<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NO. 0-25691
NTL INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-4051921
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
<TABLE>
<S> <C>
110 EAST 59TH STREET, NEW YORK, NEW YORK 10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(212) 906-8440
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
<PAGE> 2
fqq
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether disclosure by delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.|_|
The aggregate market value of the Registrant's voting stock held by
non-affiliates at March 13, 2000, valued in all cases in accordance with the
NASDAQ/NMS closing sale price for the Registrant's Common Stock was
approximately $13,610,286,000.
Number of shares of Common Stock outstanding as at March 13, 2000: 141,606,516
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
PART OF 10-K
IN WHICH
DOCUMENT INCORPORATED
- -------- ------------
<S> <C>
Definitive proxy statement for the Part III
2000 Annual Meeting of the
Stockholders of NTL Incorporated:
</TABLE>
* * * * * *
This Annual Report on Form 10-K for the year ended December 31, 1999, at the
time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Section 13, 14 and 15(d) of the
Securities Exchange Act of 1934 for purposes of any offers or sales of any
securities after the date of such filing pursuant to any Registration Statement
or Prospectus filed pursuant to the Securities Act of 1933 which incorporates by
reference this Annual Report.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995:
Certain statements contained herein constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995. When used in this Form 10-K, the words, "believe,"
"anticipate," "should," "intend," "plan," "will," "expects," "estimates,"
"projects," "positioned," "strategy," and similar expressions identify such
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Registrant, or industry results, to
be materially different from those contemplated or projected, forecasted,
estimated or budgeted, whether expressed or implied, by such forward-looking
statements. Such factors include, among others: general economic and business
conditions, industry trends, the Registrant's ability to continue to design
network routes, install facilities, obtain and maintain any required government
licenses or approvals and finance construction and development, all in a timely
manner, at reasonable costs and on satisfactory terms and conditions, as well as
assumptions about customer acceptance, churn rates, overall market penetration
and competition from providers of alternative services, the impact of new
business opportunities requiring significant up-front investment, Year 2000
readiness and availability, terms and deployment of capital.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I
Item 1. Business................................................................................ 1
Item 2. Properties.............................................................................. 34
Item 3. Legal Proceedings....................................................................... 35
Item 4. Submission of Matters to a Vote of Security Holders..................................... 35
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters............... 36
Item 6. Selected Financial Data................................................................. 37
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................................... 38
Item 7a. Quantitative and Qualitative Disclosure about Market Risk............................... 45
Item 8. Financial Statements and Supplementary Data............................................. 47
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................................ 48
PART III
Items 10, 11, 12, and 13.................................................................................. 48
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................................................. 48
Exhibit Index ........................................................................................ 49
Signatures ........................................................................................ 55
Index to Consolidated Financial Statements .............................................................. F-1
</TABLE>
i
<PAGE> 4
PART I
ITEM 1. BUSINESS.
INTRODUCTION
NTL Incorporated ("NTL" or the "Company") is a leading broadband
communications company in the U.K. and the Republic of Ireland, and the Company
has recently expanded its operations through the acquisition of broadband cable
systems in France and the national broadcasting network facilities in Australia
and has announced a proposed expansion in Switzerland. Further expansion into
Continental Europe is intended as, and when, opportunities arise. This expansion
may be effected by NTL either on its own, in partnerships or in co-ventures.
NTL provides residential, business and wholesale customers with the
following services:
- RESIDENTIAL SERVICES, including telephony, cable television, personal
computer and television-based Internet access and interactive services.
NTL expects to develop residential product offerings as, and when, it
expands into Continental Europe based on the expertise it has developed
in the U.K. As in the proposed expansion in Switzerland, cable systems
in Continental Europe typically feature mature cable television product
offerings, but are relatively unmodernized compared to equivalent
systems in the U.K. As such, penetration of basic cable television
services is much higher than that currently achieved in the U.K., but
there is low penetration of telephony and Internet products. NTL plans
to modernize and expand the product offering of the systems it acquires
in Continental Europe. In addition to its residential fixed line
operations, NTL is placing increasing emphasis on developing a mobile
product offering to complement its fixed line operations and continues
to explore cost effective alternatives.
- NATIONAL TELECOMS SERVICES, including business telecoms, national and
international carrier telecommunications, Internet services and
satellite communications services. NTL currently serves approximately
44,900 business and carrier customers, including: AT&T, Cisco, Colt, MCI
Worldcom, Microsoft, Orange, Sun Microsystems and Vodafone.
- BROADCAST TRANSMISSION AND TOWER SERVICES, including digital and analog
television and radio broadcast transmission services, wireless network
management and tower site rental services.
NTL's competitive position is underpinned by the $5.8 billion investment it
has made in its network infrastructure. NTL provides its broad range of services
over local, national and international network infrastructure. This network
infrastructure consists of:
- BROADBAND COMMUNICATIONS NETWORKS in the U.K. and the Republic of
Ireland that currently pass approximately 4.3 million homes and will be
expanded to cover nearly 5.8 million homes in NTL's regional U.K.
franchise areas and the Republic of Ireland. These high-capacity two-way
local broadband fiber networks serve entire communities throughout these
regional franchise areas. NTL's fiber optic cables pass nearly every
business and are connected to nodes which are typically within
approximately 500 meters of each of the 600 homes typically served by
each node. Each home is then connected by a siamese cable consisting of
two copper pair telephone wires and a coaxial cable, allowing NTL to
deliver telephone, cable television and Internet services over a single
integrated network. This siamese cable also allows NTL to deploy both
cable modems and digital subscriber line technology for the provision of
broadband communications services.
- A NATIONAL/INTERNATIONAL SYNCHRONOUS DIGITAL HIERARCHY, KNOWN AS SDH,
FIBER OPTIC TELECOMMUNICATIONS NETWORK in the U.K. which connects all of
the major population centers in the U.K. to Ireland, Continental Europe
and the United States. This self-healing, fully redundant 3,500 mile
backbone network utilizes Asynchronous Transfer Mode, known as ATM,
technology and was built with sufficient duct capacity to accommodate
over 2,300 fibers on the majority of its routes. NTL has designed this
network to allow NTL to place the active components, such as routing
devices, at its edge and close to NTL's customers. This design will
ultimately reduce NTL's costs and increase NTL's ability to offer a
broad range of voice and data solutions.
1
<PAGE> 5
- NATIONAL BROADCAST TRANSMISSION AND TOWER NETWORK INFRASTRUCTURE IN THE
U.K. AND AUSTRALIA, which provide national, regional and local broadcast
and wireless communications coverage and is comprised of over 1,450
tower sites in the U.K. and 561 tower sites in Australia. NTL's fixed
line and tower networks in the U.K. are interconnected.
To support its broadband and mobile operations, NTL is currently involved in
various ventures relating to the provision of programming and other forms of
consumer oriented content. Among other initiatives, it is a party to the Front
Row joint venture with Telewest Communications plc ("Telewest"), which provides
a cable-only movie, sport and event pay-per-view service and has an agreement
with Eurosport to support the creation by Eurosport of British Eurosport, a
basic tier sports channel. NTL is also in discussions with a number of other
potential joint venture partners about further possible programming ventures and
expects that programming and content oriented activities will represent an
increasing proportion of investments in the future. In addition, NTL has
recently announced content partnerships with Newcastle United plc and Aston
Villa plc, is in discussions with various other parties for similar arrangements
and is contemplating bidding for the Premier League media rights when they next
become available. NTL also has a 49% stake in the Internet service provider
known as Virgin Net and is in constant discussions with various parties with a
view to reposition its Internet activities to reflect the increasingly
pan-European nature of its operations and to establish a number of new
Internet-related ventures to complement existing activities or address new
market opportunities.
NTL's objective is to exploit the convergence of the telecommunications,
entertainment and information services industries to become the leading full
service broadband communications company in the markets in which it competes. It
is currently focused on the U.K. and Ireland but expects that Continental
Europe, where it is actively reviewing a number of opportunities, will
increasingly be the focus for future investment. NTL offers services to
residential, business and wholesale customers on a national and an international
scale. NTL believes that it will be able to deliver its strategy through its
entrepreneurial approach, innovative marketing, state-of-the-art networks and
technical excellence. NTL is currently employing several strategies in the
United Kingdom, and would anticipate this approach will underpin its expansion
into other markets, to achieve its objective:
- INSTALLING FLEXIBLE INTEGRATED FULL-SERVICE NETWORKS. NTL's integrated
full-service networks provide a high-speed, high-capacity, two-way
communications pathway to the consumer that is capable of delivering new
services which are emerging from the convergence of telecommunications,
information and entertainment. This strategy allows NTL to pursue four
revenue streams, residential cable television, residential telephone,
business telecommunications services and Internet services, without
significant incremental cost or capital investment.
- MAXIMIZING NETWORK CAPACITY UTILIZATION. NTL believes the fixed cost
structure of building communications networks allows it to gain
significant operating efficiencies from incremental services provided
over its networks. In NTL's local franchise areas, its strategy is to
maximize gross profit contribution per home passed, rather than revenue
per customer, by increasing overall penetration of the number of
services provided over its network.
- FOCUSING ON TARGET MARKET SEGMENTS. NTL believes that tailoring its
services to the needs of its customers will increase the penetration of
these services.
- PROVIDING SUPERIOR CUSTOMER SERVICE. NTL believes customer service and
attentiveness to the needs of customers are critical to the continued
growth of its residential and business services. NTL operates multiple
customer call centers, including three large call centers in Luton,
South Wales and Central Scotland, as well as multiple call centers
throughout the regions of its recently acquired businesses. Calls are
answered at most locations 24 hours a day, 365 days a year. The customer
call centers currently employ approximately 500 people, who are
specially trained to deal with customers' inquiries and needs with
respect to NTL's various products and services.
- DEVELOPING ADVANCED MANAGEMENT INFORMATION SYSTEMS. NTL believes that
advanced management information systems are critical to effectively,
efficiently and accurately serve its customers. NTL uses proprietary
software to handle its subscriber management functions from one central
location. The system is capable of managing NTL's tariff and
discounting structures, and will also allow for the introduction of new
telephone and cable television services, such as 0800 numbers.
2
<PAGE> 6
- GAINING COST EFFICIENCIES. NTL gains cost efficiencies by centralizing
some services provided to the U.K. franchise areas in its head office in
Hook, England.
Part of NTL's corporate strategy has been to expand its operations through
acquisitions. Over the last two years, NTL has entered into over 20 acquisition,
investment or joint venture agreements. NTL intends to continue this strategy
as, and when, the right opportunities arise and, through its corporate finance
and development team, devotes a significant amount of time reviewing possible
acquisitions. In parallel to its acquisitive strategy, NTL continues to recruit
management into the organization at both corporate and operational levels to
support the integration and expansion of its various broadband initiatives.
NTL believes it has prudently financed its growth to date. To address the
increased financing requirements, if any, arising from its acquisition based
growth, while also maintaining a prudent capital structure, NTL will continue to
seek further investment from strategic investors or will raise funds through the
private and public capital markets.
In this Report on Form 10-K, references to "(pound sterling)" "pounds
sterling," "(pound)," "pence" or "p" are to the lawful currency of the U.K.,
references to "(euro)" or "Euro" are to the lawful currency of the European
Monetary Union, references to "IR(pounds)" or "Irish punts" are to the lawful
currency of the Republic of Ireland, references to "FRF" or "Francs" are to the
lawful currency of France, references to "A$" are to the lawful currency of
Australia, references to "CHF" are to the lawful currency of Switzerland and
references to "U.S. dollars," "dollars," "$" or "(cent)" are to the lawful
currency of the United States. Solely for the convenience of the reader, this
Form 10-K contains translations of certain foreign currency amounts into U.S.
dollars and certain U.S. dollar amounts into foreign currencies. These
translations should not be construed as representations that the foreign
currency amounts actually represent such U.S. dollar amounts or vice versa or
could have been or could be or will be converted into U.S. dollars or foreign
currencies, as the case may be, at the rate indicated or at any other rate.
Unless otherwise indicated, the translations of foreign currencies into U.S.
dollars and U.S. dollars into foreign currencies have been made at $1.6158 per
(pound) 1.00, $1.0092 per (euro)1.00, $1.28 per IR(pounds)1.00, $.1532
per FRF1.00, $.6533 per A$1.00 and $.6279 per CHF1.00, the noon buying rates in
the City of New York for cable transfers as certified for customs purposes by
the Federal Reserve Bank of New York (the "Noon Buying Rate") on December 31,
1999. On March 13, 2000, the Noon Buying Rate was $1.5782 per (pound) 1.00,
$.9648 per (euro)1.00, $1.225 per IR(pounds) 1.00, $.1471 per FRF 1.00,
$.6165 per A$1.00 and $.5987 per CHF1.00.
NTL, a Delaware corporation, was incorporated in February 1999, to effect a
reorganization into a holding company structure under Section 251(g) of the
Delaware General Corporation Law. The holding company structure, which was
implemented to pursue opportunities outside of the U.K. and Ireland, was
accomplished through a merger. The stockholders of NTL Communications Corp.
(formerly NTL Incorporated) ("NTL Communications"), at the effective time of the
merger became stockholders of the new holding company, and NTL Communications
became a subsidiary of the new holding company. The new holding company then
took the name NTL Incorporated. NTL Group Limited, a wholly-owned indirect
subsidiary of NTL which was acquired in 1996, has a 30-year history in the U.K.
as a provider of reliable communications services. NTL conducts its operations
through direct and indirect wholly-owned subsidiaries. NTL's principal executive
office is located at 110 East 59th Street, New York, New York 10022, and its
telephone number is (212) 906-8440.
3
<PAGE> 7
NATIONAL CORPORATE BRANDING
In June 1999, we launched a national advertising campaign in the U.K. to
promote NTL as the U.K.'s complete communications company serving both the
residential and the business markets. During 1999, NTL spent approximately
(pound sterling)29 million (approximately $46.9 million) on the advertising
campaign. This campaign coincided with a re-launch of the NTL brand itself,
which replaced all of our distinct brandnames (such as CableTel, Comcast,
Diamond and ComTel).
Along with highlighting our ability to provide customers with unique
communications services throughout the U.K., the new campaign builds on our core
aim of simplifying technology for the benefit of business and residential
customers. Extensive consumer research showed that customers were confused by
the technologies available and unable to make informed decisions with ease.
RESIDENTIAL SERVICES
We are a national provider of telecommunications, entertainment and Internet
access services to residential customers throughout the United Kingdom and
Ireland. Our local-broadband currently pass approximately 4.3 million homes and
will be expanded to cover nearly 5.8 million homes, spanning a broad geographic
area across England, Scotland, Wales, Northern Ireland and the Republic of
Ireland. Our networks serve entire regional communities, passing virtually every
home, business, and government institution. We currently provide our telephone
services over traditional telephone wires and our cable services over a coaxial
cable connection. We estimate that our local franchise networks (not including
our national network) cover approximately 7,000 route miles of fiber backbone
network, with approximately 400,000 fiber miles, and an estimated 75,000 route
miles of coaxial/copper connections. These full-service networks are capable of
providing a high speed, high capacity, two-way voice, data and video
communications pathway to every customer. This approach allows us to pursue four
revenue streams (residential telephone, residential cable television, Internet
services and business telecommunications services) without a significant
increase in fixed investment.
Our cable entertainment network employs a coaxial cable and is built with an
initial capacity of 750MHz, which is easily expandable to 1 GHz of capacity. The
network currently has an active reverse path that allows us to provide impulse
pay-per-view. Most importantly, the fact that we have installed both two pairs
of telephone wires and coaxial cables into each of our customers' homes allows
us the advantage of deploying either of the major high bandwidth communications
technologies that are developing today: cable modems and xDSL solutions.
NETWORK DESIGN. We are installing our broadband and telecommunications
network using established state-of-the-art technology, deploying fiber optics
directly to highly concentrated business areas and residential nodes typically
averaging 600 telephone lines or 600 homes respectively. We install spare duct
and can thus "pull" fiber into every home when economically justifiable. In this
manner, we achieve cost efficiencies and rapid deployment from using
standardized equipment, while retaining flexibility to expand and adapt our
network to technological advances with little or no additional construction
investment.
The design and construction of a new network varies depending upon several
factors including the number of route miles to be installed, density of homes
and businesses, type of road and sidewalk surface, and the architecture of the
network backbone. Each system has been designed with at least one head-end and
at least one telephone switching office. Each system's head-end and telephone
switching office is directly connected to each node by fiber optic cable. Each
node is then connected to a subscriber's premises. Construction of each system
has been planned on a neighborhood-by-neighborhood basis to allow revenue
generating operations to commence in a neighborhood as construction of the
portion of the system serving such neighborhood is completed.
4
<PAGE> 8
FIBER OPTICS. The evolution of fiber optic technology over the past decade,
including increases in the capacity of laser transmitters and decreases in the
price of optical receivers, has enabled the economic deployment of fiber optic
cable much closer to the customer than in traditional coaxial cable television
and twisted copper pair telephone networks, thereby improving the quality and
capacity of the cable television and telephone service. The main advantages of
deploying fiber in place of both coaxial cable or copper wire are its smaller
size, greater capacity, freedom from electrical interference, and significant
reduction of the requirement for periodic maintenance. We deploy fiber to nodes
which are normally less than 500 meters from the furthest home.
NETWORK ARCHITECTURE. Our broadband networks are being built with an initial
capacity of 750 MHz, which is sufficient to carry over 60 analog channels of
television. With digital compression of the television signal, many more
channels can be transmitted. The system is upgradeable to 1 GHz. Generally, a
maximum of one amplifier is required between the head-end optical receivers and
a home. Traditional cable systems often employ "cascades" of more than 5
amplifiers which degrade signal quality and increase the potential for system
failure.
Our local telecommunications network uses an SDH self-healing redundant-ring
based architecture, which improves our ability to flexibly deploy capacity and
further enhances system resilience. Telephone signals are carried from the node
to the home over traditional copper pair, over a shorter distance than in
traditional telephone networks, which improves signal quality and allows higher
bandwidth services such as ADSL to be more easily deployed. Within a residential
node, we use a dual drop consisting of "Siamese" coaxial cable, capable of
transmitting up to 1 GHz of bandwidth, and two copper twisted pairs capable of
providing two telephone connections. Moreover, the dual drop is placed in an
underground conduit that has capacity for a fiber drop in the future. Large
business customers are connected to the telephone network directly through fiber
optic cable or microwave links.
Our network design allows us to implement either of the two main broadband
local-loop solutions: cable modems and DSL. The use of xDSL Technologies could
enable us to exploit our copper wire assets more fully. We already use HDSL to
meet the needs of particular business customers. ADSL speeds vary according to
the length of the copper wire loop; the advantage that we have compared to an
established telephone company is our relatively short copper wire runs --
typically under 500 meters. This facilitates down-load speeds of over 6 Mb/s.
PRODUCTS, SERVICES AND MARKETING. We believe the most effective strategies
to achieve maximum revenues and maximum penetration is to bundle telephone,
cable and Internet services. Our product and pricing strategies emphasize
choice, value, and quality and are designed to encourage subscription to
multiple services and maximize customer retention. We believe that people want a
value proposition based upon packages of services. We believe that our ability
to design attractive marketing plans and better service packages relative to our
competitors should have a positive effect on our penetration rates and customer
retention.
BUNDLED CABLE SERVICES. In 1996 we implemented a promotional pricing and
packaging structure called "Choices" for our in-region telephone and cable
television service. We have continued to refine and enhance the initial package.
The current monthly price for the Starter Pack is (pound sterling)9.25, which is
the same as British Telecommunications plc's ("BT") monthly line rental charge
as of October 1999. The Starter Pack offers the customer:
- Telephone Service;
- Internet Access Service; and
- All six of the terrestrial channels, seven cable television channels and
our local TV channel; or
- A second telephone line.
5
<PAGE> 9
This means that our customers can receive their telephone line plus Internet
access as well as cable television or a second telephone line for the same
monthly price that BT charges for telephone line rental alone. Our customers can
add either of the services they do not choose as a part of the package for
(pound sterling)5 each. The (pound sterling)9.25 price point was specifically
chosen to provide the customer with a simple price/value proposition: for the
price of a BT telephone line, we provide a telephone line and more. BT has a
long history of raising its line rental charge annually, creating a rising
pricing umbrella under which we can position our services. We continue to
improve the packaging structure in order to enhance its attractiveness to
customers.
In addition to the Starter Pack entry packages our Choice Collections
packages enable the customer to select from several channel groupings each of
which can be purchased for an additional charge.
We believe that our bundled and flexible service package is responsive to
the desires and tastes of our customers. It emphasizes the "value" of our
residential telephone service by bundling it with a choice of additional
services for the price of BT's telephone line rental. As opposed to choosing
from a limited set of service options, the packages provide the customer the
opportunity to add services according to their individual tastes, and change
various aspects of the bundle rather than disconnect the service completely.
Through the use of our customer care and billing systems, we can change our
customers' services quickly and easily, thus encouraging each customer to choose
a package that meets his or her individual needs. We seek to gain incremental
revenues by selling additional products and services as well as encouraging
customers to purchase higher tier packages. The Starter Pack serves as a shop
window for other incremental services.
CHOICES
<TABLE>
<S> <C>
STARTER PACK (POUND STERLING)9.25 TELEPHONE PRICING
Includes: - 3,2,1 pence per minute Nationwide
- Telephone Line Rental and 3 pence per minute for the day, 2
- Dial-up PC Internet Access pence per minute for the evenings,
and 1 pence per minute for the weekends
Plus choose one of the following: - free Internet access at all
times to NTL telephony customers
- Television Service with six CHOICE COLLECTIONS
terrestrial and seven cable - Music & youth,
channels - Classic,
Or - News & documentary,
- 2nd Telephone Line - Contemporary
Two TV packs
ADDITIONAL SERVICES (pound sterling)8.00
- Extra telephone line,
Four TV packs
Or additional converter boxes (pound sterling)13.00
(pound sterling)5.00
Each BSKYB PACKAGES
- Advance features: reminder call, - Sky Sports 1 or 2
(pound sterling)16.00
Three-way calling, speed dialing, - Movie Collection
(pound sterling)17.00
Call barring, voicemail, call divert, - Sport Collection
(pound sterling)20.00
Call waiting - Movie & Sports Collection
(pound sterling)23.00
- One Feature PAY PER VIEW
(pound sterling)1.00
- All Six - Movies on Demand
(pound sterling)3.00
- Per Screening
(pound sterling)2.99
</TABLE>
6
<PAGE> 10
CHOICE COLLECTIONS
<TABLE>
<S> <C>
CHOICE COLLECTIONS CHANNEL LINE-UP
Music and Youth MTV, VH-1, Cartoon Network, Rapture,
Trouble, The Box, Nickelodeon, BET on
Jazz, U.K. Play
Classic Granada Plus, Carlton Food, U.K. Gold,
Performance, Discovery Home & Leisure
News and Documentaries Discovery, History Channel, CNN,
National Geographic, Travel Channel, Animal
Planet, U.K. Horizons
Contemporary Sci-Fi, Turner Classic Movies,
Paramount Comedy Channel, Granada Men & Motors,
Granada Breeze, Bravo, Living
</TABLE>
PAY PER VIEW SERVICES. We are a party to a joint venture with Telewest for
the provision of a cable-only movie, sport and special events pay-per-view
television service called Front Row which was launched to our customers in March
1998. The joint venture represents the first-ever alternative to BSkyB in the
provision of movie and sports for pay television. Front Row has signed content
output contracts with major Hollywood studios, including Warner Brothers, Sony
Pictures Entertainment (Columbia/Tristar), the Walt Disney Company (Walt Disney
Studios, Miramax, Hollywood Pictures and Touchstone), Dreamworks, MGM and
Universal. Since its launch, Front Row has been very popular, currently selling
over 170,000 movies per month.
TELEPHONE TARIFFS. As a result of our investment in our national fiber
backbone network, we are able to design and offer innovative telephone service
packages to our customers. By integrating our national telecoms network with our
local networks, we are able to bypass a portion of the wholesale long distance
fees charged by BT and other carriers for carrying calls to and from our local
telephone networks. This increased flexibility allows us to introduce more
volume-oriented and/or geographically based calling plans designed to give the
customer even greater choice and value. As an example, we recently launched "NTL
3-2-1 Pence", a per minute national call tariff of 3 pence during the day, 2
pence during the evening and 1 pence during the weekend. The tariff is designed
to charge customers a rate which is affected by when they call, not where they
call. Internet access and unlimited usage is free to NTL telephony customers.
The simplicity of this telephone tariff provides us with a distinct pricing
advantage over BT. While BT offers its customers a series of complex discount
plans, our 3-2-1 pricing structure offers a clear and simple savings formula for
customers.
The following table compares our tariffs to BT's published tariffs.
BASE CHARGES
<TABLE>
<CAPTION>
BT
BT TOGETHER
NTL BASE RATE RATE*
-------------------- -------------------- ---------------------
<S> <C> <C> <C>
Line Rental (pound sterling)9.25 (pound sterling)9.25 (pound sterling)11.99
Call Set Up Fee/
minimum fee 3.5p 5.0p
</TABLE>
7
<PAGE> 11
TELEPHONE PER MINUTE CHARGES
<TABLE>
<CAPTION>
TELEPHONE TARIFFS
(PER MINUTE)
BT
BT TOGETHER
NTL BASE RATE RATE*
----- --------- ---------
<S> <C> <C> <C>
Local
Daytime..... 3.00P 3.95p 3.00p
Evening..... 2.00P 1.49p 1.00p
Weekend..... 1.00P 1.00p 1.00p
Short National
Daytime..... 3.00P 7.91p 4.00p
Evening..... 2.00P 3.95p 2.00p
Weekend..... 1.00P 2.00p 2.00p
Long National
Daytime..... 3.00P 7.91p 4.00p
Evening..... 2.00P 3.95p 2.00p
Weekend..... 1.00P 2.00p 2.00p
</TABLE>
* Includes 180 minutes of local evening and weekend phone calling every month.
RESIDENTIAL MARKETING. We market our local telecoms and television service as
an integral part of the emerging information super-highway. This marketing
strategy is continually being refined and includes the following concepts in our
advertising, literature and other materials:
- Positioning us as a national telephone company with a strong local
presence;
- Introducing alternative telephone service, multi-channel television and
Internet access as the first of an expanding array of services which
will be carried on the network in the future; and
- Emphasizing that we are bringing "More Choice" in television viewing,
"Better Value" in telephone service and "State of the Art"
communications technology in providing access to the Internet;
We employ an extensive direct marketing and sales approach to gain
customers. We begin by building a relationship with our communities before
construction commences in a given area by closely coordinating our upcoming
activities with local government authorities and community groups and eliciting
feedback on ways to minimize disruptions and inconvenience. Information packages
and construction notices are delivered to the neighborhood prior to
construction. Our consumer liasons personally visit affected neighborhoods and
households in order to meet the special needs of the residents. All written and
telephonic inquiries from residents are input by name into a lead-tracking
database, so that when areas are released to marketing, our sales personnel have
complete customer profiles of the residents in their selling area.
We initiate our marketing in an area by direct mail, which is followed by a
personal appointment with a sales advisor. All information regarding both
current and future sales opportunities is entered into the database, and current
sales information is updated in our provisioning, billing and subscriber
management system. Unsold household data is maintained for future telemarketing,
direct mail, and re-marketing by the sales force.
8
<PAGE> 12
Additionally, as part of our focus in ensuring and maximizing customer
retention, we usually charge an installation fee of (pound sterling)25.00. We
require a one year service agreement and encourage direct debit payment as the
standard. Approximately 40% of our customers elect direct debit as a means of
payment. The installation fee and one year contract provide qualifying
mechanisms to ensure that the customer understands and recognizes the value of
the services, while the encouragement of direct debit payment helps to avoid
non-payment or non-payment related cancellations.
NON-CABLE CUSTOMERS. In 1999, we extended our services offerings beyond our
franchise areas in order to offer a set of alternative service options to over
18 million BT customers who are not passed by our local broadband networks. By
utilizing our investments in our national telecoms network, our international
Internet facilities and our back office and billing operations, we launched a
set of products and services that allow us to provide telephone and Internet
services to every home in the U.K. with a BT telephone line and a television.
The National Consumer Services, our first retail offering to the U.K.
consumer outside our franchise areas, has allowed us to significantly increase
our U.K. target market. We carry the consumer's telephone traffic via indirect
access for voice and Internet calls. Using indirect access, the customer retains
their BT line, but the calls are automatically routed to our switch and national
network. We therefore receive the call revenue associated with the customer's
voice and Internet traffic. The "off-net" customer receives the benefit of our
3-2-1 pricing while we receive the revenues from their telephone calls.
In the future, we plan to provide digital television services over a digital
terrestrial television box that will form part of our National Consumer Services
product offering. In January 2000, we selected the Microsoft TV software
platform to deliver enhanced interactive TV services as part of our digital
terrestrial TV and telephony package for U.K. consumers. The Microsoft TV
platform will enhance the "free to air" digital terrestrial TV capability of the
set top box by enabling us to provide interactive digital TV services. Digital
Terrestrial Television will allow us to offer customers throughout the U.K. a
bundled offering of telephone, television, Internet and interactive services,
that will mirror our in-franchise product offerings. The bundle of services
provides Internet access via the personal computer or through our TV-Internet
set top box which enables full Internet access without the need to purchase a
PC. Customers simply use a keyboard and set-top box to access the Internet over
their television. This is an important market opportunity as it is estimated
that of the 24 million U.K. TV homes, over 18 million homes do not have an
Internet capable PC or Internet service.
NTL AND THE INTERNET
Internet use in U.K. homes, businesses and educational institutions is
rising rapidly. We regard data services as one of the three legs -- voice, data
and video -- upon which our business has been built. We provide Internet
services throughout the U.K. Our subscribers can take advantage of the high data
rates provided by our fiber network in order to access the Internet via a
personal computer or a television. We offer both consumer and business Internet
services and own 49% of VirginNet with Virgin Communications Limited. However,
our involvement is not simply based on enabling reliable Internet access.
Rather, we also operate to support the development of Internet applications and
usage. We provide the backbone for VirginNet and Which? Online, with our call
centers handling around 4,000 calls a day for the two entities, consistently
winning awards for speed of service and customer satisfaction.
On March 7, 2000, NTL announced a plan to offer its residential customers
genuinely free, unlimited Internet access throughout the UK via PC or TV. Called
"ntl world", the new free Internet service will go live on April 17, 2000 for PC
users. The TV Internet service is due to follow shortly afterwards. NTLworld
features no ISP subscription charge, no call connection charge and no Internet
per minute call charges. This service builds upon NTL's vision of becoming the
premier provider of communication services in the UK and Europe.
For businesses, we offer reliable and scalable solutions for connecting to
the Internet. These range from easy-to-connect dial up connections to fixed
access solutions for high volume, dedicated Internet connectivity. Furthermore,
our extensive and expanding network of entry points guarantees rapid access to
the Internet at all times. Other Internet services available from NTL include:
firewalls, Web hosting, and virtual ISP services.
9
<PAGE> 13
For the growing number of companies who wish to provide virtual Internet
services, we act as a wholesale provider of Internet services. Furthermore,
companies are increasingly turning to us for electronic commerce solutions and,
as a result, our Internet services for businesses continue to grow. In all these
cases, we offer a unique set of assets:
- networks;
- technology;
- customers; and
- interactive content
INTERNET ACCESS, INTERACTIVE SERVICES AND ENHANCED TELEVISION. We have moved
rapidly to take advantage of, and drive the convergence between the Internet and
the television. We are aggregating a broad range of interactive content into a
seamless service that can be deployed as part of our interactive television
services, such as TV-Internet and digital cable. Our decision to use open
Internet standards for these products has allowed us to rapidly integrate a wide
range of advanced technologies and partner with content companies who have
already developed sites for the Internet. Because we have built our interactive
service offering on open Internet standards, our platform allows these content
sources to be easily and cost effectively integrated to create a
television/entertainment experience rather than a computer-like experience. This
includes using the NTL user interface to allow simple navigation by remote
control. In designing the look and feel of our interactive services, we built
upon the U.K.'s familiarity with teletext services by allowing customers to use
the familiar four color remote control buttons to navigate through the
interactive screens. These enhanced services will ultimately be deployed as part
of our digital cable offering within our franchise areas.
We have partnered with over 40 content providers to deliver a wide range of
interactive services, including education, home shopping and banking, travel,
entertainment, games, news, sport and local content. Content is organized in
channels which include news, sport, travel, entertainment and retailing. Already
over 100 brands are contracted to our interactive services. Partners include
Tesco and The Arcadia Group in the retail sector, ITN for news, the Sporting
Life for sports coverage and the BBC's Beeb service in entertainment. For
example, the travel channel allows viewers to search for travel destinations,
gather destination information and find travel deals from a large real-time
database. In addition, we are developing additional channels that will provide
games, education and financial and investment content. All partners have
contracted to provide a commission to NTL on e-commerce transactions and we have
also formed a joint venture to exploit the advertising opportunity associated
with this service.
The next stage in the development of our consumer proposition is enhanced
television services. Enhanced television is the use of interactive technologies
to enable television programs to become interactive. Enhanced television can be
viewed as a modified form of interactive services which are constantly "on
supply" as the viewer watches television. Applications include the ability to
enable viewers to participate in game shows, access further information in
documentaries or respond directly to advertising. Viewers use their remote
controls to access the additional program information on demand.
A major advantage of our cable technology is that these enhanced television
links are not restricted to information delivered in the broadcast stream, a
major restriction of satellite delivered services. A broad range of additional
content can be delivered over the cable modem integrated in the digital TV set
top box. We are working with a number of major broadcasters to develop the
service and have already demonstrated a number of program pilots.
Delivering enhanced television service requires close coordination between
the program creation and the technology of the broadcast system. Our digital
media center is being developed with the ability to schedule the television feed
and to add the interactive components to the broadcast feed.
These new technologies not only provide a powerful new set of tools for
television producers, but also create large new commercial opportunities for
operators like us in providing a unique service to help acquire and retain
customers with a package of communications services. In addition, we can exploit
new revenue opportunities from e-commerce generated by the interactive elements
and from interactive advertising on existing television services.
10
<PAGE> 14
DIGITAL MEDIA CENTER. We have invested approximately $66.0 million in a new
media center which is at the heart of our digital operations. The center acts as
the marshaling point for all digital content, both television and interactive.
Television and interactive services are brought to the center over satellite or
fiber telecommunication links. Currently a 55 channel near video on demand
service is produced using advanced digital storage and server technology. A
complete sports channel, British Eurosport, is originated in the media center.
In addition to the interactive television elements, conditional access for pay
TV and electronic program guide datastreams are created and played out from the
center.
The new media center also houses the interactive servers for on-demand
elements and is the point at which the broadband cable modem path is routed to
access the Internet. The interactive system, scheduling and conditional access
system are directly integrated with our customer management system. This allows
direct customer interface through the TV screen for billing, on-line help or
self-provisioning of new services. The system is controlled by a sophisticated
scheduling system and control room that monitors all channels. The resulting
service feed is carried from the center to each regional head-end using ATM
technology. This feed is then combined with local content, such as regional TV
channels for delivery over that local network. The system is capable of allowing
full flexibility of the regional line up of channels, for example to include
regional services from the major broadcasters, ITV, Channel 4 and the BBC.
The media center is connected to our U.K. national network and linked to our
satellite hubs for both in-bound and out-bound traffic. The system architecture
and flexibility allows the delivery of a customized service to any point
connected to our fiber telecoms network (for example, the current reach includes
Dublin which allows us to connect Cablelink's Dublin franchise to the media
center).
HIGH SPEED INTERNET SERVICE. In 1999, we launched NTL HiSpeed Internet,
which links our broadband cable network to the Internet at up to ten times the
speed of telephone. The new cable modem service operates at speeds of up to 2.0
Mbps and will be offered at a minimum delivery speed of 512 Kbps. Our HiSpeed
Internet is an "always on" service, removing log-on delays and the need to
log-off while using your telephone. It also utilizes the hybrid fiber/coaxial
cable television portion of our broadband network, leaving the telephone line
free to make or receive calls. This service is currently priced at a flat rate
of (pound sterling) 40 per month.
In addition, we are in the process of implementing a commercial pilot of
ADSL technology in parts of our Surrey franchise. ADSL can be particularly
attractive for us to install because we have very short copper telephone line
runs to our customers' premises which is critical for clear, efficient data
transport. Typically, our customer is within 500 meters from a node whereas in
the United States, ADSL customers' premises may be more than 5,400 meters from
the end of the copper wire. As a result, ADSL is relatively easy for us to
deploy and attractive to the customer particularly because customers buy the
amount of bandwidth they need and receive a dedicated path, rather than the
shared path of coax cable.
VIRGINNET. In addition to telecoms and data services we also offer wholesale
Internet access solutions including network services, call center operations,
customer provisioning and billing to U.K. ISPs and other corporate customers
that would like to expand their Internet presence. This service was launched in
1995 as our first national product offering.
In 1996, we established the VirginNet joint venture with Virgin
Communications Limited. As of December 31, 1999, VirginNet had over 570,000
customers. The joint venture is 49% owned by NTL and 51% by Virgin. VirginNet
offers connectivity and proprietary content services to consumers and small
businesses throughout the U.K. VirginNet recently launched a "free access"
product offering, whereby customers only pay for the minutes that they are
online or in contact with a customer care representative. We are able to support
this service profitably because we carry the majority of the VirginNet Internet
traffic on our owned network facilities.
11
<PAGE> 15
By integrating our Internet infrastructure with our national telecoms
network we have been able to decrease the costs of providing these wholesale
services as well as increase the value of the proposition by retaining a higher
portion of the revenue from the data traffic that our customers generate. We
plan to continue to enhance our Internet network, both nationally and
internationally, to accommodate the growth in the business.
OPERATING RESULTS
Based on trials and experiences in the U.K. and the prior experience of our
management in the United States telecommunications market, we have developed
innovative marketing strategies that have led to increased customer penetration
rates, customer retention and operating profitability.
As of December 31, 1999, pro forma for the acquisitions of ComTel Limited
and Telecential Communications (collectively "ComTel"), Comcast U.K. Cable
Partners Limited ("Comcast U.K." or "NTL Triangle") (formerly NTL (Bermuda)
Limited), Diamond Cable Communications plc ("Diamond"), Cablelink Limited
("Cablelink") and the BT cable franchises (but excluding our 50% ownership of
Cable London which Telewest purchased in November 1999) we had approximately 1.8
million residential telephony and cable television customers, approximately
70.5% of which subscribed to both telephone and television services. We counted
a total of 2,708,400 million revenue generating units (known as RGUs) resulting
in approximately 46% customer penetration, approximately 39% telephone
penetration and approximately 39% cable penetration, yielding 70.5% RGU
penetration of homes marketed. An RGU is one telephone account or one cable
television account. A customer who takes telephone and cable television service
generates two RGUs.
NTL, on a standalone basis, prior to recent acquisitions, has achieved
industry-leading customer penetration and retention levels. As of December 31,
1999, approximately 93% of customers subscribed to both telephone and television
services. Our CATV penetration stands at approximately 47% with telephone
penetration at approximately 46%. NTL has experienced an annual telephone and
CATV churn rate of approximately 12%.
Including Comcast U.K., ComTel, Diamond, Cablelink, the BT cable franchises,
as well as Internet subscribers, as of December 31, 1999, NTL had approximately
2.4 million customers subscribing to more than 3.4 million services.
We believe this success has been largely due to our focus on customer
service and the development of product offerings that emphasize choice, value
and simplicity. We plan to apply our marketing and customer service skills to
enhance the operational performance of the combined entity. We also expect to
achieve significant operating synergies from the combined operations including
economies of scale in content and equipment purchasing, reduced telephone
interconnect and call termination costs and improved operating leverage.
12
<PAGE> 16
The following table shows the operating statistics for NTL: (1) for the
franchises it has been developing since 1993; (2) including the acquisitions of
Comcast U.K., ComTel and Diamond (the "U.K. Acquisitions"); and (3) in total
including the U.K. Acquisitions, Cablelink and the BT cable franchises:
<TABLE>
<CAPTION>
NTL (2) TOTAL
(WITH U.K. COMBINED
NTL(1) ACQUISITIONS) NTL (3)
-----------------------------------------------------------------------------------
12/31/97 12/31/98 12/31/99 12/31/99 12/31/99
<S> <C> <C> <C> <C> <C>
Homes passed 1,007,000 1,247,200 1,345,800 3,696,100 4,291,700
Homes marketed (Tel.) 810,000 1,064,600 1,143,600 3,170,100 3,170,100
Homes marketed (CATV) 810,000 1,064,600 1,143,600 3,283,700 3,842,100
Total customers (4) 321,300 471,000 552,900 1,352,600 1,772,200
Dual 287,200 434,100 511,900 936,200 936,200
Telephone-only 15,300 16,100 16,900 292,900 292,900
Cable-only 18,800 20,800 24,100 123,500 543,100
Total RGUs (5) 608,500 905,100 1,064,800 2,288,800 2,708,400
Customer penetration 39.7% 44.2% 48.3% 41.2% 46.1%
RGU penetration 75.1% 85.0% 93.1% 69.7% 70.5%
Telephone penetration 37.3% 42.3% 46.2% 38.8% 38.8%
Cable penetration 37.8% 42.7% 46.9% 32.3% 38.5%
</TABLE>
(1) Data for franchises which NTL has been developing since 1993.
(2) Includes the U.K. Acquisitions. Excludes Cablelink and the BT cable
franchises.
(3) Includes the U.K. Acquisitions as well as Cablelink and the BT
cable franchises.
(4) In addition, the Company had approximately 625,000 Internet subscribers
as of December 31, 1999.
(5) An RGU (revenue generating unit) is one cable television account or one
telephone account; a dual customer generates two RGUs.
Consistent with our objectives, our high penetration rates have led to
increased levels of gross profit contribution per home passed and thus
increasing rates of return on invested assets. The quality of our customer's
experience is further evidenced by the results published by OFTEL. These results
are exhibited in the following tables and highlight our improved performance
over BT and our peers in a number of measures which effect the quality of our
residential customer's experience.
<TABLE>
<CAPTION>
RESIDENTIAL CUSTOMERS
1999
--------------------------------------
NTL TELEWEST CWC BT
----- -------- ----- ------
<S> <C> <C> <C> <C>
Orders Completed.......... 98.7% 91.9% 91.8% 97.6%
Reported Faults per
100 lines................ 2.6 4.8 5.9 3.7
Faults Cleared............ 96.1% 93.1% 86.2% 82.4%
</TABLE>
Source: OFTEL, June 30, 1999
13
<PAGE> 17
Our industry has demonstrated strong growth over the last several years. The
industry has now passed approximately 12.7 million homes (or 53% of the U.K.'s
total TV homes) with a broadband communications network. As a result, the U.K.
can claim to have one of the most advanced communications infrastructures in the
world. In addition, since January 1, 1992, the industry has connected
approximately 4.9 million telephone lines. (During the same period, BT has also
grown, adding approximately 2.8 million telephone lines.) The following tables
illustrate these statistics:
<TABLE>
<CAPTION>
TELEPHONY/CABLE INDUSTRY INSTALLED
TELEPHONE LINES
------------------------------------------------------------------
RESIDENTIAL AND RESIDENTIAL
BUSINESS RESIDENTIAL TELEPHONE LINE
TELEPHONE LINES TELEPHONE LINES HOMES PASSED PENETRATION
--------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
January 1, 2000 4,896,121 4,242,828 12,650,435 34%
January 1, 1999 4,070,866 3,567,786 11,904,341 30%
January 1, 1998 3,442,196 3,038,809 10,693,809 28%
January 1, 1997 2,278,113 2,039,081 8,351,310 24%
January 1, 1996 1,419,819 1,287,248 6,042,296 21%
January 1, 1995 717,566 649,350 4,116,971 16%
January 1, 1994 314,381 279,728 2,786,202 10%
January 1, 1993 106,989 92,715 1,954,829 5%
January 1, 1992 21,225 N/A 1,343,557 --
</TABLE>
Source: ITC
U.K. MULTI-CHANNEL HOMES
<TABLE>
<CAPTION>
TOTAL TOTAL DTH DTH
CUSTOMERS DTH (1) HOMES AS A % OF TOTAL NET ADDITIONS
-------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
12/31/99 8,404,000 (2) 3,966,000 47.2% 508,000
12/31/98 7,073,000 (3) 3,458,000 48.9% (125,000)
12/31/97 6,721,000 3,583,000 53.3% 137,000
12/31/96 6,072,000 3,446,000 56.8% 276,000
12/31/95 5,180,000 3,170,000 61.2% 358,400
12/31/94 3,960,000 2,811,600 71.0% ---
</TABLE>
(1) Direct to Home refers to homes receiving service via satellite dish
(2) Includes 605,000 and 527,000 Eire and ONDigital customers, respectively at
12-31-99.
(3) Includes 576,000 Eire customers at 12-31-98.
Source: BSkyB
14
<PAGE> 18
BUSINESS SERVICES
NTL's business and nonresidential services have undergone a significant
transformation in the last twelve months, as the company has moved away from a
simple product-based sales approach to a sector-based approach. In the business
market (comprised of government, industry, health and education sectors) this
sector approach enables us to provide a broad array of services ranging from
simple connectivity for small businesses to integrated solutions of voice, video
and data for large enterprises. These services are provided on local, regional
or national bases to approximately 44,900 business customers. Our communication
products are appealing because of our highly reliable network services. In the
business market our reported faults (as compiled by the regulator, OFTEL) are
1.3 per 100 lines as compared to 3.3 per 100 lines, for BT, a statistically
significant difference.
In recognition of the developing needs and concerns of our large customers,
NTL recently acquired Workplace Technologies plc ("Workplace"), one of the
U.K.'s leading data network service integrators. Workplace's consultancy
services range from the design and installation of data, voice and video
networks to remote monitoring and support of these networks. We believe that
large customers are more concerned with functionality of voice, video and data
needs rather than costs. The combination of network capability, ISP experience,
and the market presence of NTL enables us to offer a unique and comprehensive
service to large customers.
Our objective is to provide high quality voice, data and video
communications services to businesses throughout the U.K. and to carriers which
require U.K. and international connectivity. According to published OFTEL
statistics, the total market for telecom services in the U.K. for the twelve
months ended March 31, 1999 was estimated at approximately (pound sterling) 24
billion. Of the total telecoms market, we estimate that approximately (pound
sterling) 13 billion represents business telecoms and carrier telecom services.
