
Asia/Pacific:
Australia............. 342,793 113,786 124,479 520,693 94,513 123,617
New Zealand........... 39,246 - - - 23,306 95,777
Corporate and other... 63,129 55 3,666 62,325 3,014 6,440
----------- ---------- ---------- ----------- -------- ----------
Total Asia/
Pacific........... 445,168 113,841 128,145 583,018 120,833 225,834
----------- ---------- ---------- ----------- -------- ----------
Latin America:
Chile................. 498,303 96,808 273,595 521,812 53,120 213,146
Brazil................ 15,736 1,384 4,970 17,039 4,399 5,679
Corporate and other... 131,477 1,923 14,563 63,707 3,167 12,549
----------- ---------- ---------- ----------- -------- ----------
Total Latin
America........... 645,516 100,115 293,128 602,558 60,686 231,374
----------- ---------- ---------- ----------- -------- ----------
Corporate and other.... 837,279 148 2,054 935,251 426 2,268
----------- ---------- ---------- ----------- -------- ----------
Total Company..... $11,410,375 $1,813,380 $3,748,804 $13,003,773 $794,177 $2,379,837
=========== ========== ========== =========== ======== ==========
AS OF AND FOR THE PERIOD ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998
------------ ----------------------------------------
LONG-
TOTAL CAPITAL LIVED TOTAL
ASSETS EXPENDITURES ASSETS ASSETS
------------ ------------ ---------- ------------
(IN THOUSANDS)
Europe:
The Netherlands....... $3,157,285 $ 14,734 $ 2,440 $ 297,068
Austria............... 356,337 43,278 140,550 341,159
Belgium............... 47,826 11,253 27,558 57,847
Czech Republic........ 159,806 523 8,737 11,497
France................ 498,776 28,802 40,328 51,092
Hungary............... 215,448 7,239 26,788 86,921
Norway................ 244,975 25,838 63,335 219,068
Poland................ 1,218,956 - - -
Sweden................ 474,899 - - -
Germany............... - - - -
Corporate and other... 77,219 9,880 9,310 22,744
---------- -------- -------- ----------
Total Europe........ 6,451,527 141,547 319,046 1,087,396
---------- -------- -------- ----------
Asia/Pacific:
Australia............. 563,627 71,197 110,351 181,169
New Zealand........... 76,139 - - 23,789
Corporate and other... 52,441 337 61 48,992
---------- -------- -------- ----------
Total Asia/
Pacific........... 692,207 71,534 110,412 253,950
---------- -------- -------- ----------
Latin America:
Chile................. 489,638 - - -
Brazil................ 17,172 - - 84,975
Corporate and other... 71,379 3,238 11,715 73,048
---------- -------- -------- ----------
Total Latin
America........... 578,189 3,238 11,715 158,023
---------- -------- -------- ----------
Corporate and other.... 1,280,930 738 10,269 42,726
---------- -------- -------- ----------
Total Company..... $9,002,853 $217,057 $451,442 $1,542,095
========== ======== ======== ==========
F-76
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's consolidated Adjusted EBITDA reconciles to the consolidated
statements of operations and comprehensive (loss) income as follows:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED FOR THE NINE
SEPTEMBER 30, DECEMBER 31, MONTHS ENDED
--------------------------- --------------------------- SEPTEMBER 30,
2001 2000 2000 1999 1998
------------- ----------- ------------- ----------- -------------
(UNAUDITED)
(IN THOUSANDS)
Operating loss......... $(1,302,875) $(802,263) $(1,140,803) $(775,625) $(327,383)
Depreciation and
amortization......... 823,824 566,296 815,522 418,714 159,045
Stock-based
compensation expense
(credit)............. 982 (960) (43,183) 223,734 164,793
Impairment charge...... 305,368 - - - -
----------- --------- ----------- --------- ---------
Consolidated
Adjusted
EBITDA....... $ (172,701) $(236,927) $ (368,464) $(133,177) $ (3,545)
=========== ========= =========== ========= =========
18. RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE, RELATED PARTY
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, -----------------------
2001 2000 1999
------------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS)
Note receivable from Liberty Media Corporation.... $535,146 $242,406 $ -
Note receivable from Telecable.................... 7,339 3,600 -
Other............................................. 18,025 10,941 723
-------- -------- --------
Total...................................... $560,510 $256,947 $ 723
======== ======== ========
In December 2000, the Company executed a promissory note with one of its
stockholders, Liberty Media Corporation ("Liberty"), whereby the Company will
loan Liberty up to $510.0 million to satisfy certain of Liberty's obligations in
Latin America. The note and all accrued but unpaid interest is due and payable
on the earliest of (i) the closing date for the proposed acquisition of
Liberty's Latin American assets, (ii) the termination of the agreement to
acquire Liberty's Latin American assets and (iii) June 30, 2001. Interest on the
outstanding principal amount accrues at 8.0% per annum. Advances under the
promissory note totaled $242.4 million as of December 31, 2000.
Notes receivable from directors includes loans to certain directors of the
Company, issued to meet certain personal obligations in lieu of selling their
shares in the Company or UPC. The notes are generally payable on demand and
accrue interest at 90-day LIBOR plus 2.5% or 3.5%, as determined in accordance
with the terms of each note. Interest is payable in arrears quarterly commencing
February 22, 2001.
For the nine months ended September 30, 2001 (Unaudited). The Company holds four
notes from Liberty totaling $535.2 million and $243.5 million as of September
30, 2001 and December 31, 2000, respectively, including accrued interest of
$25.2 million and $1.1 million, respectively. These notes bear interest at 8.0%
F-77
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
annually and mature on November 30, 2001. The Company holds four notes from
Telecable totaling $7.3 million and $3.7 million as of September 30, 2001 and
December 31, 2000, respectively, including accrued interest of $0.1 million and
$0.1 million, respectively. These notes bear interest ranging from 5.0% to 8.0%
annually and mature on December 31, 2001.
LIBERTY TENDER OFFER FOR UPC NOTES -- FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2001 (UNAUDITED)
On November 7, 2001, Liberty announced the completion of a tender offer for a
portion of UPC's July 1999 Senior Notes, UPC's October 1999 Senior Notes and
UPC's January 2000 Senior Notes. According to Liberty's press release, Liberty
acquired approximately $1.4 billion principal amount of bonds for total
consideration of approximately $205.3 million, including accrued interest
through November 8, 2001.
RELATED PARTY RECEIVABLES
Related party receivables includes expenses paid on behalf of affiliates as well
as loans by UPC to certain employees for the exercise of the employees' stock
options, taxes on options exercised, or both.
ACQUISITION OF INTEREST IN PRINCES HOLDINGS AND TARA
In November 1998, UPC purchased from RCL, an entity owned by a discretionary
trust for the benefit of certain members of the family of John Riordan, a
director of United, a 5.0% interest in Tara and a 5.0% interest in Princes
Holdings. The aggregate purchase price for these interests was approximately
$6.0 million. The parties agreed the purchase price would be paid in cash.
Subsequently, RCL elected to receive shares of Class A Common Stock of United.
The Company paid such purchase price by delivering to RCL 769,062 restricted
shares of Class A Common Stock held by UPC.
19. IMPAIRMENT AND RESTRUCTURING CHARGES -- FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2001 (UNAUDITED)
During the second quarter of 2001, UPC identified indicators of possible
impairment of long-lived assets, principally Indefeasible Rights of Use ("IRUs")
and related goodwill within its subsidiary, Priority Telecom. Such indicators
included declines in the market value of publicly traded telecommunications
providers and a change, subsequent to the acquisition of Cignal, in the way that
certain assets from the Cignal acquisition would be used within Priority Telecom
because of reduced levels of private equity funding activity for CLEC businesses
generally and UPC's inability to obtain financing for Priority Telecom in 2001
as previously planned. The changes in strategic plans included a decision to
phase-out the legacy international wholesale voice operations of Cignal. When
UPC and Priority Telecom reached an agreement to acquire Cignal in the second
quarter of 2000, the companies originally intended to continue the international
wholesale voice operations of Cignal for the foreseeable future. This original
plan for the international wholesale voice operations was considered in the
determination of the consideration to be paid for Cignal and the subsequent
allocation of the purchase price. This allocation was completed by an
independent third party in November 2000. Using the strategic plan prepared for
the contemplated financing, an impairment assessment test and measurement in
accordance with SFAS No. 121 was completed, resulting in a write-down of
tangible assets and related goodwill and other impairment charges of E319.0
($278.9) million for the nine months ended September 30, 2001.
Priority Telecom recorded restructuring and other impairment charges in
connection with operations in Spain and other countries of E10.3 ($9.2) million
for the three months ended September 30, 2001.
A subsidiary of UPC has impaired the value of DTH boxes leased to certain former
customers for which the recovery of the value of the boxes is unlikely. The
amount of the impairment is based on the number of
F-78
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
disconnected customers to whom the DTH boxes were rented, decreased by the
number of collected boxes and multiplied by the net book value of the box at the
end of the corresponding period. The amount of impairment charges for the three
months ended September 30, 2001 totaled E19.4 ($17.3) million.
20. LEGAL PROCEEDINGS -- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
Other than the following, the Company is not a party to any material legal
proceeding, nor is the Company aware of any threatened material legal
proceeding. From time to time, the Company may become involved in litigation
relating to claims arising out of operations in the normal course of business.
UPC has received a notice purporting to exercise certain option rights of the
former Cignal shareholders. However, those option rights no longer exist since
they were granted for the event that an initial public offering of Priority
Telecom did not take place prior to October 1, 2001. Since a successful initial
public offering of Priority Telecom was completed prior to that date, the notice
is not effective and UPC will disregard it.
UPC is currently engaged in arbitration proceedings in France. A minority
shareholder of UPC's subsidiary, Mediareseaux S.A., has instituted arbitration
proceedings under ICC Rules alleging breach of contract under a certain Business
Combination Agreement dated December 15, 1999 and entered into between inter
alia, UPC and Intercomm France CVOHA ("ICH"). As part of the arbitration
proceedings, ICH obtained an attachment of the shares held by UPC France Holding
B.V. in Mediareseaux S.A. UPC is vigorously defending the attachment and the
arbitration proceedings and has filed appropriate counter claims.
In May 2001, the United States Supreme Court affirmed the decision of the 10th
Circuit U.S. Court of Appeals, which in April 2000 found in favor of the Company
in a lawsuit against Wharf Holdings Limited ("Wharf"). The lawsuit consisted of
United's claims of fraud, breach of fiduciary duty, breach of contract and
negligent misrepresentation related to Wharf's grant to United in 1992 of an
option to purchase a 10.0% equity interest in Wharf's cable television franchise
in Hong Kong. The United States Supreme Court's decision affirms the 1997 U.S.
District Court judgment in the Company's favor, which, together with accrued
interest, totaled gross and net proceeds of approximately $201.2 and $194.8
million, respectively which was received during the second and third quarter of
2001.
21. SUBSEQUENT EVENTS
AGREEMENT WITH LIBERTY
In February 2001, the Company announced an agreement with Liberty whereby
Liberty will acquire up to 100,000 shares of Series E Convertible Preferred
Stock in exchange for $1.4 billion in cash. The preferred stock will carry no
dividend and will be convertible into approximately 54.1 million shares of Class
A Common Stock. This transaction, or a portion thereof, is expected to close by
the end of the second quarter of 2001.
For the nine months ended September 30, 2001 (Unaudited). On December 3, 2001,
the Company announced a revised agreement with Liberty whereby Liberty will
contribute certain assets to a newly created holding Company, New United, in
exchange for approximately 281.4 million Class C common shares of New United. In
addition, on December 3, 2001, Liberty purchased 11,991,018 shares of United
Class A common stock for approximately $20.0 million in cash, and repaid
approximately $241.3 million of its outstanding debt to United. United used the
cash proceeds of the stock sale to repurchase all of its senior notes due 2009.
United also paid $241.3 million in satisfaction of a contractual obligation in
connection with these senior notes.
F-79
APPENDIX A
MERGER AGREEMENT
TABLE OF CONTENTS
DESCRIPTION PAGE
----------- ----------
Agreement and Plan of Restructuring and Merger by and among UnitedGlobalCom, Inc.,
New UnitedGlobalCom, Inc., United/New United Merger Sub, Inc., Liberty Media
Corporation, Liberty Media International, Inc., Liberty Global, Inc., and each
Person indicated as a "Founder"................................................... A-1
Exhibit 2.1(b)-1 New United Certificate of Incorporation after the merger... Appendix C
Exhibit 2.1(b)-2 New United Bylaws.......................................... A-70
Exhibit 2.1(c) Form of Subscription Agreement............................. A-84
Exhibit 2.2(b) Form of Founder Newco Merger Agreement..................... A-89
Exhibit 2.3 Form of Liberty 2009 Notes Registration Rights Agreement... A-94
Exhibit 2.5(a) United/New United Agreement and Plan of Merger by and among
UnitedGlobalCom, Inc., New UnitedGlobalCom, Inc., and
United/New United Merger Sub, Inc. ...................... A-106
Exhibits 2.5(e)-1 Surviving Entity Charter................................... A-115
Exhibits 2.5(e)-2 Surviving Entity Bylaws.................................... A-126
Exhibit 6.1(b) Series E Certificate of Designation........................ A-140
Exhibit 6.2(a)-1 United/New United Merger Sub Certificate of
Incorporation............................................ A-147
Exhibit 6.2(a)-2 United/New United Merger Sub Bylaws........................ A-149
Exhibit 7.7 Form of Stockholders Agreement............................. A-163
Exhibit 7.8 Form of Voting Agreement................................... A-191
Exhibit 7.9 Form of United/Liberty Agreement........................... A-202
Exhibit 7.9(A) Form of New United Covenant Agreement...................... A-209
Exhibit 7.10 Form of Standstill Agreement............................... A-219
Exhibit 7.11 Form of Registration Rights Agreement...................... A-235
Exhibit 7.12(a) Form of Exchange Agreement................................. A-250
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER
among
UNITEDGLOBALCOM, INC.,
NEW UNITEDGLOBALCOM, INC.,
UNITED/NEW UNITED MERGER SUB, INC.,
LIBERTY MEDIA CORPORATION,
LIBERTY MEDIA INTERNATIONAL, INC.,
LIBERTY GLOBAL, INC.
and
EACH PERSON INDICATED AS A "FOUNDER"
ON THE SIGNATURE PAGES HERETO
---------------------
DATED AS OF DECEMBER 3, 2001
---------------------
- --------------------------------------------------------------------------------
A-1
TABLE OF CONTENTS
ARTICLE I DEFINITIONS....................................... A-6
1.1 Definitions........................................ A-6
1.2 Additional Terms................................... A-11
ARTICLE II CONTRIBUTIONS, REORGANIZATION AND RELATED
TRANSACTIONS.............................................. A-14
2.1 Pre-Closing Restructuring Transactions............. A-14
2.2 Contributions and Restructuring.................... A-15
2.3 Repayment of Indebtedness.......................... A-17
2.4 Certain Adjustments................................ A-18
2.5 United/New United Merger........................... A-18
ARTICLE III [RESERVED]...................................... A-20
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF LIBERTY MEDIA,
LIBERTY GLOBAL AND LMI........................... A-20
4.1 Organization, Good Standing and Authority.......... A-20
4.2 Power; Authorization and Validity; Consents; No
Conflicts.............................................. A-20
4.3 Brokers' and Finders' Fees......................... A-21
4.4 Legal Proceedings.................................. A-21
4.5 Ownership of United Class B Stock.................. A-21
4.6 [Reserved.]........................................ A-21
4.7 Belmarken Notes.................................... A-21
4.8 [Reserved.]........................................ A-21
4.9 Investment Intent.................................. A-21
4.10 Registration Statement; Proxy Statement............ A-21
4.11 Liberty UPC Bonds.................................. A-21
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE FOUNDERS.... A-22
5.1 Organization, Good Standing and Authority.......... A-22
5.2 Power; Authorization and Validity; Consents; No
Conflicts.............................................. A-22
5.3 Founder Newcos..................................... A-23
5.4 Brokers' and Finders' Fees......................... A-23
5.5 Information........................................ A-23
5.6 Legal Proceedings.................................. A-23
5.7 Ownership of United Class B Stock and New United
Class B Stock.......................................... A-24
5.8 Investment Intent.................................. A-24
5.9 Registration Statement; Proxy Statement............ A-24
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF UNITED AND NEW
UNITED........................................... A-24
6.1 Representations and Warranties of United........... A-24
6.2 Representations and Warranties of New United....... A-34
ARTICLE VII CERTAIN COVENANTS OF THE PARTIES................ A-38
7.1 Conduct of Business in Ordinary Course Pending
Closing................................................ A-38
7.2 Stockholders Meeting............................... A-42
7.3 Proxy Statement; Registration Statement; Other
Commission Filings..................................... A-43
7.4 No Solicitation; Acquisition Proposals............. A-44
7.5 Consents and Approvals............................. A-44
7.6 Tax-Free Exchange.................................. A-45
7.7 Stockholders Agreement............................. A-45
7.8 Voting Agreement................................... A-45
7.9 United/Liberty Agreement........................... A-45
7.9A New United Covenant Agreement...................... A-46
7.9B No Waiver Agreement................................ A-46
A-2
7.10 Standstill Agreement............................... A-46
7.11 Registration Rights Agreement...................... A-46
7.12 Exchange Agreement; Preferred Exchange Agreement... A-46
7.13 Listing Application................................ A-46
7.14 Investigation; Confidentiality..................... A-46
7.15 [Reserved]......................................... A-47
7.16 [Reserved.]........................................ A-47
7.17 [Reserved.]........................................ A-47
7.18 [Reserved.]........................................ A-47
7.19 [Reserved.]........................................ A-47
7.20 UPC Bonds.......................................... A-47
7.21 Senior Secured Notes............................... A-47
7.22 Fairness Opinions.................................. A-48
7.23 Interim Stockholder Arrangements................... A-48
ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EACH
PARTY TO CLOSE................................. A-48
8.1 United Stockholder Approval........................ A-48
8.2 HSR Act............................................ A-48
8.3 Consents and Approvals............................. A-49
8.4 Absence of Injunctions............................. A-49
8.5 Fairness Opinions.................................. A-49
8.6 Transaction Documents.............................. A-49
ARTICLE IX CONDITIONS PRECEDENT TO THE OBLIGATIONS OF NEW
UNITED TO CLOSE.................................. A-49
9.1 Representations and Warranties True as of the
Closing Date........................................... A-49
9.2 Compliance with this Agreement..................... A-49
9.3 Certificates....................................... A-50
9.4 Opinion of Counsel to the Liberty Parties.......... A-50
ARTICLE X CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
PARTIES TO THE UNITED/NEW UNITED MERGER........... A-50
10.1 United's Obligation................................ A-50
10.2 New United's Obligation............................ A-50
ARTICLE XI CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
LIBERTY PARTIES TO CLOSE......................... A-51
11.1 Representations and Warranties True as of the
Closing Date........................................... A-51
11.2 Compliance with this Agreement..................... A-51
11.3 Certificates....................................... A-51
11.4 Opinion of Counsel to United....................... A-51
11.5 [Reserved.]........................................ A-51
11.6 Tax Opinion........................................ A-51
11.7 [Reserved.]........................................ A-52
11.8 [Reserved.]........................................ A-52
11.9 Senior Secured Indenture........................... A-52
11.10 Fee Letter......................................... A-52
11.11 [Reserved.]........................................ A-52
11.12 [Reserved.]........................................ A-52
11.13 [Reserved.]........................................ A-52
A-3
ARTICLE XII CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
FOUNDERS TO CLOSE............................... A-52
12.1 Representations and Warranties True as of the
Closing Date........................................... A-52
12.2 Compliance with this Agreement..................... A-52
12.3 Certificates....................................... A-52
12.4 [Reserved.]........................................ A-52
12.5 Tax Opinion........................................ A-52
ARTICLE XIII TAX MATTERS.................................... A-53
13.1 [Reserved.]........................................ A-53
13.2 [Reserved.]........................................ A-53
13.3 [Reserved.]........................................ A-53
13.4 Transfer Taxes..................................... A-53
13.5 [Reserved.]........................................ A-53
13.6 [Reserved.]........................................ A-53
13.7 [Reserved.]........................................ A-53
13.8 [Reserved.]........................................ A-53
13.9 Restructuring Transaction Indemnity................ A-53
13.10 Treatment of Indemnity Payments.................... A-53
13.11 Survival........................................... A-53
ARTICLE XIV CLOSING; CLOSING DATE........................... A-54
14.1 Closing............................................ A-54
14.2 Closing Deliveries................................. A-54
ARTICLE XV SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS; INDEMNIFICATION....................... A-56
15.1 Survival of Representations, Warranties and
Covenants.............................................. A-56
15.2 Indemnification by Liberty Party................... A-56
15.3 Indemnification by Founders........................ A-57
15.4 Indemnification by New United and United........... A-57
15.5 Defense of Action.................................. A-58
15.6 Limitations on Indemnification for Breach of
Representations and Warranties......................... A-59
15.7 Insurance Proceeds................................. A-59
15.8 Exclusive Monetary Remedy; No Consequential
Damages................................................ A-59
ARTICLE XVI TERMINATION OF AGREEMENT........................ A-60
16.1 Termination........................................ A-60
16.2 Limitation of Liabilities in the Event of
Termination............................................ A-60
16.3 Stockholder Arrangements........................... A-60
ARTICLE XVII MISCELLANEOUS.................................. A-61
17.1 Expenses........................................... A-61
17.2 Entire Agreement; Release.......................... A-61
17.3 Governing Law; Waiver of Jury Trial, Etc........... A-61
17.4 Headings........................................... A-61
17.5 Notices............................................ A-61
17.6 Separability....................................... A-62
17.7 Amendment; Waiver.................................. A-63
17.8 Publicity.......................................... A-63
17.9 Assignment and Binding Effect...................... A-63
17.10 No Benefit to Others............................... A-63
17.11 Counterparts....................................... A-63
17.12 Interpretation..................................... A-63
17.13 Rules of Construction.............................. A-64
A-4
AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER
This AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER (this "Agreement") is
entered into as of December 3, 2001 among UnitedGlobalCom, Inc., a Delaware
corporation ("United"), New UnitedGlobalCom, Inc., a Delaware corporation ("New
United"), United/New United Merger Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of New United ("United/New United Merger Sub"), Liberty
Media Corporation, a Delaware corporation ("Liberty Media"), Liberty Media
International, Inc., a Delaware corporation ("LMI"), Liberty Global, Inc., a
Delaware corporation ("Liberty Global") and each Person indicated as a "Founder"
on the signature pages hereto (each such Person, a "Founder"). Capitalized terms
used and not otherwise defined in this Agreement have the respective meanings
ascribed thereto in Section 1.1.