Our national network has significantly expanded our telecoms opportunities
beyond our franchise areas allowing us to serve the much greater U.K. national
market. We approach this market by serving the following two market segments:
- National Business Telecoms
- Carrier Services
In addition, we serve a national base of customers for a variety of
telecommunications and related services using our national infrastructure of
towers. These lines of business are discussed in greater detail under the
"Broadcast Transmission and Tower Services" section below.
NATIONAL BUSINESS TELECOMS
In the business market, we describe ourselves as a "nationally competitive
but locally accountable" service provider, whose business purpose is to "enable
businesses to become more efficient and effective".
Our general business telecoms strategy is to provide comprehensive
communications solutions to our customers. Rather than simply offering our
customers a lower price for their existing service, we offer a package of
services to the customer that is designed to address all of their communications
needs at a price which offers good value for money. The services which we offer
are often custom-designed for the specific needs of the customer.
To date, we have been successful in obtaining telecoms contracts from
businesses located within our franchise areas. At December 31, 1999, we had
approximately 44,900 business customers and more than 186,500 telephone lines
installed, up from approximately 24,900 and 92,800 a year ago, respectively.
15
<PAGE> 19
BUSINESS CUSTOMERS. While we offer our services to a wide array of companies
throughout the U.K. within our franchise areas, we focus upon education,
healthcare, local government, and media and information technology companies.
Our communications solutions are attractive to these customers because of our
reliable, high bandwidth services and our ability to package several services
together at attractive prices. In addition, we have a strong local presence due
to the localization of our facilities and the services we provide. As a result,
our customers view us as a community partner and benefit from our local account
management.
We use a variety of different access technologies to connect customers,
based on customer size, geographic location and our network reach. Access
technologies currently deployed in our network include fiber optics, copper wire
and microwave radio.
We connect our larger business customers to our network using fiber optic
cable. This utilizes the significant penetration of fiber that we have in our
local access network. As the cost of fiber falls, the size of business we will
connect with fiber extends correspondingly. Currently, we use copper wire pairs
to connect small enterprises.
An example of our sector-focused strategy is our success in penetrating the
education market. We support customers at all levels of education within the
United Kingdom. One such customer is the U.K.'s Joint Academic Network (JANET),
which is the U.K.'s academic and research system connecting several hundred
institutions, including all U.K. universities, most higher education colleges
and most research establishments. SuperJANET is the broadband, or high-speed
portion of JANET. We developed high bandwidth metropolitan area networks in a
number of our regions throughout the U.K. to support SuperJANET. NTL now
provides student and academic services to more than 25 universities through the
U.K., and has won new contracts this year with universities, including south
Hampton, Surrey, Swansea, and Strathclyde.
Cambridge University is a SuperJANET node where we provide all of the
university's high-speed data circuits and approximately 10,000 local extensions,
including lines in 6,500 student dorm rooms. At Oxford University, students use
our links for access to SuperJANET, and more than 700 students also have our
phone lines in their dorm rooms. We also provide the services of the South Wales
Academic Network (SWAN). SWAN is a 60-mile fiber network, with 13 sites that
serve approximately 16,000 PCs, creating approximately 2 million e-mails and 12
million hits on the World Wide Web every month. SWAN will provide the gateway to
SuperJANET for 23 institutions of higher learning that was previously available
only to the Universities in Cardiff and Swansea.
Our program for education has not only provided value-added technology
services to universities, but has also accelerated the connection of local
secondary and primary schools to the Internet. We provide services to more than
2,500 primary and secondary schools. Funding for these connections has been
provided by the National Grid for Learning and the Technology Trust
infrastructure campaign. We were the first company in the U.K. to introduce an
economical flat rate Internet access package to all schools within our franchise
areas. To date, over 1,600 schools have taken advantage of our attractive
Internet offers. In England, Technology Colleges Trust has partnered with us to
link up the trust's more than 650 schools. This will enable the schools, for a
flat rate, to get unlimited usage of a 2 Mbps broadband connection to a new
supergrid.
Our schools initiative in Londonderry aims to provide free Internet access
to every school in the city. This long term project will introduce modern
technology into education utilizing our infrastructure. We will also host
approximately 150,000 e-mail accounts (one for every student and teacher) and
connect to all 568 schools in Hertfordshire County Council using ISDN and PSTN
dial up. Bedfordshire County Council now has all 270 schools connected to the
Internet via our ISDN Select.
National Services. Capitalizing on our experience in local business markets
and the extended reach of our national network, we have expanded the scope of
our business in order to compete for a share of the business telecoms market on
a national basis. We believe that we can build on the strengths gained in our
local franchise areas to approach targeted business users located in other areas
of the U.K., initially focusing on users with multiple business locations. We
recently launched our national business corporate service and our strategy is to
target the largest national businesses in specific market sectors.
16
<PAGE> 20
We have a variety of alternative methods to connect the "last mile" to the
customers' premises from the national network:
- As a certified national public telecommunications operator, we can
readily obtain the permits to construct telecoms networks, and can
simply build out our network to reach customers. Although this is often
clearly the most costly approach, the expense can be justified in the
case of large customers or when a significant level of traffic is
obtained from several customers. For example, we have extended our fiber
optic network in London to support CNN's facilities.
- We can lease circuits on the local networks of other service providers
to connect to the customer's premises. Although this may reduce the
operating margin on a particular account, it requires significantly less
capital expenditure than a direct connection, can often be installed
relatively quickly, and can be replaced at a later date if a more
profitable connection method can be deployed.
- We can also connect customers to our national network by implementing
one of two wireless bandwidth solutions, described in more detail below.
Wireless Bandwidth Delivery. We have already been successful in utilizing
our significant tower infrastructure to efficiently connect our network to
customers using digital point to point microwave radio links. As part of our
broadcasting businesses, we own or have direct access to over 1,450 tower sites
in attractive locations all across the U.K. Microwave radio represents an
efficient and reliable method for connecting customer locations to the national
network.
In addition to the methods to connect the "last mile" described above, we
have been awarded a license to operate radio fixed access services on a national
basis throughout the U.K. at the 10 GHz frequency, comprising 30 MHz of
spectrum. With the 30 MHz, we will be able to transmit at 16 Mbps in any
direction; our goal is to be able to simultaneously operate in up to 12
directions from a single base station, thereby enabling us to provide up to 192
Mbps from a particular site. Furthermore, we believe the use of ATM across the
10 GHz network will allow even greater capacity (up to 4x 192 Mbps) from a
single base station. This technology can be used as a "wireless local loop"
alternative to connect to customers which are not currently connected to our
national network via wired circuits. We intend to use this point-to-multipoint
wireless service where it represents a more efficient method to connect to
customers than traditional wired or point-to-point wireless links. The 10 GHz
frequency of our license is lower than the frequency which is being used by
several major wireless telephony providers in the US (for example, the US
frequency allocation for companies like Teligent and Winstar is typically in the
24-38 GHz band). This lower frequency is advantageous because lower frequencies
offer better propagation and lower interference (and thus greater range) than
higher frequencies.
Using our 10 GHz service, we have the potential of reaching a large customer
base in regions not covered by our fiber network. In addition to London, we are
considering Birmingham, Leeds, Bradford, and Bristol as initial target markets.
A total of 25 to 50 base stations will likely be deployed in these areas.
We are currently evaluating the services that we will offer over 10 GHz. We
intend to take advantage of our national network as well as our ATM technology.
Our 10 GHz technology will use this ATM platform, to enable delivery of voice,
data and multimedia services to small and medium-sized business customers. Such
services include voice access, leased line, Internet access, private Internet,
LAN-to-LAN, and Frame Relay. We also intend to use the frequency for backhaul
purposes, where a wireless connection will be less costly to install than our
fiber or microwave links.
We are currently undergoing test trials of the service in preparation for
operational trials with major business customers. If the test trials are
successful, and if we determine to seek and deploy the additional capital
resources to pursue this opportunity and the networks are developed, the 10 GHz
license would further facilitate the development of our local access reach to
businesses.
17
<PAGE> 21
BUSINESS PRODUCTS AND SERVICES.
- SIMPLE "ACCESS" SERVICES that connect the customer to us for inbound and
outbound voice and data calls. These access services include traditional
analog Business Exchange Lines (BELs) and Digital Business Exchange
Lines (DELs). DEL services include Basis Rate Access, also known as
"ISDN2", and Primary Rate Access, also known as "ISDN30". These and
other direct and indirect access services are priced competitively and
offered in competition with a number of other direct and indirect
suppliers.
- MANAGED VOICE SERVICES which are best illustrated by our Central
Exchange "Centrex" service. This service presents the customer with
business exchange lines configured as a "virtual PABX", as we completely
handle the services normally associated with a traditional PABX (or
PBX). The success of this product is well demonstrated in the East
Midlands where eight of the 11 local government organizations use NTL
Centrex as their main business service, including the Nottingham City
council with more than 3,500 lines.
- MANAGED DATA SERVICES include fixed point-to-point private circuits at
speeds from 64 Kbps, through multiples of that speed and individually
tailored 100 Mbps and 155 Mbps services. Other services include the
provision of intersite data services with particular transmission
protocols, such as Internet Protocol also known as TCP/IP, Frame Relay
and ATM. Our ability to design, deploy and manage a customer's data
service has been greatly enhanced with the recent acquisition of
Workplace.
- INTERNET SERVICES provided by NTL range from "Dial-up" customers to
dedicated private circuits for greater access speeds. We are launching a
range of new services and branded hardware products, which include both
entry level and advanced "firewalls", and a self provisioning
web-hosting service. We own an interest in and provide communications
network and back office support for VirginNet and provide services to
more than twenty other Internet Service Providers.
LOCAL BUSINESS SERVICES. The local business telecoms market provides an
attractive opportunity to NTL. For the most part, the underlying capital
investment needed to address this market is made through the buildout of the
network for the residential market in our franchised areas.
REGIONAL BUSINESS SERVICES. The communications services we provide to the
education and government sectors is an excellent example of the possibilities
created by our newly built high bandwidth networks where we can provide both
region wide and intra-regional connectivity. We provide extensive services to
numerous local governments, particularly our Centrex service that eliminates the
need for a PBX, simplifies moves, adds and changes and provides free calling
between locations. Additionally, our focus on the education market is
demonstrated by the more than 3,000 primary and secondary schools, colleges and
universities we serve; the majority of which we connect to the Internet with
speeds ranging from 128 Kbps to 2 Mbps. Funding for the Internet segment of the
services has been largely provided by the government, for whom Internet
connectivity has become a high priority.
REGION-WIDE BUSINESS SERVICES. In Hertfordshire, NTL provides county-wide
telecommunications for all the local schools as well as widely dispersed
municipal administrative offices. We were awarded all of Hertfordshire County
Council's voice and data traffic and installed Centrex across all of the
Council's sites (upward of 500 Centrex lines) based upon an integrated solution.
These sites include libraries, social services offices and environmental
services offices all linked to an NTL-provisioned voice and data call center.
18
<PAGE> 22
In addition to providing county-wide municipal council service in
Hertfordshire, we provide a customized package of Internet and telecom services
to all schools county-wide. The service, known as the "Hertfordshire Learning
Grid", inaugurated one of the largest Internet and intranet projects in the U.K.
education sector. NTL installed, maintains and manages PCs at all primary
schools. NTL arranged to train three teachers in each school on how to use the
Internet for communication, i.e. e-mail, how to use the Intranet for their
administration, and how to use the world wide web to gather information which
would support the teachers and help them to teach the children. Additionally,
NTL built a bespoke intranet service for both the council's administration and
schools which entailed a help desk, an e-mail filtering system, Internet
filtering, and intranet filtering. The complete solution is fully managed by NTL
and completely seamless to the customer. All queries are managed by their
respective NTL local account manager.
NATIONAL BUSINESS SERVICES. Our national network was designed specifically
to connect our local networks and enable distance insensitive calling tariffs.
We estimate that our national network covers approximately 3,500 route miles and
170,000 resilient fiber miles across England, Scotland, Wales, Northern Ireland
and the Republic of Ireland. Our national network has been designed with
significant excess capacity. For example, the trunk route specification provides
for two large ducts, each with capacity for 4 sub-ducts, only one of those eight
sub-ducts is currently used. Our total duct capacity exceeds 2,300 fibers of
which only a small portion is currently used.
Our national network is a fully redundant, SDH digital fiber network. The
major fiber routes are complemented by microwave radio connections which
increase the reach of the network. SDH technology improves network reliability
and performance and provides greater flexibility than conventional transmission
architecture. In addition, network availability, management and routing are also
superior to conventional transmission architecture because signals are
automatically rerouted to the best path available if another is severed or
degraded. We believe that we have a competitive advantage over other carriers
such as BT because SDH technology has been built into our networks from the
start, thus avoiding integration problems with older network technologies.
An important source of revenue for NTL is the bandwidth and connectivity we
provide to other communications carriers. Our network is used to interconnect
these carriers to cities throughout the U.K. and Ireland. NTL provides customers
with bandwidth ranging from 2 Mbps to STM-16's. Owning core infrastructure also
opens up avenues for international network expansion. Increasingly, network
operators are looking at minimizing capital outlay by swapping capacity on their
infrastructure for new nodes or additional capacity elsewhere. Our customers
include fixed wireline and mobile telecommunications operators, cable operators,
Internet service providers, and various information technology and facilities
management companies, notably.
- COLT where we have been awarded "preferred supplier" status for the
distribution of COLT's traffic outside the London area. This covers
bandwidths from 2 Mbps to STM-1.
- ENERGIS for which we provide high speed managed services to enable the
operator to more effectively address its "off-net" customer base.
- GLOBAL ONE where as part of this international operator's roll-out, we
are providing managed services between London and Dublin utilizing our
recently completed sub-sea cable.
19
<PAGE> 23
- VODAFONE AND ORANGE, for which we provide inter-switch capacity on our
national network. During 1998, both Vodafone and Orange considerably
increased their requirements for network services, and as of December
1998, we supplied Orange with the majority of its inter-switch capacity.
CARRIER SERVICES PRODUCTS, AND MARKETING. We expect to continue to
successfully serve this marketplace through our strategy of providing high
quality and competitively priced services. Additionally, we continue to utilize
our specialized ability to provide tailored solutions necessary to serve this
demanding market.
The rapid expansion in voice traffic is expected to continue and we have
entered into interconnect agreements with national and international operators
to both reduce the costs of carriage and termination of our originated traffic
and of termination of other carriers' traffic.
The expected growth in the number of international operators building and
operating submarine cable systems has been substantial and continues to grow
with many of these cables transiting the U.K. We have considerably increased
physical connectivity to U.K. international cable landing stations and products
have been successfully developed to address the needs of these international
cable operators for backhaul services between the cable landing sites and the
major U.K. international nodes such as Telehouse, London.
We believe the U.K. market for wholesale data services is significant and
growing rapidly due to the fast growth in IP, Internet and other data traffic.
Utilizing our state of the art ATM network, we have developed Frame Relay and
ATM wholesale products to address this increasing demand for high speed data
connectivity. Additionally, utilizing our core data network, local loop
infrastructure and connectivity to the main international U.K. nodes will allow
us to address the needs of international operators for the
termination/origination of U.K. bound/generated data traffic.
In addition to telecoms and data services we also offer wholesale Internet
access solutions including network services, call center operations, customer
provisioning and billing to U.K. Internet Service Providers ("ISPs") and other
corporate customers that would like to expand their Internet presence. This
service was launched in 1995 as our first national product offering.
In 1996, we established the VirginNet joint venture with Virgin
Communications Limited. The joint venture is 49% owned by us and 51% by Virgin.
VirginNet offers connectivity and proprietary content services to consumers and
small businesses throughout the U.K. VirginNet recently launched a "free access"
product offering, whereby customers only pay for the minutes that they are
online or in contact with a customer care representative. We are able to support
this service profitably because we carry the majority of the VirginNet Internet
traffic on our owned network facilities.
By integrating our Internet infrastructure with our national telecoms
network we have been able to decrease the costs of providing these wholesale
services as well as increase the value of the proposition by retaining a higher
portion of the revenue from the data traffic that our customers generate. We
plan to continue to enhance our Internet network, both nationally and
internationally, to accommodate the growth in the business.
Our carrier services product portfolio also includes a comprehensive range
of satellite services for media and broadcast customers who need to distribute
programming around the globe either occasionally or full time. We enable TV
broadcasters with full time channels to transmit their programming from their
playout or production center, using a fiber link, to one of our three satellite
teleports. This is then beamed up to the satellite, which in turn re-transmits
the programming towards earth for reception by viewers.
Our teleports are connected by fiber and radio circuits and provide
uplinking services to U.K. cable television programme suppliers. At our main
site near Winchester, U.K., we have antennas up to 40 feet in diameter. The site
is linked to our two London teleports through our own national broadband
network. Together they form an interconnected virtual teleport offering nonstop
resilience.
20
<PAGE> 24
Through these teleports we have access to all the main satellites orbiting
Earth including Astra, Eutelsat, Intelsat, Orion, and PanAmSat.
The ultimate end users for our full-time services include households
receiving a television channel in their own home, or other program distributors
such as cable companies who pass the signal onto their end users. Our major
fixed service customers include Turner Broadcasting Systems, Flextech, the BBC
and QVC.
To cover live news coverage and sporting events, we operate a fleet of
satellite news gathering trucks. Our global capability and infrastructure means
we can respond rapidly to consumer demand. In addition, we can now offer
customers the facility to transmit programming between 48 US cities and Europe
by use of a transatlantic fiber link.
BROADCAST AND TOWER SERVICES
We are a leading owner and operator of broadcast, transmission and wireless
communications infrastructure in the U.K. As of December 31, 1999, we own or
manage 1,458 towers and sites in the U.K. and have access to an additional 679
towers and sites for our U.K. broadcast customers. In April 1999, we acquired
NTN, the exclusive provider of television and radio transmission services to
Australia's only national TV and radio broadcasters. NTN transmits from 561
tower sites throughout Australia.
We provide a number of services:
- Television and radio broadcast transmission
- Tower and site leasing
- Radio communications services
Based on our track record of more than 40 years of providing broadcast
services to the U.K.'s independent television operators and our expertise in
digital broadcasting, we believe that we are uniquely positioned to capitalize
on the trends towards privatization and digitalization in the global
broadcasting industry.
U.K. BROADCAST TRANSMISSION
NTL has been involved in broadcast television since the 1950's when we
designed and built the television transmission system for the U.K.'s first
independent commercial television network. The Broadcast Transmission Group
operates a national infrastructure in the U.K. of 1,289 owned or shared
transmission sites and its owned network of approximately 3,500 transmitters
delivering broadcast signals for the three commercial national television
channels and many of the U.K.'s independent local, regional and national radio
broadcasters. Additionally, the group designs, installs, operates, and maintains
new transmitter networks and has a spectrum planning service to monitor the
coverage of television and radio networks.
The Broadcast Transmission group provides a recurring contracted revenue
stream from these customers through long term contracts. The projected total
value of our present contracts for broadcast services is (pound sterling) 1.3
billion ($2.1 billion) with some contracts extending until 2012. An attractive
feature of the NTL broadcast contracts is our ownership of both towers and
transmission equipment responsible for generating the broadcast signal. In
essence, TV and radio station owners are programmers and NTL is the broadcaster.
The nature of these arrangements is such that there are significant switching
costs for any TV broadcaster wishing to change service provider. The barriers to
entry a new provider would need to overcome include:
- The provisioning of capital equipment for transmission services and
studio coding, decoding and distribution circuits;
- Re-engineering of network either around NTL sites or, more challenging,
around a different set of sites. In the latter case, planning permission
would be particularly difficult to receive for an alternative set of
large transmitter sites and large numbers of viewers receiving aerials
would require re-positioning;
21
<PAGE> 25
- Attaining spectrum for a differently engineered network as there is a
broadcast spectrum shortage.
TELEVISION BROADCASTING. We currently provide digital broadcast transmission
for two of the three commercial national television channels in the U.K., ITV
and Channel 4/S4C, and analog broadcast transmission services for ITV, Channel
4/S4C and Channel 5, the third commercial national television channel in the
U.K.
In November 1998 we made broadcast history with the launch of the first
commercial digital terrestrial television network. Two of the four recipients of
the digital terrestrial television (DTT) multiplexes, ITV and Channel 4 and SDN
(in which we hold a 33% equity interest) selected us as the supplier of
transmission services. At the launch of DTT there were 22 transmitting stations
with a rollout plan targeted at reaching 85% population coverage. As of December
31, 1999, there were 79 transmitting stations. We have not only successfully
completed the first phase of the build program from playout centers to
transmission in a timely fashion but have also signed 12 year contracts to
provide end-to-end service, including studio compression, transmission and full
systems integration. It is anticipated that the digital network will ultimately
grow to match the coverage of the analog system to enable its switch-off.
Digital broadcast systems require a more complex engineering design than
their analog predecessors. We have exploited this by extending our range of
services to include tower leasing and transmission services (as with analog)
plus "end-to-end" system integration and service ranging from studio playout
centers to terrestrial transmission. This has the twin benefits of enlarging the
total market available from broadcasting and further differentiating us as a
unique provider able to offer towers, transmission and system integration
services for digital television.
RADIO BROADCASTING. The Broadcast radio market in the U.K. comprises the
publicly funded BBC and the commercial radio industry. The BBC operates five
national radio networks and 44 local radio stations. All non-BBC radio in the
U.K. is regulated by the Radio Authority, who currently license 3 national
commercial stations (such as Virgin and Classic FM) and 241 metropolitan,
regional and local stations. Despite this diversity, ownership concentration is
high, with 5 or 6 major groups controlling the majority of stations.
Commercial radio stations are free to contract with any supplier for their
transmission needs. We have an 85% share by value of the local commercial radio
transmission market and has approximately 40% (by value) of the national
commercial market.
We also offer a range of services to local and national radio broadcasting
licensees in the U.K. including: target service area planning; site location,
installation and construction; and equipment selection, procurement, operation,
monitoring and maintenance. This division offers total broadcast contract
services, where it designs, builds, owns and maintains the operator's
transmission facilities, and facility management contract services where it
maintains customer-owned equipment and administers the operation of the
transmission service.
The migration to a new digital transmission platform is creating significant
growth in the broadcast radio transmission market. The Radio Authority is
committed to a fast roll-out of the new digital multiplex licenses and has
already awarded the only national license to Digital One, of which we are a
founding equity partner with a 33% equity interest. We have a contract for the
transmission of Digital One with a lifetime value in excess of $75.0 million. A
total of 26 licenses for regional and local digital radio will be awarded
between 1999 and 2001, and we are well positioned to win transmission contracts
for a portion of the licenses, and provide site leasing services associated with
some of the remaining licenses.
AUSTRALIAN BROADCAST TRANSMISSION. In April 1999, we purchased NTN, the
exclusive provider of television and radio transmission services to Australia's
only national TV and radio broadcasters, ABC and SBS. NTN transmits from 561
tower sites throughout Australia. In addition, NTN serves regional and community
TV and radio broadcasters and providers equipment hosting services to telecom
operators and emergency service communications on its towers. NTN's customers
include Telstra, WIN Television, Prime Television, Vodafone and Air Services
Australia. NTN holds long term contractual relationships with the majority of
its customers.
22
<PAGE> 26
Our strategy for NTN is to develop and exploit numerous opportunities
including:
- Introduction of digital terrestrial television broadcasting from 2001;
- Introduction of digital radio broadcasting and datacasting;
- Generating higher revenues from the provision of transmission site
rental and services to non-broadcast services, such as cellular
carriers;
- Develop advanced radio communications services for Emergency Services,
based on TETRA technology.
THE TOWER AND SITES DIVISION
We rent antenna space on our owned and leased towers and sites to a variety
of carriers operating cellular, PCS, Specialized Mobile Radio, Enhanced
Specialized Mobile Radio, paging and other wireless networks. We typically
receive fees for installing customer's equipment and antennas on a tower and
also receive rental payments from customers payable under site leases. As of
December 1999, 398 companies rented antenna space on our towers and sites. These
site rental agreements have terms which are typically 10 years in length (and
renewable), and are generally subject to price indexation with inflation. Site
sharing customers are typically billed a year in advance. During the last four
years, the number of lessees on our towers has grown from 1,989 to over 4,000.
The cellular market is the largest of these markets in terms of users,
coverage, and usage of radio sites, and is witnessing extraordinary growth.
Current build plans of U.K. cellular operators would indicate a doubling of the
number of base stations built to meet the increased demand over the next three
years.
Cellular growth will necessitate reliable communications infrastructure in
all commercial areas, leading to a requirement for good cellular coverage inside
buildings. We believe this creates a new type of radio site, which unlike towers
will exist within commercial buildings, transport hubs, shopping malls and other
large buildings. Our initial analysis shows that there are approximately 2,000
large retail, transport or other multi-tenanted commercial properties in the
U.K. that may require communications infrastructure to facilitate mobile
telephony. To this end we have won the exclusive contract to provide this
service inside Bluewater, Britain's largest and newest shopping complex.
Against the backdrop of projected demand for suitable radio sites, the U.K.
planning/regulatory environment is increasingly encouraging site sharing to
prevent proliferation of single-user towers. Intense price competition in the
cellular market is leading to out-sourcing opportunities as the network
operators look to achieve broad and deep coverage without developing significant
single-user tower portfolios.
As of December 31, 1999, we own or manage 1,458 towers and sites in the U.K.
Our inventory of owned and managed towers and sites was increased substantially
from 1995 to today as a result of the following transactions.
- In 1995, we embarked on a contract to build a network for the U.K. PCN
operator "one2one." As part of this contract, we acquired approximately
240 cellular sites, with one2one as anchor tenant.
- In May 1998, we purchased 114 sites from Simoco Group. This portfolio
was originally developed as part of the Phillips PMR business, the sites
being strategically located across the U.K. in hilltop locations ideally
suited to PMR VHF systems.
- In December 1998, we acquired 126 sites as part of the purchase of all
of the business and assets of Eastern Group Telecoms ("EGT"). This
transaction included the right to develop up to 1,000 more locations of
Eastern Group property for site sharing purposes. Overall, we believe
that this portfolio has been developed for good cellular telephone
coverage.
23
<PAGE> 27
RADIO COMMUNICATION SERVICES
Our RadioComms division is involved in mobile communications maintenance,
support and facilities management. This enables us to offer customers the
optimum solution to their requirements, from equipment specific component
repair/replacement, to full turnkey site and equipment maintenance.
The group offers a full range of services, including the operation of radio
networks and the provision of support and maintenance services to customers with
"mission critical" radio communications needs. We serve a substantial portion of
the radio installation and maintenance market for public safety services within
England and Wales and associated customers such as HM Prison Service and HM
Coast Guard. These customers provide us with a steady source of revenues, and
have also proven to be very effective references for other services and
products.
We intend to secure further customers and contracts, expanding from
facilities and maintenance activities into complete outsource arrangements. We
have positioned ourselves to effectively compete in the major growth sector in
the radio communications market over the next five years by targeting both
public and private mobile operators. We have recently contracted with the London
Metropolitan police, the largest U.K. police force, for a complete communication
outsourcing service. Several additional large contracts of this type are subject
to bid processes in 2000, with contract awards expected within a year. Long-term
contracts (typically greater than five years) of this nature, if awarded to us,
are expected to substantially increase the revenue profile of the group and help
us maintain our overall revenue stability. There can be no assurance that such
contracts will be awarded to us.
KEY TRENDS IN THE TOWERS AND SITES MARKETS
There are a number of key market trends that are creating opportunities for
us to expand and grow our Broadcast Transmission and Tower Services businesses:
- Digital terrestrial broadcast services will gradually replace their
analog predecessors, resulting in major new services with operators
running in parallel and in competition with existing analog services.
The launch of digital terrestrial television services will ultimately
require the creation of an entire national broadcast network of
approximately 1,200 sites to serve the U.K. population.
- The increasing global trend towards private rather than state ownership
and operation of television and radio broadcast transmission networks.
The outsourcing of these networks will result in new business
opportunities for us.
- The continuation of the rapid growth of cellular mobile telephony in the
U.K. with greater than 80% annual growth in subscribers for current
services. According to published reports, mobile subscribers have grown
from 10.5 million in October 1998 to 24 million in January 2000, or
approximately 41% of the population of the U.K. The rapid growth in
mobile subscribers has increased demand for antenna space and tower
sites.
- The rollout of new wireless communications technologies, such as PCN and
digital Terrestrial Trunked Radio (known as TETRA) and granting of five
licenses in the U.K. for 3rd generation Universal Mobile Telephone
Service (known as UMTS mobile) in early 2000 will further enhance demand
for antenna space and tower sites.
- The continuing liberalization of the telecommunications market, causing
proliferation of radio fixed links as the most economic and quickest
method of establishing competition within the local loop. These links
will be driven by competition for local loop traffic, high bandwidth
WANs and core network for newly licensed PTOs. This will also enhance
the demand for antenna space and tower sites.
- The growing utilization of wireless delivery to the commercial market in
order to extend bandwidth to all possible locations. There is a
developing market for wireless delivery where fiber is not currently
available or practical to be delivered.
24
<PAGE> 28
RECENT DEVELOPMENTS
ACQUISITION OF AUSTRALIAN NATIONAL TRANSMISSION NETWORK
On April 30, 1999, a subsidiary of NTL ("NTL Australia") acquired the
Australian National Transmission Network at a purchase price of approximately
$423 million. While NTL ultimately intends to finance the purchase price by a
separate financing, the funds necessary to pay the purchase price for the
Australian network were obtained from a distribution by NTL Communications to
NTL.
ACQUISITION OF IRISH CABLELINK
In May 1999, NTL announced its first broadband venture outside the United
Kingdom with the acquisition of Cablelink, Ireland's largest cable television
provider. Telecom Eireann, now named Eircom, and Radio Telefis Eireann announced
NTL as the successful bidder after a competitive tendering process. In July
1999, NTL acquired Cablelink for approximately 535.18 million Irish punts
(approximately $693 million at the time of the acquisition).
Cablelink provides multi-channel television and information services in
Dublin, Galway and Waterford to over 360,000 subscribers. Cablelink currently
has an 83% penetration rate of its cable broadband network which passes 420,000
homes. Cablelink holds licenses to provide analog and digital television
services in its franchises for 15 years with exclusive rights for five years as
of the beginning of 1999. It also has a full service license allowing it to
provide public telephony, Internet and other value-added services throughout
Ireland.
ACQUISITION OF 1G NETWORKS IN FRANCE
In May 1999, NTL announced its first broadband venture in continental Europe
with a strategic acquisition in France. Following a competitive tendering
process, France Telecom and France Telecom Cable announced that NTL was the
winning bidder to acquire the "1G Networks" of France Telecom representing over
266,000 franchise homes. NTL purchased the 1G Networks in two stages in August
and December 1999 for approximately FRF373.2 million (approximately $60 million
at the time of the acquisition).
ACQUISITION OF BT CABLE FRANCHISES IN WESTMINSTER AND MILTON KEYNES
In July 1999, NTL acquired broadband cable franchises located in
Westminster, London and Milton Keynes from British Telecommunications for an
aggregate of (pound sterling)19 million (approximately $31 million). NTL
expects to invest approximately (pound sterling)15 million (approximately $24
million) to upgrade the networks for digital cable, interactive service and high
speed Internet access. NTL paid BT (pound sterling)5 million (approximately $8
million) on closing and will pay up to (pound sterling) 14 million
(approximately $23 million) on completion of the upgrade of the Westminster
network. NTL leases the networks from BT on a long term basis for an annual
lease payment of approximately (pound sterling)3.9 million (approximately $6
million).
AGREEMENT TO ACQUIRE CWC CONSUMERCO. AND FRANCE TELECOM INVESTMENT
On July 26, 1999, NTL, with the support of France Telecom, agreed to acquire
the consumer cable telephone, Internet and television operations of CWC
ConsumerCo. NTL expects to acquire CWC ConsumerCo for approximately 85 million
new shares of NTL common stock and (pound sterling)2.85 billion ($4.6 billion)
in cash. NTL will also assume approximately (pound sterling)1.9 billion ($3.1
billion) of CWC's net debt, plus operational adjustments prior to closing. Also
on July 26, 1999 France Telecom agreed to invest a total of $5.5 billion in NTL,
which includes an initial investment of $1 billion that was made on August 13,
1999. On August 13, 1999 France Telecom purchased approximately 4.2 million
shares of common stock and 750,000 shares of NTL 5% cumulative participating
convertible preferred stock, series A, for a total of $1 billion. France
Telecom, subject to certain conditions, will purchase approximately 42.2 million
shares of NTL common stock and 2 million shares of NTL 5% cumulative
participating convertible preferred stock, series B for a total of (pound
sterling) 2.8 billion ($4.5 billion). In addition, NTL has entered into a note
purchase agreement for up to approximately (pound sterling)2.4 billion ($3.9
billion) to fund a portion of the cost of this acquisition.
25
<PAGE> 29
ACQUISITION OF WORKPLACE TECHNOLOGIES
In September 1999, NTL acquired substantially all, and has since acquired
the remainder, of the shares of Workplace, one of the U.K.'s leading data
network service integrators, for cash of approximately (pound sterling)101
million (approximately $166 million at the time of acquisition) and loan notes
of approximately (pound sterling)4.5 million (approximately $7 million at the
time of acquisition). NTL currently expects to transfer Workplace to NTL
Communications in the first half of 2000.
ACQUISITION OF ADDITIONAL NTL COMMON STOCK BY FRANCE TELECOM
On October 25, 1999, NTL announced that France Telecom agreed to purchase
approximately 4.2 million shares of NTL common stock from NTL stockholders who
received the shares as consideration in an acquisition that was completed by NTL
in the first quarter of 1999.
SALE OF INTEREST IN CABLE LONDON
On November 23, 1999, NTL completed the previously announced sale through
its wholly-owned subsidiary, NTL Triangle, of its 50% interest in Cable London
plc to Telewest for approximately (pound sterling)428 (approximately $692
million) in cash. The sale was subject to the provisions of a buy/sell agreement
between the parties related to NTL's purchase in 1998 of Comcast U.K. Cable
Partners Limited.
NTL STOCK SPLITS
In September 1999, the NTL board of directors approved a 5-for-4 stock
split, payable as a stock dividend. The record date and the payment date for the
stock split were October 4, 1999 and October 7, 1999, respectively. In January
2000, the NTL board of directors approved a second 5-for-4 stock split, payable
as a stock dividend. The record date of the stock split was January 31, 2000 and
the payment date was February 3, 2000. For both stock splits, one new share of
NTL common stock was distributed for each four shares of NTL common stock owned
on the record date for the stock split, with fractional shares being rounded up
and down. All common stock and per share data have been adjusted to reflect the
stock splits.
REDEMPTION OF 9.9% NON-VOTING MANDATORILY REDEEMABLE PREFERRED STOCK, SERIES A
On December 10, 1999, NTL gave notice to the holder of all of NTL's
outstanding shares of 9.9% non-voting mandatorily redeemable preferred stock,
series A that such preferred stock would be mandatorily redeemed for cash on
December 22, 1999. The mandatory redemption price was approximately $140.8
million which included accrued dividends.
AGREEMENT TO ACQUIRE CABLECOM IN SWITZERLAND
On December 13, 1999, NTL announced that it had reached an agreement to
acquire the Cablecom Group ("Cablecom") from Swisscom AG, Siemens Schweiz AG and
VEBA Telecom GmbH for CHF 5.8 billion (approximately $3.6 billion). Cablecom's
revenues for the year ended December 31, 1999 were $388 million.
Cablecom is Switzerland's largest cable operator with 1.38 million
subscribers which reflects a penetration rate of 96% in its service areas and
delivers signals via its national fiber backbone to other cable operators who
serve a further 300,000 cable homes. Over 90% of television broadcasting in
Switzerland is delivered over cable networks. Cablecom has an estimated 53%
share of the Swiss cable market and is the major cable operator in 11 of
Switzerland's 15 largest cities. Cablecom has been the catalyst for the
consolidation of the Swiss cable market and recently launched digital television
and high-speed Internet services.
26
<PAGE> 30
Cablecom also owns SwissOnline, one of the largest Internet service
providers in Switzerland and one of the country's most popular portals with
approximately 140,000 customers. Cablecom already has a telecommunications
license to provide data consisting of Internet, leased lines and asynchronous
transfer mode, and value added services throughout Switzerland and it will
shortly submit an application to extend the licenses for the provisioning of
voice telephony. Cablecom's network is currently being upgraded as part of an
investment program scheduled to go through 2003, with over $250 million spent in
the last two years. The network upgrade program will include the completion of a
national fiber ring which is expected to cover approximately 75% of Switzerland
by the end of 2001 as one of only two national fiber rings in Switzerland.
Through this acquisition, NTL will become the largest alternative fixed link
telecommunications operator in the Swiss telecommunications market.
NTL will acquire the cable assets of Cablecom Holdings AG together with its
subsidiaries. Part of the purchase price will take the form of the assumption or
discharge of indebtedness of the Cablecom Group. Completion of the acquisition
is conditioned on certain regulatory approvals being obtained and is expected to
occur in the first quarter of 2000.
Chase Manhattan plc and Morgan Stanley Senior Funding Inc. have agreed to
arrange a syndicate of banks to make available facilities in an aggregate
principal amount of CHF 4.1 billion ($2.6 billion) to help fund the acquisition
of the Cablecom Group and related purposes. The facilities will consist of a
tranche of CHF 2.7 billion ($1.7 billion), to be utilized in the acquisition of
the Cablecom Group and for the refinancing of certain of that group's
indebtedness, and a tranche of CHF 1.4 billion ($0.9 billion) to be used for
working capital, capital expenditures and general corporate purposes. The
facilities will have a final maturity date of March 31, 2010 and will be
secured, by among other methods, pledges over shares in the majority of the
members of the Cablecom Group. The facilities will be subject to conditions
precedent including completion of the acquisition of the Cablecom Group and will
contain representations and warranties, undertakings and events of defaults
reflecting current practice in the European syndicated loan market for
comparable facilities. Chase Manhattan PLC and Morgan Stanley Senior Funding
Inc. will underwrite the availability of the facilities.
NTL is planning to develop the Cablecom business post-acquisition beyond the
basic TV business. Core elements of NTL's strategy for Cablecom include:
- an acceleration of the ongoing build-out of the nationwide backbone;
- an increase in digital and bi-directional capacity;
- the offering of subsidized digital TV and, at a later stage, multimedia
set-top boxes to drive penetration; and
- the introduction of a value-added services bouquet including digital TV,
pay-TV, web-TV, video- and audio-on-demand, voice telephony and
high-speed Internet.
OFFERING OF NEW SERIES OF NTL CONVERTIBLE SUBORDINATED NOTES
In December 1999, NTL completed a $1.2 billion offering of its 5-3/4%
convertible subordinated notes due 2009 which are convertible into approximately
11 million shares of NTL common stock. France Telecom purchased approximately
$232 million of the convertible subordinated notes.
The convertible subordinated notes were not registered under the Securities
Act and were offered and sold in transactions exempt from or not subject to the
registration requirements of the Securities Act. In connection with this
offering, NTL announced that it intends to make an offer to convert its existing
7% convertible subordinated notes due 2008 into NTL common stock.
27
<PAGE> 31
REDEMPTION OF ALL SERIES OF 5-1/4% CONVERTIBLE PREFERRED STOCK
On January 7, 2000, NTL gave notice to the holder of all the series of NTL's
outstanding shares of 5-1/4% convertible preferred stock that such preferred
stock would be mandatorily redeemed for shares of NTL common stock on February
7, 2000. The redemption price was approximately $527.5 million, payable in cash
or NTL common stock valued at the average of the closing prices for the NTL
common stock during the 25 trading days prior to the redemption date. However,
the holder exercised its right to convert the shares of 5-1/4% convertible
preferred stock into approximately 8.2 million shares of NTL common stock.
NTL AND FRANCE TELECOM TO BID FOR MOBILE PHONE LICENSES
On January 12, 2000, NTL announced that it would be bidding together with
France Telecom for one of the UMTS "third generation" mobile phone licenses
which are being auctioned in the U.K. This license will be held by NTL Mobile
Limited, a joint venture with France Telecom.
PROPOSED SALE OF NEW SERIES OF NTL PREFERRED STOCK
On February 17, 2000, NTL, France Telecom, and a group of commercial banks,
entered into an arrangement, subject, among other things, to the completion of
NTL's acquisition of the assets of Cablecom Holding AG, involving the issuance
of 1,850,000 shares of 5% cumulative preferred stock, series A, par value $0.01
per share, of NTL for an aggregate purchase price of $1.85 billion. The proceeds
from this issuance of 5% cumulative preferred stock will be used primarily for
the purpose of consummating the acquisition of the assets of Cablecom Holding
AG, with any remaining proceeds to be used to help fund NTL's acquisitions of
companies primarily engaged in the broadband communications, broadcasting and
cable television business in Continental Europe outside of France.
Under the arrangement, at the option of the holder, the 5% cumulative
preferred stock is mandatorily redeemable for cash on and after the second
anniversary of the issuance. Any holder of the 5% cumulative preferred stock,
other than a commercial bank or its affiliate, has a right, exercisable at any
time after the 5% cumulative preferred stock shall have been outstanding for six
months and subject to certain conditions, to exchange shares of 5% cumulative
preferred stock for shares of Eurotel Stock, having a value equal to the
redemption price together with any accrued and unpaid dividends. "Eurotel Stock"
is defined as capital stock of a direct or indirect wholly-owned subsidiary of
NTL, which entity owns all of the outstanding capital stock of entities that are
primarily engaged in the broadband communications, broadcasting and cable
television business in Continental Europe outside of France.
On and after the date that is the earlier of (1) the second anniversary of
the issue date of the 5% cumulative preferred stock or (2) the date of an
exchange for Eurotel Stock, NTL has the right to redeem the outstanding 5%
cumulative preferred stock, in part or in whole, from any holder of the 5%
cumulative preferred stock, other than a commercial bank or its affiliate, for
cash at the redemption price together with any accrued and unpaid dividends. Any
time after a period of six months from an exchange for Eurotel Stock, any holder
of 5% cumulative preferred stock, other than a commercial bank or its affiliate,
at the holder's option and subject to certain conditions, is entitled to convert
any or all of the shares of 5% cumulative preferred stock that remain
outstanding after the exchange for Eurotel Stock into fully paid and
non-assessable shares of NTL common stock together with any accrued and unpaid
dividends.
Under separate arrangements, NTL and France Telecom have agreed to certain
corporate governance arrangements relating to the Eurotel entity in the event
the 5% cumulative preferred stock is exchanged for shares of Eurotel Stock.
Contemporaneously with the execution of the purchase agreement described
above, France Telecom and the Banks entered into a put and call option agreement
with respect to the shares of 5% cumulative preferred stock that were proposed
to be sold to them by NTL. The put and call option agreement generally provides
that (1) France Telecom will have the right exercisable at any time following
the issue date but no later than five business days before the second
anniversary of the issue date to purchase the 5% cumulative preferred stock held
by the Banks and (2) the Banks will also have the right in certain circumstances
to require France Telecom to acquire their shares of 5% cumulative preferred
stock.
28
<PAGE> 32
COMPETITION
We face significant competition from established and new competitors in the
areas of residential telephony, business telecommunications services, Internet
and cable television. We believe that competition will intensify in each of
these business areas, particularly business telecommunications and Internet.
Residential Services. We compete primarily with BT in providing telephone
services to residential customers. BT occupies an established market position
and manages fully built networks and has resources substantially greater than
ours. According to OFTEL, at March 31, 1999, BT serviced approximately 85% of
U.K. residential telephone exchange line customers. Our growth in
telecommunications services, therefore, depends upon our ability to convince
BT's customers to switch to our telecommunications services. We believe that
value for money is currently one of the most important factors influencing the
decision of U.K. customers to switch from BT to a competitive telecommunications
service. BT has, however, introduced price reductions in certain categories of
calls and, due to regulatory price controls, BT will be making further
reductions in its telecommunications prices. Accordingly, although we intend to
remain competitive, in the future we may be unable to offer residential
telephone services at rates lower than those offered by BT. In this case, we may
not achieve desired penetration rates and may experience a decline in total
revenues. There can be no assurance that any such decline in revenues or
penetration rates will not adversely affect us. In addition to BT, other
telecommunications competitors could prevent us from increasing our share of the
residential telecommunications market. In particular, BT is under a regulatory
obligation to introduce carrier pre-selection on its network, which it expects
to do in the second half of 2000. Carrier pre-selection may increase the appeal
of indirect access operators, whose discounted call charges may undercut us.
We also compete with mobile networks. This technology may grow to become a
competitive threat to our networks, particularly if call charges are reduced
further on the mobile networks. Our radio communications group may enable us to
benefit from the growth in this technology. There can be no assurance, however,
that we will be able to compete successfully with such telecommunications
operators.
We believe that we have a competitive advantage in the residential market
because we offer integrated telephone, cable television, telecommunications
services (including Internet, interactive and on-line services) and
multi-product packages designed to encourage customers to subscribe to multiple
services. However, there can be no assurance that this competitive advantage
will continue. Indeed, BT and all other operators will be permitted to provide
and convey cable television services throughout the U.K. starting January 1,
2001. In addition, all areas currently without franchises will open to general
competition in the future, and exclusive franchises will no longer be awarded.
British Sky Broadcasting Limited currently markets telecommunications
services on an indirect access basis (which requires the customer to dial
additional digits before entering the primary telephone number, thus diverting
calls onto another operator's network). In addition, BskyB, BT, Midland Bank and
Matsushita have formed a joint venture known as Open (formerly British
Interactive Broadcasting) to provide interactive digital services. We believe
that this joint venture provides significant competition.
Our cable television systems compete with direct reception over-the-air
broadcast television, DTH satellite services and satellite master antenna
systems. In addition, pay television and pay-per-view services offered by us
compete to varying degrees with other communications and entertainment media,
including home video, cinema exhibition of feature films, live theater and newly
emerging multimedia services. We expect that, in the future, we may face
competition from programming provided by video-on-demand services, including
those that may be provided by PTOs with national licenses. In addition, there
will be general licensing to provide cable television services, including in our
franchise areas, from January 1, 2001. Should any additional operators,
including BT choose to construct or adopt networks to provide cable television
in these areas, it could have a material adverse effect on us.
BSkyB and OnDigital have recently dropped the practice of charging any
upfront fee for digital set-top boxes, although they still charge in some
instances for installation. Coupled with BSkyB's move to bundle free Internet
access and discounted indirect access telephony (with calls priced at 40% below
BT headline rates), these moves have reduced the competitive advantages
previously represented by our offerings.
29
<PAGE> 33
We believe that the underlying technological advantages of our networks will
allow us to respond to such moves by our competitors. Nevertheless, there can be
no assurances that we will be able to continue to compete successfully in all
segments of the residential markets.