WITNESSETH:
WHEREAS, United, Liberty Media and LMI have entered into an Amended and Restated
Agreement, dated as of May 25, 2001 (the "Letter Agreement"), setting forth the
terms and conditions upon which, among other things, the following transactions
will occur as part of the same plan of restructuring: (a) Liberty Media will
contribute or cause to be contributed to New United all of the shares of Class B
Common Stock, par value US $0.01 per share, of United ("United Class B Stock")
owned by Liberty Media and its wholly owned Subsidiaries in exchange for an
equal number of shares of Class C Common Stock, par value US $0.01 per share, of
New United ("New United Class C Stock"), (b) the Founders will contribute all of
the shares of United Class B Stock owned by them to their respective Founder
Newco (as defined herein) and cause each Founder Newco to merge into New United
in exchange for a number of shares of Class B Common Stock, par value US $0.01
per share, of New United ("New United Class B Stock") equal to the number of
shares of United's common stock then owned by such Founder Newco, (c) United/New
United Merger Sub will merge with and into United, with United being the
surviving entity in such merger and the outstanding stock of United being
converted into stock of New United or stock of the surviving entity in such
merger or cancelled, as more fully described herein, and (d) Liberty Media will
contribute all of the stock of its subsidiary, Liberty-Belmarken, Inc., a
Delaware corporation ("Liberty Sub"), and cash to New United in exchange for
shares of New United Class C Stock; and
WHEREAS, the parties have decided to revise the transactions contemplated by the
Letter Agreement in order to eliminate the contribution of certain assets to New
United and to enter into the transactions contemplated by this Agreement in lieu
thereof; and
WHEREAS, concurrent with the execution and delivery of this Agreement, the
Senior Notes Agreements are being entered into and, in accordance therewith, (a)
Liberty is acquiring from United 11,976,048 shares of United Class A Stock for
US $20,000,000 in cash (the "Note Shares") and an additional 14,970 shares of
United Class A Stock for US $25,000 in cash, (b) United is acquiring all of the
Senior Notes in exchange for US $20,000,000 in cash, (c) United is paying an
aggregate of US $241,309,065.79 (the "Make Whole Payment") to the holders of the
Senior Notes (collectively, the "Make Whole Bankers") in satisfaction in full of
its obligations under the Fee Letter, and (d) to facilitate the foregoing,
Liberty and Liberty Argentina, Inc., a Delaware corporation and a wholly owned
Subsidiary of Liberty ("Liberty Argentina"), are paying a total of
US $241,309,065.79 to UIPI and United as prepayment in full of the indebtedness
evidenced by the $200,000,000 Note and as a partial prepayment of the
indebtedness evidenced by the $310,000,000 Notes;
A-5
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the following terms shall
have the following meanings:
"$200,000,000 Note" means the promissory note, dated December 8, 2000, in
the principal amount of US $200 million payable by Liberty Media to United,
which promissory note is now held by UIPI.
"$310,000,000 Notes" means the promissory note, dated December 27, 2000, in
the principal amount of US $42,405,760 payable by Liberty Argentina to
United, which promissory note is now held by UIPI, the promissory note,
dated February 5, 2001, in the principal amount of US $33,827,447 payable
by Liberty Argentina to United, which promissory note is now held by UIPI,
and the promissory note, dated April 30, 2001, in the principal amount of
US $233,766,793 payable by Liberty Argentina to UIPI.
"Adjustment" means the deemed increase in a Tax, determined using the
assumptions set forth in the next sentence, resulting from an adjustment
made with respect to any amount reflected or required to be reflected on
any Tax Return relating to such Tax. For purposes of determining such
deemed increase in Tax, the following assumptions will be used: (a) in the
case of any Income Tax, the highest marginal Tax rate or, in the case of
any other Tax, the highest applicable Tax rate, in each case in effect with
respect to that Tax for the Taxable period or any portion of the Taxable
period to which the adjustment relates; and (b) such determination shall be
made without regard to whether any actual increase in such Tax will in fact
be realized with respect to the Tax Return to which such adjustment relates
(as a result, for example, of losses, credits or other offsets against
Tax).
"Affiliate" of a Person shall mean any Person that directly, or indirectly
through one or more intermediaries, Controls, is Controlled by, or is under
common Control with, the Person in question. Notwithstanding anything in
the foregoing to the contrary, under no circumstances will New United,
United or any of their respective Subsidiaries be considered an Affiliate
of Liberty or LMI.
"After-Tax Basis" shall mean an amount that, after subtraction of the
aggregate additional Taxes incurred or to be incurred by the party
receiving the indemnification payment, is equal to the amount of the
correlative Adjustment. For purposes of determining such additional Taxes
incurred or to be incurred, the following assumptions will be used: (a) in
the case of any Income Tax, the highest marginal Tax rate or, in the case
of any other Tax, the highest applicable Tax rate, in each case in effect
with respect to that Tax for the Taxable period or any portion of the
Taxable period to which the indemnification payment relates; and (b) such
determination shall be made without regard to whether any actual additional
Taxes will in fact be realized with respect to the Tax Return to which such
payment relates (as a result, for example, of losses, credits or other
offsets against Tax).
"August 1999 Agreement" means the letter agreement, dated August 30, 1999,
among UPC, United and Liberty Media, including the exhibits thereto.
"Available New United Commission Filings" means the Registration Statement.
"Average Market Price" means, with respect to any publicly traded security
as of any relevant date of determination, the average of the Closing Prices
per share or other unit of such security for the period of ten Trading Days
ending on and including the third Trading Day prior to such relevant date
of determination.
"Belmarken Loan Agreements" means, collectively, the Loan Agreement, dated
as of May 25, 2001, among Belmarken Holding B.V., UPC, UPC Internet Holding
B.V. and Liberty Sub, and all agreements, including pledge and security
agreements, entered into or to be entered into in connection therewith.
A-6
"Belmarken Notes" means the 6% Guaranteed Discount Notes due 2007 issued
pursuant to the Belmarken Loan Agreements.
"Business Day" means any day other than Saturday, Sunday and a day on which
banks are required or permitted to close in Denver, Colorado or New York,
New York.
"Closing Date" means the date on which the Closing occurs.
"Closing Price" of a share or other unit of any security on any Trading Day
is (i) the last reported sale price for a share or other unit of such
security on such Trading Day as reported on the principal United States or
foreign securities exchange on which such security is listed or admitted
for trading or (ii) if such security is not listed or admitted for trading
on any such securities exchange, the last reported sale price for a share
or other unit of such security on such Trading Day as reported on The
Nasdaq Stock Market or (iii) if such security is not listed or admitted to
trading on any United States or foreign securities exchange or The Nasdaq
Stock Market, the average of the highest bid and lowest asked prices for a
share or other unit of such security on such Trading Day in the
over-the-counter market as reported by The National Quotation Bureau
Incorporated, or any similar organization.
"Code" means the Internal Revenue Code of 1986.
"Commission" means the United States Securities and Exchange Commission.
"Control" shall mean the ability to direct or cause the direction (whether
through the ownership of voting securities, by contract or otherwise) of
the management and policies of a Person or to control (whether
affirmatively or negatively and whether through the ownership of voting
securities, by contract or otherwise) the decision of such Person to engage
in the particular conduct at issue.
A "Controlled Affiliate" of a Person means any other Person that the first
Person directly, or indirectly through one or more intermediaries,
Controls.
"Controlling Principals" means Founders who are "Principals," as that term
is defined in the Indenture dated as of February 5, 1998 between United and
Firstar Bank, N.A., as trustee, and who hold a majority of the aggregate
voting power of all shares of United Common Stock and any other securities
issued by United that are entitled to vote generally for the election of
directors held by the Principals.
"December 7 Letter Agreement" means the Letter Agreement, dated as of
December 7, 2000, between United and Liberty Media (including the summary
of terms attached thereto).
"DOJ" means the United States Department of Justice.
"Environmental and Health Laws" means any U.S. federal, state or local law,
statute, rule or regulation or domestic common law relating to the
environment or occupational health and safety, including any statute,
regulation or order pertaining to (i) treatment, storage, disposal,
generation and transportation of pollutants, contaminants, chemicals,
industrial, toxic or hazardous substances, oil or petroleum products or
solid or hazardous waste (collectively, "Hazardous Substances"); (ii) air,
water and noise pollution; (iii) groundwater and surface water
contamination; (iv) the release into the environment of Hazardous
Substances, including without limitation emissions, discharges, injections,
spills, escapes or dumping of pollutants, contaminants or chemicals; (v)
the protection of wild life, marine sanctuaries and wetlands, including
without limitation all endangered and threatened species; (vi) storage
tanks, vessels and containers containing Hazardous Substances; (vii)
underground storage tanks, abandoned, disposed or discarded barrels and
other closed receptacles containing Hazardous Substances; (viii) health and
safety of employees; and (ix) manufacture, processing, use, distribution,
treatment, storage, disposal, transportation or handling of Hazardous
Substances. As used herein, the terms "release" and "environment" have the
meanings set forth in the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980.
"Exchange Act" means the Securities Exchange Act of 1934.
A-7
"Fee Letter" means the Fee Letter, dated April 29, 1999, among United, UIH
Funding Corp., Salomon Smith Barney, Inc., TD Securities (USA), Inc., Chase
Securities, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation,
as amended on May 13, 1999 and May 23, 2001.
"Filing" means any registration, declaration, application or filing.
"Founders Agreements" means each of (a) the Founders Agreement to be
entered into prior to the Closing among certain Founders relating to
United, in the form attached to Section 5.1 of the Founders Disclosure
Schedule, and (b) the Founders Agreement to be entered into prior to the
Closing among the Founders relating to New United, in the form attached to
Section 5.1 of the Founders Disclosure Schedule.
"Founders Disclosure Schedule" means the disclosure schedule delivered
herewith by the Founders.
"FTC" means the United States Federal Trade Commission.
"GAAP" means generally accepted U.S. accounting principles as in effect as
of the relevant time.
"Governmental Authority" means any U.S. federal, state or local or any
foreign court, governmental department, commission, authority, board,
bureau, agency or other instrumentality.
"High Vote Securities" means United Class B Stock, United Equity Securities
that are convertible into or exercisable or exchangeable for shares of
United Class B Stock (contingently or otherwise) or that have a greater
vote per share (on an as-converted basis or otherwise) than the United
Class A Stock (whether generally, in the election of directors or generally
other than in the election of directors), or any Rights to acquire any of
the foregoing.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
and the rules and regulations promulgated thereunder.
"Income Tax" means any federal, state, local or foreign income tax,
including any interest, penalty, or addition thereto.
"Intellectual Property" means, collectively, patents, trademarks, trade
names, service marks, copyrights, applications for any of the foregoing and
trade secrets.
"Judgment" means any order, writ, injunction, award, judgment, ruling or
decree of any Governmental Authority.
"Law" means any U.S. federal, state or local or any foreign statute, code,
ordinance, decree, rule, regulation or general principle of common or civil
law or equity.
"Legal Proceedings" means, collectively, any private or governmental
actions, suits, complaints, arbitrations, legal or administrative
proceedings or investigations.
"Liberty" means Liberty Media and any successor (by merger, consolidation,
transfer of assets or otherwise) to all, or substantially all, of Liberty
Media's assets.
"Liberty 2009 Notes" means the notes of Liberty Media that may be issued by
Liberty Media to UIPI pursuant to Section 2.3.
"Liberty Disclosure Schedule" means the disclosure schedule delivered
herewith by Liberty Media.
"Liberty Parties" means Liberty, LMI and Liberty Global, individually and
collectively.
"Liberty UPC Bond Cost" means the sum of the amounts paid by Liberty and
its Affiliates to acquire the Liberty UPC Bonds, plus interest on each such
amount from and including the date such amount was paid by Liberty or the
applicable Affiliate of Liberty to and including the Closing Date at the
rate of 8% per annum, compounded quarterly, less the amount of any interest
payments actually received by Liberty and its Affiliates with respect to
any period prior to the Closing with respect to the Liberty UPC Bonds.
Schedule 1.1 sets forth the Liberty UPC Bond Cost as of November 30, 2001.
A-8
"Liberty UPC Bonds" means all of the senior notes and senior discount notes
issued by UPC and held by Liberty and its Controlled Affiliates as of the
date of this Agreement, as set forth on Schedule 1.1.
"Licenses" means any licenses, franchises, authorizations, permits,
certificates, variances, exemptions, concessions, consents, leases, rights
of way, easements, instruments, orders and approvals, domestic or foreign,
of any Governmental Authority.
"Lien" shall mean any mortgage, pledge, lien, encumbrance, charge, or
security interest, but excluding any of the foregoing created or imposed by
or pursuant to the August 1999 Agreement, this Agreement or the other
Transaction Documents.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Partner's Purchase Right" means any right of first offer, right of first
refusal, right of last refusal, buy-sell, put-call, purchase or exchange
option or similar right in favor of a third party (a) granted under an
agreement that was in effect on June 25, 2000 and that is in effect on the
date hereof or (b) referred to in this Agreement (including a Schedule
hereto) or a disclosure schedule delivered pursuant hereto.
"Permitted Encumbrances", with respect to any Person, means the following
Liens: (i) Liens for Taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being contested in good faith by appropriate proceedings and for which
adequate reserves shall have been set aside on the books of the applicable
Person in accordance with GAAP; (ii) Liens of carriers, warehousemen,
mechanics, materialmen and landlords incurred in the ordinary course of
business for sums not overdue or being contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with
GAAP shall have been set aside on the books of the applicable Person; (iii)
Liens incurred in the ordinary course of business in connection with
workmen's compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for borrowed money)
entered into in the ordinary course of business or to secure obligations on
surety or appeal bonds; (iv) purchase money security interests or Liens on
property acquired or held by the applicable Person in the ordinary course
of business to secure the purchase price of such property or to secure
indebtedness incurred solely for the purpose of financing the acquisition
of such property; and (v) easements, restrictions and other minor defects
of title which are not, in the aggregate, material or which do not,
individually or in the aggregate, materially and adversely affect the value
of the property affected thereby.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, Governmental Authority, business association or
other entity.
"Priority Telecom" means Priority Telecom N.V., a private company
incorporated with limited liability under the laws of The Netherlands.
"Priority Telecom Shareholders Agreement" means the Shareholders Agreement
executed by UPC and Priority Telecom on August 11, 2000 and by each
shareholder of Priority Telecom thereafter as received, as amended or
modified thereafter and any other agreement or arrangement among the
shareholders of Priority Telecom with respect to the subject matter
thereof.
"Restrictions" means with respect to any capital stock, partnership
interest, membership interest in a limited liability company or other
equity interest or security, any voting or other trust or agreement,
option, warrant, preemptive right, right of first offer, right of first
refusal, escrow arrangement, proxy, buy-sell agreement, power of attorney
or other Contract (but excluding the August 1999 Agreement, the Belmarken
Loan Agreements, this Agreement and the other Transaction Documents), any
Law, License or Judgment that, conditionally or unconditionally, (a) grants
to any Person the right to purchase or otherwise acquire, or obligates any
Person to sell or otherwise dispose of or issue, or otherwise results or,
whether upon the occurrence of any event or with notice or lapse of time or
both or otherwise, may result in any Person acquiring, (i) any of such
capital stock or other equity interest or security; (ii) any of the
proceeds of, or any distributions paid or that are or may become payable
with respect to, any of such capital stock or other equity interest or
security; or (iii) any interest in such capital stock or other equity
A-9
interest or security or any such proceeds or distributions; (b) restricts
or, whether upon the occurrence of any event or with notice or lapse of
time or both or otherwise, is reasonably likely to restrict the transfer or
voting of, or the exercise of any rights or the enjoyment of any benefits
arising by reason of ownership of, any such capital stock or other equity
interest or security or any such proceeds or distributions; or (c) creates
or, whether upon the occurrence of any event or with notice or lapse of
time or both or otherwise, is reasonably likely to create a Lien or
purported Lien affecting such capital stock or other equity interest or
security, proceeds or distributions.
"Rights" means securities of United (which may include United Equity
Securities) that (contingently or otherwise) are exercisable, convertible
or exchangeable for or into United Equity Securities (with or without
consideration) or that carry any right to subscribe for or acquire United
Equity Securities or securities exercisable, convertible or exchangeable
for or into United Equity Securities.
"Securities Act" means the Securities Act of 1933.
"Senior Notes" means the debt securities issued pursuant to the Indenture,
dated as of April 29, 1999, between United and Firstar Bank, N.A.
"Senior Secured Indenture" means the Indenture, dated as of February 5,
1998, between United and Firstar Bank, N.A. (f/k/a Firstar Bank of
Minnesota, N.A.).
"Senior Secured Notes" means the debt securities issued pursuant to the
Senior Secured Indenture.
"Specified Indentures" means (a) the Senior Secured Indenture and (b) the
Indenture, dated as of April 29, 1999, between United and Firstar Bank,
N.A.