Business Telecommunications. BT is also our principal competitor in
providing business telecommunications services. In addition, we compete with
Cable & Wireless Communications (NTL is not acquiring CWC's business
telecommunications business), Energis Communications Limited, thus in Scotland
and with other companies that have been granted telecommunications licenses such
as MCI-WorldCom and Colt. In the future, we may compete with additional entrants
to the business telecommunications market. Competition is based on price, range
and quality of services, and we expect price competition to intensify if
existing and other new market entrants compete aggressively. Most of these
competitors have substantial resources and there can be no assurance that these
or other competitors will not expand their businesses in our existing markets or
that we will be able to continue to compete successfully with such competitors
in the business telecommunications market.
On September 29, 1993, the ITC issued a statement pursuant to which it took
the position (shared by OFTEL and DTI) that BT and the other national PTOs may
provide video-on-demand services under their existing licenses. No assurance can
be given that video-on-demand will not provide substantial competition to us
within our markets in the future.
Broadcast Transmission and Tower Services. Castle Transmission Ltd, a
subsidiary of Crown Castle, Inc., is NTL's primary competition in the
terrestrial broadcast transmission market in the United Kingdom. Castle provides
analog transmission services to the BBC. It also has been awarded the
transmission contract for the new DTT multiplex service for the BBC and
OnDigital. Castle has diversified from its core television broadcasting business
using its transmission infrastructure to enter into the radio transmission and
telecommunications sectors.
Although Castle is our direct competitor, we each have reciprocal rights to
use each others' sites for broadcast transmission usage in order to enable each
of us to achieve the necessary country-wide coverage. This relationship is
formalized by the site-sharing agreement entered into in 1991 when those towers
were privatized.
Castle also offers site rental on a significant number of its sites (some of
which are managed on behalf of third parties). Like us, Castle offers a full
range of site-related services to its customers, including installation and
maintenance. We believe our towers to be at least as well situated as Castle's
and that we will be able to continue expanding our own third-party site-sharing
penetration.
All four U.K. mobile operators own site infrastructure and lease space to
other users. Their openness to sharing with direct competitors varies by
operator. Cellnet and Vodafone have agreed to cut site costs by jointly
developing and acquiring sites in the Scottish Highlands. BT and Cable &
Wireless Communications are both major site-sharing customers but also compete
by leasing their own sites to third parties. BT's position in the market is even
larger when considered in combination with its interest in Cellnet.
Several other companies compete in the market for site rental. These include
British Gas, Racal Network Systems, Aerial Sites Plc, Relcom Aerial Services and
the Royal Automobile Club. Some companies own sites initially developed for
their own networks, while others are developing sites specifically to exploit
this market.
We face competition from a large number of companies in the provision of
network services. The companies include CTL, specialty consultants and equipment
manufacturers such as Nortel and Ericsson.
30
<PAGE> 34
REGULATION
Telecommunications service industries in the U.K. are governed by
legislation under the Telecommunications Act 1984, the Broadcasting Act 1990,
and the Broadcasting Act 1996. The operator of a full-service telecommunications
system in the U.K. requires the following two principal licenses:
- a telecommunications license, granted under the Telecommunications Act
by the Secretary of State and supervised by the Department of Trade and
Industry (the "DTI") and the Office of Telecommunications ("OFTEL"), which
authorizes the installation and operation of the telecommunications network;
and
- a cable television license, which authorizes the provision of
broadcasting services within a defined geographical area.
Each type of license described above contains various conditions, and in the
event of the breach of such conditions, the Director General or the ITC, as
appropriate, could issue an enforcement order and ultimately commence
proceedings to require compliance or to revoke such licenses.
The regulatory environment in the U.K. has generally encouraged the
development of the telecommunications and the cable television industry by,
among other things, licensing only one operator for each cable franchise area
and restricting other operations from competing in the provision of broadcast
entertainment in those areas. From January 1, 2001, competition within current
cable franchises will be permitted.
Price Regulation
Although to date we have for the most part been able to price our cable
telephone call charges below those of BT, there can be no assurance that we will
be able to continue to do so in the future. BT currently is subject to controls
over the prices it may charge customers, including a requirement that the
overall basket of charges may not be changed by more than an amount equal to the
percentage change in the Retail Price Index ("RPI") less X (and BT may, as a
result, have to decrease prices). In particular, BT may not increase charges for
certain services by more than the amount of the percentage change in the RPI.
OFTEL's latest proposals for control of BT's retail prices have been
incorporated in BT's license. The retail price controls will continue until
2001. The controls will only be put in place where consumer protection is
required, that is, for low to medium-spending residential customers and small
businesses. The current price cap is RPI minus 4.5% on the narrower basket of
services described above. Safeguard caps of RPI plus 0% have been imposed on
certain services.
BT has limited opportunity for differential pricing to the same class of
customer because it is subject to prohibitions on undue preference and undue
discrimination across the U.K. Following the Duopoly Review, BT's
telecommunications license was modified to permit it to offer discounts to high
volume users, subject to several conditions. However, BT may not offer
discounted services in local markets without offering the discounts nationally
if such discounts result in undue discrimination or unfair cross-subsidy.
In Autumn 1999, OFTEL began the process of examining what price controls, if
any, should apply to BT after 2001. At this stage it is too early to say what
controls will apply, although OFTEL has indicated that where competition to BT
is considered effective, controls may be relaxed.
We are not subject to equivalent scrutiny and control by OFTEL of our retail
telephone prices, given our non-dominant status in the market. We, as well as
other PTO operators, are required to publish our standard prices, terms and
conditions.
Indirect and Equal Access ("Carrier Pre-Selection")
On December 1, 1997 the EC Council of Telecommunications Ministers reached
political agreement on a draft directive to amend the Interconnection Directive
(Directive 97/33/EC) with regard to number portability and carrier
pre-selection. This will require member states (except those which have been
granted a derogation under the Full Competition Directive (Dir 96/19/EC)) to
introduce carrier pre-selection by January 1, 2000, for operators designated as
having "Significant Market
31
<PAGE> 35
Power" as defined in the Interconnection Directive. OFTEL has concluded that BT
and Kingston Communication should be so designated in the United Kingdom. Member
states may request a deferment of this obligation if they can show that it would
impose "an excessive burden on certain organizations or classes of
organization". Following a request for deferment by BT, it has been agreed that
BT will introduce an 'interim solution' form of Carrier Pre-Selection, involving
BT providing indirect access auto-dialers to consumers, from April 2000. Towards
the end of 2000, it is anticipated that BT will launch a full switch-based
implementation of Carrier Pre-Selection.
Number Portability
The European Union agreed in 1998 to a revision to the Interconnection
Directive that made it a requirement for Member States to mandate number
portability. An OFTEL consultation of December 1999 suggested that number
portability should be offered as of right to all customers switching between
different operators from January 1, 2000. NTL is now in the process of
implementing this requirement on its networks.
TV-telephony bundling
In February 2000, OFTEL and ITC published a joint statement asserting that
the practices of bundling TV and telephony, as practiced by NTL and others, were
not anti-competitive in effect and should not therefore be prohibited. The
regulatory bodies did, however, expect companies to make greater efforts to
publicize their TV or telephony-only products to customers. Comments were
invited on the statement by end of February 2000.
Competition Act 1998
The Competition Act comes into force in March 2000, and grants concurrent
powers to the industry specific regulators and the Director General of Fair
Trading for the enforcement of prohibitions modeled on Article 81 and 82 of the
European Community Treaty. The Competition Act introduces a prohibition on the
abuse of a dominant position and on anti-competitive agreements, and introduces
third party rights, stronger investigative powers, interim measures and
effective enforcement powers (including fines of up to 10% of U.K. turnover).
Under the Competition Act, the Director General of Telecommunications is
able, but not required, to exercise concurrent powers with the Director General
of Fair Trading in relation to "commercial activities connected with
telecommunications". The Competition Act enables third parties to bring
enforcement actions directly against telecommunications operators who are in
breach of the prohibitions and seek damages, rather than have to wait for the
Director General of Telecommunications to make an enforcement order.
In December 1998, OFTEL issued specific guidance on the application of the
Competition Act in the telecommunications sector. This guidance states that
OFTEL would follow closely the general principles of competition law in its
application of the new prohibitions.
Broadcast Services
A significant proportion of our total revenues is attributable to the
provisions of television and radio transmission and distribution services. In
the U.K., the provision of such services is governed by the Telecommunications
Act and The Wireless Telegraphy Act 1949.
Telecommunications Act Licenses
NTL's broadcasting transmission license contains conditions and other
provisions which, among other things:
- require us to provide specified telecommunications services to specified
persons on request
- specify certain criteria to be met by us in providing those services
- require the connection of our telecommunications systems with those of
certain other transmission operators and the transmission over those
systems by such operators of messages for general reception
32
<PAGE> 36
- require us to publish our charges and terms and conditions of business
and not to show undue preference to or exercise undue discrimination
against particular persons in the provision of certain
telecommunications services
- requires us to hold Wireless Telegraphy Act licenses in respect of each
item of wireless telegraphy comprised in its system
- impose on us an obligation to share our transmission sites with other
transmission operators
- restrict the prices which we are allowed to charge for the provision of
some services
- prohibit us from cross-subsidizing the unregulated side of our business
- impose a requirement for separate accounts to be produced in relation to
both the regulated and unregulated parts of our business. However, we
are not obliged to do anything "not reasonably practicable."
Price Cap Review
Our regulated business may be divided into two categories: Price Regulated
Business and Applicable Rate Business. Price Regulated Business comprises those
telecommunication services which we are obliged to provide pursuant to its
Transmission License and in respect of which price controls are imposed. Our
Applicable Rate Business comprises those telecommunications services which we
are obliged to provide but which do not fall within the definition of Price
Regulated Business. Charges for Applicable Rate Business are agreed between us
and the relevant customer. If despite all reasonable efforts an agreement cannot
be reached between us and a significant proportion of our customers in respect
of any particular telecommunications service, the charge will be determined by
the Director General.
In respect of any services provided by us which are not Price Regulated
Business or Applicable Rate Business, our prices are wholly unregulated, except
for the overriding duty not to engage in any pricing policy which constitutes
undue preference or undue discrimination against any person or class of persons
in respect of telecommunications services. Our unregulated income would include,
for example, charges for site rentals to PCN operators.
Our Price Regulated Business consists of the television transmission service
provided to the ITV (Channel 3) companies and Channel 4/S4C including the
operation and maintenance of transmission equipment and the provision to third
party transmission operators of the accommodation, masts and antennae necessary
for the operation of broadcast transmission services.
On December 24, 1996, the Director General issued the formal modification to
our Telecommunications Act Licenses to effect the price controls which are to
apply to us for the period from January 1, 1997 to December 31, 2002. The Price
Cap Review had two purposes: (1) to establish a new "P0" (allowable revenues for
the first year of the next control period, 1997, in respect of our Maximum Price
Regulated Business) and (2) to establish a new "X" (the percentage by which such
revenues must, after allowing for consumer price inflation, be reduced each year
thereafter). The Director General's review concluded that, on present
assumptions, the new P0 is pound sterling53.15 million and the new X is 4.0%.
In addition to price control, the Price Cap Review raised a number of other
issues which will impact upon our Price Regulated Business in the future. In
particular, the Director General suggested that it would be desirable for us to
"unbundle" the prices for operational services and required site rentals which
it charges to each broadcaster (such as Channel 3 and Channel 4/S4C) in the form
of a transmission fee in order to expose those elements of the service which are
potentially competitive and allow broadcasters to choose an alternative supplier
if they wish. OFTEL has proposed to review whether we should publish a ratecard
with a menu of prices for unbundled services in 2002 when our regulated business
is next due for full review. At present, the system for calculating the
proportion of Channel 3's total transmission fee which is charged to each
individual franchisee is based on net advertising revenues ("NAR") accruing to
each franchisee, rather than the costs of actually providing the transmission
service to each of the franchisees.
OFTEL proposed that we should continue to charge Channel 3 as a group a
single price for each component of its transmission service, although each
component would be separately distinguished. This arrangement would continue
unless
33
<PAGE> 37
and until NAR arrangements no longer applied. This decision could only be taken
after agreement with the Department of Culture, Media and Sport and consultation
with other interested bodies.
European Union Legislation
Our business is further regulated by the EU under various European
Commission Directives. In November 1999, the Commission issued a communication
setting out proposals for a new framework for the regulation of communications
networks, including telecoms and broadcasting networks. The proposals would
extend the approach of the existing 'ONP' directives which apply only to
telecoms, to broadcast networks and the Internet. The communication sets out
proposals for a framework of regulation which is pro-competitive and which
encourages innovation and investment. The proposals would also strengthen
existing regulatory structures by setting a new European level structure in
place allowing for a harmonized approach among member states. If endorsed by the
member states, the communication could result in legislation which would come
into effect around 2003.
RESEARCH AND DEVELOPMENT
Our research and development activities involve the analysis of
technological developments affecting our cable television, telephone and
telecommunications business, the evaluation of existing services and sales and
marketing techniques and the development of new services and techniques.
PATENTS, COPYRIGHTS AND LICENSES
We do not have any material patents or copyrights nor do we believe that
patents play a material role in our business. We are substantially dependent on
the licenses and franchises granted by the legislative agencies which regulate
our respective businesses. The loss of any one or more of our licenses or
franchises could have a material adverse effect on our business and financial
condition. There are no material intellectual property licenses used by us, the
loss of which would have such an effect.
CUSTOMERS
Except for our broadcast services business, no material part of our business
is dependent upon a single customer or a few customers, the loss of any one or
more of which would have a materially adverse effect on us. The broadcast
services business is, however, substantially dependent on the revenues it
receives pursuant to its contracts with the ITV companies, Channel 4/S4C,
Channel 5, ABC and SBS, the loss of one or more of which may have a material
adverse effect on us.
EMPLOYEES
At December 31, 1999, we had approximately 11,400 employees. Approximately
190 employees are represented by the Broadcasting, Entertainment,
Cinematographic and Theatre Union which has entered into a collective bargaining
agreement with one of our subsidiaries. None of our other employees is
represented by any labor organization. We believe that our relationship with our
employees is good.
ITEM 2. PROPERTIES.
We own, lease or occupy under license 46 business unit and regional
head-offices throughout the U.K., Ireland, France and Australia, our corporate
head-office in Hook, and 11 retail shops. In addition, we own or lease
approximately 145 switching centers/head-ends and operational hub-sites together
with warehouses and other non-operational properties, as well as various cable
television, telephone and telecommunications equipment used in the U.K., Ireland
and France.
We own, lease or occupy under license approximately 1,300 properties in the
U.K. and Australia, of which approximately 1,250 are used as transmitter sites.
In addition, we also are the lessee or licensee of over 600 transmitter sites
which are owned by Castle Transmission and shared between the two organizations
pursuant to a site sharing agreement.
We maintain offices under lease for our corporate staff in New York City.
34
<PAGE> 38
We believe that our facilities are presently adequate for their current use.
We intend to continue to expand the systems in accordance with the requirements
of the network build schedules and acquire new sites as part of the ongoing
expansion of our transmission networks.
ITEM 3. LEGAL PROCEEDINGS.
We are involved in, or have been involved in, certain disputes and
litigation arising in the ordinary course of business, including claims
involving contractual disputes and claims for damages to property and personal
injury resulting from the construction of our networks and the maintenance and
servicing of our transmission masts, none of which are expected to have a
material adverse effect on our financial position or results of operations or
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters that were submitted to a vote of NTL stockholders
during the quarter ended December 31, 1999.
35
<PAGE> 39
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on the Nasdaq Stock Market's National
Market under the symbol "NTLI" and on EASDAQ under the symbol "NTLI.ED". The
following table sets forth, for the periods indicated, the high and low last
sale prices as reported on the Nasdaq Stock Market's National Market. The
information set forth below gives retroactive effect to the 5-for-4 stock split
in February 2000 and the 5-for-4 stock spilt in October 1999.
<TABLE>
<CAPTION>
LAST SALE PRICE
---------------
HIGH LOW
---- ---
<S> <C> <C>
1998
First Quarter $ 29.20 $17.31
Second Quarter 34.23 24.08
Third Quarter 40.64 22.72
Fourth Quarter 37.52 21.27
1999
First Quarter 53.20 34.41
Second Quarter 64.08 47.05
Third Quarter 67.31 52.56
Fourth Quarter 101.20 51.75
2000
First Quarter (through
March 13, 2000) 109.09 82.00
</TABLE>
On March 13, 2000, the closing sale price for the Company's Common Stock, as
reported on the Nasdaq Stock Market's National Market was $99.50. As of March
13, 2000, there were approximately 685 record holders of the Common Stock. This
figure does not reflect beneficial ownership of shares held in nominee name.
The Company has never paid cash dividends on its Common Stock. Pursuant to the
indentures governing the Company's Senior Notes and the Certificates of
Designation governing the Company's Preferred Stock, certain provisions
currently materially limit the Company's ability to pay dividends on the
Company's equity securities. In addition, there are legal and contractual
restrictions on the ability of the Company's subsidiaries to transfer funds to
the Company in the form of cash dividends, loans or advances. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources". The Company does not currently intend to pay
cash dividends in the foreseeable future on shares of its capital stock. The
Company anticipates that for the foreseeable future any cash flow generated from
subsidiaries' operations will be used to develop and expand the Company's
business and for debt service. Any future determination as to the payment of
dividends will be at the discretion of the Company's Board of Directors and will
depend upon the Company's operating results, financial condition and capital
requirements, indenture and other contractual restrictions, general business
conditions and such other factors as the Company's Board of Directors deems
relevant. There can be no assurance that the Company will pay dividends at any
time in the future.
36
<PAGE> 40
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain financial data for the years ended
December 31, 1999, 1998, 1997, 1996 and 1995. This information should be read in
conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
(In thousands, except per share data)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(1) (2) (3)
<S> <C> <C> <C> <C> <C>
Income statement data:
Operating revenues $1,584,134 $ 747,015 $ 491,755 $ 228,343 $ 33,741
(Loss) before extraordinary item (732,683) (503,927) (328,557) (254,454) (90,785)
Net (loss) (735,717) (534,616) (333,057) (254,454) (90,785)
Basic and diluted net (loss) per
common share:
(Loss) before extraordinary item (4) (6.75) (8.12) (6.79) (5.25) (1.92)
Net (loss) per common share (4) (6.78) (8.60) (6.88) (5.25) (1.92)
Weighted average number of common
shares used in the computation of
basic and diluted net loss per
common share (4) 119,418 64,378 50,183 48,502 47,172
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(1) (2) (3)
<S> <C> <C> <C> <C> <C>
Working capital (deficiency) $2,261,463 $ 600,549 $ (52,344) $ 242,102 $ 76,128
Fixed assets, net 5,597,648 3,854,430 1,756,985 1,459,528 639,674
Total assets 12,211,566 6,194,097 2,421,639 2,454,611 1,010,669
Long-term debt 8,798,024 5,043,803 2,015,057 1,732,168 513,026
Senior Redeemable Exchangeable
Preferred Stock 141,805 124,127 108,534 -- --
Shareholders' equity (deficiency) 2,136,892 355,154 (61,668) 328,114 339,257
</TABLE>
(1) In March 1999, the Company purchased Diamond for an aggregate purchase
price of $978 million, including intangibles aggregating $1.3 billion.
In April 1999, the Company purchased the Australian National
Transmission Network for an aggregate purchase price of $423 million,
including intangibles of $221 million. In July 1999, the Company
acquired Cablelink for an aggregate purchase price of $693 million,
including intangibles of $669 million. In August and December 1999, the
Company acquired the 1G Networks of France Telecom for an aggregate
purchase price of $60 million, including intangibles of $65 million. In
September 1999, the Company acquired the shares of Workplace
Technologies plc, for an aggregate purchase price of $173 million,
including intangibles of $177 million. The net assets and results of
operations of Diamond, the Australia National Transmission Network,
Cablelink, the 1G Networks and Workplace Technologies are included in
the consolidated financial statements from their respective dates of
acquisition.
(2) In June and September 1998, the Company purchased ComTel for an
aggregate purchase price of $969 million, including intangibles
aggregating $224 million. In October 1998, the Company purchased
Comcast U.K. for an aggregate purchase price of $600 million, including
intangibles of $130 million. In December 1998, the Company purchased
EGT for an aggregate purchase price of $151 million, including
intangibles of $45 million. The net assets and results of operations of
ComTel, Comcast U.K. and EGT are included in the consolidated financial
statements from their respective dates of acquisition.
37
<PAGE> 41
(3) In May 1996, the Company purchased NTL Group Limited for an aggregate
purchase price of $439 million, including goodwill of approximately
$263 million. The net assets and results of operations of NTL Group
Limited are included in the consolidated financial statements from the
date of the acquisition.
(4) After giving retroactive effect to the four-for-three stock split by
way of stock dividend paid in August 1995, the five-for-four stock
split by way of stock dividend paid in October 1999 and the
five-for-four stock split by way of stock dividend paid in February
2000.
The Company did not declare or pay any cash dividends during the years
indicated.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
As a result of the completion of the acquisitions of ComTel in the second and
third quarters of 1998, Comcast U.K. (now known as NTL (Triangle) LLC ("NTL
Triangle"), formerly NTL (Bermuda) Limited) and EGT in the fourth quarter of
1998, Diamond in March 1999, the Australian National Transmission Network ("NTL
Australia") in April 1999, Cablelink in July 1999, the "1G Networks" of France
Telecom in August and December 1999, and Workplace in September 1999, the
Company consolidated the results of operations of these businesses from the
dates of acquisition. The results of these businesses are not included in the
1998 results except for the results of operations of ComTel, NTL Triangle and
EGT from the dates of acquisition.
YEARS ENDED DECEMBER 31, 1999 AND 1998
Residential telecommunications and television revenues increased to $834,339,000
from $355,589,000 as a result of acquisitions and from customer growth that
increased the Company's current revenue stream. The 1999 and 1998 revenue
includes $471,874,000 and $74,213,000, respectively, from acquired companies.
The Company expects its customer base to continue to increase as the Company
completes the construction of its broadband network past the remaining homes in
its franchise areas.
National and international telecommunications revenues increased to $547,895,000
from $248,895,000 as a result of acquisitions and from increases in business
telecommunications revenues, Internet services revenues and carrier services
revenues. The 1999 and 1998 revenue includes $200,825,000 and $8,461,000,
respectively from acquired companies. Business telecommunications and Internet
services revenues increased primarily as a result of customer growth. The
Company expects its business telecommunications and Internet services customer
base to continue to increase. The Company is expanding its sales and marketing
effort to business customers and for Internet services in its completed network.
Carrier services revenues increased due to growth in satellite services and
telephone services provided by the Company's wholesale operation to broadcasters
and telephone companies, respectively. Revenue growth in carrier services is
primarily dependent upon the Company's ability to continue to attract new
customers and expand services to existing customers.
Broadcast transmission and other revenues increased to $201,900,000 from
$140,156,000 due to revenues of $39,993,000 from NTL Australia in 1999 and from
increases in broadcast television and FM radio customers and accounts, which
exceeded price cap reductions in the Company's regulated services. The Company
expects its digital broadcasting services to increase in the future.
Other telecommunications revenues decreased to zero from $2,375,000 due to the
sales of the assets of the Company's wholly-owned subsidiary, OCOM Corporation,
to AirTouch Communications, Inc. and to Cellular Communications of Puerto Rico,
Inc. during 1998.
38
<PAGE> 42
Operating expenses increased to $799,756,000 from $372,134,000 as a result of
increases in interconnection costs and programming costs due to customer growth.
The 1999 and 1998 expense includes $341,904,000 and $35,299,000, respectively,
from acquired companies.
Selling, general and administrative expenses increased to $573,460,000 from
$299,494,000 as a result of increases in telecommunications and CATV sales and
marketing costs and increases in additional personnel and overhead to service
the increasing customer base. In addition, approximately $47.4 million of the
increase was due to the new national brand and advertising campaign which began
in the second quarter of 1999 and will continue into 2000. The 1999 and 1998
expense includes $240,183,000 and $40,886,000, respectively, from acquired
companies.
Pursuant to the terms of various United Kingdom licenses, the Company incurred
license fees paid to the ITC to operate as the exclusive service provider in
certain of its franchise areas. Upon a request by the Company in 1999, the ITC
converted all of the Company's fee bearing exclusive licenses to non-exclusive
licenses by the end of 1999, and the Company's liability for license payments
ceased upon the conversion. Franchise fees decreased to $16,538,000 from
$25,036,000 due to the reversal of the accrued liability for franchise fees of
$13,592,000. The 1999 amount includes Diamond franchise fees of $5,037,000.
Corporate expenses increased to $29,402,000 from $17,048,000 due to an increase
in various overhead costs.
Nonrecurring charges of $16,179,000 in 1999 were the fee incurred for the
cancellation of certain contracts. Nonrecurring charges of $20,642,000 in 1997
include deferred costs written-off of $5,013,000 and restructuring costs of
$15,629,000. The deferred costs written-off arose in connection with the
Company's unsuccessful bid for United Kingdom digital terrestrial television
multiplex licenses. Restructuring costs relate to the Company's announcement in
September 1997 of a reorganization of certain of its operations. This charge
consisted of employee severance and related costs of $6,726,000 for
approximately 280 employees to be terminated, lease exit costs of $6,539,000 and
penalties of $2,364,000 associated with the cancellation of contractual
obligations. As of December 31, 1998, $9,172,000 of the provision had been used,
including $5,558,000 for severance and related costs, $1,450,000 for lease exit
costs and $2,164,000 for penalties associated with the cancellation of
contractual obligations. As of December 31, 1998, 177 employees had been
terminated. The $4,194,000 reversed in 1998 includes $1,168,000 for severance
and related costs, $2,826,000 for lease exit costs and $200,000 for penalties
associated with the cancellation of contractual obligations. This reversal was
necessary because employees whose positions were eliminated chose to remain with
the Company in other positions rather than leave the Company and receive
severance pay, and the real estate markets in which the Company sublet space
improved increasing the sublet rentals and shortening the period of time
required to find subtenants. The remaining restructuring reserve of $2,263,000
at December 31, 1998 is for lease costs net of sublease revenue.
Depreciation and amortization expense increased to $791,322,000 from
$266,112,000 due to an increase in depreciation of telecommunications and CATV
equipment. The 1999 and 1998 expense includes $430,072,000 and $45,892,000
respectively, from acquired companies, including amortization of acquisition
related intangibles.
Interest expense increased to $680,728,000 from $328,815,000 due to the issuance
of additional debt, and the increase in the accretion of original issue discount
on the deferred coupon notes. The 1999 expense includes $184,839,000 from
acquired companies. Interest of $222,082,000 and $118,273,000 was paid in the
years ended December 31, 1999 and 1998, respectively.
Other gains of $493,121,000 in 1999 are from the sale of the investment in Cable
London.
Foreign currency transaction gains increased to $12,720,000 from $4,152,000
primarily due to the effect of favorable changes in the exchange rates on the
Company's pound sterling and Euro denominated notes in 1999.
The Company recorded an extraordinary loss from the early extinguishment of debt
of $3,034,000 in 1999 as a result of the repayment of the bridge loan incurred
in connection with the Cablelink acquisition. The Company recorded an
extraordinary loss from the early extinguishment of debt of $30,689,000 in 1998
as a result of the redemption of the 10-7/8% Notes and the repayment of a bank
loan.
39
<PAGE> 43
YEARS ENDED DECEMBER 31, 1998 AND 1997
Residential telecommunications and television revenues increased to $355,589,000
from $166,951,000 primarily as a result of customer growth that increased the
Company's current revenue stream. The 1998 revenue includes $74,213,000 from
acquired companies.
National and international telecommunications revenues increased to $248,895,000
from $185,194,000 primarily as a result of increases in business
telecommunications revenues, Internet services revenues and carrier services
revenues. Business telecommunications and Internet services revenues increased
primarily as a result of customer growth. Carrier services revenues increased
due to growth in satellite services and telephone services provided by the
Company's wholesale operation to broadcasters and telephone companies,
respectively.
Broadcast transmission and other revenues increased to $140,156,000 from
$130,799,000 primarily due to increases in broadcast television and FM radio
customers and accounts, which exceeded price cap reductions in the Company's
regulated services.
Other telecommunications revenues decreased to $2,375,000 from $8,831,000
primarily due to the sales of the assets of the Company's wholly-owned
subsidiary, OCOM Corporation, during 1998.
Operating expenses increased to $372,134,000 from $301,644,000 primarily as a
result of increases in interconnection costs and programming costs due to
customer growth. The 1998 expenses includes $35,299,000 from acquired companies.
Selling, general and administrative expenses increased to $299,494,000 from
$169,133,000 as a result of increases in telecommunications and CATV sales and
marketing costs and increases in additional personnel and overhead to service
the increasing customer base. The 1998 expense includes $40,886,000 from
acquired companies.
Franchise fees increased to $25,036,000 from $23,587,000 primarily as a result
of the inflation adjustment to the Northern Ireland license payment.
Corporate expenses decreased to $17,048,000 from $18,324,000 primarily due to
the sale of OCOM's assets in 1998. Certain OCOM personnel were included in
corporate expenses in 1997.
Nonrecurring charges of $20,642,000 in 1997 were comprised of restructuring
costs of $15,629,000 and deferred costs written-off of $5,013,000. The deferred
costs written off arose in connection with the Company's unsuccessful bid for
digital terrestrial television multiplex licenses. Restructuring costs relate to
the Company's announcement in September 1997 of a reorganization of certain of
its operations. In 1998, the Company incurred restructuring costs of $9,172,000
and reversed $4,194,000 of the provision.
Depreciation and amortization expense increased to $266,112,000 from
$150,509,000 primarily due to an increase in depreciation of telecommunications
and CATV equipment. The 1998 expense includes $45,892,000 from acquired
companies, including amortization of acquisition related intangibles.
Interest expense increased to $328,815,000 from $202,570,000 due to the issuance
of additional debt in 1998 and the increase in the accretion of original issue
discount on the deferred coupon notes. Interest of $118,273,000 and $78,817,000
was paid in the years ended December 31, 1998 and 1997, respectively.
Other gains of $21,497,000 in 1997 include a gain on sale of fixed assets of
$11,497,000 and a $10,000,000 payment from LeGroupe Videotron Ltee pursuant to
the settlement of a lawsuit.
Foreign currency transaction gains increased to $4,152,000 from $574,000 due to
favorable changes in the exchange rate subsequent to the issuance in March 1998
of new debt denominated in British pounds sterling.
40
<PAGE> 44
The Company recorded an extraordinary loss from the early extinguishment of debt
of $30,689,000 in 1998 as a result of the redemption of the 10-7/8% Notes and
the repayment of a bank loan. In connection with the repayment of debt, a
subsidiary recorded an extraordinary loss of $4,500,000 in 1997 from the
write-off of unamortized deferred financing costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company will continue to require significant amounts of capital to finance
construction of its local and national networks, for connection of telephone,
telecommunications, Internet and CATV customers to the networks, for other
capital expenditures and for debt service. The Company estimates that these
requirements, net of cash from operations, will aggregate up to approximately
$1.70 billion in 2000. The Company's commitments at December 31, 1999 for
equipment and services through 2000 are included in the anticipated
requirements. The Company had approximately $2.94 billion in cash and securities
on hand at December 31, 1999.
Regarding the Company's estimated cash requirements described above, there can
be no assurance that: (a) actual construction costs will not exceed the amounts
estimated or that additional funding substantially in excess of the amounts
estimated will not be required, (b) conditions precedent to advances under
planned credit facilities will be satisfied when funds are required, (c) the
Company and its subsidiaries will be able to generate sufficient cash from
operations to meet capital requirements, debt service and other obligations when
required, (d) the Company will be able to access such cash flow or (e) the
Company will not incur losses from its exposure to exchange rate fluctuations or
be adversely affected by interest rate fluctuations.
In July 1999, the Company agreed to acquire the consumer cable telephone,
Internet and television operations of Cable & Wireless Communications, plc ("CWC
ConsumerCo."). The Company will issue approximately 85 million new shares of
common stock and pay (pound sterling)2.85 billion ($4.6 billion) in cash. The
Company will also assume approximately (pound sterling)1.9 billion ($3.1
billion) of CWC ConsumerCo.'s net debt, plus further debt up to an agreed amount
of CWC ConsumerCo. cash outflow through the closing. The transaction is subject
to various approvals and other conditions. The Company has entered into a note
purchase agreement for up to approximately (pound sterling)2.4 billion ($3.9
billion) to fund a portion of the cost of this acquisition.
In connection with the CWC ConsumerCo. acquisition, France Telecom agreed to
invest (pound sterling)2.8 billion ($4.5 billion) in the Company. France Telecom
will invest (pound sterling)1.6 billion ($2.6 billion) for approximately 42.2
million shares of the Company's common stock and (pound sterling)1.2 billion
($1.9 billion) in convertible preferred stock with a 5% dividend and a
conversion price of $80 per share. The closing of this additional investment is
subject to the completion of the CWC ConsumerCo. acquisition, unless France
Telecom elects to accelerate the closing of this investment.
In December 1999, the Company agreed to acquire the cable assets of the Cablecom
Group for CHF 5.8 billion ($3.6 billion). Completion of the acquisition is
conditioned on certain regulatory approvals being obtained and is expected to
occur in the first quarter of 2000. The Company intends to fund this acquisition
using cash on hand, the proceeds from a proposed bank facility or the proceeds
from the issuance of new preferred stock. The Company has an agreement for the
arrangement of a bank facility of CHF 4.1 billion ($2.6 billion) consisting of
CHF 2.7 billion ($1.7 billion) to be utilized in the acquisition of Cablecom and
CHF 1.4 billion ($0.9 billion) to be used for working capital and general
corporate purposes.
In February 2000, the Company announced that it had entered into an arrangement
with France Telecom and certain commercial banks, subject to certain conditions,
for the issue of $1.85 billion of new preferred stock. The proceeds from this
subscription will be used to help fund the Company's acquisitions in Continental
Europe outside of France. The holders of the stock (other than any commercial
banks or their affiliates) may at any time after six months from issue elect,
subject to certain conditions, for the new preferred stock to be exchanged for
up to a 50% interest in a new company which will own certain or all of the
Company's broadband communications, broadcast and cable television interests in
Continental Europe outside of France. Under certain circumstances, at the
Company's option, any portion of the Company's obligation that may not be
satisfied by the exchange may be satisfied in a security convertible into the
Company's common stock or cash. The new preferred stock will be mandatorily
redeemable for cash after two years.
41
<PAGE> 45
Pursuant to an agreement with Telewest relating to NTL Triangle's and Telewest's
respective 50% ownership interests in Cable London, in November 1999 Telewest
purchased all of NTL Triangle's shares of Cable London for approximately (pound
sterling)428 million (approximately $692 million) in cash. The Company recorded
a gain of $493 million on the sale. The sale of the Cable London interest is an
"Asset Sale" for purposes of the Company's Indentures for certain of its notes.
The Company will need to use an amount equal to the proceeds from the sale to
repay subsidiary debt, invest in "Replacement Assets" or make an offer to redeem
certain of its notes by November 2000.
The Company is highly leveraged. The accreted value at December 31, 1999 of the
Company's consolidated long-term indebtedness, including the Redeemable
Preferred Stock, is approximately $8.9 billion, representing approximately 81%
of total capitalization. The following summarizes the terms of those notes and
Redeemable Preferred Stock issued by the Company and its subsidiaries.
NTL Communications:
(1) 12-3/4% Senior Deferred Coupon Notes due April 15, 2005, principal amount
at maturity of $278 million, interest payable semi-annually beginning on
October 15, 2000, redeemable at the Company's option on or after April
15, 2000;
(2) 11-1/2% Senior Deferred Coupon Notes due February 1, 2006, principal
amount at maturity of $1.05 billion, interest payable semi-annually
beginning on August 1, 2001, redeemable at the Company's option on or
after February 1, 2001;
(3) 10% Senior Notes due February 15, 2007, principal amount of $400 million,
interest payable semi-annually from August 15, 1997, redeemable at the
Company's option on or after February 15, 2002;
(4) 9-1/2% Senior Sterling Notes due April 1, 2008, principal amount of
(pound sterling)125 million ($202 million), interest payable semi-
annually from October 1, 1998, redeemable at the Company's option on or
after April 1, 2003;
(5) 10-3/4% Senior Deferred Coupon Sterling Notes due April 1, 2008,
principal amount at maturity of (pound sterling)300 million ($485
million), interest payable semi-annually from October 1, 2003, redeemable
at the Company's option on or after April 1, 2003;
(6) 9-3/4% Senior Deferred Coupon Notes due April 1, 2008, principal amount
at maturity of $1.3 billion, interest payable semi-annually beginning on
October 1, 2003, redeemable at the Company's option on or after April 1,
2003;
(7) 9-3/4% Senior Deferred Coupon Sterling Notes due April 15, 2009,
principal amount at maturity of (pound sterling)330 million ($533
million), interest payable semi-annually from October 15, 2004,
redeemable at the Company's option on or after April 15, 2004;
(8) 11-1/2% Senior Notes due October 1, 2008, principal amount of $625
million, interest payable semi-annually from April 1, 1999, redeemable at
the Company's option on or after October 1, 2003;
(9) 12-3/8% Senior Deferred Coupon Notes due October 1, 2008, principal
amount at maturity of $450 million, interest payable semi-annually
beginning on April 1, 2004, redeemable at the Company's option on or
after October 1, 2003;
(10) 7% Convertible Subordinated Notes due December 15, 2008, principal amount
of $599 million, interest payable semi-annually from June 15, 1999,
convertible into shares of the Company's common stock at a conversion
price of $39.20 per share, redeemable at the Company's option on or after
December 15, 2001;
(11) Variable Rate Redeemable Guaranteed Loan Notes due January 5, 2002,
principal amount of 60 million Irish punts ($77 million), interest
payable quarterly at EURIBOR (the interest rate at December 31, 1999 was
3.345%), redeemable at any time at the option of the holder, 20 million
Irish punts ($26 million) redeemed in 1999 using cash held in escrow,
(euro)86 million ($87 million) remaining in escrow at December 31, 1999;
42
<PAGE> 46
(12) 9-1/4% Senior Euro Notes due November 15, 2006, principal amount of
(euro)250 million ($252 million), interest payable semiannually beginning
on May 15, 2000;
(13) 9-7/8% Senior Euro Notes due November 15, 2009, principal amount of
(euro)350 million ($353 million), interest payable semiannually beginning
on May 15, 2000, redeemable at the Company's option on or after November
15, 2004;
(14) 11-1/2% Senior Deferred Coupon Euro Notes due November 15, 2009,
principal amount at maturity of (euro)210 million ($212 million),
interest payable semiannually beginning on May 15, 2005, redeemable at
the Company's option on or after November 15, 2004;
NTL Incorporated:
(15) Senior Redeemable Exchangeable Preferred Stock due February 15, 2009,
stated value of $100 million, dividends accrue at 13% per annum payable
quarterly in arrears, at the Company's option until February 15, 2004
dividends may be paid in cash, by the issuance of additional shares or in
any combination of the foregoing, redeemable at the Company's option on
or after February 15, 2002, and on any dividend payment date the Company
may exchange all of the outstanding shares for 13% debentures due 2009;
(16) 5-3/4% Convertible Notes due December 15, 2009, principal amount at
maturity of $1.2 billion, interest payable semiannually beginning on June
15, 2000, redeemable at the Company's option on or after December 18,
2002, convertible after March 21, 2000 into shares of common stock at a
conversion price of $108.18 per share;
NTL Triangle:
(17) 11.2% Senior Discount Debentures due November 15, 2007, principal amount
at maturity of $517.3 million, interest payable semi-annually beginning
on May 15, 2001;
Diamond:
(18) 13-1/4% Senior Discount Notes due September 30, 2004, principal amount at
maturity of $285 million, interest payable semi-annually beginning on
March 31, 2000, redeemable at Diamond's option after September 30, 1999;
(19) 11-3/4% Senior Discount Notes due December 15, 2005, principal amount at
maturity of $531 million, interest payable semi-annually beginning on
June 15, 2001, redeemable at Diamond's option on or after December 15,
2000;
(20) 10-3/4% Senior Discount Notes due February 15, 2007, principal amount at
maturity of $421 million, interest payable semi-annually beginning on
August 15, 2002, redeemable at Diamond's option on or after December 15,
2002;
(21) 10% Senior Notes due February 1, 2008, issued by Diamond Holdings plc, a
wholly-owned subsidiary of Diamond, principal amount of pound sterling135
million ($218 million), interest payable semi-annually from August 1,
1998, redeemable at Diamond's option on or after February 1, 2003;
(22) 9-1/8% Senior Notes due February 1, 2008, issued by Diamond Holdings plc,
principal amount of $110 million, interest payable semi-annually from
August 1, 1998, redeemable at Diamond's option on or after February 1,
2003; and
(23) mortgage of (pound sterling)2.5 million ($4.0 million) to fund the
construction of an office building, repayable over 20 years as of July
31, 1995, interest at LIBOR plus 1-1/2%.
43
<PAGE> 47
The Company has other significant commitments or potential commitments in
addition to those described above. These are as follows:
The Company intends to make an offer to convert its 7% Convertible Notes
with a principal amount of $599 million into common stock.
A wholly-owned subsidiary of the Company, Premium TV Limited, entered into
media partnerships with two United Kingdom football clubs whereby Premium
TV will receive certain marketing and sponsorship rights. Premium TV will
provide loan facilities to the clubs for an aggregate of (pound sterling)51
million ($82 million), repayable after five years through the issue of
ordinary shares in the football clubs.
In January 2000, the Company announced that it would be bidding together
with France Telecom for one of the UMTS "third generation" mobile telephone
licenses that are being auctioned in the United Kingdom. In addition to the
cost of the license, the UMTS operators will incur costs to build a
network, establish operations and acquire customers. The auction is
expected to begin in March 2000.
Management does not anticipate that the Company and its subsidiaries will
generate sufficient cash flow from operations to repay at maturity the entire
principal amount of the outstanding indebtedness of the Company and its
subsidiaries. Accordingly, the Company may be required to consider a number of
measures, including: (a) refinancing all or a portion of such indebtedness, (b)
seeking modifications to the terms of such indebtedness, (c) seeking additional
debt financing, which may be subject to obtaining necessary lender consents, (d)
seeking additional equity financing, or (e) a combination of the foregoing.
The Company's operations are conducted through its direct and indirect
wholly-owned subsidiaries. As a holding company, the Company holds no
significant assets other than cash, securities and its investments in and
advances to its subsidiaries. The Company's ability to pay cash dividends to its
stockholders may be dependent upon the receipt of sufficient funds from its
subsidiaries. The Company's wholly-owned subsidiary, NTL Communications, is also
a holding company that conducts its operations through its subsidiaries.
Accordingly, NTL Communications' ability to make scheduled interest and
principal payments when due to holders of its indebtedness may be dependent upon
the receipt of sufficient funds from its subsidiaries.
From time to time the Company may fund its capital requirements outside the
United Kingdom and Ireland from dividends from NTL Communications subject to
certain conditions under the Indentures. NTL Communications distributed $500
million to the Company in April 1999. NTL Communications may use cash from
equity proceeds in excess of cumulative EBITDA (as defined in the Indentures)
minus 1.5 times cumulative interest expense plus capital stock proceeds, for
dividend payments to the extent such funds are not used for other Restricted
Payments (as defined in the Indentures). The Company intends to repay certain
amounts to NTL Communications when funds become available.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash provided by operating activities was $53,569,000 and cash used in operating
activities was $18,943,000 in the years ended December 1999 and 1998,
respectively. Although net loss increased to $735,717,000 from $534,616,000 in
the years ended December 31, 1999 and 1998, respectively, results of operations
items not requiring cash outlays increased by a greater amount to $750,872,000
from $523,920,000. In addition, changes in operating assets and liabilities
provided cash of $38,414,000 in 1999 compared to a use of cash of $8,247,000 in
1998. Cash provided by operating activities plus cash paid for interest
exclusive of amounts capitalized was $233,841,000 and $71,570,000 in 1999 and
1998, respectively.
Provision for losses on accounts receivable, which is included in operating
activities, was $46,245,000, $27,282,000 and $6,891,000 in 1999, 1998 and 1997,
respectively. These increases were due principally to the increases in revenues.
Purchases of fixed assets were $1,211,317,000 in 1999 and $772,144,000 in 1998
as a result of the continuing fixed asset purchases and construction in 1999,
including purchases and construction by acquired companies. Proceeds from sales
of assets of $692,490,000 in 1999 was from the sale of Cable London.
44
<PAGE> 48
Proceeds from borrowings, net of financing costs, of $3,019,383,000 in 1999 was
from the issuance of the 5-3/4% Convertible Notes, the 9-3/4% Senior Deferred
Coupon Sterling Notes, the 9-1/4% Senior Euro Notes, the 9-7/8% Senior Euro
Notes, the 11-1/2% Senior Deferred Coupon Euro Notes and the Senior Increasing
Rate Notes and the Variable Rate Redeemable Guaranteed Loan Notes issued in
connection with the Cablelink acquisition. Principal payments of $758,212,000 in
1999 were primarily from the repayment of the Senior Increasing Rate Notes using
proceeds from the 9-1/4% Senior Euro Notes, the 9-7/8% Senior Euro Notes and the
11-1/2% Senior Deferred Coupon Euro Notes, plus the repayment at maturity of the
notes payable to Comcast U.K. Holdings, Inc. Proceeds from issuance of preferred
stock and warrants of $1,250,000,000 in 1999 was from the sale of 5.25%
Convertible Preferred Stock and warrants to purchase 1.9 million shares of the
Company's common stock to Microsoft Corp. and the sale of 5% Cumulative
Participating Convertible Preferred Stock to France Telecom. Proceeds from the
issuance of common stock of $250,000,000 is from the sale of approximately 4.2
million shares of common stock to France Telecom. Redemption of preferred stock
of $125,280,000 in 1999 was from the redemption of 9.9% Preferred Stock, which
does not include the $15.5 million paid for accrued dividends that effects
operating activities. Cash in escrow for debt repayment of $86,993,000 in 1999
includes (euro)110 million ($113 million) placed into escrow as cash collateral
for the Variable Rate Redeemable Guaranteed Loan Notes, net of (euro)25 million
($26 million) used to redeem a portion of these notes.
YEAR 2000
We had a comprehensive Year 2000 project designed to identify and assess the
risks associated with our information systems, products, operations,
infrastructure, suppliers and customers, and to develop, implement and test
remediation and contingency plans to mitigate these risks. To date, we have not
experienced any significant problems related to the Year 2000.