"Subsidiary" means, with respect to any Person (a) a corporation a majority
in voting power of whose capital stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly,
owned by such Person, by a Subsidiary of such Person, or by such Person and
one or more Subsidiaries of such Person, without regard to whether the
voting of such stock is subject to a voting agreement or similar
Restriction, (b) a partnership or limited liability company in which such
Person or a Subsidiary of such Person is, at the date of determination, (i)
in the case of a partnership, a general partner of such partnership with
the power affirmatively to direct the policies and management of such
partnership or (ii) in the case of a limited liability company, the
managing member or, in the absence of a managing member, a member with the
power affirmatively to direct the policies and management of such limited
liability company, or (c) any other Person (other than a corporation) in
which such Person, a Subsidiary of such Person or such Person and one or
more Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, has (i) the power to elect or direct the election of
a majority of the members of the governing body of such Person (whether or
not such power is subject to a voting agreement or similar Restriction) or
(ii) in the absence of such a governing body, at least a majority ownership
interest. When used with respect to any Liberty Party, the term
"Subsidiary" shall not in any event include New United or any of its
Subsidiaries. For purposes of this definition, shares of capital stock of
United Austar, Inc. owned by United A/P will not be deemed to be directly
or indirectly owned by United or any of its Subsidiaries if, at the time
such determination is to be made, United A/P is not a Subsidiary of United.
"Tax" shall mean any income, corporation, gross receipts, profits, gains,
capital stock, capital duty, franchise, business, license, payroll,
withholding, social security, unemployment, disability, property, wealth,
welfare, stamp, environmental, transfer, excise, occupation, sales, use,
value added, alternative minimum, estimated or other similar tax (including
any fee, assessment or other charge in the nature of any tax) imposed by
any governmental authority (whether national, federal, state, local,
municipal, foreign or otherwise) or political subdivision thereof, and any
interest, penalties, additions to tax or additional amounts in respect of
the foregoing.
"Tax Returns" shall mean all reports, declarations of estimated tax,
information statements and returns relating to, or required to be filed in
connection with, any Taxes, including information returns or reports with
respect to backup withholding and other payments to third parties.
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"Trading Day", with respect to any security, means a day on which the
principal United States or foreign securities exchange on which such
security is listed or admitted to trading, or The Nasdaq Stock Market if
such security is not listed or admitted to trading on any such securities
exchange, as applicable, is open for the transaction of business (unless
such trading shall have been suspended for the entire day) or, if the
applicable security is not listed or admitted to trading on any United
States or foreign securities exchange or The Nasdaq Stock Market, any
Business Day.
"Transaction Documents" means this Agreement, the Stockholders Agreement,
the Standstill Agreement, the Registration Rights Agreement, the Liberty
2009 Notes Registration Rights Agreement (if such agreement is entered into
as contemplated by Section 2.3), the Founder Newco Merger Agreements, the
United/New United Merger Agreement, the Voting Agreement, the No Waiver
Agreement, the New United Covenant Agreement, the Founders Agreements, the
Exchange Agreement, the Preferred Exchange Agreement, the United/Liberty
Agreement, the New United Charter, the New United By-laws, the Surviving
Entity Charter, the Surviving Entity By-laws, the Subscription Agreements,
all documents, instruments and agreements executed in connection with the
satisfaction of the Fee Letter Condition (including the Senior Notes
Agreements) and any and all other documents, instruments and agreements to
be executed and delivered in connection with the transactions contemplated
hereby (including in connection with the satisfaction of each party's
conditions hereunder) or thereby.
"UIPI" means United International Properties, Inc., a Colorado corporation
and wholly owned Subsidiary of United.
"United Disclosure Schedule" means the disclosure schedule delivered
herewith by United.
"United Equity Securities" means the United Common Stock and any other
voting securities issued by United, other than shares of United Preferred
Stock with customary limited voting rights.
"United Public Company" means any entity that (a) has equity securities
issued by it publicly traded on any internationally recognized United
States or foreign securities exchange, and (b) is a Subsidiary of United.
"UPC" means United Pan-Europe Communications, N.V., a company organized
under the laws of The Netherlands and a Subsidiary of United.
1.2 Additional Terms. As used in this Agreement, the following terms shall
have the meanings set forth in the referenced sections of this Agreement:
TERM SECTION
- ---- -------
Acceptance Notice........................................... 2.3(b)
Action...................................................... 15.5(a)
Additional Liberty Shares................................... 2.2(d)
Agreement................................................... Preamble
Basket Amount............................................... 15.6
Basket Exceptions........................................... 15.6
Belmarken Notes Value....................................... 2.2(d)
Cash Contribution........................................... 2.2(d)
Claims...................................................... 15.2
Class B Options............................................. 6.1(b)
Closing..................................................... 14.1
Contracts................................................... 6.1(c)(ii)
Contributing Party.......................................... 2.2(f)
DGCL........................................................ 2.5(a)
Effective Time.............................................. 2.5(b)
Equity Affiliate............................................ 6.1(f)(i)
Exchange Agreement.......................................... 7.12
Exchange Ratio.............................................. 2.5(b)
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TERM SECTION
- ---- -------
Exchange Ratio Fairness Opinion............................. 7.22
Existing Liberty Notes...................................... 2.3
Existing New United Common Stock............................ 6.2(b)
Fairness Opinions........................................... 7.22
Fee Letter Condition........................................ 11.10
Founder..................................................... Preamble
Founder Consideration Shares................................ 2.2(b)
Founder Indemnified Parties................................. 15.3
Founder Material Adverse Effect............................. 5.1
Founder Newco Merger........................................ 2.2(b)
Founder Newco Merger Agreement.............................. 2.2(b)
Founder Newco............................................... 2.1(a)
Founder Shares.............................................. 2.1(a)
Indemnified Party........................................... 15.5(a)
Indemnifying Party.......................................... 15.5(a)
Indenture Fairness Opinion.................................. 7.22
Injunction.................................................. 7.5(a)
Letter Agreement............................................ Recitals
Liberty 2009 Notes Registration Rights Agreement............ 2.3
Liberty Argentina........................................... Recitals
Liberty Consideration Shares................................ 2.2(a)
Liberty Contribution Shares................................. 2.2(d)
Liberty Contribution Value.................................. 2.2(d)
Liberty Global.............................................. Preamble
Liberty Global Consideration Shares......................... 2.2(a)
Liberty Global Shares....................................... 2.2(a)
Liberty Guaranty............................................ 2.3
Liberty Material Adverse Effect............................. 4.1
Liberty Media............................................... Preamble
Liberty Media Indemnified Parties........................... 15.2
Liberty Notice.............................................. 2.3(b)
Liberty Sub................................................. Recitals
LMI......................................................... Preamble
Losses...................................................... 15.2
Make Whole Bankers.......................................... Recitals
Make Whole Payment.......................................... Recitals
Material Adverse Change..................................... 17.12
Material Adverse Effect..................................... 17.12
Material United Subsidiaries................................ 6.1(j)
Morgan Stanley.............................................. 6.1(q)
New United.................................................. Preamble
New United By-laws.......................................... 2.1(b)
New United Charter.......................................... 2.1(b)
New United Class A Stock.................................... 2.5(b)
New United Class B Stock.................................... Recitals
New United Class C Stock.................................... Recitals
New United Commission Filing................................ 6.2(g)(i)
New United Covenant Agreement............................... 7.9A
New United Indemnified Parties.............................. 15.4
New United Material Adverse Effect.......................... 6.2(a)
New United Preferred Stock.................................. 6.2(b)(i)
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TERM SECTION
- ---- -------
Note Repayment Amount....................................... 2.3
Note Shares................................................. Recitals
No Waiver Agreement......................................... 2.2(e)
Notes Holder................................................ 2.3(b)
Offered Notes............................................... 2.3(b)
Offer Notice................................................ 2.3(b)
Preferred Exchange Agreement................................ 7.12
Proxy Statement............................................. 7.3(a)
Purchased Notes............................................. 2.3(b)
Refinanced Indebtedness..................................... 7.1(b)
Refinancing Indebtedness.................................... 7.1(b)
Registration Rights Agreement............................... 7.11
Registration Statement...................................... 7.3(a)
Required Founder Consents................................... 5.2
Required Liberty Consents................................... 4.2
Required United Consents.................................... 6.1(c)(ii)
Restructuring Proceeds...................................... 2.2(d)
Restructuring Transaction................................... 13.9
Schneider................................................... 2.1(b)
Senior Notes Agreements..................................... 11.10
September 18 Letter Agreement............................... 17.2
Series E Certificate of Designation......................... 6.1(b)
Series E Holder............................................. 7.12
Standstill Agreement........................................ 7.10
Stockholders Agreement...................................... 7.7
Stock Purchase Fairness Opinion............................. 6.1(q)
Subscription Agreement...................................... 2.1(c)
Surviving Entity............................................ 2.5(a)
Surviving Entity By-laws.................................... 2.5(e)
Surviving Entity Charter.................................... 2.5(e)
Surviving Entity Class A Stock.............................. 2.5(b)
Surviving Entity Class B Stock.............................. 2.5(d)
Surviving Entity Class C Stock.............................. 2.5(d)
Surviving Entity Class D Stock.............................. 6.1(b)
Surviving Entity Series F Preferred Stock................... 2.5(b)
Surviving Entity Series G Preferred Stock................... 2.5(b)
Surviving Entity Series H Preferred Stock................... 2.5(b)
Total Liberty Shares........................................ 2.2(d)
Transfer Date............................................... 2.3(b)
United...................................................... Preamble
United 2001 Commission Filings.............................. 6.1(g)(i)
United A/P.................................................. 6.1(f)
United Class A Stock........................................ 2.1(a)
United Class B Stock........................................ Recitals
United Commission Filings................................... 6.1(g)(i)
United Common Stock......................................... 2.1(a)
United Form 10-K............................................ 6.1(g)(i)
United Indemnified Parties.................................. 15.4
United Investment........................................... 6.1(f)(i)
United Investment Agreements................................ 6.1(f)(i)
United June 10-Q............................................ 6.1(g)(i)
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TERM SECTION
- ---- -------
United/Liberty Agreement.................................... 7.9
United Material Adverse Effect.............................. 6.1(a)
United/New United Merger.................................... 2.5(a)
United/New United Merger Agreement.......................... 2.5(a)
United/New United Merger Consideration...................... 2.5(b)
United/New United Merger Sub................................ Preamble
United/New United Merger Sub By-laws........................ 6.2(a)
United/New United Merger Sub Charter........................ 6.2(a)
United/New United Merger Sub Class B Stock.................. 2.5(d)
United/New United Merger Sub Class C Stock.................. 2.5(d)
United Preferred Stock...................................... 6.1(b)
United Series B Preferred Stock............................. 6.1(b)
United Series C Preferred Stock............................. 6.1(b)
United Series D Preferred Stock............................. 6.1(b)
United Series E Preferred Stock............................. 6.1(b)
United Stockholders Meeting................................. 7.2
United Stock Option Plans................................... 6.1(b)
UPC Form 10-K............................................... 6.1(g)(i)
UPC June 10-Q............................................... 6.1(g)(i)
Voting Agreement............................................ 7.8
ARTICLE II
CONTRIBUTIONS, REORGANIZATION AND RELATED TRANSACTIONS
2.1 Pre-Closing Restructuring Transactions. Prior to and as a condition
precedent of the Closing, the parties shall effect or cause to be effected the
following transactions:
(a) Each of the Founders will contribute, convey, transfer, assign and
deliver, free and clear of all Liens and Restrictions, except as set forth
in Section 5.7 of the Founders Disclosure Schedule, all and not less than
all of the shares of United Class B Stock held by such Founder as indicated
next to such Founder's name on Schedule 2.1(a) (collectively, the "Founder
Shares"), in each case together with the right to receive all unpaid
dividends and distributions declared or otherwise payable with respect to
such Founder Shares and associated stock purchase rights, if any, to
newly-formed single-member limited liability companies organized under the
laws of the State of Delaware (each a "Founder Newco"). At all times from
the organization of each Founder Newco until the Closing (i) no Person
other than the Founder contributing shares of United Class B Stock to such
Founder Newco shall own any equity interest whatsoever in such Founder
Newco, (ii) the limited liability company membership interests in such
Founder Newco shall be owned by the applicable Founder free and clear of
any Liens and Restrictions, and such Founder Newco shall have no assets,
other than Founder Shares and shares of the Class A Common Stock, par value
US $0.01 per share, of United ("United Class A Stock" and, together with
the United Class B Stock, "United Common Stock") issued to such Founder
Newco upon conversion of Founder Shares pursuant to the following sentence,
and no liabilities or obligations, known or unknown, whether absolute,
accrued, fixed, contingent or otherwise, other than its obligations under
the applicable Founder Newco Merger Agreement. Each Founder will cause its
applicable Founder Newco to convert an adequate number of the Founder
Shares held by it into an equal number of shares of United Class A Stock in
order to ensure that, after giving effect to the Founder Newco Mergers and
the contribution contemplated by Section 2.2(a), New United will not own
50% or more of the voting power of United prior to the consummation of the
United/New United Merger.
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(b) Gene W. Schneider ("Schneider"), as the sole stockholder of New
United, will cause the Certificate of Incorporation ("New United Charter")
and By-laws ("New United By-laws") of New United to be restated as set
forth in Exhibits 2.1(b)-1 and 2.1(b)-2, respectively.
(c) Immediately prior to the Closing, one or more Controlling Principals
will purchase from United an aggregate of 1,500 shares of United Series E
Preferred Stock for the purchase price set forth in, and otherwise pursuant
to the terms of, one or more Subscription Agreements between each such
Controlling Principal and United, in the form attached hereto as Exhibit
2.1(c) (each a "Subscription Agreement").
2.2 Contributions and Restructuring. At the Closing, upon the terms and
subject to the conditions set forth in this Agreement and in the order set forth
below (and otherwise substantially concurrently):
(a)(i) Schneider will contribute, convey, transfer, assign and deliver to
New United, free and clear of all Liens and Restrictions, one share of
United Class A Stock, together with the right to receive all unpaid
dividends and distributions declared or otherwise payable with respect to
such share of United Class A Stock and associated stock purchase rights, if
any, as a contribution to the capital of New United, and New United shall
accept such share of United Class A Stock as a contribution to its capital
and Schneider shall not receive any other consideration in exchange for
such contribution, (ii) Liberty Global will contribute, convey, transfer,
assign and deliver, or cause to be contributed, conveyed, transferred,
assigned and delivered, to New United, free and clear of all Liens and
Restrictions, all, but not less than all, of the shares of United Class B
Stock held by Liberty Global as indicated next to Liberty Global's name on
Schedule 2.2 hereto (the "Liberty Global Shares"), together with the right
to receive all unpaid dividends and distributions declared or otherwise
payable with respect to such Liberty Global Shares and associated stock
purchase rights, if any, and New United shall accept all, but not less than
all, the Liberty Global Shares and issue and deliver to Liberty Global, or
to the applicable Contributing Party or Contributing Parties, in exchange
therefor a number of shares of New United Class C Stock equal to the number
of Liberty Global Shares so contributed (the "Liberty Global Consideration
Shares"), (iii) Liberty will contribute, convey, transfer, assign and
deliver, or cause to be contributed, conveyed, transferred, assigned and
delivered, to New United, free and clear of all Liens and Restrictions,
all, but not less than all, of the Note Shares, together with the right to
receive all unpaid dividends and distributions declared or otherwise
payable with respect to such Note Shares and associated stock purchase
rights, if any, and New United shall accept all, but not less than all, the
Note Shares and issue and deliver to Liberty, or to the applicable
Contributing Party or Contributing Parties, in exchange therefor a number
of shares of New United Class C Stock equal to the number of Note Shares so
contributed (the "Liberty Consideration Shares") and (iv) New United will
convert the Liberty Global Shares into an equal number of shares of United
Class A Stock. Immediately prior to the contributions described in clauses
(ii) and (iii) of the previous sentence, there shall be no outstanding
shares of capital stock or other securities or ownership interests of New
United other than one share of New United Class A Stock held, beneficially
and of record, by Schneider.
(b) The Founders and New United will cause each of the Founder Newcos to
merge with and into New United (each, a "Founder Newco Merger") with the
limited liability company membership interests of each Founder Newco being
converted into an aggregate number of shares of New United Class B Stock
equal to the number of shares of United Common Stock held by such Founder
Newco at the time of such mergers (the "Founder Consideration Shares").
Each of these mergers will be consummated pursuant to an Agreement and Plan
of Merger substantially in the form attached hereto as Exhibit 2.2(b)
(each, a "Founder Newco Merger Agreement"). Prior to or simultaneous with
the Founder Newco Mergers, any Liens and Restrictions on shares of United
Common Stock held by each Founder Newco, including as set forth in Section
5.7 of the Founder Disclosure Schedule, shall be fully and unconditionally
released (without any liability whatsoever to New United or any of its
Subsidiaries or Affiliates) in accordance with instruments and documents as
are reasonably satisfactory to New United and the Liberty Parties and, from
and after the Founder Newco Mergers, such shares of United Common Stock
shall be free and clear of any Liens or Restrictions whatsoever. New United
will be the surviving entity in each of the Founder Newco Mergers.
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(c) United, New United and United/New United Merger Sub shall effect the
United/New United Merger, as described in Section 2.5 below.
(d) Liberty Media will contribute, convey, transfer, assign and deliver,
or cause to be contributed, conveyed, transferred, assigned and delivered,
to New United, free and clear of all Liens and Restrictions:
(i) all of the Belmarken Notes (or any proceeds thereof) and all of
Liberty Sub's rights and obligations under the Belmarken Loan
Agreements; and
(ii) an amount of cash equal to US $200,000,000 (the "Cash
Contribution"); and
(iii) all of the Liberty UPC Bonds or, in the event of any refinancing
or restructuring of, or similar transaction with respect to, any of
UPC's indebtedness, the proceeds, if any, received in exchange for any
of the Liberty UPC Bonds in such transaction (the "Restructuring
Proceeds");
and New United shall issue and deliver to Liberty Media or the applicable
Contributing Party or Contributing Parties at the Closing, the following
shares of New United Class C Stock (the "Liberty Contribution Shares"):
(1) in exchange for, and in consideration of, the contribution of the
Belmarken Notes (or any proceeds thereof) and the assignment of Liberty
Sub's rights and obligations under the Belmarken Loan Agreements to New
United pursuant to Section 2.2(d)(i), a number of shares of New United
Class C Stock equal to the quotient of (A) US $856,800,000, plus
interest accrued on such amount from and including May 29, 2001 to the
Closing Date at the rate of 6% per annum, compounded quarterly,
calculated in the same manner as provided in the Belmarken Loan
Agreements for the accretion of interest on the Belmarken Notes
(irrespective of whether any Belmarken Notes are outstanding), (the
"Belmarken Notes Value") divided by (B) US $16.18; and
(2) in exchange for, and in consideration of, the Cash Contribution, a
number of shares of New United Class C Stock equal to the quotient of
(A) the amount of the Cash Contribution divided by (B) US $16.18; and
(3) in exchange for, and in consideration of, the Liberty UPC Bonds
and/or Restructuring Proceeds contributed to New United pursuant to
Section 2.2(d)(iii), a number of shares of New United Class C Stock
equal to the quotient of (A) the Liberty UPC Bond Cost divided by (B)
US $1.53;
provided that (A) if the quotient obtained by dividing the sum of the Belmarken
Notes Value plus the amount of the Cash Contribution plus the Liberty UPC Bond
Cost plus US $20,000,000 (such sum, the "Liberty Contribution Value"), by the
sum of the total number of Liberty Contribution Shares determined in accordance
with clauses (1), (2) and (3) above plus 11,976,048 (such sum, the "Total
Liberty Shares"), is greater than US $5.00, New United shall issue and deliver
to Liberty at the Closing a sufficient number of additional shares of New United
Class C Stock (the "Additional Liberty Shares") so that the quotient obtained by
dividing the Liberty Contribution Value by the sum of the Total Liberty Shares
plus the Additional Liberty Shares is equal to US $5.00 and (B) if the quotient
obtained by dividing the Liberty Contribution Value by the Total Liberty Shares
is less than US $5.00, the number of Liberty Contribution Shares issued and
delivered by New United to Liberty pursuant to this Section 2.2(d) shall be
reduced by a number of shares of New United Class C Stock so that the quotient
obtained by dividing the Liberty Contribution Value by the number of Liberty
Contribution Shares issued and delivered to Liberty by New United is equal to
US $5.00. For purposes of each provision of this Agreement other than this
Section 2.2(d) any Additional Liberty Shares issued and delivered pursuant to
this Section 2.2(d) shall be deemed to be Liberty Contribution Shares.