Because we use a variety of information systems and have additional systems
embedded in our operations and infrastructure, we cannot be sure that all of our
systems will continue to work together in a Year 2000-ready fashion.
Furthermore, we cannot be sure that we will not suffer business interruptions,
either because of our own Year 2000 problems or those of third-parties upon whom
we are reliant for services. Therefore, a problem that has not yet been
identified may arise and could have adverse consequences to us.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
MARKET RISK
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. The Company does not enter into
derivatives or other financial instruments for trading or speculative purposes.
The Company has entered into financial instruments to manage and reduce the
impact of changes in foreign currency exchange rates, primarily U.S. dollar/U.K.
pound sterling. The counterparties are major financial institutions. The Company
does not enter into derivatives or financial instruments to manage or reduce the
impact of changes in interest rates.
FOREIGN EXCHANGE CONTRACTS
To the extent that the Company obtains financing in United States dollars and
incurs construction and operating costs in various other currencies, it will
encounter currency exchange rate risks. At December 31, 1999, the Company had
approximately $2 billion in cash equivalents denominated in foreign currencies
to reduce this risk. In addition, the Company's pounds sterling and Euro
denominated Notes also reduce this risk. Furthermore, the Company's revenues are
generated in foreign currencies while its interest and principal obligations
with respect to most of the Company's existing indebtedness are payable in U.S.
dollars. The Company has entered into an option agreement to hedge some of the
risk of exchange rate fluctuations related to interest and
45
<PAGE> 49
principal payments on U.S. dollar denominated debt and for parent company
expenses up to an annual limit of approximately $13 million. The Company may
purchase U.S. dollars at a fixed rate of (pound sterling)1 to $1.40 on specified
dates through June 2001 for specified amounts of U.S. dollars. The dates and
U.S. dollar amounts correspond to the Company's interest and principal payment
dates and amounts for a portion of its U.S. dollar denominated debt and
anticipated amounts of parent company expenses. In addition, NTL Triangle has
option agreements of (pound sterling)250 million notional amount to purchase
U.S. dollars at a fixed rate of (pound sterling)1 to $1.35 in November 2000.
This option provides a hedge against an adverse change in exchange rates when
interest payments commence on NTL Triangle's U.S. dollar denominated Discount
Debentures.
The estimated fair value of foreign currency contracts represents the amount
required to enter into offsetting contracts with similar remaining maturities
based on quoted market prices. At December 31, 1999, the difference between the
fair value of the outstanding contracts and the contract amounts was immaterial.
INTEREST RATES
The fair market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally, the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. In the
following table, fair values were determined from quoted market prices.
INTEREST RATE SENSITIVITY
PRINCIPAL AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST RATE
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 THEREAFTER
---- ---- ---- ---- ---- ----------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Long-term Debt, including
Current Portion
U.S. dollars
Fixed Rate - - - - $285 $7,481
Average Interest Rate 13.25% 9.85%
U.K. pound
Fixed Rate - - - - - (pound sterling)890
Average Interest Rate 10.09%
Average Forward
Exchange Rate 1.67
Euro
Fixed Rate - - - - - (euro) 810
Average Interest Rate 10.1%
Average Forward
Exchange Rate 1.103
Irish punts
Variable Rate IR (pound sterling) 60 - - - - -
Average Interest Rate Euribor
Average Forward
Exchange Rate 1.297
</TABLE>
<TABLE>
<CAPTION>
FAIR
VALUE
TOTAL 12/31/99
----- --------
<S> <C> <C>
Long-term Debt, including
Current Portion
U.S. dollars
Fixed Rate $7,766 $8,170
Average Interest Rate
U.K. pound
Fixed Rate (pound sterling) 890 (pound sterling) 654
Average Interest Rate
Average Forward
Exchange Rate
Euro
Fixed Rate (euro) 810 (euro) 731
Average Interest Rate
Average Forward
Exchange Rate
Irish punts
Variable Rate IR (pound sterling) 60 IR (pound sterling) 60
Average Interest Rate
Average Forward
Exchange Rate
</TABLE>
46
<PAGE> 50
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company are filed under this Item
commencing on page F-1 of this Report.
The following is a summary of the quarterly results of operations for the years
ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1999
--------------------------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(1)
<S> <C> <C> <C> <C>
Revenues $313,381 $360,257 $417,055 $493,441
Operating loss (121,267) (168,867) (151,566) (200,823)
Income (loss) before
extraordinary item (230,419) (348,426) (278,127) 124,289
Net income (loss) (230,419) (348,426) (278,127) 121,255
Basic income (loss) per
common share before
extraordinary item (2.44) (3.13) (2.31) .75
Basic net income (loss)
per common share (2.44) (3.13) (2.31) .73
Diluted income (loss)
per common share
before extraordinary item (2.44) (3.13) (2.31) .62
Diluted net income (loss)
per common share (2.44) (3.13) (2.31) .60
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------------
THREE MONTHS ENDED
----------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 147,792 $ 154,314 $ 182,484 $ 262,425
Operating loss (41,962) (40,665) (55,640) (90,348)
Loss before
extraordinary item (93,672) (104,302) (133,892) (172,061)
Net loss (93,672) (93,672) (104,302) (138,131) (198,511)
Basic and diluted loss per
common share before
extraordinary item (1.93) (1.79) (2.14) (2.19)
Basic and diluted net loss
per common share (1.93) (1.79) (2.20) (2.51)
</TABLE>
(1)In November 1999, the Company sold its investment in Cable London for
cash of approximately $692 million and recognized a gain of $493 million.
47
<PAGE> 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEMS 10, 11, 12, AND 13.
The information required by PART III (Items 10, 11, 12 and 13) is
incorporated by reference from the Company's definitive proxy statement
involving the election of directors which the Company expects to file, pursuant
to Regulation 14A, within 120 days following the end of its fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements - See list of Financial
Statements on page F-1.
(2) Financial Statement Schedules - see list of Financial
Statement Schedules on page F-1.
(3) Exhibits - See Exhibit Index on page 49.
(b) During the fourth quarter of 1999, the Company filed the
following Current Reports on Form 8-K: Form 8-K, dated September 20, 1999 (filed
October 4, 1999) under item 2. Reporting the acquisition of Workplace; Form 8-K
dated September 24, 1999 (filed October 20, 1999) under item 5. Reporting a 5-4
Stock Split; Form 8-K dated October 25, 1999 (filed November 9, 1999) under item
5. Reporting the France Telecom purchase of 3.3 million shares of NTL stock;
Form 8-K dated November 8, 1999 (filed November 8, 1999) under item 5.
Information booklet re: NTL; Form 8-K dated November 12, 1999 (filed November
12, 1999) under item 5. Reporting the Referral to Competition Commission and NTL
Communications Euro Notes Offering; Form 8-K dated November 23, 1999 (filed
November 24, 1999) under item 5. Reporting the completed sale of Cable London
and the consummation of the Euro Notes Offering; Form 8-K dated December 3, 1999
(filed December 15, 1999) under item 5. Reporting the completion of the purchase
of the "1G" Networks and the agreement to acquire the Cablecom Group; Form 8-K
dated December 9, 1999 (filed December 21, 1999) under item 5. Reporting an
agreement with Flextech, a Premium TV media partnership with Newcastle United
plc, obtained rights to the BBC sports programming archives, U.K. Secretary for
Trade and Industry clears FT's investment, pricing of NTL's 5.75% Notes,
announced exercise of an overallotment option; Form 8-K dated December 16, 1999
(filed December 16, 1999) under item 5. Reporting the Issuance of $750,000,000
Convertibles and an agreement to acquire the Cablecom Group. No financial
statements were filed with these reports, except that the report dated December
16, 1999 contained financial statements of Cablecom.
(c) Exhibits - The response to this portion of Item 14 is
submitted as a separate section of this report.
(d) Financial Statement Schedules - See list of Financial
Statement Schedules on page F-1.
48
<PAGE> 52
EXHIBIT INDEX
EXHIBIT NO.
2.1 Agreement and Plan of Merger, dated as of March 26, 1999, among the
Company, NTL Communications and NTL Merger Inc. (Incorporated by
reference to the Registration Statement on Form S-3, File No.
333-72335)
2.2 Agreement and Plan of Amalgamation, dated as of February 4, 1998, as
amended, among the Company, NTL (Bermuda) Limited, and Comcast U.K.
Cable Partners Limited (Incorporated by reference to the Registration
Statement on Form S-4, File No. 333-64727)
2.3 Amendment No. 1 to Agreement and Plan of Amalgamation, dated as of May
28, 1998, among the Company, NTL (Bermuda) Limited and Comcast U.K.
Cable Partners Limited (Incorporated by reference to the Registration
Statement on Form S-4, File No. 333-64727)
2.4 Share Exchange Agreement, dated as of June 16, 1998, as amended, among
the Company and the shareholders of Diamond Cable Communications Plc
(Incorporated by reference to the Proxy Statement, filed by NTL
Communications (File No. 0-22616) on January 29, 1999)
2.5 Amendment No. 1 to Share Exchange Agreement, dated as of December 21,
1998, among the Company and the shareholders of Diamond Cable,
Communications plc (Incorporated by reference to the Form 8-K filed
by NTL Communications (File No. 0-22616) on December 23, 1998)
2.6 Transaction Agreement, dated as of July 26, 1999, by and between, Bell
Atlantic Corporation, Cable and Wireless PLC, Cable and Wireless
Communications PLC and NTL Incorporated (Incorporated by reference to
the Company's Proxy Statement, filed on February 11, 2000)
2.7 Investment Agreement, dated as of July 26, 1999, by and between, NTL
Incorporated and France Telecom S.A. (Incorporated by reference to the
Company's Proxy Statement, filed on February 11, 2000)
2.7(a) Amendment No. 1 to the Investment Agreement, dated as of August 6, 1999
(Incorporated by reference to the Company's Proxy Statement, filed on
February 11, 2000)
2.7(b) Amendment No. 2 to the Investment Agreement, dated as of October 8,
1999 (Incorporated by reference to the Company's Proxy Statement
filed on February 11, 2000)
2.8 Purchase Agreement, dated as of February 17, 2000, by and between
France Telecom, S.A. and NTL Incorporated (Incorporated by reference to
the Company's Form 8-K, filed on February 22, 2000)
2.9 Transaction Agreement dated as of December 12, 1999 among Cablecom
Holding AG and NTL Incorporated and certain other parties thereto.
3.1 Restated Certificate of Incorporation of the Company (Incorporated by
reference to the Registration Statement on Form S-3, File No.
333-72335)
3.1(a) Certificate of Designation with respect to the 5% Cumulative
Participating Convertible Preferred Stock, Series A of the Company.
3.1(b) Certificate of Designation with respect to the 5% Cumulative
Participating Convertible Preferred Stock Series B of the Company
(Incorporated by reference to the Company's Proxy Statement filed on
February 11, 2000)
3.2 Restated By-Laws (Incorporated by reference to Exhibit 3.2 to the
Registration Statement on Form S-3, File No. 333-72335)
49
<PAGE> 53
4.1 Specimen of Common Stock Certificate (Incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-1, File No.
33-63570)
4.2 Warrant Agreement, dated February 14, 1996 between the Company and
Chemical Bank as Warrant Agent (Incorporated by reference to the
Registration Statement on Form S-4, File No. 333-00118)
4.3 Form of Warrant to Purchase Common Stock (included in Exhibit 4.2)
4.4 Indenture, dated as of October 1, 1993, by and between the Company and
Chemical Bank with respect to the 10% Senior Notes (Incorporated by
reference to Exhibit 4.1 to the Registration Statement on Form S-1,
File No. 33-63572)
4.5 Indenture, dated as of April 20, 1995, by and between the Company and
Chemical Bank as Trustee, with respect to the 12-3/4% Senior Notes
(Incorporated by reference to the Registration Statement on
Form S-4, File No. 33-92794)
4.6 Indenture, dated as of January 30, 1996, by and between the Company and
Chemical Bank as Trustee, with respect to the 11-1/2% Senior Notes
(Incorporated by reference to the Registration Statement on
Form S-4, File No. 333-00118)
4.7 First Supplemental Indenture, dated as of January 22, 1996, by and
among the Company and Chemical Bank, as Trustee, with respect to the
12-3/4% Senior Notes (Incorporated by reference to the Registration
Statement on Form S-4, File No. 333-00118)
4.8 First Supplemental Indenture, dated as of January 23, 1996, by and
among the Company and Chemical Bank, as Trustee, with respect to the
10% Notes (Incorporated by reference to the Registration Statement
on Form S-4, File No. 333-00118)
4.9 Indenture, dated as of February 12, 1997, by and between the Company
and The Chase Manhattan Bank, as Trustee, with respect to the 10%
Senior Notes (Incorporated by reference to the 1996 Form 10-K, filed
by NTL Communications (File No. 0-22616) on March 28, 1997)
4.10 Indenture, dated as of March 13, 1998, by and between the Company and
The Chase Manhattan Bank, as Trustee, with respect to the 9-1/2% Senior
Notes (Incorporated by reference to the 1997 Form 10-K filed by NTL
Communications (File No. 0-22616) on March 30, 1998)
4.11 Indenture, dated as of March 13, 1998, by and between the Company and
The Chase Manhattan Bank, as Trustee, with respect to the 9-3/4% Senior
Deferred Coupon Notes (Incorporated by reference to the 1997 Form
10-K filed by NTL Communications (File No. 0-22616) on March 30 1998)
4.12 Indenture, dated as of March 13, 1998, by and between the Company and
The Chase Manhattan Bank, as Trustee, with respect to the 10-3/4%
Senior Deferred Coupon Notes (Incorporated by reference to the
1997 Form 10-K filed by NTL Communications (File No. 0-22616) on March
30 1998)
4.13 Indenture, dated as of November 2, 1998, by and among the Company and
The Chase Manhattan Bank, as Trustee, with respect to the 11-1/2%
Senior Notes due 2008 (Incorporated by reference to the 1998 Form 10-K
filed by NTL Communications (File No. 0-22616) on March 30, 1999)
4.14 Registration Rights Agreement, dated as of November 2, 1998 by and
among the Company and Morgan Stanley & Co. Incorporated, Chase
Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation
and Goldman, Sachs & Co., with respect to the 11-1/2% Senior Notes due
2008 (Incorporated by reference to the 1998 Form 10-K filed by NTL
Communications (File No. 0-22616) on March 30, 1999)
4.15 Indenture, dated as of November 6, 1998, by and among the Company and
The Chase Manhattan Bank, as Trustee, with respect to the 12-3/8%
Senior Deferred Coupon Notes due 2008 (Incorporated by reference to
the 1998 Form 10-K filed by NTL Communications (File No. 0-22616) on
March 30, 1999)
50
<PAGE> 54
4.16 Registration Rights Agreement, dated as of November 6, 1998 by and
among the Company and Morgan Stanley & Co. Incorporated, Chase
Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation
and Goldman, Sachs & Co., with respect to the 12-3/8% Senior Deferred
Coupon Notes due 2008 (Incorporated by reference to the 1998 Form 10-K
filed by NTL Communications (File No. 0-22616) on March 30, 1999)
4.17 Indenture, dated as of December 16, 1998, by and among the Company and
The Chase Manhattan Bank, as Trustee, with respect to the 7%
Convertible Subordinated Notes due 2008 (Incorporated by reference
to the 1998 Form 10-K filed by NTL Communications (File No. 0-22616)
on March 30,1999)
4.18 First Supplemental Indenture, dated as of March 31, 1999, between NTL
Inc., NTL Communications Corp. and The Chase Manhattan Bank (Trustee),
re: 7% Convertible Subordinated Notes due 2008 ($600,000,000 principal
amount) (Incorporated by reference to the Registration
Statement on Form S-4, File No. 333-72335)
4.19 Indenture, dated as of April 14, 1999, between NTL Communications Corp.
(Issuer) and The Chase Manhattan Bank (Trustee), re: 9-3/4 % Senior
Deferred Coupon Notes due 2009 ((pound sterling)330,000,000 principal
amount) (Incorporated by reference to the Registration
Statement on Form S-4, File No. 333-78405)
4.20 Indenture, dated as of February 6, 1998, between Diamond Holdings plc
(Issuer), Diamond Cable Communications plc (Guarantor), and The Bank of
New York (Trustee), re: 10% Senior Notes due February 1, 2008 ((pound
sterling)135,000,000 principal amount) and 9-1/8 % Senior Notes due
February 1, 2008 ((pound sterling)110,000,000 principal amount)
(Incorporated by reference to Diamond Cable Communications plc
Registration Statement on Form S-4, File No. 333-48413)
4.21 Indenture, dated as of February 27, 1997, between Diamond Cable
Communications plc (Issuer) and The Bank of New York (Trustee), re:
10-3/4% Senior Discount Notes due February 15, 2007 ($420,500,000
principal amount) (Incorporated by reference to Diamond Cable
Communications plc Registration Statement on Form S-4, File No.
333-25193)
4.22 Indenture, dated as of December 15, 1995, between Diamond Cable
Communications plc (Issuer) and The Bank of New York (Trustee), re:
11-3/4% Senior Discount Notes due December 15, 2005 (Incorporated by
reference to Diamond Cable Communications plc Registration Statement on
Form S-1, File No. 33-98374)
4.23 Indenture, dated as of November 11, 1995, between Comcast UK Cable
Partners Limited and Bank of Montreal Trust Company re: 11.20% Senior
Discount Debentures due 2007(Incorporated by reference to the
Registration Statement on Form S-3, File No. 333-72335)
4.24 Indenture, dated as of September 28, 1994, between Diamond Cable
Communications plc (Issuer) and The Bank of New York (Trustee), re:
13-1/4% Senior Discount Notes due September 30, 2004 (Incorporated by
reference to Diamond Cable Communications plc Registration Statement on
Form S-1, File No. 33-83740)
4.25 Indenture, dated as of November 24, 1999, between NTL Comm Corp.
(Issuer) and The Chase Manhattan Bank (Trustee), re: 9-1/4% Senior
Notes due 2006 ((euro) 250,000,000 principal amount) (Incorporated by
reference to the Registration Statement on Form S-4, File No.333-95267)
4.26 Indenture, dated as of November 24, 1999, between NTL Comm Corp.
(Issuer) and The Chase Manhattan Bank (Trustee), re: 9-7/8% Senior
Notes Due 2009 ((euro)350,000,000 principal amount) (Incorporated by
reference to the Registration Statement on Form S-4, File No.
333-95267)
51
<PAGE> 55
4.27 Indenture, dated as of November 24, 1999, between NTL Communications
Corp. (Issuer) and The Chase Manhattan Bank (Trustee), re: 11-1/2%
Senior Deferred Coupon Notes due 2009 ((euro) 175,000,000 principal
amount) (Incorporated by reference to the Registration Statement on
Form S-4, File No. 333-95267)
4.28 Indenture, dated as of December 22, 1999, between NTL Incorporated
(Issuer) and The Chase Manhattan Bank (Trustee), 5-3/4% Convertible
Subordinated Notes Due 2009 ($1,200,000,000 principal amount)
4.29 Registration Rights Agreement, dated as of December 16, 1998 by and
among the Company and Donaldson, Lufkin & Jenrette Securities
Corporation, Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co.,
Chase Securities Inc., Salomon Smith Barney Inc, BT Alex. Brown
Incorporated and Warburg Dillon Read LLC with respect to the 7%
Convertible Subordinated Notes due 2008. (Incorporated by reference to
the 1998 Form 10-K filed by NTL Communications (File No. 0-22616) on
March 30, 1999)
4.30 Registration Rights Agreement, dated February 12, 1997, by and among
the Company and Donaldson, Lufkin & Jenrette Securities Corporation,
Chase Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated with respect to the 10% Senior Notes. (Incorporated by
reference to the 1996 Form 10-K filed by NTL Communications (File No.
0-22616) on March 28, 1997)
4.31 Registration Rights Agreement, dated February 12, 1997, by and among
the Company and Donaldson, Lufkin & Jenrette Securities Corporation,
Chase Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated with respect to the 13% Senior Notes (Incorporated by
reference to the 1996 Form 10-K filed by NTL Communications (File No.
0-22616) on March 28, 1997)
4.32 Registration Rights Agreement, dated as of March 13, 1998, by and among
the Company and Donaldson, Lufkin & Jenrette International, Morgan
Stanley & Co. International Limited, BT Alex. Brown International,
Chase Securities Inc. and Salomon Brothers International Limited with
respect to the 9-1/2% Senior Notes (Incorporated by reference to the
1997 Form 10-K filed by NTL Communications (File No. 0-22616) on March
30, 1998)
4.33 Registration Rights Agreement, dated as of March 13, 1998, by and among
the Company and Donaldson, Lufkin & Jenrette Securities Corporation,
Morgan Stanley & Co. Incorporated, BT Alex. Brown Incorporated, Chase
Securities Inc. and Salomon Brothers Inc. with respect to the 9-3/4%
Senior Deferred Coupon Notes (Incorporated by reference to 1997 Form
10-K filed by NTL Communications (File No. 0-22616) on March 30, 1998)
4.34 Registration Rights Agreement, dated as of March 13, 1998, by and among
the Company and Donaldson, Lufkin & Jenrette International, Morgan
Stanley & Co. International Limited, BT Alex. Brown International,
Chase Securities Inc. and Salomon Brothers International Limited with
respect to the 10-3/4% Senior Deferred Coupon Notes (Incorporated by
reference to the 1997 Form 10-K filed by NTL Communications (File No.
0-22616) on March 30, 1998)
4.35 Registration Rights Agreement, dated as of August 13, 1999, by and
between NTL Incorporated and France Telecom re: 5% Cumulative
Participating Convertible Preferred Stock Series A.
4.36 Registration Rights Agreement, dated as of April 14, 1999 re: 9-3/4%
Senior Deferred Coupon Notes due 2009 (Incorporated by reference to the
Registration Statement on Form S-4, File No. 333-78405)
4.37 Registration Rights Agreement, dated as of March 5, 1999, between NTL
Communications Corp. and The Shareholders of Diamond Cable
Communications plc (Incorporated by reference to the Registration
Statement on Form S-2, File No. 333-81395)
4.38 Registration Rights Agreement, dated as of October 29, 1998, between
NTL Incorporated, NTL (Bermuda) Limited and Comcast Corporation and
Warburg, Pincus Investors, L.P. (Incorporated by reference to the
Registration Statement on Form S-2, File No. 333-81395)
52
<PAGE> 56
4.39 Registration Rights Agreement, dated as of January 30, 1996 re: 11-1/2%
Series A Senior Deferred Coupon Notes Due 2006 (Incorporated by
reference to the Registration Statement on Form S-4, File No.
333-01010)
4.40 Registration Rights Agreement, dated as of April 13, 1995 re: 12-3/4%
Senior Deferred Coupon Notes Due 2005 (Incorporated by reference to the
Registration Statement on Form S-4, File No. 333-92794)
4.41 Registration Rights Agreement, dated as of November 24, 1999, re:
9-1/4% Senior Notes Due 2006, 9-7/8% Senior Notes Due 2009, 11-1/2%
Senior Deferred Coupon Notes Due 2009. (Incorporated by reference to
the Registration Statement on Form S-4, File No. 333-95267)
4.42 Registration Rights Agreement, dated December 22, 1999, re: 5-3/4%
Convertible Subordinated Notes Due 2009.
4.43 Form of Preferred Stock (Incorporated by reference to the
1996 Form 10-K filed by NTL Communications (File No. 0-22616) on March
28, 1999)
4.44 Indenture, dated as of June 12, 1996, by and between the Company and
Chemical Bank, as Trustee, with respect to the 7% Convertible Notes
(Incorporated by reference from Registration Statement on
Form S-3, File No. 333-07879)
4.45 Registration Rights Agreement, dated June 12, 1996, by and among the
Company and Donaldson, Lufkin & Jenrette Securities Corporation and
Salomon Brothers Inc, with respect to the 7% Convertible Notes
(Incorporated by reference from Registration Statement on
Form S-3, File No. 33-07879)
4.46 Indenture, dated as of April 20, 1995, by and among the Company and
Chemical Bank, as Trustee, with respect to the 7-1/4% Convertible Notes
(Incorporated by reference from Registration Statement on Form S-3,
File No. 333-92792)
4.47 Registration Agreement, dated April 12, 1995, by and among the Company
and Salomon Brothers Inc, Donaldson, Lufkin & Jenrette Securities
Corporation and Goldman Sachs & Co., with respect to the 7-1/4%
Convertible Notes (Incorporated by reference from Registration
Statement on Form S-3, File No. 333-92792)
4.48 Rights Agreement entered into by the Company and Continental Stock
Transfer & Trust Company (Incorporated by reference to Exhibit 4.2,
to the Registration Statement on Form S-1, File No. 33-63570)
4.48(a) Amendment No. 1 to the Rights Agreement, dated as of March 31, 1999,
between the Company and Continental Stock Transfer & Trust Company, as
Rights Agent. (Incorporated by reference to the Company's Registration
Statement on Form S-8, File No. 333-76601)
4.48(b) Amendment No. 2 to the Rights Agreement, dated as of March 31, 1999,
between the Company and Continental Stock Transfer & Trust Company, as
Rights Agent.
10.1 Compensation Plan and Agreements, as amended and restated effective
June 3, 1997 (Incorporated by reference to the 1997 Form 10-K filed by
NTL Communications (File No. 0-22616) on March 30, 1998)
10.2 Rules of the NTL Sharesave Plan, adopted by the Company on October 28,
1997 (Incorporated by reference to the 1998 Form 10-K filed by NTL
Communications (File No. 0-22616) on March 30, 1999)
10.3 Form of Director and Officer Indemnity Agreement (together with a
schedule of executed Indemnity Agreements)
10.4 1998 Non-Qualified Stock Option Plan, as Amended and Restated October
1998 (Incorporated by reference to the 1998 Form 10-K filed by NTL
Communications (File No. 0-22616) on March 30, 1999)
53
<PAGE> 57
10.5 Bridge Loan Agreement, dated as of March 17, 1999, among the Company,
the Lenders named therein and Goldman Sachs Credit Partners L.P.
(Incorporated by reference to the 1998 Form 10-K filed by NTL
Communications (File No. 0-22616) on March 30, 1999)
10.6 Agreement, dated August 14, 1998, among TeleWest Communications PLC,
TeleWest Communications Holdings Limited, NTL (Bermuda) Limited, and
the Company (Incorporated by reference to the Form 8-K, filed by NTL
Communications (File No. 0-22616) on August 18, 1998)
10.7 Note Purchase Agreement, dated as of February 4, 2000, between NTL
Incorporated and Morgan Stanley and Co. Incorporated re: Senior
Increasing Rate Notes due 2001 ((pound sterling)2,376,000,000 principal
amount) (Incorporated by reference to the Company's Proxy Statement,
filed February 11, 2000)
11 Calculation of net loss per share
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule, for the year ended December 31, 1998
54
<PAGE> 58
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Dated: March 16, 2000
NTL INCORPORATED
By: /s/ J. BARCLAY KNAPP
J. Barclay Knapp
President and Chief Executive Officer
(Principal Executive Officer)
55
<PAGE> 59
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ J. BARCLAY KNAPP President and Chief March 16 , 2000
J. Barclay Knapp Executive Officer
(Principal Executive Officer)
/s/ GEORGE S. BLUMENTHAL Chairman of the Board March 16 , 2000
George S. Blumenthal and Treasurer
/s/ JOHN F. GREGG Chief Financial Officer March 16 , 2000
John F. Gregg (Chief Financial Officer)
/s/ GREGG N. GORELICK Vice President-Controller March 16 , 2000
Gregg N. Gorelick (Principal Accounting Officer)
/s/ SIDNEY R. KNAFEL Director March 16 , 2000
Sidney R. Knafel
/s/ TED H. MCCOURTNEY Director March 16 , 2000
Ted H. McCourtney
/s/ DEL MINTZ Director March 16 , 2000
Del Mintz
/s/ ALAN J. PATRICOF Director March 16 , 2000
Alan J. Patricof
/s/ WARREN POTASH Director March 16 , 2000
Warren Potash
/s/ MICHAEL S. WILLNER Director March 16 , 2000
Michael S. Willner
/s/ ROBERT T. GOAD Director March 16 , 2000
Robert T. Goad
/s/ JEAN-LOUIS VINCIGUERRA Director March 16 , 2000
Jean-Louis Vinciguerra
</TABLE>
56
<PAGE> 60
Form 10-K--Item 14(a)(1) and (2)
NTL Incorporated and Subsidiaries
Index to Consolidated Financial Statements
and Financial Statement Schedules
<TABLE>
<S> <C>
The following consolidated financial statements of NTL Incorporated and
Subsidiaries are included in Item 8:
Report of Independent Auditors F-2
Consolidated Balance Sheets - December 31, 1999 and 1998 F-3
Consolidated Statements of Operations -
Years ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statement of Shareholders' Equity -
Years ended December 31, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash Flows -
Years ended December 31, 1999, 1998 and 1997 F-8
Notes to Consolidated Financial Statements F-10
The following consolidated financial statement schedules of NTL Incorporated and
Subsidiaries are included in Item 14(d):
Schedule I - Condensed Financial Information of Registrant F-38
Schedule II - Valuation and Qualifying Accounts F-43
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore have been omitted.
F-1
<PAGE> 61
Report of Independent Auditors
The Board of Directors and Shareholders
NTL Incorporated
We have audited the consolidated balance sheets of NTL Incorporated and
Subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules 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 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 audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of NTL
Incorporated and Subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
New York, New York
March 7, 2000
F-2
<PAGE> 62
NTL Incorporated and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,597,144 $ 736,265
Marketable securities 344,502 260,631
Accounts receivable - trade, less allowance for doubtful
accounts of $85,594 (1999) and $38,475 (1998) 294,205 152,356
Other 82,737 55,248
------------------------------------------------
Total current assets 3,318,588 1,204,500
Fixed assets, net 5,597,648 3,854,430
Intangible assets, net 2,927,836 725,028
Investment in Cable London PLC, net of accumulated amortization of $3,093 - 229,093
Other assets, net of accumulated amortization
of $49,392 (1999) and $56,264 (1998) 367,494 181,046
------------------------------------------------
Total assets $12,211,566 $6,194,097
================================================
</TABLE>
F-3
<PAGE> 63
NTL Incorporated and Subsidiaries
Consolidated Balance Sheets (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
-------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 224,692 $ 167,079
Accrued expenses and other 438,198 221,070
Accrued construction costs 79,748 88,033
Interest payable 71,055 34,258
Deferred revenue 160,831 69,820
Current portion of long-term debt 82,601 23,691
-------------------------------------
Total current liabilities 1,057,125 603,951
Long-term debt 8,798,024 5,043,803
Commitments and contingent liabilities
Deferred income taxes 77,720 67,062
Senior redeemable exchangeable preferred stock - $.01 par value, plus accreted
dividends; liquidation preference $144,628; less unamortized discount of
$2,823 (1999) and $3,133 (1998); issued and outstanding 142,000 (1999) and
125,000 (1998) shares 141,805 124,127
Shareholders' equity:
Series preferred stock - $.01 par value;
authorized 10,000,000 shares; liquidation preference $1,346,509; issued
and outstanding 1,332,000 (1999) and 177,000 (1998) shares 13 2
Common stock - $.01 par value; authorized 400,000,000 shares; issued and outstanding
132,416,000 (1999) and 60,249,000 (1998) shares 1,324 602
Additional paid-in capital 4,125,047 1,501,561
Accumulated other comprehensive income (loss) (2,107) 104,657
(Deficit) (1,987,385) (1,251,668)
-------------------------------------
2,136,892 355,154
-------------------------------------
Total liabilities and shareholders' equity $12,211,566 $6,194,097
=====================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 64
NTL Incorporated and Subsidiaries
Consolidated Statements of Operations
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
--------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Residential telecommunications and television $ 834,339 $355,589 $ 166,951
National and international telecommunications 547,895 248,895 185,194
Broadcast transmission and other 201,900 140,156 130,799
Other telecommunications - 2,375 8,831
--------------------------------------------------------------------------
1,584,134 747,015 491,775
COSTS AND EXPENSES
Operating expenses 799,756 372,134 301,644
Selling, general and administrative expenses 573,460 299,494 169,133
Franchise fees 16,538 25,036 23,587
Corporate expenses 29,402 17,048 18,324
Nonrecurring charges 16,179 (4,194) 20,642
Depreciation and amortization 791,322 266,112 150,509
--------------------------------------------------------------------------
2,226,657 975,630 683,839
--------------------------------------------------------------------------
Operating (loss) (642,523) (228,615) (192,064)
OTHER INCOME (EXPENSE)
Interest and other income 49,380 46,024 28,415
Interest expense (680,728) (328,815) (202,570)
Other gains 493,121 - 21,497
Foreign currency transaction gains 12,720 4,152 574
--------------------------------------------------------------------------
(Loss) before income taxes and extraordinary item (768,030) (507,254) (344,148)
Income tax benefit 35,347 3,327 15,591
--------------------------------------------------------------------------
(Loss) before extraordinary item (732,683) (503,927) (328,557)
Loss from early extinguishment of debt (3,034) (30,689) (4,500)
--------------------------------------------------------------------------
Net (loss) (735,717) (534,616) (333,057)
Preferred stock dividend (73,709) (18,761) (11,978)
--------------------------------------------------------------------------
Net (loss) available to common shareholders $ (809,426) $(553,377) $(345,035)
==========================================================================
Basic and diluted net (loss) per common share:
(Loss) before extraordinary item $(6.75) $(8.12) $(6.79)
Extraordinary item (.03) (.48) (.09)
--------------------------------------------------------------------------
Net (loss) per common share $(6.78) $(8.60) $(6.88)
==========================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 65
NTL Incorporated and Subsidiaries
Consolidated Statement of Shareholders' Equity
(dollars in thousands)
<TABLE>
<CAPTION>
SERIES PREFERRED STOCK COMMON STOCK
$.01 PAR VALUE $.01 PAR VALUE
SHARES PAR SHARES PAR
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 780 $ - 32,066,000 $ 321
Exercise of stock options 119,000 1
Exercise of warrants 25,000
Accreted dividends on senior redeemable exchangeable
preferred stock
Accretion of discount on senior redeemable exchangeable
preferred stock
Comprehensive income:
Net loss for the year ended December 31, 1997
Currency translation adjustment
Total
-----------------------------------------------------------------
Balance, December 31, 1997 780 - 32,210,000 322
Exercise of stock options 298,000 3
Exercise of warrants 70,000
Accreted dividends on preferred stock
Accretion of discount on preferred stock
Conversion of 7-1/4% Convertible Subordinated Notes 6,958,000 70
Conversion of Series Preferred Stock (780) 1,950,000 20
Preferred stock issued for an acquisition 177,000 2
Common stock issued for an acquisition 18,763,000 187
Warrants issued in connection with consent solicitations
Comprehensive income:
Net loss for the year ended December 31, 1998
Currency translation adjustment
Total
-----------------------------------------------------------------
Balance, December 31, 1998 177,000 2 60,249,000 602
Exercise of stock options 1,758,000 18
Exercise of warrants 129,000 1
Common stock issued for cash 2,703,000 27
Preferred stock issued for cash 1,250,000 13
Warrants issued for cash
Accreted dividends on preferred stock 30,000
Accretion of discount on preferred stock
Redemption of Series Preferred Stock (125,000) (2)
Conversion of 7% Convertible Subordinated Notes 7,271,000 73
Common stock issued for an acquisition 12,750,000 127
Stock options issued in connection with an acquisition
Issuance of warrants
Stock splits 47,556,000 476
Comprehensive income:
Net loss for the year ended December 31, 1999
Currency translation adjustment
Total
-----------------------------------------------------------------
Balance, December 31, 1999 1,332,000 $13 132,416,000 $1,324
=================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 66
NTL Incorporated and Subsidiaries
Consolidated Statement of Shareholders' Equity (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PAID-IN COMPREHENSIVE COMPREHENSIVE
CAPITAL LOSS INCOME (LOSS) (DEFICIT)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $ 548,647 $163,141 $ (383,995)
Exercise of stock options 1,532
Exercise of warrants 138
Accreted dividends on senior redeemable
exchangeable preferred stock (11,978)
Accretion of discount on senior redeemable
exchangeable preferred stock (285)
Comprehensive income:
Net loss for the year ended December 31, 1997 $(333,057) (333,057)
Currency translation adjustment (46,133) (46,133)
----------
Total $(379,190)
-----------------------------------------------------------------
Balance, December 31, 1997 538,054 117,008 (717,052)
Exercise of stock options 6,331
Exercise of warrants 508
Accreted dividends on preferred stock (18,761)
Accretion of discount on preferred stock (311)
Conversion of 7-1/4% Convertible Subordinated Notes 186,942
Conversion of Series Preferred Stock (20)
Preferred stock issued for an acquisition 178,493
Common stock issued for an acquisition 600,245
Warrants issued in connection with consent
solicitations 10,080
Comprehensive income:
Net loss for the year ended December 31, 1998 $(534,616) (534,616)
Currency translation adjustment (12,351) (12,351)
----------
Total $(546,967)
-----------------------------------------------------------------
Balance, December 31, 1998 1,501,561 104,657 (1,251,668)
Exercise of stock options 41,302
Exercise of warrants 830
Common stock issued for cash 249,973
Preferred stock issued for cash 1,233,797
Warrants issued for cash 16,190
Accreted dividends on preferred stock (44,137)
Accretion of discount on preferred stock (311)
Redemption of Series Preferred Stock (125,278)
Conversion of 7% Convertible Subordinated Notes 269,212
Common stock issued for an acquisition 971,310
Stock options issued in connection with an acquisition 6,599
Issuance of warrants 4,475
Stock splits (476)
Comprehensive income:
Net loss for the year ended December 31, 1999 $(735,717) (735,717)
Currency translation adjustment (106,764) (106,764)
----------
Total $(842,481)
-----------------------------------------------------------------
Balance, December 31, 1999 $4,125,047 $ (2,107) $(1,987,385)
=================================================================
</TABLE>
See accompanying notes.
F-7
<PAGE> 67
NTL Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
----------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(735,717) $ (534,616) $ (333,057)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 791,322 266,112 150,509
Loss from early extinguishment of debt 3,034 30,689 4,500
Gain on sale of investment in Cable London PLC (493,121) - -
Amortization of non competition agreements - 1,389 1,852
Provision for losses on accounts receivable 46,245 27,282 6,891
Deferred income taxes (37,347) (3,327) (16,852)
Amortization of original issue discount 451,356 232,691 122,639
Other (10,617) (30,916) (8,148)
Changes in operating assets and liabilities, net
of effect from business acquisitions:
Accounts receivable (139,372) (70,364) (30,430)
Other current assets (38,903) 22,631 (6,563)
Other assets (25,241) 6 2,303
Accounts payable 43,823 (2,564) (4,615)
Accrued expenses and other 126,242 15,272 74,706
Deferred revenue 71,865 26,772 18,994
----------------------------------------------------------------------------
Net cash provided by (used in) operating activities 53,569 (18,943) (17,271)
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (1,128,338) (746,817) -
Purchase of fixed assets (1,211,317) (772,144) (503,656)
Payment of deferred purchase price - - (57,330)
Increase in other assets (59,294) (35,595) (4,322)
Proceeds from sales of assets 692,490 1,312 -
Purchase of marketable securities (747,397) (540,639) (145,939)
Proceeds from sales of marketable securities 676,642 291,276 142,596
----------------------------------------------------------------------------
Net cash (used in) investing activities (1,777,214) (1,802,607) (568,651)
</TABLE>
F-8
<PAGE> 68
NTL Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from borrowings, net of financing costs 3,019,383 3,525,588 490,302
Proceeds from issuance of preferred stock and warrants 1,250,000 - -
Proceeds from issuance of common stock 250,000 - -
Redemption of preferred stock (125,280) - -
Principal payments (758,212) (845,018) (242,424)
Cash in escrow for debt repayment (86,993) (217,622) -
Consent solicitation payments - (11,333) -
Proceeds from exercise of stock options and warrants 42,151 6,842 1,671
-------------------------------------------------------------------
Net cash provided by financing activities 3,591,049 2,458,457 249,549
Effect of exchange rate changes on cash (6,525) 456 (10,609)
-------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1,860,879 637,363 (346,982)
Cash and cash equivalents at beginning of year 736,265 98,902 445,884
-------------------------------------------------------------------
Cash and cash equivalents at end of year $2,597,144 $ 736,265 $ 98,902
===================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest exclusive of
amounts capitalized $ 180,272 $ 90,513 $ 72,047
Income taxes paid 2,372 336 1,107
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accretion of dividends and discount on preferred stock $ 44,448 $ 19,072 $ 12,263
Conversion of Convertible Notes, net of unamortized
deferred financing costs 269,285 187,012 -
Preferred stock issued for an acquisition - 178,495 -
Common stock and stock options issued for an acquisition 978,036 600,432 -
Warrants issued in connection with consent solicitations - 10,080 -
</TABLE>
See accompanying notes.
F-9
<PAGE> 69
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
1. CORPORATE RESTRUCTURING AND BUSINESS
Effective April 1, 1999, NTL Incorporated completed a corporate restructuring to
create a holding company structure. The formation of the holding company is part
of the Company's effort to pursue opportunities outside the United Kingdom and
the Republic of Ireland. The holding company restructuring was accomplished
through a merger so that all the stockholders of NTL Incorporated at the
effective time of the merger became stockholders of the new holding company, and
NTL Incorporated became a subsidiary of the new holding company. The new holding
company has taken the name NTL Incorporated (and together with its subsidiaries,
the "Company") and the holding company's subsidiary simultaneously changed its
name to NTL Communications Corp. (and together with its subsidiaries, "NTL
Communications").
The Company, through its subsidiaries and joint ventures, owns and operates
broadband communications networks for telephone, cable television and Internet
services and television and radio broadcasting systems in the United Kingdom and
the Republic of Ireland. In 1999, the Company expanded its operations through
the acquisition of broadband cable systems in France and the national
broadcasting network facilities in Australia, and has announced a proposed
acquisition in Switzerland. Based on revenues and identifiable assets, the
Company's predominant lines of business are residential services, national
telecommunications services and broadcast transmission and tower services in the
United Kingdom. Residential services include telephony, cable television,
Internet access and interactive services. National telecommunications services
include business telephony, national and international carrier
telecommunications, Internet services and satellite communications services.
Broadcast transmission and tower services include digital and analog television
and radio broadcasting, and related services.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries and entities where the Company's interest is greater
than 50%. Significant intercompany accounts and transactions have been
eliminated in consolidation.
NET (LOSS) PER SHARE
The Company reports its basic and diluted net (loss) per share in accordance
with Financial Accounting Standards Board("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share ", as adjusted
for stock splits.
F-10
<PAGE> 70
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries have been
translated into U.S. dollars in accordance with SFAS No. 52, "Foreign Currency
Translation." All balance sheet accounts have been translated using the current
exchange rates at the respective balance sheet dates. Statement of operations
amounts have been translated using the average exchange rates for the respective
years. The gains or losses resulting from the change in exchange rates have been
reported as a component of accumulated other comprehensive income (loss).
Foreign currency transaction gains and losses are included in the results of
operations as incurred.
CASH EQUIVALENTS
Cash equivalents are short-term highly liquid investments purchased with a
maturity of three months or less. Cash equivalents were $2.1 billion and $651
million at December 31, 1999 and 1998, respectively, which consisted primarily
of bank time deposits and corporate commercial paper. At December 31, 1999 and
1998, $2.0 billion and $121 million, respectively, of the cash equivalents were
denominated in foreign currencies.
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale, which are carried at
fair value. Unrealized holding gains and losses on securities, net of tax, are
carried as a component of accumulated other comprehensive income (loss). The
amortized cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
income. Realized gains and losses and declines in value judged to be other than
temporary will be included in interest income. The cost of securities sold or
matured is based on the specific identification method. Interest on securities
is included in interest income.
Marketable securities at December 31, 1999 and 1998 consisted of corporate
commercial paper. During the years ended December 31, 1999, 1998 and 1997, there
were no realized gains or losses on sales of securities. All of the marketable
securities as of December 31, 1999 and 1998 had a contractual maturity of less
than one year.
FIXED ASSETS
Fixed assets are stated at cost, which includes amounts capitalized for labor
and overhead expended in connection with the design and installation of
operating equipment. Depreciation is computed by the straight-line method over
the estimated useful lives of the assets. Estimated useful lives are as follows:
operating equipment - 5 to 40 years and other equipment - 3 to 40 years.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and the carrying value of the asset.
F-11
<PAGE> 71
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets include goodwill, license acquisition costs and customer
lists. Goodwill is the excess of the purchase price over the fair value of net
assets acquired in business combinations accounted for as purchases. Goodwill is
amortized on a straight-line basis over the periods benefited of 10, 15 or 30
years. License acquisition costs represent the portion of purchase price
allocated to the cable television and telecommunications licenses acquired in
business combinations. License acquisition costs are amortized on a
straight-line basis over the remaining lives of the licenses at acquisition,
which vary from approximately two years to 23 years. Customer lists represent
the portion of the purchase price allocated to the value of the customer base.
Customer lists are amortized on a straight-line basis over 5 years. The Company
continually reviews the recoverability of the carrying value of these assets
using the same methodology that it uses for the evaluation of its other
long-lived assets.
INVESTMENT IN CABLE LONDON PLC
Investment in Cable London PLC was accounted for under the equity method. Equity
method investments are recorded at original cost and adjusted periodically to
recognize the Company's proportionate share of the investees' net income or
losses after the date of investment, additional contributions made and dividends
received. The difference between the Company's recorded investment and its
proportionate interest in the book value of the investees' net assets are being
amortized on a straight-line basis over 10 years.
DEFERRED FINANCING COSTS
Deferred financing costs are incurred in connection with the issuance of debt
and are amortized over the term of the related debt.
CAPITALIZED INTEREST
Interest is capitalized as a component of the cost of fixed assets constructed.
In 1999, 1998 and 1997, interest of $41,810,000, $27,760,000 and $6,770,000,
respectively, was capitalized.
REVENUE RECOGNITION
Revenues are recognized at the time the service is provided to the customer.
Charges for services that are billed in advance are deferred and recognized when
earned.
CABLE TELEVISION SYSTEM COSTS, EXPENSES AND REVENUES
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its broadband communications networks in
accordance with SFAS No. 51, "Financial Reporting by Cable Television
Companies."
F-12
<PAGE> 72
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING EXPENSE
The Company charges the cost of advertising to expense as incurred. Advertising
costs were $35,949,000, $33,951,000 and $31,003,000 in 1999, 1998 and 1997,
respectively.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock option plans.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted by the
Company effective January 1, 2001. The Company is evaluating the impact that the
adoption of SFAS No. 133 will have on its results of operations and financial
position.
4. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
NEED FOR ADDITIONAL FINANCING
The Company will require additional financing in the future. There can be no
assurance that the required financing will be obtainable on acceptable terms.
CONCENTRATIONS
The Company's television and radio broadcasting business is substantially
dependent upon contracts with a small group of companies for the right to
broadcast their programming, and upon a site sharing agreement for a large
number of its transmission sites. The loss of any one of these contracts or the
site sharing agreement could have a material adverse effect on the business of
the Company.
CURRENCY RISK
To the extent that the Company obtains financing in U.S. dollars and incurs
construction and operating costs in various other currencies, it will encounter
currency exchange rate risks. In addition, the Company's revenues are generated
in foreign currencies while its interest and principal obligations with respect
to most of the Company's existing indebtedness are payable in U.S. dollars.
F-13
<PAGE> 73
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. FIXED ASSETS
Fixed assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
--------------------------------------------------
(in thousands)
<S> <C> <C>
Operating equipment $5,111,258 $3,528,973
Other equipment 715,215 376,518
Construction-in-progress 669,402 369,923
--------------------------------------------------
6,495,875 4,275,414
Accumulated depreciation (898,227) (420,984)
--------------------------------------------------
$5,597,648 $3,854,430
==================================================
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
-----------------------------------------------------
(in thousands)
<S> <C> <C>
Goodwill, net of accumulated amortization of $197,012
(1999) and $32,358 (1998) $2,543,502 $514,529
License acquisition costs, net of accumulated amortization
of $141,682 (1999) and $69,202 (1998) 224,998 153,007
Customer lists, net of accumulated amortization of
$30,870 (1999) and $3,375 (1998) 159,336 57,492
-----------------------------------------------------
$2,927,836 $725,028
=====================================================
</TABLE>
The Company made the following acquisitions in 1998:
The Company acquired ComTel Limited and Telecential Communications
(collectively, "ComTel") for a total of pound sterling 550 million comprised of
pound sterling 475 million in cash and 125,000 shares of 9.9% Non-voting
Mandatorily Redeemable Preferred Stock, Series A in two stages completed in June
and September 1998. The preferred stock was valued at pound sterling 75 million,
the fair value on the date of issuance. ComTel is a provider of telephone, cable
television and Internet services in England.
In October 1998, a wholly-owned subsidiary of the Company, NTL (Triangle) LLC
("NTL Triangle") (formerly known as NTL (Bermuda) Limited) acquired all of the
outstanding common stock of Comcast UK Cable Partners Limited in exchange for
29.3 million shares of the Company's common stock. The Company's common stock
was valued at $600,432,000, the fair value at the time of the announcement. NTL
Triangle provides telephone, cable television and Internet services in England.
F-14
<PAGE> 74
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INTANGIBLE ASSETS (CONTINUED)
In December 1998, the Company acquired Eastern Group Telecoms ("EGT") for pound
sterling 60 million in cash and 52,000 shares of 9.9% Non-voting Mandatorily
Redeemable Preferred Stock, Series B. The preferred stock was valued at
$52,217,000, the fair value on the date of issuance. EGT's telecoms division has
a fibre-optic network across portions of England, and its radio sites division
serves mobile phone operators in portions of England.
These acquisitions have been accounted for as purchases, and accordingly, the
net assets and results of operations of the acquired businesses have been
included in the consolidated financial statements from the dates of acquisition.
The aggregate purchase price of $1.7 billion, which includes the related
acquisition costs and the return of cash acquired in the ComTel transaction of
pound sterling 31 million, exceeded the fair value of the net tangible assets
acquired by $591 million, which has been allocated as follows: $185.6 million to
the investment in Cable London PLC, $52.4 million to license acquisition costs,
$60.9 million to customer lists and $292.1 million to goodwill.
The Company made the following acquisitions in 1999:
In March 1999, the Company acquired Diamond Cable Communications plc
("Diamond"). The Company issued an aggregate of 19.9 million shares of common
stock in exchange for each ordinary share and deferred share of Diamond. The
Company's common stock was valued at $971,437,000, the fair value at the time of
the announcement. In addition, the Company issued options to purchase 191,000
shares of the Company's common stock to holders of Diamond options, which were
valued at $6,599,000. The Company assumed Diamond's debt including five
different notes with an aggregate principal amount at maturity of $1.6 billion.
Diamond is a provider of telephone, cable television and Internet services in
England.
In April 1999, a subsidiary of the Company ("NTL Australia") purchased all of
the shares of the entity which owns the Australian National Transmission Network
for an aggregate purchase price of approximately $423 million. NTL Australia
provides exclusive television and radio transmission services to Australia's
national TV and radio broadcasters, serves regional and community TV and radio
broadcasters and provides equipment hosting services to telecom operators and
emergency service communications providers on its towers.
In July 1999, the Company acquired Cablelink Limited ("Cablelink") for Irish
punts 535.18 million ($693 million), of which Irish punts 455.18 million ($589
million) was paid in cash and Irish punts 80 million ($104 million) was paid
through the issuance of Variable Rate Redeemable Guaranteed Loan Notes due 2002.
Cablelink provides multi-channel television and information services in Dublin,
Galway and Waterford, Ireland.
F-15
<PAGE> 75
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INTANGIBLE ASSETS (CONTINUED)
Also in July 1999, the Company acquired certain broadband cable franchises from
British Telecommunications plc for an aggregate of up to pound sterling 19
million ($31 million). The Company paid approximately pound sterling 5 million
($8 million) on closing and will pay up to pound sterling 14 million ($23
million) on completion of the upgrade of certain networks.
The Company acquired the five franchise areas comprising the "1G Networks" of
France Telecom for approximately 373.2 million French francs ($60 million) in
two stages completed in August and December 1999. The 1G Networks hold exclusive
licenses to provide analog and digital television services in four franchise
areas in Ile-de-France (Greater Paris) and in the franchise area of Toulon and
LaValette.
In September 1999, the Company acquired the shares of Workplace Technologies
plc, one of the United Kingdom's leading data network service integrators, in
exchange for pound sterling 105.2 million ($173 million), of which pound
sterling 100.7 million ($166 million) was paid in cash and pound sterling 4.5
million ($7 million) was paid through the issuance of demand notes.
These acquisitions were accounted for as purchases, and accordingly, the net
assets and results of operations of the acquired businesses have been included
in the consolidated financial statements from the dates of acquisition. The
aggregate purchase price of $2.36 billion, including costs incurred of $26
million, plus the fair value of liabilities assumed net of tangible assets
acquired aggregated $2.446 billion, which has been allocated as follows: $143
million to license acquisition costs, $131 million to customer lists and $2.172
billion to goodwill.
The pro forma unaudited consolidated results of operations for the years ended
December 31, 1999 and 1998 assuming consummation of the above mentioned
transactions as of January 1, 1998 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
----------------------------------------------
(in thousands)
<S> <C> <C>
Total revenue $1,794,063 $1,370,399
(Loss) before extraordinary item (895,942) (1,076,238)
Net (loss) (898,976) (1,106,927)
Basic and diluted net loss per share:
(Loss) before extraordinary item (7.62) (10.14)
Net (loss) (7.64) (10.42)
</TABLE>
F-16
<PAGE> 76
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. INVESTMENT IN CABLE LONDON PLC
Pursuant to an agreement with Telewest Communications plc ("Telewest") relating
to NTL Triangle's and Telewest's respective 50% ownership interests in Cable
London PLC ("Cable London"), in November 1999 Telewest purchased all of NTL
Triangle's shares of Cable London for approximately pound sterling 428 million
(approximately $692 million) in cash. The Company recorded a gain of $493
million on the sale. The sale of the Cable London interest is an "Asset Sale"
for purposes of the Company's Indentures for certain of its notes. The Company
will need to use an amount equal to the proceeds from the sale to repay
subsidiary debt, invest in "Replacement Assets" or make an offer to redeem
certain of its notes by November 2000.
8. PENDING ACQUISITIONS
In July 1999, the Company agreed to acquire the consumer cable telephone,
Internet and television operations of Cable & Wireless Communications, plc
("CWC"). The Company will issue 85 million new shares of common stock and pay
pound sterling 2.85 billion ($4.6 billion) in cash. The Company will also assume
approximately pound sterling 1.9 billion ($3.1 billion) of CWC's net debt, plus
further debt up to an agreed amount of CWC cash outflow through closing. The
transaction is subject to various approvals and other conditions. The Company
has entered into a note purchase agreement for up to approximately pound
sterling 2.4 billion ($3.9 billion) to fund a portion of the cost of this
acquisition, as well as an additional investment by France Telecom, as described
below.
In connection with the CWC acquisition, France Telecom agreed to invest pound
sterling 2.8 billion ($4.5 billion) in the Company. France Telecom will invest
pound sterling 1.6 billion ($2.6 billion) for approximately 42.2 million shares
of the Company's common stock and pound sterling 1.2 billion ($1.9 billion) in
convertible preferred stock with a 5% dividend and a conversion price of $80 per
share. The closing of this additional investment is subject to the completion of
the CWC acquisition, unless France Telecom elects to accelerate the closing of
this investment, which it can do in a limited number of circumstances.
In December 1999, the Company agreed to acquire the cable assets of the Cablecom
Group ("Cablecom") for CHF 5.8 billion ($3.6 billion). Completion of the
acquisition is conditioned on certain regulatory approvals being obtained and is
expected to occur in the first quarter of 2000. The Company intends to fund this
acquisition using cash on hand, the proceeds from a proposed bank facility or
the proceeds from the issuance of new preferred stock. The Company has an
agreement for the arrangement of a bank facility of CHF 4.1 billion ($2.6
billion) consisting of CHF 2.7 billion ($1.7 billion) to be utilized in the
acquisition of Cablecom and CHF 1.4 billion ($0.9 billion) to be used for
working capital, capital expenditures and general corporate purposes.
In February 2000, the Company announced that it had entered into an arrangement
with France Telecom and certain commercial banks, subject to certain conditions,
for the issue of $1.85 billion of new preferred stock. The proceeds from this
subscription will be used to help fund the Company's acquisitions in Continental
Europe outside of France. The holders of the stock (other than any commercial
banks or their affiliates) may at any time after six months from issue elect,
subject to certain conditions, for the new preferred stock to be exchanged for
up to a 50% interest in a new company which will own certain or all of the
Company's broadband communications, broadcast and cable television interests in
Continental Europe outside of France. Under certain circumstances, at the
Company's option, any portion of the Company's obligation that may not be
satisfied by the exchange may be satisfied in a security convertible
F-17
<PAGE> 77
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. PENDING ACQUISITIONS (CONTINUED)
into the Company's common stock or cash. The new preferred stock will be
mandatorily redeemable for cash after two years.
9. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
----------------------------------------------------------
(in thousands)
<S> <C> <C>
NTL Incorporated:
5-3/4% Convertible Subordinated Notes (a) $1,200,000 $ -
NTL Communications:
12-3/4% Senior Deferred Coupon Notes (b) 268,108 236,935
11-1/2% Senior Deferred Coupon Notes (c) 930,404 831,976
10% Senior Notes (d) 400,000 400,000
9-1/2% Senior Sterling Notes, less unamortized
discount of $567 (1999) and $639 (1998) (e) 201,408 206,800
10-3/4% Senior Deferred Coupon Sterling Notes (f) 343,691 317,511
9-3/4% Senior Deferred Coupon Notes (g) 952,825 865,880
9-3/4% Senior Deferred Coupon Sterling Notes (h) 354,394 -
11-1/2% Senior Notes (i) 625,000 625,000
12-3/8% Senior Deferred Coupon Notes (j) 286,967 254,718
7% Convertible Subordinated Notes (k) - 275,000
7% Convertible Subordinated Notes (l) 599,300 600,000
Variable Rate Redeemable Guaranteed Loan Notes (m) 76,794 -
9-1/4% Senior Euro Notes (n) 252,300 -
9-7/8% Senior Euro Notes (o) 353,220 -
11-1/2% Senior Deferred Coupon Euro Notes (p) 123,080 -
NTL Triangle:
11.2% Senior Discount Debentures (q) 467,317 421,835
Other 7,969 31,839
Diamond:
13-1/4% Senior Discount Notes (r) 285,101 -
11-3/4% Senior Discount Notes (s) 476,215 -
10-3/4% Senior Discount Notes (t) 336,891 -
10% Senior Sterling Notes (u) 218,133 -
9-1/8% Senior Notes (v) 110,000 -
Other 11,508 -
----------------------------------------------------------
8,880,625 5,067,494
Less current portion 82,601 23,691
----------------------------------------------------------
$8,798,024 $5,043,803
==========================================================
</TABLE>
F-18
<PAGE> 78
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. LONG-TERM DEBT (CONTINUED)
(a) 5-3/4% Convertible Notes due December 15, 2009, issued in December
1999, principal amount at maturity of $1,200,000,000, interest payable
semiannually beginning on June 15, 2000, redeemable at the Company's
option, on or after December 18, 2002, convertible after March 21, 2000
into shares of common stock at a conversion price of $108.18 per share
(there are approximately 11,092,000 shares of common stock reserved for
issuance upon conversion);
(b) 12-3/4% Notes due April 15, 2005, principal amount at maturity of
$277,804,000, interest payable semiannually beginning on October 15,
2000, redeemable at the Company's option on or after April 15, 2000;
(c) 11-1/2% Notes due February 1, 2006, principal amount at maturity of
$1,050,000,000, interest payable semiannually beginning on August 1,
2001, redeemable at the Company's option on or after February 1, 2001;
(d) 10% Notes due February 15, 2007, principal amount at maturity of
$400,000,000, interest payable semiannually from August 15, 1997,
redeemable at the Company's option on or after February 15, 2002;
(e) 9-1/2% Sterling Notes due April 1, 2008, principal amount at maturity
of pound sterling 125,000,000 ($201,975,000), interest payable
semiannually from October 1, 1998, redeemable at the Company's option
on or after April 1, 2003;
(f) 10-3/4% Sterling Notes due April 1, 2008, principal amount at maturity
of pound sterling 300,000,000 ($484,740,000), interest payable
semiannually beginning on October 1, 2003, redeemable at the Company's
option on or after April 1, 2003;
(g) 9-3/4% Notes due April 1, 2008, principal amount at maturity of
$1,300,000,000, interest payable semiannually beginning on October 1,
2003, redeemable at the Company's option on or after April 1, 2003;
(h) 9-3/4% Sterling Notes due April 15, 2009, principal amount at maturity
of pound sterling 330,000,000 ($533,214,000), interest payable
semiannually beginning on October 15, 2004, redeemable at the Company's
option on or after April 15, 2004;
(i) 11-1/2% Notes due October 1, 2008, principal amount at maturity of
$625,000,000, interest payable semiannually from April 1, 1999,
redeemable at the Company's option on or after October 1, 2003;
(j) 12-3/8% Notes due October 1, 2008, principal amount at maturity of
$450,000,000, interest payable semiannually beginning on April 1, 2004,
redeemable at the Company's option on or after October 1, 2003;
F-19
<PAGE> 79
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. LONG-TERM DEBT (CONTINUED)
(k) In May 1999, the Company called for redemption all of its $275,000,000
principal amount of 7% Convertible Notes due 2008 at a redemption price
of 104.9% of their principal amount, plus accrued and unpaid interest.
In June 1999, all of the 7% Convertible Notes were converted into
approximately 11,344,000 shares of the Company's common stock at the
applicable conversion price of $24.24 per share. The unamortized
deferred financing costs related to the 7% Notes of $6,415,000 were
written-off to equity;
(l) 7% Convertible Notes due December 15, 2008, principal amount at
maturity of $599,300,000, interest payable semiannually from June 15,
1999, convertible into shares of common stock at a conversion price of
$39.20 per share, redeemable at the Company's option on or after
December 15, 2001 (there are approximately 15,288,000 shares of common
stock reserved for issuance upon conversion);
(m) Variable Rate Redeemable Guaranteed Notes due January 5, 2002,
principal amount at maturity of Irish punts 60,000,000
($76,794,000), interest payable quarterly at EURIBOR (3.345% at
December 31, 1999), redeemable at any time at the option of the holder,
Irish punts 20,000,000 ($25,730,000) redeemed in 1999 using cash
held in escrow, Euro 86,475,000 ($87,270,000) remaining in escrow at
December 31, 1999;
(n) 9-1/4% Notes due November 15, 2006, principal amount at maturity of
Euro 250,000,000 ($252,300,000), interest payable semiannually
beginning on May 15, 2000;
(o) 9-7/8% Notes due November 15, 2009, principal amount at maturity of
Euro 350,000,000 ($353,220,000), interest payable semiannually
beginning on beginning May 15, 2000, redeemable at the Company's option
on or after November 15, 2004;
(p) 11-1/2% Deferred Notes due November 15, 2009, principal amount at
maturity of Euro 210,000,000 ($211,932,000), interest payable
semiannually beginning on May 15, 2005, redeemable at the Company's
option on or after November 15, 2004;
(q) 11.2% Debentures due November 15, 2007, principal amount at maturity of
$517,321,000, interest payable semiannually beginning on May 15, 2001;
(r) 13-1/4% Notes due September 30, 2004, principal amount at maturity of
$285,101,000, interest payable semiannually beginning on March 31,
2000, redeemable at the Company's option on or after September 30,
1999;
(s) 11-3/4% Notes due December 15, 2005, principal amount at maturity of
$530,955,000, interest payable semiannually beginning on June 15, 2001,
redeemable at the Company's option on or after December 15, 2000;
(t) 10-3/4% Notes due February 15, 2007, principal amount at maturity of
$420,500,000, interest payable semiannually beginning on August 15,
2002, redeemable at the Company's option on or after December 15, 2002;
F-20
<PAGE> 80
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. LONG-TERM DEBT (CONTINUED)
(u) 10% Sterling Notes due February 1, 2008, principal amount at maturity
of pound sterling 135,000,000 ($218,133,000), interest payable
semiannually from August 1, 1998, redeemable at the Company's option on
or after February 1, 2003; and
(v) 9-1/8% Notes due February 1, 2008, principal amount of $110,000,000,
interest payable semiannually from August 1, 1998, redeemable at the
Company's option on or after February 1, 2003.
The indentures governing the notes contain restrictions relating to, among other
things: (i) incurrence of additional indebtedness and issuance of preferred
stock, (ii) dividend and other payment restrictions and (iii) mergers,
consolidations and sales of assets.
During 1999, 1998 and 1997, the Company recognized $451,356,000, $232,691,000
and $122,639,000, respectively, of original issue discount as interest expense.
In September 1999, NTL Triangle repaid at maturity the $21,529,000 due under its
notes payable to Comcast U.K. Holdings, Inc.
In connection with the Cablelink acquisition, the Company issued $704,615,000
principal amount Senior Increasing Rate Notes due 2000. In November 1999, the
Company received net proceeds of $720,743,000 from the issuance of the 9-1/4%
Euro Notes, the 9-7/8% Euro Notes and the 11-1/2% Deferred Euro Notes, of which
$716,505,000 was used to repay the Senior Increasing Rate Notes plus accrued
interest. The Company recorded an extraordinary loss from the early
extinguishment of the notes of $3,034,000 in 1999.
In connection with the ComTel acquisition, the Company borrowed an aggregate of
pound sterling 475,000,000 under its bank credit facility. In November 1998, the
Company received net proceeds of $849,000,000 from the issuance of the 11-1/2%
Notes and the 12-3/8% Notes, a substantial portion of which was used to repay
the $799,000,000 outstanding under the bank loan. The Company recorded an
extraordinary loss from the early extinguishment of the bank loan of $18,579,000
in 1998.
In October 1998, the Company redeemed its 10-7/8% Senior Deferred Coupon Notes
with an accreted value of $211,000,000 for cash of $218,000,000. The Company
recorded an extraordinary loss from the early extinguishment of the 10-7/8%
Notes of $12,110,000 in 1998, which included approximately $4,800,000 of
unamortized deferred financing costs.
In 1998, the Company required consents from the holders of some of its notes to
modify certain indenture provisions in order to proceed with an acquisition. In
October 1998, the Company paid $11,333,000 in consent payments and issued
warrants to purchase 1,197,000 shares of common stock in lieu of additional
consent payments of $10,080,000.
F-21
<PAGE> 81
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. LONG-TERM DEBT (CONTINUED)
Certain of the NTL Communications notes restrict the payment of cash dividends
and loans to the Company. At December 31, 1999, restricted net assets of NTL
Communications were approximately $901 million.
Long-term debt repayments are due as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
2000 $ 82,601
2001 1,270
2002 1,062
2003 981
2004 286,001
Thereafter 9,745,710
-----------
$ 10,117,625
===========
</TABLE>
10. REDEEMABLE PREFERRED STOCK
In February 1997, the Company issued 100,000 shares of its 13% Senior Redeemable
Exchangeable Preferred Stock (the "Redeemable Preferred Stock"). The Company
received net proceeds of $96,625,000 after discounts and commissions from the
issuance of the Redeemable Preferred Stock. Discounts, commissions and other
fees incurred of $3,729,000 were recorded as unamortized discount at issuance.
Dividends accrue at 13% per annum ($130 per share) and are payable quarterly in
arrears. Dividends accruing on or prior to February 15, 2004 may, at the option
of the Company, be paid in cash, by the issuance of additional Redeemable
Preferred Stock or in any combination of the foregoing. As of December 31, 1999,
the Company has accrued $44,628,000 for dividends and has issued approximately
42,000 shares for $42,315,000 of such accrued dividends. The Redeemable
Preferred Stock may be redeemed, at the Company's option, in whole or in part,
at any time on or after February 15, 2002 at a redemption price of 106.5% of the
liquidation preference of $1,000 per share that declines annually to 100% in
2005, in each case together with accrued and unpaid dividends to the redemption
date. The Redeemable Preferred Stock is subject to mandatory redemption on
February 15, 2009. On any scheduled dividend payment date, the Company may, at
its option, exchange all of the shares of Redeemable Preferred Stock then
outstanding for the Company's 13% Subordinated Exchange Debentures due 2009 (the
"Subordinated Debentures").
The Subordinated Debentures, if issued, will bear interest at a rate of 13% per
annum, payable semiannually in arrears on February 15 and August 15 of each year
commencing with the first such date to occur after the date of exchange.
Interest accruing on or prior to February 15, 2004 may, at the option of the
Company, be paid in cash, by the issuance of additional Subordinated Debentures
or in any combination of the foregoing. The Subordinated Debentures will be
redeemable, at the Company's option, in whole or in part, on or after February
15, 2002 at a redemption price of 106.5% that declines annually to 100% in 2005,
in each case together with accrued and unpaid interest to the redemption date.
F-22
<PAGE> 82
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. NONRECURRING CHARGES INCLUDING RESTRUCTURING CHARGES
Nonrecurring charges of $16,179,000 in 1999 were the fee incurred for the
cancellation of certain contracts.
Nonrecurring charges of $20,642,000 in 1997 include deferred costs written-off
of $5,013,000 and restructuring costs of $15,629,000. The deferred costs
written-off arose in connection with the Company's unsuccessful bid for United
Kingdom digital terrestrial television multiplex licenses. Restructuring costs
relate to the Company's announcement in September 1997 of a reorganization of
certain of its operations. This charge consisted of employee severance and
related costs of $6,726,000 for approximately 280 employees to be terminated,
lease exit costs of $6,539,000 and penalties of $2,364,000 associated with the
cancellation of contractual obligations. As of December 31, 1998, $9,172,000 of
the provision had been used, including $5,558,000 for severance and related
costs, $1,450,000 for lease exit costs and $2,164,000 for penalties associated
with the cancellation of contractual obligations. As of December 31, 1998, 177
employees had been terminated. The $4,194,000 reversed in 1998 includes
$1,168,000 for severance and related costs, $2,826,000 for lease exit costs and
$200,000 for penalties associated with the cancellation of contractual
obligations. This reversal was necessary because employees whose positions were
eliminated chose to remain with the Company in other positions rather than leave
the Company and receive severance pay, and the real estate markets in which the
Company sublet space improved increasing the sublet rentals and shortening the
period of time required to find subtenants. The remaining restructuring reserve
of $2,263,000 at December 31, 1998 is for lease costs net of sublease revenue.
12. OTHER GAINS
Other gains of $493,121,000 in 1999 are from the sale of the investment in Cable
London. Other gains of $21,497,000 in 1997 include a legal settlement of
$10,000,000 and a gain on the sale of fixed assets of $11,497,000. In October
1997, following the U.S. District Court's decision to dismiss the Company's
complaint against LeGroupe Videotron Ltee and its subsidiary, the Company
entered into a Settlement Agreement dismissing the Company's complaint in
exchange for a payment of $10,000,000. In December 1997, a U.S. subsidiary of
the Company sold its fixed and other assets utilized in its microwave
transmission service business and recognized a gain of $11,497,000.
F-23
<PAGE> 83
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. INCOME TAXES
The benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
----------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $ 1,000 $ - $ -
State and local 1,000 - 1,261
Foreign - - -
----------------------------------------------------------------
Total current 2,000 - 1,261
----------------------------------------------------------------
Deferred:
Federal - - -
State and local - - -
Foreign (37,347) (3,327) (16,852)
----------------------------------------------------------------
Total deferred (37,347) (3,327) (16,852)
================================================================
$(35,347) $(3,327) $(15,591)
================================================================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
----------------------------------------
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Fixed assets $66,461 $68,766
Intangibles 107,012 -
----------------------------------------
Total deferred tax liabilities 173,473 68,766
Deferred tax assets:
Net operating losses 417,149 244,394
Net deferred interest expense 150,120 113,993
Depreciation and amortization 269,888 100,780
Other 15,920 19,975
----------------------------------------
Total deferred tax assets 853,077 479,142
Valuation allowance for deferred tax assets (757,324) (477,438)
----------------------------------------
Net deferred tax assets 95,753 1,704
----------------------------------------
Net deferred tax liabilities $77,720 $67,062
========================================
</TABLE>
F-24
<PAGE> 84
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. INCOME TAXES (CONTINUED)
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $300 million for U.S. federal income tax purposes that expire in
varying amounts commencing in 2009. The Company also has United Kingdom net
operating loss carryforwards of approximately $947 million which have no
expiration date. Pursuant to United Kingdom law, these losses are only available
to offset income of the separate entity that generated the loss.
The Company is currently undergoing a U.S. federal income tax audit. The
Internal Revenue Service has issued notices of proposed adjustment. The Company
does not expect that the audit adjustments will have a material adverse effect
on its financial position, results of operations or cash flows.
The reconciliation of income taxes computed at U.S. federal statutory rates to
income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-----------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
(Benefit) at federal statutory rate (35%) $(269,872) $(188,309) $(120,452)
Add:
State and local income tax, net of federal benefit 650 - 820
Foreign losses with no benefit 106,078 83,500 59,804
Amortization of goodwill and license acquisition costs 4,145 4,366 3,925
U.S. losses with no benefit 123,652 97,116 40,312
-----------------------------------------------------------
$ (35,347) $(3,327) $(15,591)
===========================================================
</TABLE>
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
consolidated balance sheets approximate fair value.
Long-term debt: The carrying amount of the Variable Rate Notes
approximates their fair value. The fair values of the Company's other
debt are based on the quoted market prices.
Redeemable Preferred Stock: The fair value is based on the quoted
market price.
F-25
<PAGE> 85
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------------- ------------------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-----------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $2,597,144 $2,597,144 $ 736,265 $ 736,265
Long-term debt:
5-3/4% Convertible Notes 1,200,000 1,290,000 - -
12-3/4% Notes 268,108 278,499 236,935 252,801
11-1/2% Notes 930,404 950,250 831,976 882,000
10% Notes 400,000 414,000 400,000 408,000
9-1/2% Sterling Senior Notes 201,408 196,926 206,800 192,917
10-3/4% Sterling Notes 343,691 327,200 317,511 293,732
9-3/4% Notes 952,825 913,250 865,880 835,250
9-3/4% Sterling Notes 354,394 313,263 - -
11-1/2% Notes 625,000 682,813 625,000 681,250
12-3/8% Notes 286,967 319,500 254,718 274,500
7% Convertible Notes - - 275,000 411,125
7% Convertible Notes 599,300 1,582,152 600,000 656,340
Variable Rate Notes 76,794 76,794 - -
9-1/4% Euro Notes 252,300 254,823 - -
9-7/8% Euro Notes 353,220 356,752 - -
11-1/2% Euro Deferred Notes 123,080 125,040 - -
11.2% Debentures 467,317 486,282 421,835 437,119
13-1/4% Notes 285,101 305,414 - -
11-3/4% Notes 476,215 499,140 - -
10-3/4% Notes 336,891 340,605 - -
10% Sterling Notes 218,133 218,133 - -
9-1/8% Notes 110,000 108,900 - -
Redeemable Preferred Stock 141,805 154,412 124,127 124,127
</TABLE>
15. RELATED PARTY TRANSACTIONS
The Company provided management, financial, legal and technical services to
Cellular Communications International, Inc. ("CCII") and Cellular Communications
of Puerto Rico, Inc. ("CCPR"). Certain officers and directors of the Company
were officers and directors of CCII and CCPR.
F-26
<PAGE> 86
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. RELATED PARTY TRANSACTIONS (CONTINUED)
In 1997, the Company charged CCPR and CCII $1,492,000 and $871,000,
respectively, for direct costs where identifiable and a fixed percentage of its
corporate overhead. In 1998, the Company charged CCPR, CCII and CoreComm Limited
(which was formed in 1998 and has certain common officers and directors with the
Company) $1,148,000, $982,000 and $313,000, respectively, for direct costs where
identifiable and a fixed percentage of its corporate overhead. In the fourth
quarter of 1999, CoreComm Limited began charging the Company a percentage of
CoreComm Limited's office rent and supplies expense. In 1999, the Company
charged CCPR, CCII and CoreComm Limited $741,000, $439,000 and $2,268,000,
respectively, for direct costs where identifiable and a fixed percentage of its
corporate overhead, net of CoreComm Limited's charges to the Company. Charges to
CCPR and to CCII ceased in 1999 due to each of them being acquired and a
resulting termination of services. These charges reduced corporate expenses. It
is not practicable to determine the amounts of these expenses that would have
been incurred had the Company operated as an unaffiliated entity. In the opinion
of management of the Company, the allocation methods are reasonable.
At December 31, 1999 and 1998, the Company had receivables of $508,000 and
$1,038,000 from CoreComm Limited and none and $588,000 from CCPR, respectively.
16. NET LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted net loss per
share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
--------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Numerator:
Loss before extraordinary item $(732,683) $(503,927) $(328,557)
Preferred stock dividend (73,709) (18,761) (11,978)
--------------------------------------------------------
(806,392) (522,688) (340,535)
Extraordinary item (3,034) (30,689) (4,500)
--------------------------------------------------------
Net loss available to common shareholders $(809,426) $(553,377) $(345,035)
--------------------------------------------------------
Denominator for basic net loss per common share 119,418 64,378 50,183
Effect of dilutive securities - - -
--------------------------------------------------------
Denominator for diluted net loss per common share 119,418 64,378 50,183
--------------------------------------------------------
Basic and diluted net loss per common share:
Loss before extraordinary item $(6.75) $(8.12) $(6.79)
Extraordinary item (.03) (.48) (.09)
--------------------------------------------------------
Net loss $(6.78) $(8.60) $(6.88)
========================================================
</TABLE>
Stock options, warrants and convertible securities are excluded from the
calculation of net loss per common share as their effect would be antidilutive.
F-27
<PAGE> 87
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. SHAREHOLDERS' EQUITY
STOCK SPLITS
In September 1999, the Company declared a 5-for-4 stock split by way of a stock
dividend with respect to its common stock. The record date for this dividend was
October 4, 1999 and the payment date was October 7, 1999. In January 2000, the
Company declared a 5-for-4 stock split by way of a stock dividend with respect
to its common stock. The record date for this dividend was January 31, 2000 and
the payment date was February 3, 2000. Common stock amounts in the notes to
consolidated financial statements and all per share data have been adjusted to
reflect the stock splits.
SALES OF COMMON STOCK, PREFERRED STOCK AND WARRANTS
In January 1999, the Company received $500 million in cash from Microsoft Corp.
("Microsoft") in exchange for 500,000 shares of the Company's 5.25% Convertible
Preferred Stock (the "5.25% Preferred Stock") and warrants to purchase 1,875,000
shares of the Company's common stock at an exercise price of $53.76 per share.
Dividends were payable quarterly at the Company's option in cash, common stock
or additional shares of preferred stock. The Company issued approximately 25,000
shares of 5.25% Preferred Stock for dividend payments of $24,572,000 through
December 31, 1999. In February 2000, all of the 5.25% Preferred Stock was
converted into approximately 8,229,000 shares of the Company's common stock.
In August 1999, the Company received $1.0 billion in cash from France Telecom in
exchange for 750,000 shares of 5% Cumulative Participating Convertible Preferred
Stock (the "5% Preferred Stock") and approximately 4.2 million shares of common
stock.
SERIES PREFERRED STOCK
In September 1998, the Company issued 125,000 shares of 9.9% Non-voting
Mandatorily Redeemable Preferred Stock, Series A (the "Series A Preferred
Stock") in connection with the ComTel acquisition. Each share of Series A
Preferred Stock had a stated value of $1,000. Cumulative dividends accrued at
9.9% of the stated value per share. Dividends were payable when and if declared
by the Board of Directors. On December 22, 1999, all outstanding shares of the
Series A Preferred Stock were redeemed for cash of $140.8 million, which
included $15.5 million for accrued dividends.
In December 1998, the Company issued 52,000 shares of 9.9% Non-voting
Mandatorily Redeemable Preferred Stock, Series B (the "Series B Preferred
Stock") in connection with the EGT acquisition. Each share of Series B Preferred
Stock has a stated value of $1,000. Cumulative dividends accrue at 9.9% of the
stated value per share. Dividends are payable when and if declared by the Board
of Directors and may be paid, in the sole discretion of the Board, in cash, in
shares of common stock, or through a combination of the foregoing. At December
31, 1999, accrued dividends were $5,283,000. The Series B Preferred Stock may be
redeemed, at the Company's option, any time at a price equal to $1,000 per
share, together with accrued and unpaid dividends to the redemption date. On
July 1, 2000 all outstanding shares of Series B Preferred Stock shall be
redeemed for $1,000 per share together with accrued and unpaid dividends, at
the Company's option, in cash, in shares of common stock, or through a
combination of the foregoing.
F-28
<PAGE> 88
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. SHAREHOLDERS' EQUITY (CONTINUED)
In August 1999, the Company issued 750,000 shares of 5% Preferred Stock to
France Telecom. The 5% Preferred Stock has a stated value of $1,000 per share,
is convertible into common stock at a conversion price of $80 per share and is
redeemable in August 2009 for cash, shares of common stock or a combination of
both. The 5% Preferred Stock may be redeemed by the Company on the earlier of
August 2006 or the date on which both the Company's common stock has traded
above $96 per share for 25 consecutive trading days and August 2003. Dividends
are payable quarterly at the Company's option in cash, common stock or
additional shares of 5% Preferred Stock. The Company issued 5,000 shares of 5%
Preferred Stock for dividend payments of $5,000,000 through December 31, 1999.
At December 31, 1999, the Company's preferred stock would have been redeemable
or convertible into an aggregate of 18,224,000 shares of the Company's common
stock.
In October 1996, 780 shares of Non-voting Convertible Preferred Stock, Series A
were issued in connection with an acquisition. In May 1998, the 780 outstanding
shares were converted into 3,047,000 shares of common stock.
The changes in the number of shares of Series Preferred Stock, excluding the
Redeemable Preferred Stock, were as follows:
<TABLE>
<CAPTION>
Convertible 9.9% 9.9%
Series A Series A Series B 5.25% 5%
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 and 1997 780 - - - -
Conversion (780) - - - -
Issued for acquisitions - 125,000 52,000 - -
------------------------------------------------------------------------------------
Balance, December 31, 1998 - 125,000 52,000 - -
Issued for cash - - - 500,000 750,000
Issued for dividends - - - 25,000 5,000
Redemption - (125,000) - - -
------------------------------------------------------------------------------------
Balance, December 31, 1999 - - 52,000 525,000 755,000
====================================================================================
</TABLE>
WARRANTS
The Company has the following warrants outstanding as of December 31, 1999: (a)
warrants to purchase an aggregate of 1,097,000 shares of common stock at $3.56
per share issued in 1993 that expire in 2000 (1,405,000 were originally issued),
(b) warrants to purchase an aggregate of 246,000 shares of common stock at
$15.22 per share issued in 1996 that expire in 2006 (256,000 were originally
issued), (c) warrants to purchase an aggregate of 1,178,000 shares of common
stock at $27.77 per share issued in 1998 that expire in 2008 (1,197,000 were
originally issued) and (d) warrants to purchase an aggregate of 1,875,000 shares
of common stock at $53.76 per share issued in 1999 that expire in 2004
(1,875,000 were originally issued).
F-29
<PAGE> 89
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. SHAREHOLDERS' EQUITY (CONTINUED)
SHAREHOLDER RIGHTS PLAN
The Rights Agreement provides that .48 of a Right will be issued with each share
of common stock issued on or after October 13, 1993. The Rights are exercisable
upon the occurrence of certain potential takeover events and will expire in
October 2003 unless previously redeemed by the Company. When exercisable, each
Right entitles the owner to purchase from the Company one one-hundredth of a
share of Series A Junior Participating Preferred Stock ("Rights Preferred
Stock") at a purchase price of $100.
The Rights Preferred Stock will be entitled to a minimum preferential quarterly
dividend payment of $.01 per share and will be entitled to an aggregate dividend
of 208.33 times the dividend, if any, declared per share of common stock. In the
event of liquidation, the holders of Rights Preferred Stock will be entitled to
a minimum preferential liquidation payment of $1 per share and will be entitled
to an aggregate payment of 208.33 times the payment made per share of common
stock. Each share of Rights Preferred Stock will have 208.33 votes and will vote
together with the common stock. In the event of any merger, consolidation or
other transaction in which shares of common stock are changed or exchanged, each
share of Rights Preferred Stock will be entitled to receive 208.33 times the
amount received per share of common stock. The Rights are protected by customary
antidilution provisions.
STOCK OPTIONS
There are 3,381,000 shares and 10,396,000 shares of common stock reserved for
issuance under the 1991 Stock Option Plan and the 1993 Stock Option Plan,
respectively. These plans provide that incentive stock options ("ISOs") be
granted at the fair market value of the Company's common stock on the date of
grant, and nonqualified stock options ("NQSOs") be granted at not less than 85%
of the fair market value of the Company's common stock on the date of grant.
Options are exercisable as to 20% of the shares subject thereto on the date of
grant and become exercisable as to an additional 20% of the shares subject
thereto on each January 1 thereafter, while the optionee remains an employee of
the Company. Options will expire ten years after the date of the grant.
There are 156,000 shares and 500,000 shares of common stock reserved for
issuance under 1991 and 1993 Non-Employee Director Stock Option Plans,
respectively. Under the terms of these plans, options will be granted to members
of the Board of Directors who are not employees of the Company or any of its
affiliates. These plans provide that all options be granted at the fair market
value of the Company's common stock on the date of grant, and options will
expire ten years after the date of the grant. Options are exercisable as to 20%
of the shares subject thereto on the date of grant and become exercisable as to
an additional 20% of the shares subject thereto on each subsequent anniversary
of the grant date while the optionee remains a director of the Company. Options
will expire ten years after the date of the grant.
There are 23,438,000 shares of common stock reserved for issuance under the 1998
Non-Qualified Stock Option Plan. The exercise price of a NQSO shall be
determined by the Compensation and Option Committee. Options are exercisable as
to 20% of the shares subject thereto on the date of grant and become exercisable
as to an additional 20% of the shares subject thereto on each January 1
thereafter, while the optionee remains an employee of the Company. Options will
expire ten years after the date of the grant.
F-30
<PAGE> 90
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. SHAREHOLDERS' EQUITY (CONTINUED)
Pro forma information regarding net loss and net loss per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997: risk-free interest rates of 6.81%, 5.02%
and 5.89%, respectively, dividend yield of 0%, volatility factor of the expected
market price of the Company's common stock of .336, .331 and .276, respectively,
and a weighted-average expected life of the option of 10 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Following is the
Company's pro forma information:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Pro forma net (loss) $(822,730) $(580,747) $(343,850)
Basic and diluted pro forma net (loss) per share $ (7.51) $ (9.31) $ (7.09)
</TABLE>
A summary of the Company's stock option activity and related information for the
years ended December 31 follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE NUMBER OF OPTIONS EXERCISE PRICE
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year 25,700,000 $17.29 12,746,000 $10.23
Granted 6,368,000 50.35 13,850,000 24.06
Exercised (2,590,000) 15.95 (466,000) 13.59
Forfeited (240,000) 24.22 (430,000) 29.74
--------------------- ---------------------
Outstanding-end of year 29,238,000 $24.60 25,700,000 $17.29
===================== =====================
Exercisable at end of year 12,218,000 $14.97 11,009,000 $10.59
===================== =====================
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------------
WEIGHTED-AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE
--------------------------------------------
<S> <C> <C>
Outstanding-beginning of year 10,529,000 $ 9.02
Granted 2,455,000 15.34
Exercised (186,000) 8.22
Forfeited (52,000) 15.22
---------------------
Outstanding-end of year 12,746,000 $10.23
=====================
Exercisable at end of year 8,848,000 $ 7.93
=====================
</TABLE>
F-31
<PAGE> 91
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. SHAREHOLDERS' EQUITY (CONTINUED)
Weighted-average fair value of options, calculated using the Black-Scholes
option pricing model, granted during 1999, 1998 and 1997 is $30.97, $13.13 and
$8.15, respectively.
The following table summarizes the status of the stock options outstanding and
exercisable at December 31, 1999:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
-------------------------------------------------------- ------------------------------------
RANGE OF NUMBER OF WEIGHTED-REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES OPTIONS CONTRACTUAL LIFE EXERCISE PRICE NUMBER OF OPTIONS EXERCISE PRICE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.12 to $6.82 5,447,000 3.1 Years $ 4.921 5,447,000 $ 4.921
$6.83 to $13.64 393,000 5.2 Years $11.589 318,000 $11.530
$13.65 to $20.46 4,670,000 6.6 Years $15.692 3,548,000 $15.683
$20.47 to $27.28 11,630,000 8.1 Years $23.311 1,621,000 $23.090
$27.29 to $34.10 834,000 8.6 Years $28.609 276,000 $28.486
$34.11 to $40.92 216,000 9.0 Years $35.402 57,000 $35.530
$40.93 to $47.74 53,000 9.3 Years $47.440 11,000 $47.440
$47.75 to $54.56 5,472,000 9.2 Years $50.368 834,000 $50.405
$54.57 to $61.38 36,000 9.4 Years $59.960 9,000 $59.960
$61.39 to $68.20 487,000 9.8 Years $65.385 97,000 $65.385
- ----------------------------------------------------------------------------------------------------------------------------
Total 29,238,000 12,218,000
============================================================================================================================
</TABLE>
As of December 31, 1999, the Company has 78,238,000 shares of its common stock
reserved for issuance upon the exercise of warrants, stock options and the
conversion of debt and preferred stock.
F-32
<PAGE> 92
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18. EMPLOYEE BENEFIT PLANS
Certain subsidiaries of the Company operate defined benefit pension plans in the
United Kingdom. The assets of the Plans are held separately from those of the
Company and are invested in specialized portfolios under the management of an
investment group. The pension cost is calculated using the attained age method.
The Company's policy is to fund amounts to the defined benefit plans necessary
to comply with the funding requirements as prescribed by the laws and
regulations in the United Kingdom.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
-----------------------------------------------------
(in thousands)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $213,449 $202,645
Acquisition 10,686 -
Service cost 12,018 13,365
Interest cost 11,993 14,684
Actuarial gains (40,896) (14,640)
Benefits paid (5,247) (4,968)
Foreign currency exchange rate changes (4,893) 2,363
-----------------------------------------------------
Benefit obligation at end of year $197,110 $213,449
=====================================================
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $225,273 $193,607
Acquisition 10,095 -
Actual return on plan assets 43,064 24,144
Company contributions 7,558 7,242
Plan participants' contributions 2,946 2,991
Benefits paid (5,247) (4,968)
Foreign currency exchange rate changes (5,329) 2,257
-----------------------------------------------------
Fair value of plan assets at end of year $278,360 $225,273
=====================================================
Funded status of the plan $ 81,250 $ 11,824
Unrecognized net actuarial gains (89,278) (23,060)
Unrecognized transition obligation 8,177 9,306
-----------------------------------------------------
Prepaid/(accrued)benefit cost $ 149 $ (1,930)
=====================================================
Actuarial assumptions:
Weighted average discount rate 6.25% 5.75%
Weighted average rate of compensation increase 4.50% 5.50%
Expected long-term rate of return on plan assets 8.00% 8.00%
</TABLE>
F-33
<PAGE> 93
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18. EMPLOYEE BENEFIT PLANS (CONTINUED)
The components of net pension costs are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Service cost $ 12,018 $ 13,365 $ 10,693
Interest cost 11,993 14,684 12,765
Actual return on plan assets (43,064) (24,144) (30,852)
Net amortization and deferral 26,774 8,282 17,327
-------------------------------------------------------------------------
$ 7,721 $ 12,187 $ 9,933
=========================================================================
</TABLE>
19. LEASES
Leases for buildings, office space and equipment extend through 2031. Total
rental expense for the years ended December 31, 1999, 1998 and 1997 under
operating leases was $36,678,000, $29,356,000 and $20,674,000, respectively.
Future minimum lease payments under noncancellable operating leases as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year ended December 31:
<S> <C>
2000 $ 40,185
2001 36,228
2002 32,222
2003 30,321
2004 28,716
Thereafter 148,153
--------------
$315,825
==============
</TABLE>
20. COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 1999, the Company was committed to pay approximately
$314,000,000 for equipment and services, which includes certain operations and
maintenance contracts through 2005.
The Company had certain exclusive local delivery operator licenses for Northern
Ireland and other franchise areas in the United Kingdom. Pursuant to these
licenses, various subsidiaries of the Company were required to make monthly cash
payments to the Independent Television Commission ("ITC") during the 15-year
license terms. Upon a request by the Company in 1999, the ITC converted all of
the Company's fee bearing exclusive licenses to non-exclusive licenses by the
end of 1999. In 1999, 1998 and 1997, the Company paid $30,130,000, $25,036,000
and $23,587,000, respectively, in connection with these licenses. Since the
Company's liability for the license payments ceased upon the conversion, in 1999
the Company reversed an accrual for franchise fees of $13,592,000.