(e) Liberty Media, LMI and New United will enter into an agreement
pursuant to which New United will acknowledge that Liberty, LMI and their
respective Affiliates are intended beneficiaries of the covenants and
agreements set forth in Sections 7.11 and 11.15 of the Loan Agreement,
dated as of May 25, 2001, among Belmarken Holding B.V., UPC, UPC Internet
Holding B.V. and Liberty Sub, and New United will agree that it will not
amend, modify or waive in any respect or terminate any of such
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covenants or agreements without the prior written consent of Liberty and
LMI (the "No Waiver Agreement").
(f) If Liberty or Liberty Global causes any Person to make all or part of
the contributions described in clauses (a) or (d) above, each such Person
shall become a party to this Agreement and the applicable Transaction
Documents (each such Person, a "Contributing Party").
2.3 Repayment of Indebtedness.
(a) At the Closing, immediately following the consummation of the transactions
set forth in Section 2.2, Liberty shall repay, or cause to be repaid, in full
the unpaid balance of the principal amount of the $310,000,000 Notes together
with all accrued and unpaid interest thereon (the "Note Repayment Amount") to
UIPI either by the delivery of cash or, as described below, Liberty 2009 Notes.
Upon receipt of the Note Repayment Amount, United shall irrevocably release, and
shall cause each beneficiary of Liberty Media's guaranty of the repayment of the
indebtedness evidenced by the $310,000,000 Notes (the "Liberty Guaranty") to
irrevocably release, Liberty from all of its obligations under the Liberty
Guaranty. Notwithstanding anything contained in the December 7 Letter Agreement,
the $310,000,000 Notes or the Liberty Guaranty, (i) the balance of the
indebtedness evidenced by the $310,000,000 Notes shall not be due and payable
until the Closing Date; provided, however, that if this Agreement is terminated
without the occurrence of the Closing, then the balance of such indebtedness
will be due and payable in cash on the date of termination of this Agreement,
(ii) prior to the Closing, Liberty Argentina may assign the $310,000,000 Notes,
in whole or in part, to Liberty and (iii) Liberty may repay, or cause to be
repaid, the balance of the indebtedness evidenced by the $310,000,000 Notes, in
whole or in part, by the delivery of Liberty 2009 Notes to UIPI at the Closing.
If Liberty repays, or causes to be repaid, the balance of the indebtedness
evidenced by the $310,000,000 Notes by the delivery of Liberty 2009 Notes, (A)
such Liberty 2009 Notes shall (1) except as set forth herein, be substantially
identical to Liberty's Senior Notes, due 2009, that were originally issued on
July 7, 1999 (the "Existing Liberty Notes"), (2) not, when delivered to UIPI at
the Closing, be registered pursuant to the Securities Act, (3) be issued with an
aggregate principal amount equal to the portion of the Note Repayment Amount
that is being repaid by delivery of such Liberty 2009 Notes, and (4) bear
interest on the principal amount thereof at a rate per annum equal to the market
yield on the Existing Liberty Notes as of the Closing Date (determined in the
manner set forth on Schedule 2.3), and (B) Liberty, United and UIPI shall, at
the Closing, enter into a registration rights agreement with respect to the
Liberty 2009 Notes in the form attached hereto as Exhibit 2.3 (the "Liberty 2009
Notes Registration Rights Agreement").
(b)(i) United shall not and shall cause each of its Subsidiaries at any time
holding Liberty 2009 Notes not to, transfer any Liberty 2009 Notes to any Person
other than a Person that is a wholly owned Subsidiary of United without first
complying with the provisions of this Section 2.3(b). If United or a United
Subsidiary holding any Liberty 2009 Notes (the "Notes Holder") desires to
transfer any Liberty 2009 Notes to a Person that is not a wholly owned
Subsidiary of United, such Notes Holder shall first deliver written notice to
Liberty by telecopy (a "Liberty Notice") on the fifth Business Day prior to the
date on which the Notes Holder intends to transfer such Liberty 2009 Notes (the
"Transfer Date"), setting forth the number of Liberty 2009 Notes such Notes
Holder intends to transfer on the Transfer Date (expressed as an aggregate
principal amount) and setting forth a time on the Transfer Date at which the
Notes Holder will deliver the Offer Notice telephonically as described in the
following sentence, which time shall be after 7:00 a.m. and prior to 8:00 a.m.
(in each case, Denver, Colorado time). On the Transfer Date, at the time set
forth in the Liberty Notice, the Notes Holder shall telephonically offer (the
"Offer Notice") to sell Liberty a number of Liberty 2009 Notes (expressed as an
aggregate principal amount) equal to the number of Liberty 2009 Notes set forth
in the Liberty Notice (the "Offered Notes"), free and clear of all Liens and
Restrictions, for cash in an amount per Liberty 2009 Note specified by the Notes
Holder (expressed as a percentage of the principal amount of each Liberty 2009
Note so offered).
(ii) If Liberty desires to purchase all, but not less than all, of the Offered
Notes, Liberty may accept such Offer Notice by notifying the Notes Holder
telephonically at the telephone number specified in the Offer Notice at or prior
to 10:00 a.m. (Denver, Colorado time) on the Transfer Date of its intention to
purchase the Offered Notes (the "Purchased Notes") for a cash purchase price per
Purchased Note as set forth in the Offer
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Notice (the "Acceptance Notice"). The telephonic delivery of a timely Acceptance
Notice shall constitute a binding obligation of Liberty and the Notes Holder.
Liberty and the Notes Holder shall, on the Transfer Date and promptly following
the delivery of an Acceptance Notice, execute and deliver a customary agreement
for the purchase and sale of the Purchased Notes, which agreement shall contain
representations and warranties on the part of the Notes Holder that the
Purchased Notes are, and shall be at the closing of the sale of the Purchased
Notes to Liberty, owned by such Notes Holder, beneficially and of record, and
are not, and at the time of such closing will not be, subject to any Liens or
Restrictions whatsoever. The sale of the Purchased Notes to Liberty shall be
consummated on the third Business Day following the Transfer Date.
(iii) If Liberty does not telephonically deliver an Acceptance Notice to the
Notes Holder agreeing to purchase all of the Offered Notes, the Notes Holder
may, on the Transfer Date, sell the Offered Notes for a cash purchase price per
Offered Note that is no less than the purchase price per Offered Note set forth
in the Offer Notice to a bona fide third party. Any sale of Offered Notes
pursuant to the previous sentence shall be consummated no later than the third
Business Day following the Transfer Date. If the Notes Holder does not sell such
Offered Notes on the Transfer Date or does not consummate the sale thereof on or
before the third Business Day following the Transfer Date, such Offered Notes
may not be transferred without again complying with the procedures set forth in
this Section 2.3(b).
2.4 Certain Adjustments. If United or New United effects any stock dividend,
stock split, reverse stock split, recapitalization or reclassification affecting
the shares of its common stock or preferred stock of any class or series, or
otherwise effects any transaction that changes such shares into any other
securities (including securities of another entity) or effects any other
dividend or distribution (other than a normal cash dividend payable out of
current or retained earnings) on such shares, then the exchange ratios
(including the number and kind of shares) set forth in this Agreement for any
transaction not consummated prior to such event will, as appropriate, be
adjusted to reflect such event.
2.5 United/New United Merger.
(a) Simultaneously with the execution and delivery of this Agreement, United,
New United and United/ New United Merger Sub have entered into an Agreement and
Plan of Merger, dated the date hereof, a copy of which is attached hereto as
Exhibit 2.5(a) (the "United/New United Merger Agreement"). As described in
Section 2.2, subject to and upon the terms and conditions of the United/New
United Merger Agreement, at the Closing, United/New United Merger Sub shall, and
New United and United shall cause United/New United Merger Sub to, merge with
and into United in accordance with the provisions of the Delaware General
Corporation Law (the "DGCL") (the "United/New United Merger"), the separate
corporate existence of United/New United Merger Sub shall cease and United shall
continue as the surviving entity in the United/ New United Merger (the
"Surviving Entity").
(b) By virtue of the United/New United Merger:
(i) all of the shares of United Series E Preferred Stock outstanding
immediately prior to the effective time of the United/New United Merger
(the "Effective Time") shall be converted into and represent the right to
receive, and shall be exchangeable for, an aggregate of 1,500,000 shares of
the Class A Common Stock, par value US $0.01 per share, of the Surviving
Entity ("Surviving Entity Class A Stock");
(ii) each share of United Class A Stock outstanding immediately prior to
the Effective Time shall be converted into and represent the right to
receive, and shall be exchangeable for, one share (the "Exchange Ratio") of
the Class A Common Stock, par value US $0.01 per share, of New United ("New
United Class A Stock")and each share of United Class B Stock outstanding
immediately prior to the Effective Time shall be converted into and
represent the right to receive and be exchangeable for, one share of New
United Class A Stock;
(iii) each share of United Series B Preferred Stock outstanding
immediately prior to the Effective Time shall be converted into and
represent the right to receive, and shall be exchangeable for, one share of
Convertible Preferred Stock, Series F, par value US $0.01 per share, of the
Surviving Entity ("Surviving Entity Series F Preferred Stock");
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(iv) each share of United Series C Preferred Stock outstanding immediately
prior to the Effective Time shall be converted into and represent the right
to receive, and shall be exchangeable for, one share of 7% Series G
Convertible Senior Cumulative Preferred Stock, par value US $0.01 per
share, of the Surviving Entity ("Surviving Entity Series G Preferred
Stock"); and
(v) each share of United Series D Preferred Stock outstanding immediately
prior to the Effective Time shall be converted into and represent the right
to receive, and shall be exchangeable for, one share of 7% Series H
Convertible Senior Cumulative Preferred Stock, par value US $0.01 per
share, of the Surviving Entity ("Surviving Entity Series H Preferred
Stock")
(such shares of New United Class A Stock, Surviving Entity Series F Preferred
Stock, Surviving Entity Series G Preferred Stock and Surviving Entity Series H
Preferred Stock, the "United/New United Merger Consideration"); provided,
however, that each share of United Class A Stock, United Class B Stock, United
Series B Preferred Stock, United Series C Preferred Stock and United Series D
Preferred Stock that immediately prior to the Effective Time is held by New
United or that is held by United in treasury shall be canceled and retired
without payment of any consideration therefor and without any conversion thereof
into United/New United Merger Consideration. The rights, privileges, powers and
preferences of the New United Class A Stock, New United Class B Stock and New
United Class C Stock will be as provided in the New United Charter and New
United By-laws which shall continue in effect following the United/New United
Merger; provided that, effective immediately upon the Effective Time, the New
United Charter shall be amended to change the name of New United to
"UnitedGlobalCom, Inc."
(c) At the Effective Time, all outstanding options to purchase shares of United
Class A Stock or United Class B Stock (which options to purchase shares of
United Class B Stock shall consist solely of Class B Options) under a United
Stock Option Plan or any other contract, all of which are listed in Section
2.5(c) of the United Disclosure Schedule, shall remain outstanding, be assumed
by New United and thereafter be exercisable, at the same per share exercise
price and pursuant to the same terms and conditions, including vesting
conditions, for a number of shares of New United Class A Stock or New United
Class B Stock, as applicable, equal to the number of shares of United Class A
Stock or United Class B Stock for which such option was exercisable immediately
prior to the Effective Time.
(d) At the Effective Time, all of the shares of United/New United Merger Sub's
Class B Common Stock, par value US $0.01 per share ("United/New United Merger
Sub Class B Stock"), and Class C Common Stock, par value US $0.01 per share
("United/New United Merger Sub Class C Stock"), outstanding immediately prior to
the Effective Time and held by New United shall be converted into and represent
the right to receive, and shall be exchangeable for, respectively, an aggregate
of 1,500,000 shares of the Class B Common Stock, par value US $0.01 per share,
of the Surviving Entity ("Surviving Entity Class B Stock") and 300,000,000
shares of the Class C Common Stock, par value US $0.01 per share, of the
Surviving Entity ("Surviving Entity Class C Stock").
(e) As of and following the Effective Time, the Certificate of Incorporation
and By-laws of the Surviving Entity shall be as set forth on Exhibits 2.5(e)-1
and 2.5(e)-2, respectively (respectively, the "Surviving Entity Charter" and the
"Surviving Entity By-laws"). The rights, privileges, powers and preferences of
the Surviving Entity Class A Stock, Surviving Entity Class B Stock, Surviving
Entity Class C Stock, Surviving Entity Class D Stock, Surviving Entity Series F
Preferred Stock, Surviving Entity Series G Preferred Stock and Surviving Entity
Series H Preferred Stock shall, from and after the Effective Time, be as
provided in the Surviving Entity Charter and the Surviving Entity Bylaws.
(f) The terms of the foregoing exchanges (including the exchange rates) shall,
as appropriate, be subject to adjustment as set forth in Section 2.4 for events
occurring after the date hereof and prior to the Effective Time.
(g) As of and following the Effective Time, until their successors are duly
elected or appointed in accordance with the New United Charter, the New United
By-laws and the Voting Agreement, the directors, executive officers and certain
other officers of New United will be as set forth on Schedule 2.5(g).
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ARTICLE III
[RESERVED]
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
LIBERTY MEDIA, LIBERTY GLOBAL AND LMI
Each of the Liberty Parties, severally and not jointly, as to itself and the
assets, if any, being transferred by such Liberty Party pursuant hereto only,
represents and warrants to the other parties hereto, as follows:
4.1 Organization, Good Standing and Authority. Such Liberty Party (i) is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, (ii) has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted and (iii) is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification necessary, except where the failure to be so qualified or
licensed and in good standing has not had and is not reasonably likely to have
(1) a Material Adverse Effect on the assets being transferred by the Liberty
Parties pursuant hereto, taken as a whole, or (2) a material adverse effect on
the ability of the Liberty Parties to perform their respective obligations
under, and to consummate the transactions contemplated by, this Agreement and
the other Transaction Documents (each of clauses (1) and (2) above, a "Liberty
Material Adverse Effect").
4.2 Power; Authorization and Validity; Consents; No Conflicts. Such Liberty
Party has all requisite corporate power and authority to enter into and perform
its obligations under this Agreement and each Transaction Document to be
executed and delivered by it pursuant to this Agreement. The execution and
delivery by such Liberty Party of and, subject to the satisfaction of the
conditions set forth in this Agreement, the performance by it of its obligations
under, this Agreement and each Transaction Document to which it is or will be a
party have been duly authorized by all requisite corporate action of such
Liberty Party. This Agreement has been, and each of the other Transaction
Documents to be executed and delivered by such Liberty Party will be at or prior
to the Closing, duly executed and delivered by such Liberty Party, and assuming
the due execution and delivery by each other party hereto and thereto (other
than another Liberty Party), this Agreement constitutes, and when executed and
delivered by such Liberty Party pursuant to this Agreement, each Transaction
Document to which such Liberty Party is a party will constitute, the legal,
valid and binding obligation of such Liberty Party enforceable in accordance
with its terms, except as such enforceability may be affected by applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally or by general equitable principles. Except for the
requirements under the HSR Act and except for any required notices, Filings,
consents, approvals or waivers set forth on Section 4.2 of the Liberty
Disclosure Schedule (the "Required Liberty Consents"), no consent, approval or
waiver of, notice to, or Filing with, any other Person is required, on behalf of
such Liberty Party in connection with the execution, delivery or performance by
such Liberty Party of this Agreement or by such Liberty Party of any of the
other Transaction Documents to which it is a party, or the consummation of the
transactions contemplated hereby and thereby, the failure of which to be
obtained, given or made, individually or in the aggregate, would have a Liberty
Material Adverse Effect. Except as set forth on Section 4.2 of the Liberty
Disclosure Schedule, the execution and delivery by such Liberty Party of this
Agreement and the other Transaction Documents to which they or any of them are
parties do not, and the performance by such Liberty Party, of their respective
obligations under this Agreement and the other Transaction Documents to which
they or any of them are parties will not, (i) violate or conflict with any
provision of the certificate of incorporation or bylaws of such Liberty Party,
(ii) assuming that the Required Liberty Consents of Governmental Authorities are
obtained, violate any of the terms, conditions or provisions of any Law, License
or Judgment to which such Liberty Party is subject or by which any of the
foregoing or their respective assets are bound, except that no representation is
made with respect to any foreign Law of any jurisdiction in which Liberty does
not, directly or through a Subsidiary, own assets or engage in business, or
(iii) assuming that the
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Required Liberty Consents are given, made and obtained, result in a violation or
breach of, or (with or without the giving of notice or lapse of time or both)
constitute a default (or give rise to any right of termination, cancellation,
acceleration, repurchase, prepayment or repayment or to increased payments)
under or give rise to or accelerate any material obligation (including any
obligation to, or to offer to, repurchase, prepay, repay or make increased
payments) or result in the loss or modification of any material benefit under,
or result in a Lien or Restriction on any of the assets of such Liberty Party
being contributed pursuant to this Agreement pursuant to any Contract to which
such Liberty Party is a party or by which such Liberty Party or any of its
assets is bound, except in the case of any Law (other than Delaware law),
License or Judgment referred to in clause (ii) and any Contract referred to in
clause (iii), as would not, individually or in the aggregate, have a Liberty
Material Adverse Effect.
4.3 Brokers' and Finders' Fees. There is no broker, finder, investment banker
or similar intermediary which has been retained by, or is authorized to act on
behalf of, any Liberty Party or any of its Subsidiaries or any of their
respective officers or directors who will be entitled to any fee or commission
in connection with this Agreement or upon consummation of the transactions
contemplated hereby.
4.4 Legal Proceedings. There is no Judgment outstanding, or any Legal
Proceeding by or before any Governmental Authority or any arbitrator pending or,
to such Liberty Party's knowledge, threatened in writing, against such Liberty
Party that, individually or in the aggregate, could reasonably be expected to
have a Liberty Material Adverse Effect. Section 4.4 of the Liberty Disclosure
Schedule identifies certain Legal Proceedings pending or threatened against the
Liberty Parties and/or their respective Subsidiaries.
4.5 Ownership of United Class B Stock. Liberty Global is the record and
beneficial owner of 9,859,336 shares of United Class B Stock, free and clear of
all Liens and Restrictions, except as set forth in Section 4.5 of the Liberty
Disclosure Schedule or as may be or have been created by this Agreement or the
other Transaction Documents or by United or any of its Affiliates and except for
restrictions on transfer under federal or state securities laws.
4.6 [Reserved.]
4.7 Belmarken Notes. Liberty Media, through its ownership of Liberty Sub, owns
the Belmarken Notes or the proceeds of any payments thereunder and its rights
under the Belmarken Loan Agreements, free and clear of all Liens and
Restrictions, other than as may have been created by the Belmarken Loan
Agreements, this Agreement or the other Transaction Documents, or by United or
any of its Controlled Affiliates, except as may arise out of or in connection
with, or result from, a Restructuring Transaction and except for restrictions on
transfer under federal or state securities laws or applicable local laws.
4.8 [Reserved.]
4.9 Investment Intent. Such Liberty Party is acquiring shares of New United
Class C Stock pursuant to this Agreement for investment purposes only and
acknowledges that such shares may not be sold without registration under the
Securities Act and applicable state securities laws, unless an exemption
therefrom is available.
4.10 Registration Statement; Proxy Statement. The information supplied by such
Liberty Party in writing expressly for the purpose of inclusion in the
Registration Statement and the Proxy Statement shall not at the time the
Registration Statement is declared effective by the Commission, on the date the
Proxy Statement is first mailed to the stockholders of United, at the time of
the United Stockholders Meeting or on the Closing Date contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
4.11 Liberty UPC Bonds. Liberty Media or one or more of its Affiliates is the
record and beneficial owner of the Liberty UPC Bonds, free and clear of all
Liens and Restrictions, other than as may have been created by this Agreement or
the other Transaction Documents or by United or any of its Controlled
Affiliates, except as may arise out of or in connection with, or result from, a
Restructuring Transaction and except for restrictions on transfer under federal
or state securities laws or applicable local laws. Schedule 1.1 contains a
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