F-34
<PAGE> 94
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
20. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The Company intends to make an offer to convert its 7% Convertible Notes with a
principal amount of $599.3 million into common stock.
A wholly-owned subsidiary of the Company, Premium TV Limited, entered into media
partnerships with two United Kingdom football clubs whereby Premium TV will
receive certain marketing and sponsorship rights. Premium TV will provide loan
facilities to the clubs for an aggregate of pound sterling 51 million ($82
million), repayable after five years through the issue of ordinary shares in the
football clubs.
In January 2000, the Company announced that it would be bidding together with
France Telecom for one of the UMTS "third generation" mobile telephone licenses
that are being auctioned in the United Kingdom. In addition to the cost of the
license, the UMTS operators will incur costs to build a network, establish
operations and acquire customers. The auction is expected to begin in March
2000.
The Company is involved in certain disputes and litigation arising in the
ordinary course of its business. None of these matters are expected to have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
21. INDUSTRY SEGMENTS
The Company has four reportable segments: Residential Telecoms and Television,
National Telecoms, Broadcast and Corporate and Other. The Residential Telecoms
and Television segment delivers residential telephony, cable television,
Internet access and interactive services in regional franchise areas in the
United Kingdom, Ireland and France. The National Telecoms segment includes the
Company's business telecoms, national and international carrier telecoms,
Internet services and satellite communications services business units in the
United Kingdom. The Broadcast segment provides television and radio broadcasters
with digital and analog broadcast transmission and related services from owned
and shared tower sites throughout the United Kingdom and Australia. Corporate
and other includes the Company's shared services departments in the United
Kingdom and OCOM, a subsidiary that operated long distance and microwave
transmission businesses in the United States until June 1998.
The accounting policies of the segments are the same as those described in the
Significant Accounting Policies note. The Company's management evaluates segment
performance based on various financial and non-financial measurements. The
results of operations data utilized in financial measurements are revenues and
EBITDA, which is earnings before interest, taxes, depreciation and amortization,
corporate expenses, franchise fees, nonrecurring charges, other gains, foreign
currency transactions gains and extraordinary items. The Company's primary
measure of profit or loss is EBITDA. Certain selling, general and administrative
expenses are allocated to segments based on revenues. Segment assets include
only those assets that are specific to the segment. Management does not allocate
costs of shared services departments and jointly used assets for purposes of
measuring segment performance. The reportable segments are strategic business
units that offer different services. They are managed separately because each
business requires different technology and marketing strategies.
F-35
<PAGE> 95
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
21. INDUSTRY SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
RESIDENTIAL TELECOMS CORPORATE
AND NATIONAL AND
BROADCAST TELEVISION TELECOMS OTHER TOTAL
------------------------------------------------------------------------------------
(in thousands)
YEAR ENDED DECEMBER 31, 1999
<S> <C> <C> <C> <C> <C>
Revenues $201,900 $834,339 $ 547,895 $ - $1,584,134
Depreciation and amortization 68,584 528,344 59,852 134,542 791,322
EBITDA (1) 111,839 233,530 144,845 (279,296) 210,918
Expenditures for long-lived assets 42,210 591,364 388,965 131,766 1,154,305
Total assets 748,658 6,106,536 1,180,779 4,175,593 12,211,566
YEAR ENDED DECEMBER 31, 1998
Revenues $140,156 $355,589 $ 248,895 $2,375 $747,015
Depreciation and amortization 29,974 143,479 29,476 63,183 266,112
EBITDA (1) 91,687 67,587 35,848 (119,735) 75,387
Expenditures for long-lived assets 88,476 413,917 297,745 67,141 867,279
Total assets 289,068 3,100,492 761,097 2,043,440 6,194,097
YEAR ENDED DECEMBER 31, 1997
Revenues $130,799 $166,951 $ 185,194 $8,831 $491,775
Depreciation and amortization 13,584 78,730 9,666 48,529 150,509
EBITDA (1) 73,636 18,693 13,522 (84,853) 20,998
Expenditures for long-lived assets 36,142 304,656 105,076 20,519 466,393
Total assets 230,920 1,323,808 220,318 646,593 2,421,639
</TABLE>
(1) Represents earnings before interest, taxes, depreciation and amortization,
corporate expenses, franchise fees, nonrecurring charges, other gains,
foreign currency transaction gains and extraordinary items.
F-36
<PAGE> 96
NTL Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
21. INDUSTRY SEGMENTS (CONTINUED)
The reconciliation of segment combined EBITDA to loss before income taxes and
extraordinary item is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-----------------------------------------------
(in thousands)
<S> <C> <C> <C>
Segment Combined EBITDA $ 210,918 $ 75,387 $ 20,998
(Add) Deduct:
Franchise fees 16,538 25,036 23,587
Corporate expenses 29,402 17,048 18,324
Nonrecurring charges 16,179 (4,194) 20,642
Depreciation and amortization 791,322 266,112 150,509
Interest and other income (49,380) (46,024) (28,415)
Interest expense 680,728 328,815 202,570
Other gains (493,121) - (21,497)
Foreign currency transaction gains (12,720) (4,152) (574)
-----------------------------------------------
978,948 582,641 365,146
-----------------------------------------------
Loss before income taxes and extraordinary item $(768,030) $(507,254) $(344,148)
===============================================
</TABLE>
22. GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
United States United Kingdom Other Total
-----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
1999
Revenues $ - $1,508,262 $ 75,872 $1,584,134
Long-lived assets 669,334 7,559,849 663,795 8,892,978
1998
Revenues $ 2,375 $ 744,640 $ - $ 747,015
Long-lived assets 137,223 4,852,374 - 4,989,597
1997
Revenues $ 8,831 $ 482,944 $ - $ 491,775
Long-lived assets 55,173 2,129,312 - 2,184,485
</TABLE>
F-37
<PAGE> 97
NTL Incorporated
Schedule I--Condensed Financial Information of Registrant
Condensed Balance Sheet
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $1,501,342
Marketable securities 339,489
Other 403
--------------------
Total current assets 1,841,234
Fixed assets 7,250
Investments in and loans to subsidiaries 1,631,447
Deferred financing costs, net of accumulated
amortization of $222 26,408
--------------------
Total assets $3,506,339
====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 27,642
Long-term debt 1,200,000
Senior redeemable exchangeable preferred stock 141,805
Shareholders' equity:
Series preferred stock 13
Common stock 1,324
Additional paid-in capital 4,125,047
Accumulated other comprehensive (loss) (2,107)
(Deficit) (1,987,385)
--------------------
2,136,892
--------------------
Total liabilities and shareholders' equity $3,506,339
====================
</TABLE>
See accompanying notes.
F-38
<PAGE> 98
NTL Incorporated
Schedule I--Condensed Financial Information of Registrant (continued)
Condensed Statement of Operations
For the Period from April 1, 1999 to December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
COSTS AND EXPENSES
<S> <C>
Corporate expenses $ 4,142
Depreciation and amortization 222
------------------
Operating (loss) (4,364)
OTHER INCOME (EXPENSE)
Interest and other income 19,390
Interest expense (2,030)
Foreign currency transaction losses (9,973)
------------------
Income before income taxes and equity in net (loss) of subsidiaries 3,023
Income tax provision (1,000)
------------------
Income before equity in net (loss) of subsidiaries 2,023
Equity in net (loss) of subsidiaries (737,740)
------------------
Net (loss) (735,717)
Preferred stock dividend (73,709)
------------------
Net (loss) available to common shareholders $(809,426)
==================
</TABLE>
See accompanying notes.
F-39
<PAGE> 99
NTL Incorporated
Schedule I--Condensed Financial Information of Registrant (continued)
Condensed Statement of Cash Flows
For the Period from April 1, 1999 to December 31, 1999
(in thousands)
<TABLE>
<S> <C>
Net cash (used in) operating activities $ (5,554)
INVESTING ACTIVITIES
Purchase of fixed assets (7,250)
Purchase of marketable securities (392,873)
Proceeds from sales of marketable securities 58,017
Distribution from subsidiary 500,000
Increase in investments in and loans to subsidiaries (729,088)
---------------
Net cash (used in) investing activities (571,194)
FINANCING ACTIVITIES
Proceeds from borrowings, net of financing costs 1,173,380
Proceeds from exercise of stock options and warrants 29,990
Proceeds from issuance of preferred stock 750,000
Redemption of preferred stock (125,280)
Proceeds from issuance of common stock 250,000
---------------
Net cash provided by financing activities 2,078,090
---------------
Increase in cash and cash equivalents 1,501,342
Cash and cash equivalents at beginning of period -
---------------
Cash and cash equivalents at end of period $1,501,342
===============
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accretion of dividends and discount on preferred stock $ 35,727
</TABLE>
See accompanying notes.
F-40
<PAGE> 100
NTL Incorporated
Schedule I-Condensed Financial Information of Registrant
Notes to Condensed Financial Statements
1. CORPORATE RESTRUCTURING
Effective April 1, 1999, NTL Incorporated completed a corporate restructuring to
create a holding company structure. The holding company restructuring was
accomplished through a merger so that all the stockholders of NTL Incorporated
at the effective time of the merger became stockholders of the new holding
company, and NTL Incorporated became a subsidiary of the new holding company.
The new holding company has taken the name NTL Incorporated (the "Company") and
the holding company's subsidiary simultaneously changed its name to NTL
Communications Corp.
2. BASIS OF PRESENTATION
In the Company's condensed financial statements, the Company's investment in
subsidiaries is stated at cost plus equity in the undistributed earnings of the
subsidiaries. The Company's share of net loss of its subsidiaries is included in
net loss using the equity method of accounting. The condensed financial
statements should be read in conjunction with the Company's consolidated
financial statements.
3. LONG-TERM DEBT
In December 1999, the Company issued $1.2 billion aggregate principal amount of
5-3/4% Convertible Subordinated Notes due 2009 (the "Convertible Notes").
Interest is payable semi-annually beginning on June 15, 2000. The Convertible
Notes will be convertible after March 21, 2000 into shares of common stock at a
conversion price of $108.18 per share. The Convertible Notes may be redeemed, at
the Company's option, in whole or in part, at anytime on or prior to December
18, 2002.
4. REDEEMABLE PREFERRED STOCK
Dividends on the 13% Senior Redeemable Exchangeable Preferred Stock (the
"Redeemable Preferred Stock") accrue at 13% per annum ($130 per share) and are
payable quarterly in arrears. Dividends accruing on or prior to February 15,
2004 may, at the option of the Company, be paid in cash, by the issuance of
additional Redeemable Preferred Stock or in any combination of the foregoing.
The Redeemable Preferred Stock may be redeemed, at the Company's option, in
whole or in part, at any time after February 15, 2002, at a redemption price of
106.5% of the liquidation preference of $1,000 per share that declines annually
to 100% in 2005, in each case together with accrued and unpaid dividends to the
redemption date. The Redeemable Preferred Stock is subject to mandatory
redemption on February 15, 2009. On any scheduled dividend payment date, the
Company may, at its option, exchange all of the shares of Redeemable Preferred
Stock then outstanding for the Company's 13% Subordinated Exchange Debentures
due 2009.
F-41
<PAGE> 101
NTL Incorporated
Schedule I-Condensed Financial Information of Registrant
Notes to Condensed Financial Statements (continued)
5. LEASES
The Company rents office space in London pursuant to a lease which ends in 2000.
Total rental expense for the period from April 1, 1999 to December 31, 1999
under operating leases was $397,000.
Future minimum lease payments under noncancellable operating leases as of
December 31, 1999 are $97,000 for the year ended December 31, 2000.
6. OTHER
NTL Communications Corp. made a cash payment to the registrant of $500 million
during the period from April 1, 1999 to December 31, 1999.
F-42
<PAGE> 102
NTL Incorporated and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
(2)
(1) CHARGED TO
CHARGED TO OTHER BALANCE
BALANCE AT COSTS AND ACCOUNTS-- DEDUCTIONS AT END
DESCRIPTION BEGINNING OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Allowance for doubtful accounts $38,475,000 $46,245,000 $ - $874,000 (a) $85,594,000
===============================================================================================
Year ended December 31, 1998
Allowance for doubtful accounts $8,056,000 $27,282,000 $ - $3,137,000 (b) $38,475,000
===============================================================================================
Year ended December 31, 1997
Allowance for doubtful accounts $3,870,000 $ 6,891,000 $ - $(2,705,000)(c) $8,056,000
===============================================================================================
</TABLE>
(a) Uncollectible accounts written-off, net of recoveries of $15,585,000
and $1,220,000 foreign exchange currency translation adjustments,
offset by $17,679,000 allowance for doubtful accounts as of acquisition
dates of purchased subsidiaries.
(b) Uncollectible accounts written-off, net of recoveries of $9,158,000,
offset by $12,214,000 allowance for doubtful accounts as of acquisition
dates of purchased subsidiaries and $81,000 foreign currency
translation adjustments.
(c) Uncollectible accounts written-off, net of recoveries of $2,604,000 and
$101,000 foreign currency translation adjustments.
F-43
<PAGE> 1
TRANSACTION AGREEMENT
dated as of 12 December 1999
among
Cablecom Holding AG, a company incorporated under the laws of Switzerland with
place of incorporation in Frauenfeld and business offices at Zollstrasse 42,
CH-8005 Zurich, Switzerland
(the Seller)
and
NTL Incorporated, 110 East 58th Street, New York NY 10022, USA
(the Buyer)
and
Siemens Schweiz AG, Freilagerstrasse 40, P.O. Box, CH-8047 Zurich, Switzerland
Veba Telecom GmbH, Benniagsenplatz 1, D-40474 Dusseldorf, Germany
Swisscom AG, Alte Tiefenaustrasse 6, Worblaufen, CH-3050 Bern, Switzerland
(each, a Controlling Shareholder,
and collectively, the Controlling Shareholders)
<PAGE> 2
-2-
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS AND INTERPRETATION....................................... 7
2. SALE AND PURCHASE.................................................... 8
2.1. Object of Sale................................................. 8
2.2. Purchase Price................................................. 9
2.2.1. General.................................................. 9
2.2.2. Payment.................................................. 9
2.2.3. Determination of Net Purchase Price...................... 10
2.2.4. Interest on Net Purchase Price........................... 11
2.2.5. Adjustment of Net Purchase Price for Net Assets.......... 11
2.2.6. Adjustment of Net Purchase Price for Less of Subscribers. 13
2.2.7. Intercompany Net Debt.................................... 14
3. CLOSING.............................................................. 14
3.1. Date and Place................................................. 14
3.2. Conditions Precedent to Closing................................ 15
3.2.1. Conditions to Obligations of Each Party.................. 15
3.2.2. Conditions to Obligations of Buyer....................... 16
3.2.3. Conditions to Obligations of Seller...................... 16
3.2.4. Termination.............................................. 17
3.3. Closing Actions................................................ 17
3.3.1. Actions by Seller........................................ 17
3.3.2. Actions by Buyer......................................... 18
4. ACTIONS PRIOR TO CLOSING............................................. 19
4.1. General........................................................ 19
4.2. Filings and Submissions........................................ 19
4.3. Termination and Transfer of Agreements......................... 20
4.4. Related Cablecom Assets and Related Cablecom Contracts......... 22
4.5. Transitional Arrangements...................................... 22
4.6. Lex Koller..................................................... 22
4.7. Dividends of the Cablecom Companies; Escrow Agreement.......... 23
4.8. Additional Provisions for Swiss Online Shares.................. 25
4.8.1. Closing of Transaction Agreement......................... 25
4.8.2. Call Option and Put Option after Closing................. 26
4.8.3. Delayed Closing.......................................... 27
4.8.4. Actions if Seller does not deliver SOL Shares............ 27
4.8.5. Notice to Swiss Online Shareholders...................... 28
5. REPRESENTATIONS AND WARRANTIES....................................... 28
5.1 Representations and Warranties of Seller........................ 28
</TABLE>
<PAGE> 3
-3-
<TABLE>
<S> <C>
5.1.1. Cablecom Holding AG...................................... 29
5.1.2. The Cablecom Companies................................... 29
5.1.3. Related Cablecom Assets; Related Cablecom Liabilities.... 34
5.2. Representations and Warranties of the Controlling Shareholders. 35
5.2.1. Corporate Existence and Authority........................ 35
5.2.2. Ownership of Shares in Cablecom Holding AG............... 36
5.2.3. Representations as to the Cablecom Companies............. 36
5.3. Representations and Warranties of the Buyer.................... 36
6. REMEDIES FOR BREACH OF REPRESENTATIONS AND WARRANTIES................ 38
6.1. Term of Representations and Warranties......................... 38
6.2. Remedies of Buyer.............................................. 38
6.2.1. Remedies................................................. 38
6.2.2. Notice of Breach and Opportunity to Defend............... 39
6.2.3. Exclusion of Liability................................... 40
6.2.4. Limitations on Liability................................. 42
6.2.5. Several Liability of Controlling Shareholders............ 43
6.2.6. Rights of Recourse against Directors, Officers
and Employees............................................ 43
6.3. Remedies of Seller............................................. 44
6.4. Remedies Exclusive............................................. 44
6.5. No Limitation.................................................. 44
7. CONDUCT OF BUSINESS BETWEEN SIGNING AND CLOSING...................... 44
7.1. General........................................................ 44
7.2. Consultation with Buyer........................................ 45
7.3. Restricted Actions............................................. 45
7.4. Covenants of Controlling Shareholders.......................... 48
7.5. Press Releases and Other Public Announcements.................. 48
8. CONDUCT OF BUSINESS AFTER CLOSING.................................... 49
8.1. Restrictions on Resale......................................... 49
8.2. Use of Cablecom Name and Trademark............................. 50
8.3. Liquidation of Seller.......................................... 50
8.4. Restrictive Covenant........................................... 50
8.5. Swisscom Arrangements.......................................... 51
9. TAXES, COSTS AND EXPENSES............................................ 51
9.1. Taxes.......................................................... 51
9.2. Costs and Expenses............................................. 52
10. GENERAL PROVISIONS.................................................. 52
10.1. Effect on Third Parties....................................... 52
10.2. Notices....................................................... 53
</TABLE>
<PAGE> 4
-4-
<TABLE>
<S> <C>
10.3. Entire Agreement.............................................. 54
10.4. Amendments and Waivers........................................ 54
10.5. Severability; Good Faith...................................... 55
10.6. Confidentiality............................................... 55
10.7. Entry into Effect............................................. 56
10.8. Commitment Letter............................................. 56
11. GOVERNING LAW AND JURISDICTION...................................... 57
11.1. Governing Law................................................. 57
11.2. Jurisdiction.................................................. 57
</TABLE>
<PAGE> 5
-5-
ANNEXES & EXHIBITS
Annexes
- --------------------------------------------------------------------------------
Number Name
- --------------------------------------------------------------------------------
A Definitions
- --------------------------------------------------------------------------------
Exhibits
- --------------------------------------------------------------------------------
Number Name
- --------------------------------------------------------------------------------
1 List of Cablecom Companies
- --------------------------------------------------------------------------------
2 List of Related Cablecom Assets and Related Cablecom Liabilities
- --------------------------------------------------------------------------------
3 Commitment Letter of Buyer
- --------------------------------------------------------------------------------
4 Schedule of Indebtedness of the Cablecom Companies
- --------------------------------------------------------------------------------
5 Preliminary Combined Financial Statements
- --------------------------------------------------------------------------------
6 Guarantees and Financial Support Arrangements
- --------------------------------------------------------------------------------
7 Data Room Index
- --------------------------------------------------------------------------------
8 Disclosure Letter
- --------------------------------------------------------------------------------
9 Consolidated Financial Statements of the Cablecom Group as of
31 December 1998
- --------------------------------------------------------------------------------
10 Consolidated Interim Financial Statements of the Cablecom Group
as of 30 September 1999
- --------------------------------------------------------------------------------
11 Number of Subscribers to Cablecom
- --------------------------------------------------------------------------------
12 Real Estate owned or leased by the Cablecom Subsidiaries
- --------------------------------------------------------------------------------
13 Dividend Payments
- --------------------------------------------------------------------------------
<PAGE> 6
-6-
THIS TRANSACTION AGREEMENT (Agreement) is made as of 12 December 1999 among
Cablecom Holding AG, a company incorporated under the laws of Switzerland
(Seller), and NTL Incorporated, a company Incorporated under the laws of
Delaware, USA (Buyer), and Siemens Schweiz AG, a company incorporated under the
laws of Switzerland, Veba Telecom GmbH, a company Incorporated under the laws of
Germany, and Swisscom AG, a company incorporated under the laws of Switzerland
(each, a Controlling Shareholder, and collectively, the Controlling
Shareholders).
WHEREAS -:
A. Seller is a corporation incorporated under the laws of Switzerland with
statutory domicile in Frauenfeld TG. The share capital of Seller is CHF
100,000,000, divided into 100,000 registered shares with a par value of
CHF 1,000 each. The shares of Seller are held as follows:
<TABLE>
<CAPTION>
Number of Percentage of
Shareholder Shares held Shares held
<S> <C> <C>
Siemens Schweiz AG 32,000 32%
Veba Telecom GmbH 32,000 32%
Swisscom AG 32,000 32%
Cablecom Holding AG 4,000 4%
</TABLE>
B. Seller is the direct or indirect owner of the shares in the companies
listed in Exhibit 1 (collectively, the Cablecom Companies). The share
capital and number of shares of each such company are further set out in
Exhibit 1. Seller Is further the owner of the assets, and debtor of the
liabilities, listed in Exhibit 2.
C. The Cablecom Companies are active as providers of cable television and
radio services, internet services, consumer electronics, engineering and
owners of a fixed-line network In Switzerland.
D. The Controlling Shareholders have decided to procure the sale of all
business activities directly or indirectly controlled by Cablecom Holding
AG to a third party buyer. The Controlling Shareholders have determined to
do this by means of (A) a sale of (i) all shares held by Seller in the
Cablecom Subsidiaries, and (ii) all Related Cablecom Assets and Related
Cablecom Contracts, and (B) a transfer of all Related Cablecom
Liabilities.
<PAGE> 7
-7-
E. Buyer wishes to buy all shares in the Cablecom Companies and all Related
Cablecom Assets and the benefit (subject to the burden) of all Related
Cablecom Contracts, and has agreed to assume all Related Cablecom
Liabilities, pursuant to and subject to the terms and conditions set forth
in this Agreement. Buyer has, in this connection, delivered to Seller a
commitment letter in the form set out in Exhibit 3 hereto confirming that
Buyer is, and will be as of the Closing Date, in a position to finance its
commitments under this Agreement.
F. Buyer has the right to consummate the transactions contemplated under this
Agreement directly or through an Affiliate of Buyer, it being understood
that Buyer shall remain jointly and severally liable with any such
Affiliate for all obligations under this Agreement as further set out in
Section 10.1.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS AND INTERPRETATION
Terms used in this Agreement in capitalized form shall have the meanings
ascribed to them in Annex A.
Unless the context requires otherwise:
(i) references in this Agreement to any gender shall include other genders;
(ii) references to a person shall include a reference to a natural person,
incorporated entity, unincorporated business association, partnership or
trust;
(iii) references to any statute or statutory provision shall include any
instrument, order, regulation or direction made or issued under such
statute or statutory provision, as amended from time to time up to the
Effective Date;
(iv) references to any Swiss legal term for actions, remedies, or any legal
concept or thing shall, in respect of any non-Swiss jurisdiction, be
deemed to include what most nearly approximates to the Swiss legal term in
such jurisdiction;
(v) references to times or dates shall be understood as referring to the time
or date prevailing in Switzerland.
<PAGE> 8
-8-
2. SALE AND PURCHASE
2.1. Object of Sale
Subject to the terms and conditions set forth in this Agreement, Seller hereby
undertakes to sell (or to procure the sale) and to transfer, assign and deliver
(or to procure the same) to Buyer, and Buyer hereby undertakes to buy (or to
procure the purchase) from Seller at the Closing Date the legal and beneficial
ownership free from all liens, charges and other third-party rights, other than
as described herein:
(a) the Sale Shares (subject to Section 4.8);
(b) the Related Cablecom Assets;
(c) the benefit (subject to the burden) of the Related Cablecom Contracts.
Buyer further undertakes to assume (or procure the assumption of) all the
Related Cablecom Liabilities (including, for the avoidance of doubt, the
employment agreements referred to in Exhibit 2). The Sale Shares, the Related
Cablecom Assets, the Related Cablecom Contracts and the Related Cablecom
Liabilities, which shall be transferred to Buyer pursuant to this Agreement,
shall collectively be referred to as the Cablecom Business.
The transactions contemplated by this Agreement may be consummated by an
Affiliate of Buyer in accordance with this Agreement, it being understood that
(i) Buyer shall retain Control over such Affiliate, and (ii) Buyer shall remain
jointly and severally liable for all obligations of such Affiliate.
The transactions contemplated hereunder shall become effective as of 1 January
2000, 00:01 a.m. (the Effective Date). The sale and purchase of the Sale Shares
and the Related Cablecom Assets and Related Cablecom Contracts shall include any
rights and privileges thereon (including profits accrued from the Effective Date
to the Closing Date), and the assumption of the Related Cablecom Liabilities
shall include all interest accrued and outstanding on such liabilities from the
Effective Date to the Closing Date.
<PAGE> 9
-9-
Buyer shall not be obliged to complete the purchase of the Cablecom Business
unless the sale of all of the Cablecom Business is completed substantially
simultaneously, subject, however, to the provisions of Section 4.4, 4.5, 4.6 and
4.8.
2.2. Purchase Price
2.2.1. General
The total purchase price (the Purchase Price) payable by Buyer to Seller in
connection with the transfer of Cablecom Business amounts to CHF 5,800,000,000
(five billion eight-hundred million Swiss Francs), plus interest and subject to
adjustment pursuant to this Section 2.2. The above is subject to the provisions
of Section 4.8.
2.2.2. Payment
Subject to the provisions of Section 4.8, the Purchase Price shall be payable as
follows:
(a) on the Closing Date, Buyer shall assume or cause the assumption or permit
the continuing effect of all Third Party Financial Debt outstanding as of
the Closing Date, including accrued and unpaid interest, and procure that
Seller and the Controlling Shareholders are released from any and all
obligations with respect to such Third Party Financial Debt. For the
purposes of the foregoing, Seller shall provide to Buyer, no later than
five business days prior to the Closing Date, complete and accurate
details of the Third Party Financial Debt. It is understood and agreed
that any redemption penalties or costs of early repayment in relation to
the assumption of Third Party Financial Debt shall be for the account of
Seller;
(b) on the Closing Date, Buyer shall procure that all Parent Intercompany
Debt, including accrued and unpaid interest, outstanding as of the Closing
Date is repaid, including the assumption of any guarantees or any other
financial support arrangements (particulars of which are set out in
Exhibit 6) of Seller or the Controlling Shareholders;
(c) on the Closing Date, Buyer shall pay to Seller (aa) the Net Purchase Price
calculated in accordance with Section 2.2.3., together with interest
calculated in accordance with Section 2.2.4 and subject to adjustment
pursuant to Sections 2.2.5 and 2.2.6, and (bb) the Cash payment referred
to in Section 2.2.3(e) together with interest calculated thereon in
accordance with Section 2.2.4.
<PAGE> 10
-10-
2.2.3. Determination of Net Purchase Price
Subject to the provisions of Section 4.8, the Net Purchase Price is CHF
5,353,391,000 (five billion three hundred and fifty-three million three hundred
ninety-one thousand Swiss Francs) and has been calculated as follows: attached
hereto as Exhibit 5 are the preliminary combined financial statements of the
Cablecom Business as of 31 December 1999 (the Preliminary Combined Financial
Statements), which has served as a basis for the calculation of the Net Purchase
Price as follows:
(a) With respect to the Cash, the Third Party Financial Debt and the
Intercompany Net Debt of the Cablecom Business as of 31 December 1999, as
determined in the Preliminary Combined Financial Statements:
(i) the Third Party Financial Debt projected to be outstanding as of 31
December 1999 has been deducted from the Purchase Price;
(ii) the Intercompany Net Debt, including accrued and unpaid interest,
projected to be outstanding as of 31 December 1999 has been deducted
from (or, as the case may be, added to) the Purchase Price;
(iii) the Cash projected to be outstanding as of 31 December 1999 has been
added to the Purchase Price.
(b) The balance of the calculation pursuant to Section 2.2.3(a) shall be the
Net Purchase Price, payable on the Closing Date with interest accrued
thereon (as calculated in accordance with Section 2.2.4.).
(c) It is understood, for the sake of clarity, that the Net Purchase Price
will not change until the Closing Date (even though the Third Party
Financial Debt, the Parent Intercompany Debt and the Cash may vary by
interest or otherwise between 31 December 1999 and the Closing Date),
provided, however, that the Net Purchase Price may be adjusted pursuant to
Section 2.2.5. and 2.2.6.
(d) Seller shall make available to Buyer and its advisors the books, records,
documents and work papers (including work papers of auditors) underlying
the preparation and review of the Preliminary Combined Financial
Statements and the Final Combined Financial Statements. Seller shall
further procure that Buyer is given reasonable access to the members of
management and auditors of the Cablecom Group involved in the preparation
of the financial statements for the purposes of reviewing the same.
<PAGE> 11
-11-
(e) It is understood and agreed that any cash received by the Cablecom
Companies prior to the Effective Date in respect of accounts receivable
for cable television subscriptions for the business year 2000 shall be for
the benefit of Seller, and that any cash received by the Cablecom
Companies on or after the Effective Date in respect of accounts receivable
in respect of cable television subscription for the business year 2000
shall be for the benefit of Buyer.
(f) It is further understood and agreed that any special bonuses payable to
the management of the Cablecom Group in connection with the transactions
contemplated by this Agreement will be paid by Seller and not by any
Cablecom Company, and will therefore not lead to any further reduction or
adjustment of the Net Purchase Price.
2.2.4. Interest on Net Purchase Price
Subject to Section 4.8, the Net Purchase Price shall bear interest from 1 April
2000 through to the Closing Date at a rate determined two business days prior to
1 April 2000 of 9-month EURIBOR plus 300 basis points, unless Closing has not
occurred or been substantially delayed due to (i) a material breach by Seller or
any of the Controlling Shareholders of its or their obligations under Section 4,
or (ii) a judgment, injunction or order having been issued against any of the
parties hereto due to the fault of Seller or any of the Controlling
Shareholders.
2.2.5. Adjustment of Net Purchase Price for Net Assets
Promptly following 31 December 1999, but in no event later than 90 days
thereafter, Seller shall submit to Buyer the audited combined financial
statements of the Cablecom Business as of 31 December 1999 (the Final Combined
Financial Statements), it being understood that Seller shall notify Buyer no
less than 10 business days before delivery of the Final Combined Financial
Statements and the Final Net Assets calculation that such documents will be
delivered. The Final Combined Financial Statements shall be prepared in
accordance with the consistently applied Accounting Principles and shall be
accompanied by a draft audit opinion addressed to Seller in respect of such
financial statements.
The Net Purchase Price will be subject to adjustment as follows:
(a) Seller will, in the course of preparing the Final Combined Financial
Statements, calculate the Final Net Assets as of 31 December 1999,
projected to be at CHF 1,122,282,000 (one billion one hundred twenty-two
million two hundred eighty-
<PAGE> 12
-12-
two thousand Swiss francs). If the Final Net Assets as of 31 December 1999
(with accrued profits, but before accrual or payment of dividends for the
financial year 1999) are more than CHF 20,000,000 (twenty million Swiss
Francs) below this figure, i.e., lower than CHF 1,102,282,000 (one billion
one hundred and two million two hundred eighty-two thousand Swiss francs),
Seller will compensate Buyer for the shortfall below CHF 1,102,282,000 on
a Franc-by-Franc basis, the Net Purchase Price being reduced accordingly.
(b) In the event Buyer disputes the correctness of the Final Net Assets
calculation, Buyer shall notify Seller of its objections within 10
business days after receipt of the Final Net Assets calculation and shall
set forth, in writing and reasonable detail, the reasons for its
objection. If Buyer fails to deliver such notice of objection within such
time, Buyer shall be deemed to have accepted the Final Net Assets
calculation. Seller and Buyer shall endeavor in good faith to resolve any
disputed matters within 20 days after Seller's receipt of Buyer's notice
of objection. If they are unable to do so, Seller and Buyer shall jointly
appoint a major international firm of independent chartered accountants
(the Appraiser) to resolve the matters in dispute. If the parties fail or
refuse to appoint the Appraiser, each party may call upon the then
President of the Zurich Chamber of Commerce to appoint the Appraiser. The
Appraiser shall be independent of the parties and shall not have been
involved in any of the transactions contemplated under this Agreement. The
Appraiser shall resolve the matters in dispute within 20 days of its
appointment. Such determination shall be final and binding on the parties
for whatsoever purpose under this Agreement and may not be challenged
pursuant to Section 11.2 except in case of fraud, gross negligence or
manifest error of the Appraiser. The costs of the Appraiser shall be borne
by the parties pursuant to Section 9.2.
(c) A dispute on the calculation of the Final Net Assets shall not prevent the
Closing from taking place. In case of such a dispute the adjustment of the
Net Purchase Price shall take place after the Closing as soon as the
Appraiser has rendered its opinion. Pending resolution of such dispute,
the Buyer shall be entitled at Closing to retain the amount of the alleged
reduction from the Net Purchase Price. Upon final determination or
agreement of the dispute,
(i) to the extent the dispute is determined or agreed in favor of
Seller, Buyer shall forthwith pay to Seller the retained amount with
interest at the rate stated in Section 2.2.4. calculated from 1
April 2000 to the payment date; or
(ii) to the extent the dispute is determined or agreed in favor of Buyer,
Buyer shall be entitled to retain the amount of the retention as
represents the required reduction of the Net Purchase Price, and
shall pay the balance, if any, to Seller. If there is any shortfall
between the amount retained and the
<PAGE> 13
-13-
required reduction, the Seller shall pay the shortfall to Buyer,
including interest at the rate stated in Section 2.2.4, calculated
from 1 April 2000 to the payment date.
(d) If any event has occurred that leads to an adjustment on the Final Net
Assets (the Adjustment Event), and once the Final Net Assets have been
agreed between the parties or determined by the Appraiser, any claim for
misrepresentation or breach of warranty pursuant to Section 5 with respect
to the factual basis and the matters underlying such Adjustment Event
shall be deemed to be settled, and any further claims arising therefrom
shall be excluded.
2.2.6. Adjustment of Net Purchase Price for Loss of Subscribers
If, as a result of a judgment, injunction or order being issued by any competent
governmental, regulatory, administrative or judicial authority, Buyer is
prevented at Closing from acquiring or assuming control of 3% or more of
Cablecom's cable television subscribers (calculated under the "Equity
Subscribers" method as set forth in Exhibit 11), the Net Purchase Price shall be
adjusted in accordance with the following principles:
(a) upon Closing, Seller and Buyer shall jointly in good faith determine the
number of cable television subscribers of the Cablecom Group as to which
Buyer is prevented from acquiring or assuming control as of Closing (the
Relevant Subscribers), compared to the relevant number as of 30 September
1999 and not including any permitted purchases of networks after such
date.
(b) If the number of Relevant Subscribers is less than 3% of Cablecom's cable
television subscribers, Buyer shall have no right to make a price
adjustment. If the number of Relevant Subscribers is at or above 3% of
Cablecom's cable television subscriber, Buyer shall be entitled to hold
back an amount of the Net Purchase Price corresponding to the full number
of Relevant Subscribers multiplied by CHF 3,750 (three thousand seven
hundred fifty Swiss francs) (such amount, the Hold Back).
(c) Seller and the Controlling Shareholders shall have the right, at any time
after the Closing Date, but in no event later than 30 June 2001, to make
Buyer whole by:
(i) setting aside the effects of any Judgment, injunction or order
issued by any competent governmental, regulatory, administrative or
judicial authority that prevents Buyer from acquiring or assuming
control of all or part of the Relevant Subscribers; and
<PAGE> 14
-14-
(ii) doing all acts and things necessary to enable Buyer (or an Affiliate
of Buyer as directed by Buyer) to acquire and assume control of such
number of Relevant Subscribers to which the judgment, injunction or
order has related, including without limitation the transfer of
shares and assets relating to such Relevant Subscribers.
If Seller can make Buyer whole on all or part of the Relevant Subscribers
on or by 30 June 2001, Buyer (or an Affiliate of Buyer as directed by
Buyer) shall pay to Seller, upon the date of transfer of control of such
Relevant Subscribers to Buyer, an amount corresponding to the number of
Relevant subscribers multiplied by CHF 3,750 (three thousand seven hundred
fifty Swiss Francs), without any interest due thereon.
2.2.7. Intercompany Net Debt
Payment of the Parent Intercompany Debt to Seller or the respective Controlling
Shareholder, and payment of the Subsidiary Intercompany Debt to the relevant
Cablecom Company which is a creditor of such debt shall constitute a good and
valid discharge of the respective debtors in respect of such debt. The parties
may agree that all payments in respect of Parent Intercompany Debt and
Subsidiary Intercompany Debt be made by and to Buyer or Seller, respectively.
3. CLOSING
3.1. Date and Place
Closing shall take place within 10 business days after all conditions precedent
set forth in Section 3.2 have been satisfied or waived by the party whose
performance is subject to such condition, or on another date as the parties
hereto may agree, but in no event later than 31 October 2000 (the Long Stop
Date) or on such later date as the parties hereto may agree.
Closing shall take place at the offices of Homburger Rechtsanwalte,
Weinbergstrasse 56/58, CH-8035 Zurich, Switzerland or at such other location as
the parties hereto may agree.
<PAGE> 15
-15-
3.2. Conditions Precedent to Closing
3.2.1. Conditions to Obligations of Each Party
The respective obligations of the parties hereto to effect the transactions
contemplated under this Agreement shall be subject to the satisfaction or waiver
by all parties hereto, on or by the Long Stop Date, of the following conditions:
(a) the transactions contemplated by this Agreement shall have been approved
by the following governmental or regulatory authorities at or by the
Closing Date: (i) the Federal Office for Communication (Bundesamt fur
Kommunikation) including the approval of change of control of all
retransmission and telecommunications licenses necessary to operate the
business of the Cablecom Group as the same is presently being conducted,
(ii) the competent Austrian authorities with respect of the transfer of
the interest of the Seller in Cablecom Kabelkommunikation GmbH;
(b) all waiting periods arising under the Merger Control Laws shall have duly
lapsed or been terminated without there being imposed on any of the
parties any material condition, requirement or commitment;
(c) no judgment, injunction or order shall have been issued by any competent
governmental, regulatory, administrative or judicial authority which:
(i) would prohibit the consummation of the transactions contemplated
under this Agreement, or
(ii) would impose any substantial limitation on the ability of Buyer to
acquire or hold or control any of the shares of the Cablecom
Companies, which limitation, in the aggregate, would (aa) affect 20%
or more of the total cable television subscribers of the Cablecom
Group (calculated under the "Equity Subscribers" method as set forth
in Exhibit 11), or (bb) prevent the acquisition or control by Buyer
of a substantial part of the backbone of the Cablecom Group, or (cc)
prevent the acquisition or control by Buyer of Swiss Online
(subject, however, to Section 4.8).
(d) If the transactions contemplated under this Agreement or any matters
arising from them constitutes a "concentration with a Community dimension"
as defined in the European Merger Control Regulation (EMCR):
<PAGE> 16
-16-
(i) the EU Commission shall have declared, in terms reasonably
satisfactory to Seller and Buyer, that all such concentrations are
compatible with the common market pursuant to Articles 6(1)(b) or
8(2) EMCR; or
(ii) the applicable waiting periods laid down in Articles 10(1) or 10(3)
EMCR shall have duly lapsed or been terminated without there being
imposed on any of the parties any material conditions, commitment or
requirement; or
(iii) if a request under Art. 9(2) EMCR is made by one or more member
states of the European Economic Area, either (aa) the European
Commission shall have indicated, in terms reasonably satisfactory to
Seller and Buyer, that it does not intend to refer the transaction
or any matters arising from it to a competent authority of such
state in accordance with Art. 9 EMCR; or (bb) if a referral is made
to a competent authority in any member state, such competent
authority shall have adopted a decision or provided such other
indication of its position as is reasonably satisfactory to Seller
and Buyer.
(iv) if a member state of the European Union takes any action to protect
its legitimate interests under Art. 21(3) EMCR in relation to the
transactions contemplated by this Agreement or any matters arising
from them, Seller and Buyer shall be reasonably satisfied that such
action does not materially affect the nature of the transactions
contemplated under this Agreement or any matters arising from them.
3.2.2. Conditions to Obligations of Buyer
The obligation of Buyer to consummate the transactions contemplated by this
Agreement is subject to the satisfaction or subject to the waiver by Buyer, on
or by the Closing Date, of the condition that Seller and each Controlling
Shareholder shall have performed in all material respects all agreements,
obligations and undertakings that are to be performed on or by the Closing Date.
3.2.3. Conditions to Obligations of Seller
The obligation of Seller to consummate the transactions contemplated by this
Agreement is subject to the satisfaction or subject to the waiver by Seller, on
or by the Closing Date, of the condition that Buyer shall have performed in all
material respects all agreements, obligations and undertakings that are to be
performed on or by the Closing Date.
<PAGE> 17
-17-
Notwithstanding the foregoing, it is understood and agreed that failure by
Seller to deliver the SOL Shares on Closing as envisaged in Section 4.8 shall
not impede Closing from taking place. If Seller fails to deliver the SOL Shares
on Closing, Section 4.8 shall apply.
3.2.4. Termination
The obligations of each party to consummate the transactions contemplated by
this Agreement shall automatically terminate, without any notice or other action
being required, if Closing shall not have occurred on or by the Long Stop Date.
If this Agreement is terminated, all provisions of this Agreement shall cease to
be effective except for Section 2.2.2(a) (relating to the down payment), Section
7.3 (Press Releases and Other Public Announcements), Section 9.2 (Costs and
Expenses), Section 10 (General Provisions) and Section 11 (Governing Law and
Jurisdiction), provided, however, that if termination shall result from the
breach by any party of its obligations under this Agreement, such party shall be
fully liable for any and all damages incurred or suffered by the other party or
parties as a result of such breach.
3.3. Closing Actions
3.3.1. Actions by Seller
Subject to the provisions of Section 4.8, at the Closing, Seller shall deliver
to Buyer the following documents:
(a) certificates representing all of the Sale Shares, endorsed in blank where
necessary (or, to the extent such shares are not certificated, valid
assignments in writing relating to such shares), free and clear of any
lien or other third party rights (subject to Section 4.8);
(b) an original of the shareholders' resolution of Seller authorizing the
transactions contemplated by this Agreement;
(c) an original of a resolution of the board of directors of each Cablecom
Subsidiary the Shares of which are transferred to Buyer stating that (i)
buyer has been approved is a shareholder of the respective Cablecom
Subsidiary, and (ii) Buyer is registered as a shareholder with voting
rights of the respective Cablecom Subsidiary;
<PAGE> 18
-18-
(d) all documents and instruments (including title deed and ancillary
documents) necessary to procure the valid transfer to Buyer of (i) free
end unencumbered title to the Related Cablecom Assets, and (ii) the
benefit (subject to the burden) of the Related Cablecom Contracts;
(e) all documents and instruments necessary to procure the valid assumption by
Buyer of the Related Cablecom Liabilities;
(f) a notarized copy of the deed of transfer relating to the interest of
Seller in Cablecom Kabelkommunikations GmbH;
(g) a certified copy of any power of attorney under which any of the transfers
or other documents referred to in this Section 3.3.1 is executed,
including evidence reasonably satisfactory to Buyer of the authority of
any person signing on behalf of a party;
(h) a letter of resignation from the auditors of each Cablecom Subsidiary,
including confirmation that such auditors have no claims or loss of
office, unpaid fees or expenses or otherwise in respect of any business
years up to 31 December 1999 (it being understood that such auditors shall
remain in office for the financial year 1999);
(i) confirmation in a form reasonably satisfactory to Buyer that all
Subsidiary Intercompany Debt has been repaid, including any accrued and
outstanding interest thereon;
(j) documents evidencing the transfer of agreements set out in Sections 4.3
and 4.4, as well as transitional arrangements concluded under Section 4.5,
as reasonably agreed among Buyer and Seller.
3.3.2. Actions by Buyer
Subject to the provisions of Section 4.8, at the Closing, Buyer shall:
(a) pay the Net Purchase Price (together with interest calculated in
accordance with Section 2.2.4), and subject to adjustment, if applicable,
pursuant to Section 2.2.5 and 2.2.6, by wire transfer to an account
designated by Seller;
(b) pay the cash received by the Cablecom Companies pursuant to Section
2.2.3(e) together with interest calculated thereon in accordance with
Section 2.2.4 by wire transfer to an account designated by Seller;
<PAGE> 19
-19-
(c) procure the repayment of the Parent Intercompany Debt in accordance with
Section 2.2.2;
(d) procure the assumption (or continuing effect) or repayment of the Third
Party Financial Debt in accordance with Section 2.2.2, and procure that
Seller and the Controlling Shareholders are released from any and all
obligations with respect to such Third Party Financial Debt.
4. ACTIONS PRIOR TO CLOSING
4.1. General
Unless specifically otherwise provided herein, the parties undertake to use
their commercially reasonable best efforts to procure:
(a) that the conditions precedent set forth in Section 3.2 shall be satisfied
by Closing;
(b) that all their Affiliates will do all acts and things as are reasonably
necessary (and within their power) to implement the transactions
Contemplated by this Agreement.
The parties shall fully cooperate and promptly inform each other of any relevant
actions taken prior to Closing.
4.2. Filings and Submissions
Promptly after the date of this Agreement, Buyer shall make (if permitted under
applicable law) or prepare all necessary filings with and submissions to
governmental, regulatory or administrative agencies or any other third parties
that are required for the consummation of the transactions contemplated by this
Agreement. Seller and the Controlling Shareholders shall use their commercially
reasonable best efforts to assist Buyer in making or preparing such filings and
submissions. Such filings shall include, without limitation:
(a) all filings and submissions required under the relevant Merger Control
Laws;
(b) all filings and submissions required to be made with the Swiss regulatory
authorities to procure for the valid transfer to or assumption by Buyer of
retrans-
<PAGE> 20
-20-
mission licenses and telecommunications licenses under the Swiss Radio and
Television Act;
(c) all filings and submissions required to be made with the Austrian
regulatory authorities to procure for the valid transfer to or assumption
by Buyer of all licenses and permits under applicable law necessary to for
Buyer to continue to conduct the business of the Cablecom Group in Austria
as the same Is presently being conducted;
(d) all filings and submissions with third parties to material agreements
where the approval of such third parties is necessary to continue such
material agreements (to the extent Buyer is aware of its obligation to
make such filings and submissions);
(e) all filings and submissions required for the transfer of the Related
Cablecom Assets and the Related Cablecom Contracts (to the extent Buyer is
aware of its obligation to make such filings and submissions).
No party shall make any filings or submissions to any authorities or third
parties without the prior consent of the other party or parties (such consent
not to be unreasonably withheld or delayed).
4.3. Termination and Transfer of Agreements
As to the following Contracts, the relevant party shall arrange, on or prior to
the Closing, for:
(a) redemption of any loan agreements relating to the Parent Intercompany Debt
and the Subsidiary Intercompany Debt as set forth in Exhibit 4 and/or as
outstanding as of the Closing Date, it being understood that Seller shall
provide to Buyer complete and accurate details of the same no later than
five business days prior to the Closing Date;
(b) termination of any commitments, guarantees or similar third party
undertakings made or given by Cablecom Holding AG or any Controlling
Shareholder in favor of any of the Cablecom Companies, whereby Seller
shall provide to Buyer complete and accurate details of the same no later
than five business days prior to the Closing Date (it being understood
that (i) any costs and expenses arising from the Effective Date until the
Closing Date in relation to such undertakings shall be borne by the
relevant Cablecom Company, but that (ii) any costs in relation to the
early termination of such commitments, guarantees or undertakings
<PAGE> 21
-21-
shall be for the account of Seller or the respective Controlling
Shareholder, as the case may be);
(c) termination, in accordance with their terms, of all mandate agreements and
similar appointments of directors or officers of any of the Cablecom
Companies to the extent Buyer so requests;
(d) transfer of all employment agreements of employees of Cablecom Holding AG,
it being understood that to the fullest extent possible, employment
agreements shall be transferred by operation of law in connection with a
transfer of business (Betriebsubergang) as set forth in Article 333 of the
Swiss Federal Code of Obligations (CO). All consultation and notification
periods required under applicable law for the transfer of such agreements
shall have been observed or expired in accordance with applicable law;
(e) transfer of all pension fund arrangements with respect to the employees
referred to in the preceding Section 4.3(d);
(f) transfer of all agreements relating to intellectual property owned or used
by the Cablecom Group, including those listed in Exhibit 2, to which
Seller has title, license or similar rights;
(g) termination of any insurance arrangements and agreements entered into or
made by Cablecom Holding AG on behalf of any of the Cablecom Companies, it
being understood that:
(i) Buyer shall contract, or cause the Cablecom Companies to contract,
adequate insurance as from the Closing Date, whereby such insurance
shall either (aa) cover the entire business of the Cablecom Group to
be transferred under this Agreement as from the Closing Date on a
"claims made" basis; or (bb) cover the entire business of the
Cablecom Group as from the Closing Date on an "occurrence basis",in
which case such insurance coverage shall be supplemented by an
appropriate tail insurance for any claims made by or against any
company of the Cablecom Group after the Closing Date with respect to
matters having occurred prior to the Closing Date; and
(ii) Seller shall take all steps as may be reasonably necessary to ensure
that, following Closing, the Cablecom Business shall continue to
benefit from any of the insurance arrangements in respect of the
Cablecom Business effective prior to the Closing Date.
<PAGE> 22
-22-
4.4. Related Cablecom Assets and Related Cablecom Contracts
Seller shall use its commercially reasonable best efforts to procure that any
consent or agreement of any third party required for the transfer of any related
Cablecom Asset or Related Cablecom Contract is obtained at or by the Closing
Date. If such consent or agreement has not been obtained, then the sale and
purchase of that Related Cablecom Asset or Related Cablecom Contract shall be
postponed until such consent or agreement shall have been obtained, and in the
meantime, the provisions of Section 4.5 shall apply in relation thereto.
4.5. Transitional Arrangements
To the extent any of the agreements or commitments set out in Section 4.3 and
4.4 cannot be terminated or transferred to or assumed by Buyer or the Cablecom
Subsidiaries on the Closing Date, the parties shall enter into such appropriate
transitional arrangements as the Buyer may reasonably request allowing Buyer or
the respective Cablecom Subsidiary to assume the economic burden and benefit of
such agreements or commitments, to the fullest extent possible, on the Closing
Date. For the sake of clarity, it is understood that the receipt of such consent
shall not constitute a condition to Closing or otherwise be an obstacle for the
Closing. In particular, it shall not entitle Buyer to any set-off, counterclaim
or right of retention.
4.6. Lex Koller
(a) Promptly after the date of this Agreement, Buyer shall evaluate the
implications under the Federal Act on the Acquisition of Real Estate by
Non-resident Persons (Lex Koller) as applicable to the consummation of the
transactions contemplated by this Agreement. Seller and the Controlling
Shareholders shall use their commercially reasonable best efforts to make
available to Buyer promptly upon Buyer's request all information necessary
or expedient in connection with such evaluation.
(b) Should Buyer in its reasonable judgement come to the conclusion that the
transfer of ownership in respect of some or all of the Sale Shares
requires the approval of the relevant governmental authorities, or should
not occur without having obtained a decree by the competent governmental
authority as to the non-applicability of Lex Koller, then the parties
shall proceed to a partial closing
<PAGE> 23
-23-
in respect of all Sale Shares where no such approval or decree is required
or held to be required.
(c) As to the Sale Shares subject to a Lex Koller approval or decree, the
following shall apply:
(i) Buyer shall apply for such approval or decree of non-applicability
of Lex Koller with the competent governmental authority, and proceed
to subsequent partial closing(s) in respect of the remaining Sale
Shares as and when the appropriate approval or decree has been
obtained.
(ii) Should Buyer request that Seller purchases or procures the sale to a
third party of certain real estate because no approval or no decree
of non-applicability of Lex Koller has been obtained, Seller shall
purchase or procure the sale to a third party of the residential
real estate or land reserves at issue from the Cablecom Subsidiary
that owns such residential real estate or land reserves. Such real
estate shall be purchased at market values as finally determined by
a real estate appraiser jointly mandated by Buyer and Seller.
(iii) As soon as the purchase of the relevant residential real estate or
land reserves at issue by Seller has been completed, the parties
shall immediately proceed to closing in relation to the affected
remaining Sale Shares.
(iv) Payment for the real estate purchased pursuant to subparagraph (ii)
above shall be made by Seller to Buyer upon the transfer of the real
estate at issue, and shall be made including interest from 1 April
2000 to the date of such relevant transfer at the rate set forth in
Section 2.2.4. It is understood and agreed that notwithstanding the
provisions of this Section 4.6, Buyer shall pay to Seller the
adjusted Net Purchase Price on Closing without being entitled to
hold back any amount in respect of such real estate.
4.7. Dividends of the Cablecom Companies; Escrow Agreement
(a) Dividends shall be paid out by the Cablecom Companies to their
shareholders in the ordinary course of business, it being understood that
the total amount of dividends payable for the business year 1999 will not
exceed CHF 54,680,000 (fifty-four million six hundred eighty thousand
Swiss Francs). It is understood and agreed that:
(i) subject to Section 4.7.(a)(iv), dividends for the business year 1999
shall be for the account of Seller, but shall be paid by the
relevant Cablecom Company into a joint account (the Joint Account)
to be established by Buyer
<PAGE> 24
-24-
and Seller. It is understood and agreed that, subject to Section
4.7.(a)(iv) all dividends paid by the Cablecom Companies to the
relevant shareholder shall be for the account of Seller, whether
paid before or after Closing. If any dividends are paid out after
Closing, Buyer shall procure that the corresponding payments are
made or transferred into the Joint Account;
(ii) if Seller delivers the SOL Shares to Buyer on the Closing Date, the
proceeds of the Joint Account (including interest but after
deduction of costs) shall be released to Seller (or, as the case may
be, the several Controlling Shareholders) upon Closing;
(iii) if Seller does not deliver the SOL Shares to Buyer on the Closing
Date, but delivers the notice referred to in Section 4.8.2(a) to
Buyer on or prior to 28 February 2001, the proceeds of the Joint
Account (including interest but after deduction of costs) shall be
released to Seller (or, as the case may be, the several Controlling
Shareholders) no later than five business days after such notice has
been posted by Seller to Buyer;
(iv) if Seller does not deliver the SOL Shares to Buyer on the Closing
Date, and does not deliver the notice referred to in Section
4.8.2(a) to Buyer on or prior to 28 February 2001, the proceeds of
the Joint Account (including interest but after deduction of costs)
shall be released to Buyer,
(b) Promptly after execution of this Agreement, the parties to this Agreement,
UBS AG, Buyer and Seller shall enter into an escrow agreement (the Escrow
Agreement), the contents of which shall be reasonably satisfactory to
Buyer, Seller and the Controlling Shareholders, in accordance with the
following general principles:
(i) the dividends paid out by the Cablecom Companies for the business
year 1999 and received by Seller or Buyer, as the case may be, shall
as and when paid be deposited in the Joint Account and shall be
invested In CHF-denominated short-term deposits or money market
securities of prime issuers, to be determined by UBS AG in its
reasonable judgement (it being understood that Buyer and Seller
shall have neither the right nor the obligation to direct UBS AG to
make any specific investments);
(ii) the parties shall undertake jointly to direct the signatories of the
Joint Account to pay out the amounts deposited in the Joint Account
in accordance with the terms of this Agreement.
(iii) the signatories of the Joint Account shall be obligated to release
the amounts deposited (including interest but after deduction of
costs) in the Joint Account only (i) upon joint instructions of
Buyer, Seller and the Con-
<PAGE> 25
-25-
trolling Shareholders; or (ii) failing such instructions, upon an
enforceable order of a competent Swiss court of law.
4.8. Additional Provisions for Swiss Online Shares
4.8.1. Closing of Transaction Agreement
Notwithstanding anything to the contrary in this Agreement, the parties hereto
agree that if and when all conditions to Closing are fulfilled or waived, but
Seller is unable to deliver to Buyer legal and beneficial title and ownership to
11,000 registered shares of CHF 500 (five hundred Swiss Francs) par value each
directly or indirectly held by Seller in Swiss Online AG (the SOL Shares), free
and unencumbered and not subject to any third party rights, the following shall
apply:
(a) the parties shall otherwise proceed to Closing as set out in Section 3.3;
(b) at such Closing, Seller shall perform all Closing actions to be performed
by Seller as set out in Section 3.3, provided, however, that Seller shall
deliver to Buyer all of the Sale Shares but for the shares in Swiss Online
AG to be delivered by Seller to Buyer, and failure to deliver such shares
shall not be treated as a breach of contract and shall only and
exclusively be remedied as set out in this Section 4.8;
(c) at such Closing, Buyer shall perform all Closing actions to be performed
by Buyer as set out in Section 3.3, provided, however, that
(i) the Purchase Price shall be reduced by CHF 600,000,000 (six hundred
million Swiss Francs);
(ii) the Net Purchase Price to be paid by Buyer on Closing, shall be
reduced by CHF 587,080,000 (five hundred eighty-seven million and
eighty-thousand Swiss Francs), being CHF 600,000,000 minus CHF
12,920,000 (twelve million nine hundred twenty thousand Swiss
Francs) on account of Third Party Financial Debt owed by, Parent
Intercompany Debt owed by, Subsidiary Intercompany Debt owed to and
Cash held by, Swiss Online;
(iii) If such Closing occurs after 1 April 2000, then the Net Purchase
Price shall bear interest at the rate stated in Section 2.2.4,
provided, however, that no interest shall be due if the delay in
Closing is attributable to the fault of Seller as set out in Section
2.2.4 (other than Seller's failure to deliver the SOL Shares).
<PAGE> 26
-26-
(c) Seller shall use its commercially reasonable best efforts following
Closing to be able to deliver to Buyer legal and beneficial title and
ownership to the SOL Shares, free and unencumbered and not subject to any
third party rights whatsoever.
(d) If, for whatever reason, the SOL Shares are not delivered to Buyer at the
Closing Date, the parties shall enter into a management agreement
affording Buyer full and complete management control as from the Closing
Date, and the economic burden and benefit of all the business of Swiss
Online as from the Effective Date;
(e) the parties may agree on the transfer of additional shares in Swiss Online
acquired or held by Seller on the Closing Date at prices to be separately
agreed.
4.8.2. Call Option and Put Option after Closing
If, after Closing but prior to 28 February 2001, Seller is able to deliver to
Buyer legal and beneficial title and ownership to the SOL Shares, free and
unencumbered and not subject to any third party rights, the following shall
apply:
(a) Seller shall notify Buyer of its ability to deliver to Buyer legal and
beneficial title and ownership to the SOL Shares, free and unencumbered
and not subject to any third party rights whatsoever, as and when it is
able to do so;
(b) as from the date of delivery of the notice referred to in Section
4.8.2(a), Seller shall have a put option (the Put Option) against Buyer
under which Seller may sell to Buyer, and Buyer shall be obligated to buy
from Seller, the SOL Shares at a price of CHF 587,080,000 (five hundred
eighty-seven million and eighty-thousand Swiss Francs). The Put Option
shall be exercisable until 28 February 2001;
(c) as from the date of receipt of the notice referred to in Section 4.8.2(a).
Buyer shall have a call option (the Call Option) against Seller under
which Buyer may buy from Seller, and Seller shall be obligated to sell to
Seller, the SOL Shares at a price of CHF 587,080,000 (five hundred
eighty-seven million and eighty-thousand Swiss Francs). The Call Option
shall be exercisable until 28 February 2001.
Both the Put Option and the Call Option may be exercised by written notice
delivered to the addresses set forth in Section 10.2.
<PAGE> 27
-27-
It is understood and agreed that the adjustment of the Purchase Price of CHF
600,000,000 (six hundred million Swiss Francs) is firm and shall not be subject
to any subsequent upward or downward adjustment for any reason.
4.8.3. Delayed Closing
If Buyer exercises the Call Option, or if Seller exercises the Put Option, on or
by 28 February 2001, the parties shall proceed to a Closing of the transfer of
the SOL Shares (the Delayed Closing), such date to be proposed by the party
exercising the Call Option or the Put Option, as the case may be, no less than
five but no more than ten business days after the date of the notice being
posted by Seller to Buyer.
At the Delayed Closing:
(a) Seller shall deliver to Buyer legal and beneficial title and ownership to
the SOL Shares, free and unencumbered and not subject to any third party
rights whatsoever;
(b) Buyer shall
(i) pay to Seller CHF 587,080,000 (five hundred eighty-seven million and
eighty-thousand Swiss Francs) by wire transfer to an account
designated by Seller. It is understood and agreed that such amount
shall not bear any interest from the Closing Date to the date of the
Delayed Closing;
(ii) assume or cause the assumption of any and all Third Party Financial
Debt owed by Swiss Online and Parent Intercompany Debt owed by Swiss
Online and Subsidiary Intercompany Debt owed by Swiss Online
outstanding as of such Delayed Closing (including for the avoidance
of doubt any variations in such Third Party Financial Debt or Parent
Intercompany Debt or Subsidiary Intercompany Debt from the Effective
Date through to the date of the Delayed Closing).
(c) the parties may agree on the transfer of additional shares in Swiss Online
acquired or held by Seller on the Closing Date at prices to be separately
agreed.
4.8.4. Actions if Seller does not deliver SOL Shares
If the Delayed Closing shall not have occurred on or by 28 February 2001
(subject to reasonable extension until 15 March 2001 if Seller delivers the
notice referred to in Section 4.8.3(a) on or by 28 February 2001, or such
additional extension as the par-
<PAGE> 28
-28-
ties may reasonably agree), then the proceeds (including interest but after
deduction of costs) of the Joint Account referred to in Section 4.7(a) shall be
delivered to Buyer, and the parties shall have no further respective rights or
obligations under this Agreement with respect to any shares held by Seller in
Swiss Online AG.
4.8.5. Notice to Swiss Online Shareholders
Seller hereby undertakes to deliver to the remaining shareholders of Swiss
Online AG a notice informing the same of their pre-emptive right under the
shareholders' agreement relating to such company no later 14 January 2000, such
notice to be in form and substance agreed between Buyer and Seller and to
contain the following:
(a) the purchase price of CHF 600,000,000 (six hundred million Swiss Francs)
for the SOL Shares;
(b) Buyer's willingness to enter into the Shareholders' agreement under the
assumption of all rights and duties of Seller thereunder.
5. REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of Seller
Seller hereby represents and warrants to Buyer the following matters, except as
set forth in (i) the information memorandum dated 16 September 1999 (the
Information Memorandum) delivered to buyer, (ii) the documentation disclosed to
Buyer in connection with due diligence, as set out in the Data Room Index and
all supplements thereto attached hereto as Exhibit 7, and (iii) the matters
disclosed in the letter delivered to Buyer concurrently with this Agreement and
attached hereto as Exhibit 8 (the Disclosure Letter), including any written
documents annexed to the Disclosure Letter (all documents referred to in (i) to
(iii) collectively, the Disclosed Documents). The Disclosed Documents shall
operate as a limitation to Buyer's Remedies as set out in Section 6.2.3. No
representations are made or warranties given other than those made or given in
this Section.
The representations and warranties set forth below shall be considered given by
the Seller on the date of this Agreement and as of the Effective Date. Save as
provided in Section 2.2.5(d), the representations and warranties given by Seller
under this Section 5 shall continue in full force and effect notwithstanding
Closing.
<PAGE> 29
-29-
Where any statement in the following representations and warranties is qualified
by the expression "to the best of the knowledge", "to the best of the
information", "so far as the Seller is aware" or any similar expression, Seller
shall be deemed to have knowledge of (a) anything of which any of the eight
members of top-level management of the Seller (Messrs. Dietiker, Eberie,
Simmonds, Gerber, Poretti, Cardineaux, Quinter, Blunier) has knowledge, (b)
anything of which any of the eight members of top-level management of the Seller
ought reasonably to have knowledge given their particular position and
responsibilities.
Seller undertakes to Buyer to disclose to Buyer in writing, immediately upon
Seller becoming aware of the same, full details of any fact, matter, event or
circumstance which constitutes a breach of any of the representations and
warranties given by Seller, or is reasonably likely to constitute such a breach
when deemed given by the Seller as of the Effective Date.
5.1.1. Cablecom Holding AG
(a) Seller is a corporation (Aktiengesellschaft) duly organized and validly
existing under the laws of Switzerland and has the full corporate power,
authority and any necessary governmental approvals to own or use its
assets and properties and to conduct its business as the same is presently
being conducted.
(b) There exist no limitations under law, the articles of incorporation of
Seller, or any contracts by which Seller is bound that would prevent
Seller from entering into or performing its obligations under this
Agreement.
(c) No authorizations, permits or consents are required from any governmental
or administrative authority, or any third party (including the Controlling
Shareholders) for the consummation of the transactions contemplated by
this Agreement other than as set out herein.
(d) The information contained in the Exhibits is true and correct In all
material respects.
5.1.2. The Cablecom Companies
(a) Each of the Cablecom Companies is duly organized and validly existing
under the laws of its place of incorporation and has the full corporate
power and authority to own or use its assets and properties and to conduct
its business as the same is presently being conducted. The capital
structure and shares of each Cablecom Company are set forth in Exhibit 1.
<PAGE> 30
-30-
(b) The shares in each Cablecom Company are legally and beneficially owned,
except as otherwise indicated in Exhibit 1, in their entirety, free and
clear of any liens, pledges or other third party rights (except as to the
pre-emption right of the city of Neuchatel on the shares of Video 2000 SA
and as to directors' qualifying shares), by Seller, are fully paid and
non-assessable. There exists no authorization, obligation or arrangement
(present or future, absolute, contingent or otherwise) of any Cablecom
Subsidiary to issue or sell shares to any person except as indicated in
Exhibit 1. No further capital, shares, or other equity instruments in any
Cablecom Subsidiary have been or will be issued on or before the Closing
Date except as indicated in Exhibit 1.
(c) Upon delivery to Buyer at the Closing of the documents listed in Section
3.3.1, Buyer will receive good and valid title to the Sale Shares, free
and clear of any liens, pledges or other third party rights.
(d) Attached hereto as Exhibit 9 are the consolidated financial statements
(consisting of the consolidated balance sheet, the consolidated income
statement, consolidated cash flow statement and notes to the consolidated
financial statements) of the Cablecom Group for the business year ended 31
December 1998, accompanied by the audit report by the Group auditors of
Cablecom Group. All of these financial statements (i) are correct and
complete in all material respects, and (ii) have been prepared in
accordance with the Accounting Principles.
Attached hereto as Exhibit 10 are the Consolidated Balanced Sheet and the
Consolidated Income Statement for the nine months ended 30 September 1999,
accompanied by the review report of the group auditors of the Cablecom
Group. These interim financial statements have been prepared by management
of Seller on the basis of true and accurate entries in the books and
records of the Cablecom Group and pursuant to consistently applied
Accounting Principles to the extent relevant to interim financial
statements.
(e) Seller and each of the Cablecom Subsidiaries and each of its and their
respective directors and officers has complied with and presently is in
compliance with all the laws, regulations, reporting and licensing
requirements and orders applicable to it or its employees in all
jurisdictions in which the Cablecom Group owns or operates business
premises, and to the best knowledge of Seller no competent governmental or
administrative authority has claimed in writing that Seller or any of the
Cablecom Subsidiaries has violated any such laws, regulations, reporting
and licensing requirements.
(f) Seller and the Cablecom Companies have all licenses, consents, approvals,
permissions, permits, rights of way and governmental authorizations which
are necessary to conduct their business as the same is presently being
conducted.
<PAGE> 31
-31-
In particular, and without limitation to the foregoing, (i) each Cablecom
Company has the necessary retransmission licenses in full force and effect
(subject, however, to renewal of such licenses pursuant to Section 4.2),
(ii) each Cablecom Subsidiary has all necessary permits and approvals to
be granted by cantonal or municipal authorities in connection with rights
of way for the laying, maintenance, use and renewal of cable television
lines. All such licenses, consents, approvals, permissions, permits,
rights of way and authorities are valid and subsisting, and so far as
Seller is aware, there are no facts or circumstances likely to be raised
to any of them being suspended, canceled or revoked or not renewed
pursuant to Section 4.2.
(g) As of 30 September 1999, the Cablecom Group had the cable television
subscriber numbers indicated in Exhibit 11. Seller has no reason to
believe that the number of such subscribers on 31 December 1999 would be
substantially below that set forth in Exhibit 11.
(h) There are no actions, suits or proceedings pending against any of Seller
or the Cablecom Subsidiaries before any court or administrative board,
agency or commission which involve a claim by a governmental or regulatory
authority, or by a third party, as against any of Seller or the Cablecom
Subsidiaries of an amount exceeding CHF 3,000,000 (three million Swiss
Francs). Seller is not aware of any actions, suits or proceedings in
accordance with the preceding sentence which have been threatened in
writing to be filed or instituted against any of Seller or the Cablecom
Subsidiaries. Neither Seller or any of the Cablecom Subsidiaries nor any
of its or their respective directors or officers are being prosecuted for
any criminal offense relating to the Cablecom Business, nor are any such
prosecutions pending or threatened.
(i) All tax returns required to be filed prior to 31 December 1999 by or with
respect to Seller and the Cablecom Subsidiaries for all taxable periods
ending on or prior to 31 December 1999 have been or will be timely filed.
All such tax returns (i) have been or will be prepared in the manner
required by applicable law, (ii) are or will be true, correct and complete
in all material respects, and (iii) accurately reflect or will accurately
reflect the liability for taxes of Seller and each such Cablecom
Subsidiary. All taxes shown to be due on such tax returns on or prior to
31 December 1999, or which have been or will be assessed by the competent
tax authorities with respect to such tax returns, have been (or, as far as
the 1999 financial statements are concerned, will be) timely paid or fully
reserved against. Seller hereby assumes the responsibility for settlement
of tax liabilities in respect of all insufficient provisions in the
financial statements for the payment of taxes, levies or related
liabilities with respect to all periods ending on or before 31 December
1999 (including, for the avoidance of doubt, any restructurings completed
by 31 December 1999), whether such taxes, levies or related liabilities
become due before or after Closing. Seller is not aware of any Cablecom
Subsidiary having distributed any constructive dividend to the Seller or
any affili-
<PAGE> 32
-32-
ate of Seller Which could lead to the imposition on such Cablecom Subsidiary of
any withholding taxes on dividends or constructive dividends.
(j) All social security, pension fund or similar payments due by Seller and
any Cablecom Subsidiaries in favor of their employees under any benefit
plans (collectively, the Benefit Plans) have been fully paid or
provisioned in the relevant financial statements. All contributions
required to be made under the terms of any such Benefit Plans have been
timely made or have been reflected in the relevant financial statements.
On the basis of and compared to the funding requirements set forth in
Swiss law (and, in the case of Cablecom Kabelkommunikations GmbH, Austrian
law), none of the Benefit Plans has any accumulated funding deficiency.
(k) The Information relating to the employment of the top 20 members of
management of the Cablecom Group as set out in the Disclosure Letter is
correct. True and complete copies of the standard terms and conditions
applicable to employees of the Cablecom Group, handbooks or work rules or
procedures, as well as all collective bargaining and similar agreements
will be made available to Buyer on the Effective Date. Other than as
disclosed in the Disclosed Documents, there are no arrangements, whether
contractual or otherwise, entitling any of the employees of the Cablecom
Group to any payment or other benefits arising from the transactions
contemplated hereby.
(l) The Cablecom Subsidiaries have good and valid title to the real estate
listed in Exhibit 12, or have valid lease agreements relating to the
properties reflected therein.
(m) Seller and all Cablecom Subsidiaries are in compliance with all material
contracts to which they are a party or by which their assets or properties
are bound, and Seller is nor aware of any material contracts subject to a
"change of control" covenant other than as disclosed in Exhibit 8.
(n) Each of Seller and the Cablecom Subsidiaries (i) has substantially
complied with all environmental, health and safety laws applicable to such
company, and no material action, suit or proceeding by any third party or
any governmental or administrative authority is pending or, to the best of
Seller's knowledge, has been threatened against any such company alleging
any failure to comply with any environmental, health or safety laws in
effect as of the date of this Agreement, and (ii) has obtained and been in
substantial compliance with all of the terms and conditions of all
permits, licenses and authorizations required under any environmental,
health and safety laws.
(o) The books and records maintained by Seller and each Cablecom Subsidiary
have been maintained in accordance with sound business practice and the
ap-
<PAGE> 33
-33-
plicable legal, regulatory and accounting requirementS, and reflect only
valid transactions.
(p) There is no investment banker, broker, director, employee, finder or other
intermediary that has been retained by or is authorized to act on behalf
of Seller or any of the Controlling Shareholders who might be entitled to
any fee or commission from any of the Cablecom Subsidiaries upon
consummation of the transactions contemplated under this Agreement except
as disclosed in Exhibit 8.
(q) Since 30 September 1999, there has not been:
(i) any matter, fact or circumstance which has had a Material Adverse
Effect on the Cablecom Business taken as a whole;
(ii) any declaration of dividends or dividend payment, or any
distribution of capital or income by any Cablecom Company to its
shareholder(s) or any of the Controlling Shareholders;
(iii) any increase in tie compensation payable by any Cablecom Subsidiary
to any of its directors, officers or employees other than (aa) in
accordance with agreements, collective bargaining arrangements or
practice existing prior to 31 December 1998, or (bb) as particularly
disclosed in the Disclosure Letter;
(iv) any payment made, or assets transferred, by a Cablecom Subsidiary to
the Seller or any Controlling Shareholder outside of the ordinary
course of business (unless contemplated by this Agreement).
(r) As of the date of this Agreement, Seller is not aware of any fact, matter,
event or circumstance which will or is reasonably likely to result in any
judgment, injunction or order to be issued by any competent governmental,
regulatory, administrative or judicial authority which would impose a
limitation (whether or not substantial as defined in Section 3.2.1(c)) on
the ability of Buyer to acquire or assume control over all or part of the
cable television subscriber base of Cablecom.
(s) None of the Cablecom Subsidiaries is a party to, or has the benefit of and
is subject to any obligations under, any agreement or arrangement which
cannot readily be fulfilled or performed by Seller or the relevant
Cablecom Subsidiary in accordance with its terms without undue or unusual
expenditure or effort.
<PAGE> 34
-34-
(t) No Cablecom Subsidiary has stopped paying its debts as and when they fall
due, nor is it insolvent or unable to pay its debts. No step has been
taken with a view to the dissolution or winding up of any of the Cablecom
Subsidiaries.
(u) Buyer has been given access to the documents evidencing the year 2000
compliance program (the Y2K Documents) carried out by the Cablecom Group.
Seller and the Cablecom Subsidiaries have carried out in all material
respects the actions Identified in the Y2K Documents and have taken the
necessary actions to resolve any issues identified by such documents.
(v) No Cablecom Subsidiary is infringing the rights of third parties with
respect to the use of, or by others with respect to, any intellectual
property.
(w) The Related Cablecom Assets together with the Related Cablecom Contracts
and the assets held by the Cablecom Companies will, immediately following
Closing, include all sights, properties, assets, facilities and services
necessary and sufficient for the carrying on of the Cablecom Business as
the same is presently being conducted, free from all material encumbrances
(except for mortgages and other security interests incurred for
liabilities owing by the Cablecom Companies, or Related Cablecom
Liabilities). "Sufficient" for these purposes shall include both the
quantity and state and condition of assets.
(x) The turnover generated by the Cablecom Business in the member states of
the European Union is below the thresholds relevant under the EMCR.
5.1.3. Related Cablecom Assets; Related Cablecom Liabilities
(a) As of the date of this Agreement. Seller is the direct or indirect owner
of the Related Cablecom Assets free and clear of any liens, pledges or
other third party rights (except as to third party rights incurred in the
ordinary and usual course of business).
(b) Upon Closing of the transactions contemplated by this Agreement, Buyer
will acquire title to the Related Cablecom Assets, free and clear of any
liens, pledges or other third party rights (except as set out in
subsection (a) above) and will receive the benefit (subject to the burden)
of the Related Cablecom Contracts.
(c) Exhibit 2 contains a complete list of the Related Cablecom Liabilities
outstanding as of the date of this Agreement. There will be no changes
other than in accordance with normal business practice as to the Related
Cablecom liabilities between the date of this Agreement and 31 December
1999 which would have a Material Adverse Effect on the Cablecom Business
taken as a whole, other than (i) replacement or roll-over of any of
existing Related Cablecom Liabilities by
<PAGE> 35
-35-
new liabilities in substantially equivalent amount and on substantially
equivalent terms; (ii) short-term credit drawdowns of up to CHF 20,000,000
(twenty million Swiss francs) to be incurred shortly before 31 December
1999, and (iii) accruals of interest on the Related Cablecom Liabilities.
5.2. Representations and Warranties of the Controlling Shareholders
The several Controlling Shareholders represent and warrant to the Buyer as
follows, except as set forth in the Disclosed Documents, which shall operate as
a limitation to Buyers' remedies under Section 6.2.
The representations and warranties set forth below shall be considered given by
as of the date of this Agreement and as of the Effective Date. The
representations and warranties given under this Section 5 shall continue in full
force and effect notwithstanding Closing.
Where any statement in the following representations and warranties is qualified
by the expression "to the best of the knowledge", "to the best of the
information", "so far as the Controlling Shareholders are aware" or any similar
expression, the respective Controlling Shareholder shall be deemed to have
knowledge of anything of which any member of top-level management of such
Controlling Shareholder has knowledge.
Each several Controlling Shareholder undertakes to Buyer to disclose to Buyer in
writing, immediately upon such Controlling Shareholder becoming aware of the
same. full details of any fact, matter, event or circumstance which constitutes
a breach of any of the representations and warranties given, or is reasonably
likely to constitute such a breach when deemed given as of the Effective Date.
5.2.1. Corporate Existence and Authority
(a) Each of the Controlling Shareholders is a legal entity duly organized and
validly existing under the laws of its jurisdiction of incorporation.
(b) There exist no limitations under the law, the articles of incorporation or
other constituting documents of such Controlling Shareholder, or any
material contracts by which such Controlling Shareholder is bound, that
would prevent such Controlling Shareholder from entering into or
performing its obligations under this Agreement.
<PAGE> 36
-36-
(c) No authorizations, permits or consents are required from any governmental
or administrative authority, or any third party (including any necessary
shareholder approvals for such Controlling Shareholder) for the
consummation of the transactions contemplated by this Agreement, unless
set out herein.
5.2.2. Ownership of Shares in Cablecom Holding AG
All of the issued and outstanding shares in Cablecom Holding AG are legally and
beneficially owned in their entirety, free and clear of any liens, pledges or
other third party rights (except as to directors' qualifying shares and treasury
shares) by each Controlling Shareholder, as indicated in Section A of the
Preamble to this Agreement. All such shares are fully paid-in and
non-assessable. There exists no authorization, obligation or arrangement
(present or future, absolute, contingent or otherwise) of Cablecom Holding AG to
issue or sell shares to any person. No further capital, shares or other equity
instruments have been or will be issued by Cablecom Holding AG at any time
between the date of this Agreement and the Closing Date, except as expressly
agreed with Buyer.
5.2.3. Representations as to the Cablecom Companies
Each Controlling Shareholder, acting in a several capacity, warrants that to the
best of its knowledge and without having made any special inquiry, all
representations and warranties made by Seller in Section 5.1 are correct.
Each Controlling Shareholder, acting in a several capacity, further warrants as
of the date of this Agreement that it is not aware of any fact, matter, event or
circumstance which will or is reasonably likely to result in any judgment,
injunction or order to be issued by any competent governmental, regulatory,
administrative or judicial authority which would impose a limitation (whether or
not substantial as defined in Section 3.2.1(c)) on the ability of Buyer to
acquire or assume control over all or part of the cable television subscriber
base of Cablecom.
5.3. Representations and Warranties of Buyer
Buyer represents and warrants as follows.
(a) Buyer is a corporation duly organized and validly existing under the laws
of Delaware, USA and has the full corporate power, authority and necessary
gov-
<PAGE> 37
-37-
ernmental approvals to own or use its assets and properties and to conduct
its business as the same is presently being conducted.
(b) There exist no limitations under the law, the articles of incorporation of
Buyer, or any Contracts by which Buyer is bound that would prevent Buyer
from entering into or performing its obligations under this Agreement.
(c) No authorizations, permits or consents are required from any governmental
or administrative authority, or any third party (including any
shareholders of Buyer) for the consummation of the transactions
contemplated by this Agreement other than as set out herein.
(d) There are no actions, suits or proceedings pending against Buyer or any of
Buyer's Affiliates before any court or administrative board, agency or
commission which involve a claim by a governmental or regulatory
authority, or by a third party, which would operate to hinder or
substantially impair the consummation of the transactions contemplated by
this Agreement. Buyer is not aware of any actions, suits or proceedings in
accordance with the preceding sentence which have been threatened in
writing to be filed or instituted against Buyer or any of Buyer's
Affiliates.
(e) Buyer has procured that it will, and will on the Closing Date have, the
necessary funds at its disposal to finance the transactions contemplated
by this Agreement.
(f) Buyer is aware that none of the Sale Shares have been registered under the
U.S. Securities Act of 1933 or any other applicable state securities laws.
Buyer is acquiring the Shares for its own account, for investment purposes
only and not with a view to the distribution thereof in violation of the
securities laws of the United States or any state thereof.
(g) Buyer is aware that Swisscom has terminated certain leased line agreements
(particulars of which have been disclosed to Buyer) with certain Cablecom
Companies. Buyer hereby undertakes to accept such terminations as valid
and further undertakes to ensure that any Cablecom company which was party
to such terminated agreement will accept such termination as valid and
binding, subject, however, to the provisions of Section 8.5.
(h) Buyer has not promised to pay or cause to be paid to or for the benefit of
any director, officer, employee or agent of Seller or the Cablecom
Companies any incentive, bonus, or similar payment due upon consummation
or in view of the transactions contemplated under this Agreement.
<PAGE> 38
-38-
6. REMEDIES FOR BREACH OF REPRESENTATIONS AND WARRANTIES
6.1. Term of Representations and Warranties
Save as provided in Section 2.2.5(d), the representations and warranties set
forth in Section 5 shall survive until the later of (i) twelve months after the
Closing Date, or (ii) 30 June 2001, provided, however, that the term for the
representations and warranties set forth in Sections 5.1.2(i) (Taxes) and
5.1.2(j) (Social Security) shall extend until 60 days after the expiry of the
statute of limitations relevant to the matters referred to in such
representations and warranties.
It is understood and agreed that any notice of claims for misrepresentation or
breach of warranty shall be served to the breaching party on or by the dates set
forth in the preceding paragraph, in which case the resolution of such claims
may also be effected after such dates.
6.2. Remedies of Buyer
6.2.1. Remedies
(a) If any of the representations and warranties in Section 5.1 shall not be
true and correct, resulting in any liability, loss of earnings, damage,
cost or expenses or any deficiency of assets of the Cablecom Business or
the Buyer as a result of a misrepresentation or breach of warranty, Seller
shall at its own cost remedy the breach within thirty (30) days or such
reasonable period not exceeding sixty (60) days after receipt of the
written request from Buyer. If Seller does not or is unable to remedy the
breach within such period of time, Seller will pay to the relevant
Cablecom Company or at its option to Buyer, as the case may be, damages on
a Franc by Franc basis.
If any other breach of this Agreement has occurred, resulting in any
liability, loss of earnings, damage, cost or expenses or any deficiency of
assets of the Cablecom Business or the Buyer as a result thereof, Seller
shall at its own cost remedy the breach within such period of time as may
appear reasonable to cure any such breach after receipt of the written
request from Buyer.
<PAGE> 39
-39-
Subject as set out in the following paragraph, Seller shall not be liable
to compensate Buyer and/or the Cablecom Companies for any damages
exceeding the total amount of liability as set out in Section 6.2.4, or
any indirect and/or consequential damages, or any goodwill. Payment shall
be made together with interest at the rate of 5% p.a. from the Effective
Date through the date of payment.
(b) Notwithstanding the provisions of the preceding paragraph, if the
representation and warranty contained in Section 5.1.2(g) should be
untrue, Seller shall compensate Buyer in accordance with the following
principles:
(i) If the number of cable television subscribers of Cablecom on 31
December 1999 (calculated under the Equity Subscribers" method as
set forth in Exhibit 11) is less than 3% below the total number of
Cablecom's cable television subscribers, Buyer shall have no remedy
for such loss of subscribers.
(ii) If the number of relevant subscribers on 31 December 1999 is 3% or
more below Cablecom's cable television subscriber base set forth in
Exhibit 11, Seller shall compensate Buyer for the shortfall in
excess of 3%. The compensation due by Seller to Buyer shall be the
number of cable television subscribers in excess of 3% below the
relevant number set forth in Exhibit 11, multiplied by CHF 3,750
(three thousand seven hundred fifty Swiss Francs) per subscriber.
6.2.2. Notice of Breach and Opportunity to Defend
Within 60 days after Buyer having obtained knowledge of a misrepresentation or
breach of warranty, or receipt by Buyer of notice of any claim made or
threatened to be made by any third party which Buyer believes is reasonably
likely to give rise to a claim for misrepresentation or breach of warranty,
Buyer shall deliver to Seller and each of the Controlling Shareholders a notice
in writing describing the facts or the claim in reasonable detail to the extent
then known. Failure to give notice within 60 days shall not affect Buyer's
remedies hereunder, except to the extent such failure to notify shall have
caused an irreparable prejudice to Seller or any of the Controlling
Shareholders. It is understood and agreed that any notice delivered in
accordance with this Section 6.2.2 must be served before expiry of the term set
out in Section 6.1.
In case of any claim brought by a third party against Buyer or any Cablecom
Company, which has been notified by Buyer in accordance with the above
provisions, Seller and the Controlling Shareholders shall use their commercially
reasonable best efforts in assisting Buyer or the relevant Cablecom Company in
the defense of such
<PAGE> 40
-40-
claim. Buyer shall not settle any such claims, or (to the extent possible) cause
any Cablecom Company to settle such claims, without the prior written consent of
Seller and each of the Controlling Shareholders which consent shall not be
unreasonably withheld. If the aggregate level of claims made by Buyer has
exceeded or is reasonably likely to exceed CHF 50,000,000 (fifty million Swiss
Francs), and if there are no other limitations in this Agreement which would
prevent Buyer from making a claim against Seller or the Controlling Shareholders
in relation to the matter and subject to the Buyer being indemnified to its
reasonable satisfaction, and if Seller or any of the Controlling Shareholders
(acting severally for this purpose) acknowledges its liability in writing, it
shall have the right to compromise or defend, at its own expense and by its own
counsel (who shall be reasonable satisfactory to Buyer) any such matter,
provided however, that such compromise or settlement shall not have any
materially prejudicial on the business of the Cablecom Business. If Seller or
any of the Controlling Shareholders (acting severally for this purpose) is
willing to compromise or defend any asserted liability, it shall promptly notify
Buyer of its intention to do so, and Buyer shall cooperate with, and provide at
its own cost appropriate documentation (subject to any statutory privilege or
statutory or contractual duties of confidentiality) and support as reasonably
requested by Seller or the respective Controlling Shareholder and its counsel in
connection with, the compromise or defense of any such asserted liability. Buyer
shall have the right to participate, at its own expense, in the defense of any
such asserted liability.
Buyer may direct Seller or the respective Controlling Shareholder to agree to
compromise any asserted liability against Buyer or any Cablecom Company at any
time, provided that (i) Buyer at the same time waives its rights to take
recourse as against Seller and all Controlling Shareholders under Section
6.2.3., or (ii) failing such waiver, Buyer acknowledges that any such compromise
will be without prejudice to any of Sellers or the Controlling Shareholders'
rights to take action or defend themselves in a recourse action.
6.2.3. Exclusion of Liability
Buyer acknowledges that, other than as provided in this Agreement, neither
Seller nor any of the several Controlling Shareholders nor any of its or their
Affiliates nor any person acting on its or their behalf has made or makes any
representation or warranty, express or implied. pertaining to the subject matter
of this Agreement. In particular, and without limitation to the foregoing, Buyer
acknowledges that neither Seller nor any of the several Controlling Shareholders
nor any of its or their Affiliate are making any
<PAGE> 41
-41-
representations or warranties as to budgets, business plans or other projections
of a financial, technical or business nature relating to the Cablecom Business,
or with respect to any other development of the Cablecom Business (including for
the avoidance of doubt Swiss Online) after the Effective Date.
Buyer further acknowledges that the Disclosed Documents shall operate as a
limitation of Sellers representations and warranties and Buyer's rights under
this Section 6.2 to the extent the corresponding Disclosed Documents fairly
disclose the factual basis for any limitation of claims for misrepresentation or
breach of warranty.
If facts and circumstances which would give rise to a claim against Seller
result in any financial benefits and financial advantages of the Cablecom
Companies and/or Buyer, then damages will be reduced by the amount equal to any
such benefits and advantages and the amount which can be claimed as damages for
a misrepresentation or breach of warranty or otherwise shall be reduced
correspondingly. In addition, Seller and the several Controlling Shareholders
shall not be liable in respect of a claim of Buyer for misrepresentation or
breach of warranty:
(a) if and to the extent that any specific provision, reserve or expense was
reflected in the financial statements set forth in Exhibits 9 and 10, or
in the Final Combined Financial Statements:
(b) if and to the extent that for such misrepresentation or breach a purchase
price adjustment according to Section 2.2.5 or 2.2.6 was made;
(c) for any and all costs, damages and expenses which have been recovered from
a third party (including without limitation an insurance company), after
deduction of all direct costs and expenses incurred in making such
recovery (including reasonable attorney's fees);
(d) if and to the extent, as a result of a claim for misrepresentation or
breach of warranty, any tax payable by any Cablecom Company is actually
reduced;
(e) if and to the extent any damage or loss has been caused by any voluntary
act or omission of Buyer, before or after the Closing Date (whereby, for
the avoidance of doubt, any act or omission in order to comply with
applicable law under an enforceable court order shall not be deemed to be
voluntary), or by the fact that Buyer shall have failed to take or cause
the Cablecom Companies to take all reasonable steps to mitigate the damage
caused by a misrepresentation or breach of warranty.
<PAGE> 42
-42-
6.2.4. Limitations on Liability
(a) Subject to Section 6.2.4(b) below, Seller's and the several Controlling
Shareholders' liability under this Agreement shall apply only with respect
to the following misrepresentations or breaches of warranty:
(i) misrepresentations or breaches of warranty the impact of which on
the profits and/or the balance sheet of the respective Cablecom
Company exceed CHF 3,000,000 (three million Swiss Francs), it being
understood that any breaches below such threshold (Insignificant
Breaches) shall be completely disregarded;
(ii) only if and to the extent Buyer's claims (other than Insignificant
Breaches, which shall be completely disregarded) in the aggregate
exceed CHF 50,000,000 (fifty million Swiss Francs; the Deductible),
in which event Seller and the several Controlling Shareholders shall
be liable (subject to the other limitations contained in this
Section 6) merely for the amount of the excess over the Deductible;
provided, however, that the above limitation shall not apply to claims
based on fraud or willful misrepresentation. All calculations of the
impact of a misrepresentation or breach of warranty on the profits or on
the balance sheet of the respective Cablecom Company shall take Into
account (aa) the time value of money and (bb) any tax benefits, insurance
coverage, and other amounts recovered from third parties associated to a
loss or charge incurred in connection with a misrepresentation or breach
of warranty.
Subject to Section 6.2.4(b) below, Seller's and the several Controlling
Shareholders' total liability for misrepresentations or breaches of
warranty under this Agreement shall not exceed the amount of CHF
300,000,000 (three hundred million Swiss Francs), after deduction of the
Deductible as set forth above, provided, however that claims based on
fraud or willful misrepresentation shall not be subject to such
limitation.
(b) Notwithstanding Section 62.4(a), any breaches by Seller or the several
Controlling Shareholders of (i) the representations contained in Section
5.1.2(r) and 5.2.3, second paragraph. and (ii) any contractual obligations
under this Agreement other than the representations and warranties set
forth in Section 5, shall be subject to an overall limitation of CHF
500,000,000 (five hundred million Swiss Francs), such limitation
understood to include, and not to be in addition to, any amount paid for
misrepresentations and breaches of warranty. Any claims
<PAGE> 43
-43-
made under this Section 6.2.4(b) shall be subject to the limitation for
Insignificant Breaches, but shall not be subject to the Deductible.
(c) Notwithstanding Section 6.2.4(a) and (b), if Seller fails to deliver to
Buyer upon closing title to the Sales Shares, the Related Cablecom Assets,
the benefit (subject to the burden) of the Related Cablecom Contracts or
title to the underlying network assets of the Cablecom business (other
than in circumstances set forth in Section 2.2.6 and 4.6, and subject to
the renegotiation of rights of way as set forth in the Disclosed
Documents), the liability of Seller and the several Controlling
Shareholders shall be up to the amount of the Purchase Price (if the Third
Party Financial Debt and the Parent Intercompany Debt has been redeemed
and fully discharged, so that no liability corresponding to such debt
exists any more as to the Cablecom Business), or the Net Purchase Price
(if and to the extent such Third Party Financial Debt or Intercompany Debt
is still outstanding). Any claims made under this Section 6.2.4(c) shall
not be subject to the limitation for Insignificant Breaches, and shall not
be subject to the Deductible.
(d) It is understood and agreed by the parties that the remedies of Buyer
under this Section 6.2 (including without limitation the thresholds set
forth in lit.s (a) to (c) above) shall not apply to a failure of Seller to
deliver the SOL Shares (as further set out in Section 4.8.1), and that
such failure by Seller to deliver to Buyer to SOL Shares (if any) shall be
remedied only as set out in Section 4.8.
6.2.5. Several Liability of Controlling Shareholders
Any liability of the Controlling Shareholders under this Agreement is several,
if all Controlling Shareholders are held liable for a misrepresentation, breach
of warranty or breach of another contractual undertaking pursuant to this
Agreement, each Controlling Shareholder shall be responsible for not more than
one third of the total liability in each case and in the aggregate, subject
always to the limitations set forth in Section 6.2.4.
6.2.6. Rights of Recourse against Directors, Officers and Employees
Seller and the Controlling Shareholders hereby undertake not to make any
recourse claim against any of the Cablecom Subsidiaries or any of their
respective directors Or officers or employees If Seller or a Controlling
Shareholder is being sued for misrepresentation or breach of warranty or breach
of another contractual undertaking pursuant to this Agreement, provided,
however, that this covenant shall not apply if such Cable-
<PAGE> 44
-44-
com Subsidiary, or the relevant director or officer or employee, has acted by
intent or gross negligence or reckless disregard of duties.
6.3. Remedies of Seller
The provisions of Sections 6.2.1, 6.2.2 and 6.2.4 shall apply by analogy to
Buyer, and the remedies set forth in such Sections shall be available to Seller
and the Controlling Shareholders, if Buyer is liable of any misrepresentation or
breach of warranty.
6.4. Remedies Exclusive
The representations and warranties contained in this Agreement and the remedies
for other breaches in this Section 6 shall be in lieu of, and not in addition
to, the remedies provided for in the law. All other remedies shall not apply and
are expressly waived, in particular, and without limitation to the foregoing,
the parties hereto explicitly waive (i) the duty of the Buyer immediately to
inspect and notify under Art. 201 CO, and (ii) the right of contract rescission
under Art. 24 CO and Art. 205 CO.
6.5. No Limitation
The limitations of liability in this Section 8 shall not apply in the case of
fraud or willful misrepresentation or willful breach of warranty.
7. CONDUCT OF BUSINESS BETWEEN SIGNING AND CLOSING
7.1. General
Subject as provided below, it is understood and agreed that Seller, under
direction of the Controlling Shareholders, shall continue to operate the
Cablecom Business as a going concern, in the ordinary and usual course of
business and consistent with prior practice and substantially in compliance with
the investment policies of the budget for the business year 2000 at all times
from the date of this Agreement through the Closing Date.
It is understood and agreed that Buyer's rights under this Section 7 (including
without limitation Section 7.2) shall also extend to the shares of Swiss Online
AG held by Seller.
<PAGE> 45
-45-
7.2. Consultation with Buyer
From the date of this Agreement until the Closing Date, Seller and the
Controlling Shareholders shall regularly consult with Buyer or its
representatives on the conduct of business of each of the Cablecom Subsidiaries.
Subject to any constraints under applicable law, Seller and the Controlling
Shareholders shall further procure:
(a) that Buyer is permitted to nominate a representative (the Representative)
to attend the meetings of the board of directors of Seller and the
meetings of the executive group management of the Cablecom Group as a
guest; and
(b) that the Representative will, upon request, be given reasonable and direct
access to all documents, papers, plants, premises, management and auditors
of Seller and the Cablecom Subsidiaries substantially in the same manner
as such access is granted to ordinary members of the board of directors of
Seller and the executive group management of the Cablecom Group;
(c) that Buyer, following consultation with Seller, may appoint finance,
marketing or technical experts as visitors of the Cablecom Group, and that
such experts are given reasonable access to the premises and management
and documents relating to the Cablecom Group;
(d) that Buyer's legal and financial advisers and auditors are given
reasonable direct access to the management, legal and financial advisers
and auditors of the Cablecom Group to the extent this is necessary or
expedient for Buyer or its advisors to conduct the actions contemplated
under Section 4.
7.3. Restricted Actions
Seller shall not, and shall procure that none of its Affiliates shall cause
without prior consent of Buyer (or, if applicable Merger Control Laws do not so
permit, prior consultation of Buyer), any of the Cablecom Companies to do any of
the following, from the date of this Agreement through to the Closing Date:
(a) do anything that would materially interfere with the consummation of the
transactions contemplated by this Agreement taken as a whole;
(b) execute any contracts or enter into any negotiations with any third party
that would materially inhibit or impair the consummation of the
transactions contemplated by this Agreement taken as a whole;
<PAGE> 46
-46-
(c) do anything which would have a Material Adverse Effect on the value of the
Cablecom Business taken as a whole, unless specifically provided in this
Agreement;
(d) make any change in the terms of employment of any director, officer or
employee of any of the Cablecom Business other than (i) in accordance with
existing agreements, collective bargaining arrangements or normal prior
practice or (ii) as disclosed in the Disclosed Documents;
(e) issue or create any obligation to issue any shares or equity-linked
securities;
(f) buy or commit to buy any assets (i) outside the ordinary course of
business or (ii) at terms other than at arm's length, or (iii) other than
in accordance with the budgeted capital expenditures of the Cablecom
Group: (iv) for a consideration in excess of CHF 10,000,000 (ten million
Swiss Francs); notwithstanding the foregoing, it is understood and agreed
that Seller may continue to complete its network through acquisition of
local cable television networks the net purchase price of which shall not
exceed CHF 20,000,000 (twenty million Swiss Francs);
(g) sell, encumber or transfer any assets outside of the ordinary and normal
course of business except as contemplated in this Agreement;
(h) alter or amend in any manner the articles of incorporation or
organizational regulations of any of the Cablecom Subsidiaries;
(i) pay or pre-pay invoices other than consistent with prior business
practice;
(j) transfer any shares in any of the Cablecom Companies to a third party
outside of the Cablecom Group;
(k) increase or reduce or otherwise change the share capital or capital
structure, or grant any option or conversion rights on the equity of any
of the Cablecom Subsidiaries;
(l) form, enter into, vary, terminate or withdraw from any partnership,
consortium, joint venture or other incorporated association;
(m) enter into, or increase or extend any liability under, any guarantee or
indemnity other than in the ordinary and normal course of business;
(n) make, increase or extend any loan or advance or grant any credit to any
person outside of the Cablecom Group other than in the ordinary and normal
course of business;
<PAGE> 47
-47-
(o) grant, create or allow to be created any charge, security, mortgage, lien
or encumbrance over any of its assets in a value exceeding CHF 5,000,000
(five million Swiss Francs), other than charges arising by operation of
law in the ordinary and normal course of business;
(p) borrow any money or incur any indebtedness or other liability other than
trade credit or borrowings in the ordinary and normal course of business;
(q) incorporate or liquidate any subsidiary undertaking or effect any
reorganization with respect to such subsidiary (other than the ongoing
reorganization of the Swiss-German companies of the Cablecom Group);
(r) initiate, discontinue or settle any litigation or arbitration proceedings
where the amount claimed together with any costs incurred or likely to be
incurred exceeds CHF 3,000,000 (three million Swiss Francs), not including
value added taxes;
(s) grant or enter into any license, agreement or arrangement concerning any
part of its name or trade names or any other part of the intellectual
property of the Cablecom Business other than in the ordinary and normal
course of business;
(t) amend or vary the rates of interest applicable to the Parent Intercompany
Debt or the Subsidiary Intercompany Debt other than pursuant to
pre-existing contractual arrangements;
(u) enter into, vary, supplement, amend or terminate any agreement or
arrangement with the Seller or any of the Controlling Shareholders or
their respective Affiliates, other than in the ordinary and normal course
of business;
(v) make any payment or transfer any assets to Seller or any of the
Controlling Shareholders on their respective Affiliates other than (i)
payments in the ordinary and normal course of business Or (ii) payment of
dividends as set out in Exhibit 13. It is understood and agreed, however,
that Seller shall remain entitled to all dividends of the Cablecom
Companies for the financial year 1999;
(w) amend, vary or supplement any of the regulatory licenses of the Cablecom
Subsidiaries other than as contemplated in this Agreement;
(x) do, allow or procure any act or omission before the Effective Date which
is likely to constitute a misrepresentation or breach of warranty upon
their being deemed to be given as at the Effective Date;
<PAGE> 48
-48-
(y) enter into any interconnection or open network access agreement with any
Controlling Shareholder or any third party prior to the Closing Date
(other than in accordance with pre-existing arrangements);
(z) agree to do any of the things referred to above.
Seller hereby undertakes fully and promptly to inform Buyer whenever it
contemplates to do, or cause to be done, or propose to be done, a transaction
that is or may be effected by the restrictions set forth in this subsection.
7.4. Covenants of Controlling Shareholders
Each of the Controlling Shareholders hereby undertakes to procure that Seller
shall comply with the provisions of Section 7.1. In addition, and without
limitation to the foregoing, each of the Controlling Shareholders undertakes:
(a) not to do anything that would materially interfere with the consummation
of the transactions contemplated by this Agreement taken as a whole;
(b) not to execute any contracts or enter into any negotiations with any third
party that would materially inhibit or impair the consummation of the
transactions contemplated by this Agreement taken as whole;
(c) not to increase the overall amount of Intercompany Net Debt as against
such Controlling Shareholder between 31 December 1999 and the Closing
Date;
(d) not to do any other thing which would have a Material Adverse Effect on
the value of the Cablecom Business taken as a whole, unless specifically
provided in this Agreement;
(e) to procure that neither the Seller nor the Cablecom Subsidiaries shall do,
allow or procure any act or omission before the Effective Date which is
likely to constitute a misrepresentation or breach of warranty upon their
being deemed to be given by the Controlling Shareholders under Section 5.
7.5. Press Releases and Other Public Announcements
Following execution of this Agreement, all public announcements or press
releases issued in connection with the transactions contemplated by this
Agreement shall only be published after Buyer, Seller and the Controlling
Shareholders shall have consulted
<PAGE> 49
-49-
and agreed on the contents of such public announcements or press releases.
Nothing in this Agreement shall restrict or prohibit:
(a) any announcement or disclosure required by statutory law or by any
competent judicial or regulatory authority or by any competent securities
exchange (in which case the parties shall co-operate in good faith in
order to agree the content of any such announcement prior to it being
made);
(b) the Buyer or any of the Cablecom Subsidiaries from informing customers or
Suppliers of the acquisition of the Cablecom Group by Buyer after Closing
(it being understood that any references to Seller or the Controlling
Shareholders shall only be made after prior consultation with Seller and
the respective Controlling Shareholder);
(c) any affiliate of Buyer from making any disclosure to any of its directors,
officers, employees, agents or advisers who are required to receive such
information to carry out their duties (conditional upon any such person
agreeing to keep such information confidential for so long as the
disclosing party is obligated to do so in accordance with this clause or
applicable law).
8. CONDUCT OF BUSINESS AFTER CLOSING
8.1. Restrictions on Resale
Buyer undertakes not to sell, transfer or otherwise dispose of the Cablecom
Business for a period of 24 months after the Closing Date. In particular, and
without limitation to the foregoing, Buyer shall not during such period sell,
solicit or procure the sale, transfer, or otherwise dispose of, or create a lien
or pledge or mortgage on, or allow a sub-participation to granted with respect
to, (i) all or part of the shares in the acquisition vehicle for the Cablecom
Business, or (ii) all or part of the shares or assets comprising the Cablecom
Business (including without limitation the shares or assets in all Cablecom
Companies), except as set out in the following paragraph.
Notwithstanding the foregoing, Buyer shall not be restricted from:
(a) selling, transferring or restructuring any parts of the Cablecom Business
as a part of an intra-group restructuring or reorganization;
(b) pledging, mortgaging or otherwise charging all or part of such shares or
assets after Closing by way of security for borrowings incurred by Buyer
or its Affiliates;
<PAGE> 50
-50-
(c) selling or transferring to third parties minor parts of the Cablecom cable
television business, it being understood that "minor parts" shall be
deemed to apply only to parts of the business which comprise less than 3%
of Cablecom's overall cable television subscriber base as of 30 September
1999 (calculated under the "Equity Subscribers" method as set forth in
Exhibit 11);
(d) selling or transferring the Rediffusion business division;
(e) effecting an initial public offering on a recognized securities exchange.
8.2. Use of Cablecom Name and Trademark
Seller and the Controlling Shareholders undertake to discontinue the use of the
name and trademark "Cablecom" on the Closing Date. In particular, and without
limitation to the foregoing, Seller shall change its corporate name so as not to
include any reference to "Cablecom" or any similar sounding name no later than
the Closing Date.
8.3. Liquidation of Seller
It is understood and agreed by the parties that the Controlling Shareholders
reserve the right to liquidate Seller following consummation of the transactions
contemplated by this Agreement. In the event of any such actual or de facto
liquidation, all rights and obligations of Seller under the Transaction
Agreement shall be assumed by the several Controlling Shareholders, and each
Controlling Shareholder shall therefore be liable for its several and
proportionate share of the obligations and liabilities of Seller (including
without limitation obligations and liabilities of Seller under Sections 5 and 6)
to Buyer.
The Controlling Shareholders shall be entitled to raise any claims and to
exercise any rights and remedies which otherwise would have been available to
Seller would it not have been liquidated.
8.4. Restrictive Covenant
Seller and the Controlling Shareholders each undertake to Buyer, and Buyer
undertakes to Seller and each of the Controlling Shareholders, that they will
not, at any time until 12 months after the Closing Date, solicit or entice away,
or endeavor to solicit or entice away, from any of the opposing parties any
person who was at the Effective Date or the Closing Date an employee of any Such
opposing party (whether or not
<PAGE> 51
-51-
such person would commit a breach of its employment contract by leaving
service), provided, however, that this undertaking shall not apply:
(a) to generic, unspecific advertisements for the procurement of employees
made in newspapers, magazines or otherwise in the ordinary course of
business;
(b) to any employee employed by any of the parties in a non-managerial or
non-senior technical or engineering role.
8.5. Swisscom Arrangements
Swisscom and Buyer reached an agreement in principle according to which Buyer
shall procure that the Cablecom Companies enter into new contracts within a
reasonable period of time which shall replace the existing contracts, for the
use of leased lines owned by Swisscom for an overall price of CHF 15,000,000
(fifteen million Swiss Francs) p.a. for current, unrestricted monodirectional
use, plus a 15% mark-up for bidirectionality. Swisscom will, within reasonable
time, upgrade those monodirectional leased lines covered by the existing
contracts with the Cablecom Companies to bidirectional use to the extent
requested by the Buyer. The relevant contracts will be amended accordingly.
Should any entity of the Cablecom Group terminate an agreement under which an
upgrade has been made for bi-directional use before the term of such agreement,
then such entity of the Cablecom Group shall pay to Swisscom the penalty agreed
in such agreement to cover the investment costs. Any agreements and undertakings
implementing the above shall be considered as a separate and independent matter,
shall not impede the Closing from taking place, and shall not enable any party
to take any remedies under this Agreement.
9. TAXES, COSTS AND EXPENSES
9.1. Taxes
Seller shall bear or cause to be borne, and shall indemnify Buyer if Buyer is
required to pay all Taxes to be paid or withheld by Seller in connection with
the transactions contemplated under this Agreement, including the Swiss
securities transfer tax (Umsatzabgabe) payable in connection with the
transactions contemplated under this Agreement.
<PAGE> 52
-52-
Buyer shall bear or cause to be borne, and shall indemnify Seller or any
Controlling Shareholder required to pay any and all taxes attributable to Buyer
as a result of the consummation of the transactions contemplated by this
Agreement and value added taxes, if any, levied on the transactions contemplated
under this Agreement.
All amounts referred to in this Agreement do not include any value added tax,
which shall be added if necessary.
9.2. Costs and Expenses
Each party shall bear its own costs and expenses (including advisory fees)
incurred in the negotiation, preparation and completion of this agreement.
Seller and the Controlling Shareholders confirm that none of such costs and
expenses have been or will be prior to closing borne by any of the Cablecom
Subsidiaries. Notwithstanding the foregoing:
(a) any costs of the Appraiser appointed by the Parties pursuant to Section
2.2 shall be borne by Buyer and Seller in equal proportions;
(b) If a party has caused this Agreement not to be consummated by a fraudulent
or grossly negligent act or behavior, it shall reimburse the other party
or parties for all costs and expenses incurred by such party or parties in
view of this Agreement, including without limitation fees of legal and
financial advisors, reasonable out-of-pocket expenses, and any other
direct damages (at the exclusion of consequential damages) suffered as a
result of a failure to close this Agreement.
10. GENERAL PROVISIONS
10.1. Effect on Third Parties
No person other than the parties hereto shall have any rights or benefits under
this Agreement, and nothing in this Agreement is intended to confer on any
person other than the parties hereto any rights, benefits or remedies. No party
to this Agreement shall assign any of the rights or obligations under this
Agreement to any third party without the prior written consent of Seller and the
Controlling Shareholders (if the assignment is proposed to be undertaken by
Buyer) or Buyer (if the assignment is proposed to be undertaken by Seller or any
of the Controlling Shareholders), provided, however, that in case of liquidation
of Seller, Seller shall have the right to assign claims to the Controlling
Shareholders.
<PAGE> 53
-53-
Notwithstanding the foregoing, Buyer shall have the right
(a) to consummate the transactions contemplated under this Agreement through
an Affiliate of Buyer, it being understood that Buyer shall remain jointly
and severally liable with such Affiliate for the obligations assumed by
such Affiliate under this Agreement including without limitation the
obligation to repay part of the Hold-Back as set forth in Section 2.2.6;
(b) to assign after Closing any or all of the Buyer's rights or obligations
under this Agreement or any or all of its interest in the Cablecom
Companies to an Affiliate of Buyer, it being understood that Buyer shall
remain jointly and severally liable with such Affiliate for the
obligations assumed by any such Affiliate;
(c) to assign any or all of the Buyer's rights or obligations under this
agreement to any person by way of security for borrowings incurred by
Buyer or its Affiliates.
10.2. Notices
All notices or other communications to be given under or in connection with this
Agreement shall be made in writing and shall be delivered by hand, by registered
mail (return receipt requested) or by telefax to the following addresses:
If to Buyer:
Address for service Prager Dreifuss attn. Gaudenz Domenig
Muhlebechstrasse 6
8008 Zurich, Switzerland
Fax No. ++411-254 5599
with a copy to NTL Incorporated attn. John Gregg and
110 East 59th Street, 26th Fl., Richard Lubach
New York NY 10022, USA
Fax No. ++1-212 906 8497
with a copy to NTL Incorporated attn. Aizad Hussain and
90 Long Acre Jeff Wyman
London WC2E 9RA, England
Fax No: ++44-207 909 2012
with a copy to Travers Smith Braithwaite attn. Mark Soundy
10 Snow Hill
London EC1A 2AL, England
Fax No: ++44-207 238 3728
if to Seller:
<PAGE> 54
-54-
Cablecom Holding AG attn. Chief Executive
Zollstrasse 42 Officer
CH-8005 Zurich, Switzerland
Fax-No. ++411-277 9292
with a copy to Homburger Rechtsanwalte attn. Peter Kurer and
Weinbergstrasse 56158 Danel Daeniker
8035 Zurich, Switzerland
Fax No. ++411-265 3511
if to the Controlling Shareholders:
Siemens Schweiz AG attn. Chairman of the
Freilagerstrasse 40. P.O. Box Board of Directors
CH-8047 Zurich, Switzerland
Fax-Nr. ++411-495 6108.
Veba Telecom GmbH attn. Chief Legal
Bennigsenplatz 1 Counsel
D-40474 Dusseldorf, Germany
Fax-Nr. ++49-211 457 9446
Swisscom AG attn. Chief Financial
Alte Tiefenaustrasse 6 Officer
CH-3050 Berne
Fax-Nr. ++4131-342 5580
with a copy to Homburger Rechtsanwalte attn. Peter Kurer and
Weinbergstrasse 56/58 Daniel Daeniker
8035 Zurich, Switzerland
Fax No. ++411 -265 3511.
10.3. Entire Agreement
This Agreement, including the Annexes and Exhibits and any other documents
referred to herein, constitutes the entire Agreement and understanding among the
parties with respect to the subject matter hereof, and shall supersede all prior
oral and written agreements Or understandings of the parties relating hereto.
This Agreement, including the Annexes and Exhibits and any other documents
referred to herein, shall be binding on all successors and assignees of the
parties hereto. All references to this Agreement shall be deemed to include the
Annexes and Exhibits hereto.
10.4. Amendments and Waivers
This Agreement may only be modified or amended by a document signed by all
parties. Any provision contained in this Agreement may only be waived by a
document signed by the party waiving such provision.
<PAGE> 55
-55-
10.5. Severability; Good Faith
Should any part or provision of this Agreement be held to be invalid or
unenforceable by any competent court, governmental or administrative authority
having jurisdiction, the other provisions of this Agreement shall nonetheless
remain valid. In this case, the parties shall endeavor to negotiate a substitute
provision that best reflects the economic intentions of the parties without
being unenforceable, and shall execute all agreements and documents required in
this connection.
The parties have been informed that the transfer of the interest of Seller in
Cablecom Kabelkommunikation GmbH is subject to the form requirement of
notarization by a public deed. The parties agree that the sale and transfer of
the Cablecom Business taken as a whole would be effected even if the sale and
transfer of Sellers interest in Cablecom Kabelkommunikation, GmbH were not to
take place, and also agree that this Agreement is valid and binding on the
parties in the form as executed by the parties. The parties further agree to
execute or have executed a notarized public deed for the sale and transfer of
the interest of Seller in Cablecom Kabelkommunikation GmbH in the form required
under applicable law, and in form and substance reasonably satisfactory to Buyer
and Seller, no later than 17 December 1999.
If a party to this Agreement (the Failing Party) should fail to take any action
to be taken or to deliver any document to be delivered as of a specified date,
the other party shall not resort to any contractual remedies under this
Agreement if such failure is promptly and fully cured in good faith by the
Failing Party.
10.8. Confidentiality
The parties undertake to keep all information obtained in the course of the due
diligence and in any negotiations and discussions prior to or after Closing in
strict confidence, and further undertake not to disclose any such information to
third parties, and all parties to this Agreement shall in all respects keep
confidential and not at any time disclose to anyone or use for their own or any
other person's benefit or to the detriment of the other party or parties any
confidential information, in each case unless:
(a) a party is required to do so by a competent court or administrative
authority under compulsory law;
(b) a party is required to do so under applicable stock exchange regulations;
<PAGE> 56
-56-
(c) such information is already in the public domain by reason other than a
breach of this confidentiality undertaking.
It is understood and agreed that the above confidentiality undertaking shall not
restrict Buyer from using information obtained on the Cablecom Business in the
course of operating the Cablecom Business following the Closing Date.
This confidentiality undertaking shall remain in force until 31 December 2004.
10.7. Entry into Effect
This Agreement shall enter into effect as of the date first written hereinabove,
subject to completion of the following conditions:
(a) Buyer shall have delivered to Seller and the Controlling Shareholders a
commitment letter and a "highly confident" letter relating to the
financing of the Purchase Price set out in Section 2.2.1;
(b) the board of directors of Buyer shall have approved the transactions
contemplated by this Agreement.
10.8. Commitment Letter
At any time after signing of this Agreement and prior to noon (Swiss time) on 14
December 1999, the Buyer shall be entitled to deliver to the Controlling
Shareholders written evidence reasonably satisfactory to Warburg Dillon Read
(acting for this purpose on behalf of the Controlling Shareholders) from one or
more major international financial institutions to the effect that they are
committed to arranging the funding for the equity element of the financing to
enable Buyer to pay the Purchase Price (the Commitment Letter). Such delivery
shall be effected by hand delivery or telefax to Homburger Rechtsanwalte, Zurich
(telefax no. 0041-1-265 3511, attn. Daniel Daeniker) and to Warburg Dillon Read,
Zurich (telefax no. 0041-1-239 9331, attn. Carsten ten Brink).
If the Commitment Letter is reasonably satisfactory to Warburg Dillon Read,
Seller will, forthwith upon demand, pay to Buyer an amount equal to 75% of the
total commitment fees (to the extent such fees cover the equity element of the
Purchase Price in the amount of CHF 2,100,000,000 (two billion one hundred
million Swiss Francs))
<PAGE> 57
-57-
payable by Buyer in relation to the Commitment Letter upon evidence from Buyer
that such commitment fees have been invoiced to and paid by Buyer.
11. GOVERNING LAW AND JURISDICTION
11.1. Governing Law
This Agreement shall be governed by and construed in accordance with the laws of
Switzerland, to the exclusion of the provisions on the conflict of laws.
11.2. Jurisdiction
All disputes arising out of or in connection with this Agreement or the
transaction contemplated hereby shall be submitted to the exclusive jurisdiction
of the Commercial Court of the Canton of Zurich (Handelsgericht des Kantons
Zurich) with reserves of appeals to the Swiss Federal Supreme Court
(Schweizerisches Bundesgericht). Each party to this Agreement waives, to the
fullest extent it may effectively do so, any objection which it may now or
hereafter have to the laying of venue of any such proceeding, and submits to the
jurisdiction of such court in any suit, action or proceeding. For the purposes
of this Section 11.2. Buyer appoints Prager Dreifuss, attorneys-at-law,
Muhlebachstrasse 6, 8008 Zurich, attn: Gaudenz Domenig as its agent for service
of process.
SO AGREED on 12 December 1999 in Zurich
Cablecom Holding AG
/s/ Manifred Nagel /s/ Ueli Dietiker
- ------------------ -----------------------
By: Manifred Nagel Ueli Dietiker
Title: Chairman of Chief Executive Officer
the Board
<PAGE> 58
-58-
NTL Incorporated
/s/ John Gregg
- ------------------------------
By: John Gregg
Title: Chief Financial Officer
Siemens Schweiz AG
/s/ Manifred Nagel /s/ Peter Gruschow
- ------------------ ------------------
By: Manifred Nagel Peter Gruschow
Title: Chairman Managing Director
of the Board
Veba Telecom GmbH
/s/ Karsten Keller
- -----------------------
By: Karsten Keller
Title: Attorney-in-fact
Swisscom AG
/s/ David Schnell /s/ Thomas Bischof
- ----------------- -----------------------
By: David Schnell Thomas Bischof
Title: Chief Financial General Counsel Finance
Officer
<PAGE> 59
-59-
ANNEX A
DEFINITIONS
As used in this Agreement in capitalized form, the following terms shall have
the following meaning:
A.1 Accounting Principles shall mean the accounting principles consistently
previously applied by the Cablecom Group in accordance with Swiss Law and
the Swiss Accounting and Reporting Recommendations (Fachempfehlungen fur
Rechnungslegung, FER).
A.2 Affiliate. A person or Business Association shall be an affiliate of a
second person or Business Association if it exercises Control over such
person or Business Association, or is under Control by it, or is under
common Control by the same person or Business Association.
A.3 Agreement shall mean this Agreement including all of its Exhibits and
Annexes.
A.4 Appraiser shall have the meaning set forth in Section 2.2.
A.5 Business Association shall mean a general or limited partnership, a
corporation, a business trust, a limited liability company, a trust, an
unincorporated organization doing business, a government or any department
or agency thereof, a joint venture or any other entity doing business.
A.6 Cablecom Business shall mean the Sale Shares, the Related Cablecom Assets,
the Related Cablecom Contracts and the Related Cablecom Liabilities
(including without limitation Swiss Online) to be transferred by Seller
under this Agreement.
A.7 Cablecom Companies shall mean all of the Business Associations listed in
Exhibit 1.
A.8 Cablecom Group shall mean Seller and the Cablecom Subsidiaries taken as a
whole.
<PAGE> 60
-60-
A.9 Cablecom Subsidiaries shall mean those Cablecom Companies which are under
the direct or indirect Control of Seller.
A.10 Call Option has the meaning set forth in Section 4.8.
A.11 Cash shall mean, with respect to the Cablecom Business, cash, cash
equivalents (including cheques at hand, funds transferred but not
credited, and interest accrued thereon), marketable securities (including
interest earned but not paid), determined in accordance with the
Accounting Principles.
A.12 CHF shall mean Swiss Francs, being the lawful currency of Switzerland.
A.13 Closing shall mean the consummation of the transactions described in
Section 3.3.
A.14 Closing Date shall mean the date of Closing as set out in Section 3.1.
A.15 CO shall mean the Swiss Federal Code of Obligations (Obilgationenrecht) of
1911, as amended.
A.16 Contracts shall mean the Related Cablecom Contracts and all written
agreements and undertakings to which any of the Cablecom Companies is a
party or a beneficiary, or by which any of the Related Cablecom Assets or
liabilities are bound or beneficiaries.
A.17 Control shall be deemed to exist if a person or Business Association
(either alone of with its Affiliates) owns more than half of the voting
rights and equity capital of a Business Association, or is otherwise able
to exert a controlling influence over another person or Business
Association.
A.18 Controlling Shareholder shall mean any of Siemens Schweiz AG, Swisscom AG
or Veba Telecom GmbH.
A.19 Deductible shall have the meaning set forth in Section 6.2.3.
A.20 Delayed Closing shall have the meaning set forth in Section 4.8.
<PAGE> 61
-61-
A.21 Disclosed Documents shall have the meaning set forth in Section 5.1.
A.22 Disclosure Letter shall have the meaning set forth in Section 5.1.
A.23 Effective Date shall mean 1 January 2000, 00.01 am.
A.24 Escrow Agreement shall have the meaning set forth in Section 4.7.
A.25 Financial Debt shall mean, with respect to the Cablecom Business, Third
Party Financial Debt plus Parent Intercompany Debt minus Subsidiary
Intercompany Debt determined in accordance with the Accounting Principles.
A.26 Final Combined Financial Statements shall mean the combined balance sheet
and the profit and loss statement of the Cablecom Business as of 31
December 1999, to be prepared by the parties in accordance with the
Accounting Principles pursuant to Section 2.2.
A.27 Final Net Assets shall mean the Net Assets as of 31 December 1999.
A.28 Hold-Back shall have the meaning set out in Section 2.2.6.
A.29 Intercompany Net Debt shall mean the Parent Intercompany Debt minus the
Subsidiary Intercompany Debt.
A.30 Information Memorandum shall have the meaning set forth in Section 5.1.
A.31 Insignificant Breaches shall have the meaning set forth in Section 6.2.
A.32 Joint Account shall have the meaning set forth in Section 4.7.
A.33 Material Adverse Effect shall mean a material and lasting adverse effect
on the business operations or financial situation of the Cablecom
Business.
<PAGE> 62
-62-
A.34 Merger Control Laws shall mean the following laws applicable on Buyer or
Seller relating to the consummation of the transactions set out in this
Agreement (i) the Swiss Federal Act of 6 October 1995 on Cartels and other
Restraints on Competition, (ii) the European Union Merger Control
Regulation dated 21 December 1989 (Regulation 4064/89/EEC), as amended
(EMCR), (iii) the Austrian merger control statutes as amended with effect
as of 1 January 2000.
A.35 Net Assets shell mean, with respect to the Cablecom Business, total assets
minus total liabilities minus minority interests, determined in accordance
with the Accounting Principles.
A.36 Net Debt shall mean, with respect to the Cablecom Business, Financial Debt
minus Cash.
A.37 Net Purchase Price shall have the meaning set forth in Section 2.2.3.
A.38 Parent Intercompany Debt shall mean all interest bearing financial debt
(not including financial leases and deferred charges) owed by the Cablecom
Companies to Seller or any of the Controlling Shareholders or any of their
respective Affiliates, determined in accordance with the Accounting
Principles.
A.39 Preliminary Combined Financial Statements shall mean the projected
combined balance sheet and the profit and loss statement of the Cablecom
Companies as at 31 December 1999 attached hereto as Exhibit 5.
A.40 Price Adjustment shall have the meaning set forth in Section 2.2.
A.41 Purchase Price shall have the meaning set forth in Section 2.2.
A.42 Put Option has the meaning set forth in Section 4.8
A.43 Related Cablecom Assets shall mean the assets listed in Exhibit 2, which
shall be transferred pursuant to this Agreement as of Closing.
<PAGE> 63
-63-
A.44 Related Cablecom Contracts shall mean all written agreements and
undertakings to which the seller is a party or a beneficiary and which
relate to the Cablecom Business.
A.45 Related Cablecom Liabilities shall mean the liabilities listed in Exhibit
2, which shall be assumed pursuant to this Agreement as of Closing.
A.46 Relevant Subscribers shall have the meaning set forth in Section 2.2.6.
A.47 Representative shall have the meaning set form in Section 7.4.
A.48 Sale Shares shall mean the shares sold under this Agreement as set out in
Exhibit 1, which are held directly by Seller. Notwithstanding the
foregoing, with respect to Swiss Online the term "Sale Shares "shall mean
11,000 registered shares of Swiss Online AG.
A.49 Schedule of Indebtedness shall mean the Schedule in Exhibit 3 which sets
forth all Third Party Financial Debt and all Intercompany Debt of the
Cablecom Business.
A.50 Shares shall mean all of the shares of the Cablecom Companies listed in
Exhibit 1 which include Sale Shares and shares held by Seller through its
Affiliates.
A.51 SOL Shares shall have the meaning set out in Section 4.8.
A.52 Subsidiary Intercompany Debt shall mean all interest bearing financial
debt (not including financial leases and deferred charges) owed by Seller
or any of the Controlling Shareholders or any of their respective
Affiliates to any of the Cablecom Companies, determined in accordance with
the Accounting Principles.
<PAGE> 64
-64-
A.53 Taxes shall mean all tax liabilities, including income taxes (personal or
corporate), capital taxes, stamp duties (both on the issuance and on the
transfer or securities), withholding taxes, value added taxes and all
other taxes, duties, levies or imposts payable to any competent taxing
authority in any jurisdiction, as well as any interest, penalties, costs
and expenses reasonably related thereto.
A.54 Third Party Financial Debt shall mean all interest bearing financial debt
(not including financial leases and deferred charges) owed by any of the
Cablecom Companies to any third party other than Intercompany Net Debt,
determined in accordance with the Accounting Principles.
A.55 Y2K Documents shall have the meaning set forth in Section 5.1.2.
<PAGE> 1
CERTIFICATE OF DESIGNATION
OF THE VOTING POWERS, DESIGNATION,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS OF THE
5% CUMULATIVE PARTICIPATING CONVERTIBLE
PREFERRED STOCK, SERIES A OF
NTL INCORPORATED
------------------------------
PURSUANT TO SECTION 151(g) OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------------------
The undersigned, Executive Vice President, General Counsel and
Secretary of NTL Incorporated, a Delaware corporation (the "Corporation"),
HEREBY CERTIFIES that the Board of Directors, in accordance with Article FOURTH,
Section B of the Corporation's Restated Certificate of Incorporation and Section
151(g) of the Delaware General Corporation Law (the "DGCL"), has authorized the
creation of the series of Preferred Stock hereinafter provided for and has
established the dividend, redemption, conversion and voting rights thereof and
has adopted the following resolution, creating the following new series of the
Corporation's Preferred Stock:
"BE IT RESOLVED that, pursuant to authority expressly granted to the
Board of Directors by the provisions of Article FOURTH, Section B of the
Restated Certificate of Incorporation of the Corporation and Section 151(g) of
the DGCL, there is hereby created and authorized the issuance of a new series of
the Corporation's Preferred Stock, par value $.01 per share ("Preferred Stock"),
with the following powers, designations, dividend rights, voting powers, rights
on liquidation, conversion rights, redemption rights and other preferences and
relative, participating, optional or other special rights and with the
qualifications, limitations or restrictions on the shares of such series (in
addition to the powers, designations, preferences and relative, participating,
optional or other special rights and the qualifications, limitations or
restrictions thereof set forth in the Restated Certificate of Incorporation that
are applicable to each series of Preferred Stock) hereinafter set forth.
(1) Number and Designation. 750,000 shares of the Preferred Stock of
the Corporation shall be designated as 5% Cumulative Participating Convertible
Preferred Stock, Series A (the "5% Preferred Stock") and no other shares of
Preferred Stock shall be designated as 5% Preferred Stock.
(2) Definitions. For purposes of the 5% Preferred Stock, the
<PAGE> 2
following terms shall have the meanings indicated:
"Additional Preferred" shall have the meaning set forth in paragraph
(4)(a) hereof.
"All But One Outstanding Share" shall have the meaning set forth in
paragraph (6)(c) hereof.
"Bankruptcy Event" shall mean any of the following: (I) a court
having jurisdiction in the premises enters a decree or order for (A)
relief in respect of any Major Entity in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereinafter
in effect, (B) appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of any Major Entity or for all
or substantially all of the property and assets of any Major Entity or (C)
the winding up or liquidation of the affairs of any Major Entity; or (II)
any Major Entity (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereinafter in effect,
or consents to the entry of an order for relief in an involuntary case
under any such law, (B) consents to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of any Major Entity, or for all or
substantially all of the property and assets of any Major Entity or (C)
effects any general assignment for the benefit of creditors.
"Board of Directors" shall mean the board of directors of the
Corporation. Except as such term is used in paragraph (9), "Board of
Directors" shall also mean the Executive Committee, if any, of such board
of directors or any other committee duly authorized by such board of
directors to perform any of its responsibilities with respect to the 5%
Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New
York, New York are not required to be open.
"Common Stock" shall mean the Corporation's Common Stock, par value
$.01 per share.
"Constituent Person" shall have the meaning set forth in paragraph
(8)(e)(i) hereof.
"Conversion Rate" shall have the meaning set forth in paragraph
(8)(a) hereof.
<PAGE> 3
"Current Market Price" of publicly traded shares of Common Stock or
any other class of capital stock or other security of the Corporation or
any other issuer for any day shall mean the last reported sale price for
such security on the principal exchange or quotation system on which such
security is listed or traded. If the security is not admitted for trading
on any national securities exchange or the Nasdaq National Market,
"Current Market Price" shall mean the average of the last reported closing
bid and asked prices reported by the Nasdaq as furnished by any member in
good standing of the National Association of Securities Dealers, Inc.,
selected from time to time by the Corporation for that purpose or as
quoted by the National Quotation Bureau Incorporated. In the event that no
such quotation is available for such day, the Current Market Price shall
be the average of the quotations for the last five Trading Days for which
a quotation is available within the last 30 Trading Days prior to such
day. In the event that five such quotations are not available within such
30-Trading Day period, the Board of Directors shall be entitled to
determine the Current Market Price on the basis of such quotations as it
reasonably considers appropriate.
"Determination Date" shall have the meaning set forth in paragraph
(8)(d)(ii) hereof.
"Dividend Payment Date" shall mean September 30, December 31,
March 31 and June 30 of each year, commencing on September 30, 1999;
provided, however, that if any Dividend Payment Date falls on any day
other than a Business Day, the dividend payment due on such Dividend
Payment Date shall be paid on the Business Day immediately following such
Dividend Payment Date.
"Dividend Periods" shall mean quarterly dividend periods commencing
on September 30, December 31, March 31 and June 30 of each year
and ending on and including the day preceding the first day of the next
succeeding Dividend Period (other than the initial Dividend Period which
shall commence on the Issue Date and end on and include September 30,
1999).
"Exchange Act"" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulation thereunder.
"Expiration Time" shall have the meaning set forth in paragraph
(8)(d)(v) hereof.
"5% Preferred Stock" shall have the meaning set forth in paragraph
(1) hereof.
<PAGE> 4
"5-1/4% Preferred" shall have the meaning set forth in paragraph
(3)(d) hereof.
"5-1/4% Series A" shall have the meaning set forth in paragraph
(3)(d) hereof.
"Investment Securities" shall mean any of the following: (a) shares
of Common Stock, and (b) shares of 5% Preferred Stock. For purposes of
calculating ownership of Investment Securities, each share of Common Stock
equals one Investment Security (adjusted for stock dividends, stock
splits, reclassifications or similar transactions that have occurred since
the Issue Date), and each share of 5% Preferred Stock equals eight
Investment Securities, adjusted in accordance with adjustments to the
Conversion Rate as provided in paragraph (8)(d).
"Issue Date" shall mean the date on which shares of 5% Preferred
Stock are first issued.
"Junior Securities" shall have the meaning set forth in paragraph
(3)(c) hereof.
"Junior Securities Distribution" shall have the meaning set forth in
paragraph (4)(f) hereof.
"Liquidation Right" shall mean, for each share of 5% Preferred
Stock, the greater of (i) an amount equal to $1,000 per share, plus an
amount equal to all dividends (whether or not earned or declared) accrued
and unpaid thereon to the date of final distribution to such holders, and
(ii) the amount that would be received in liquidation following conversion
of a share of 5% Preferred Stock into Common Stock.
"Major Entity" shall mean any of the Corporation, NTL Communications
Corp., Diamond Cable Communications Limited, Diamond Holdings Limited, NTL
(Bermuda) Limited or any Significant Subsidiary.
"Mandatory Redemption Date" shall have the meaning set forth in
paragraph (6)(c) hereof.
"Mandatory Redemption Obligation" shall have the meaning set forth
in paragraph (6)(d) hereof.
"Nasdaq" means the Nasdaq Stock Market, Inc., the electronic
securities market regulated by the National Association of Securities
Dealers, Inc.
"Nasdaq National Market" shall have the meaning set forth in Rule
<PAGE> 5
4200(a)(23) of the rules of the National Association of Securities
Dealers, Inc.
"9.9% Series A Preferred" shall have the meaning set forth in
paragraph (3)(d) hereof.
"9.9% Series B Preferred" shall have the meaning set forth in
paragraph (3)(d) hereof.
"non-electing share" shall have the meaning set forth in paragraph
(8)(e)(i) hereof.
"NYSE" means the New York Stock Exchange.
"outstanding", when used with reference to shares of stock, shall
mean issued shares, excluding shares held by the Corporation or a
subsidiary.
"Parity Securities" shall have the meaning set forth in paragraph
(3)(b) hereof.
"Person" shall mean any individual, partnership, association, joint
venture, corporation, business, trust, joint stock company, limited
liability company, any unincorporated organization, any other entity, a
"group" of such persons, as that term is defined in Rule 13d-5(b) under
the Exchange Act, or a government or political subdivision thereof.
"Preferred Shares" has the meaning set forth in paragraph (9)(c).
"Preferred Stock" shall have the meaning set forth in the first
resolution above.
"Purchase Shares" shall have the meaning set forth in paragraph
(8)(d)(v) hereof.
"Qualified Holding Condition" means France Telecom S.A., a societe
anonyme formed under the laws of France, or an affiliate, is the holder of
at least 6,527,027 Investment Securities, provided that this number shall
be adjusted in accordance with the adjustments made to the components of
Investment Securities, as set forth above.
"Record Date" shall have the meaning set forth in paragraph
(8)(d)(iv) hereof.
"Relevant Compounding Factor" shall mean, with respect to each share
of 5% Preferred Stock, upon initial issuance 1.00, and shall on each
<PAGE> 6
Dividend Payment Date be increased to equal the product of the Relevant
Compounding Factor in effect immediately prior to such Dividend Payment
Date and 1.0125.
"Rights" shall have the meaning set forth in paragraph (11) hereof.
"Securities" shall have the meaning set forth in paragraph
(8)(d)(iii) hereof.
"Senior Securities" shall have the meaning set forth in paragraph
(3)(a) hereof.
"set apart for payment" shall be deemed to include, without any
action other than the following, the recording by the Corporation in its
accounting ledgers of any accounting or bookkeeping entry which indicates,
pursuant to a declaration of dividends or other distribution by the Board
of Directors, the allocation of funds to be so paid on any series or class
of capital stock of the Corporation; provided, however, that if any funds
for any class or series of Junior Securities or any class or series of
Parity Securities are placed in a separate account of the Corporation or
delivered to a disbursing, paying or other similar agent, then "set apart
for payment" with respect to the 5% Preferred Stock shall mean placing
such funds in a separate account or delivering such funds to a disbursing,
paying or other similar agent, as the case may be.
"Significant Subsidiary" shall have the meaning given to such term
in Regulation S-X under the Exchange Act.
"13% Preferred" shall have the meaning set forth in paragraph (3)(d)
hereof.
"Trading Day" shall mean any day on which the securities in question
are traded on the NYSE, or if such securities are not listed or admitted
for trading on the NYSE, on the principal national securities exchange on
which such securities are listed or admitted, or if not listed or admitted
for trading on any national securities exchange, on the Nasdaq National
Market, or if such securities are not quoted thereon, in the applicable
securities market in which the securities are traded.
"Transaction" shall have the meaning set forth in paragraph
(8)(e)(i) hereof.
"Trigger Event" shall have the meaning set forth in paragraph (9)(b)
hereof.
<PAGE> 7
"Trigger Event Cure" shall have the meaning set forth in paragraph
(9)(b) hereof.
"25-Day Average Market Price" shall mean, for any security, the
volume-weighted average of the Current Market Prices of that security for
the twenty-five Trading Days immediately preceding the date of
determination.
(3) Rank. Any class or series of stock of the Corporation shall be
deemed to rank:
(a) prior to the 5% Preferred Stock, either as to the payment of
dividends or as to distribution of assets upon liquidation, dissolution or
winding up, or both, if the holders of such class or series shall be entitled by
the terms thereof to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding up, in preference or priority to the holders
of 5% Preferred Stock ("Senior Securities");
(b) on a parity with the 5% Preferred Stock, either as to the
payment of dividends or as to distributions of assets upon liquidation,
dissolution or winding up, or both, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share thereof be different
from those of the 5% Preferred Stock, if the holders of the 5% Preferred Stock
and of such class of stock or series shall be entitled by the terms thereof to
the receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, or both, in proportion to their respective amounts of
accrued and unpaid dividends per share or liquidation preferences, without
preference or priority one over the other and such class of stock or series is
not a class of Senior Securities ("Parity Securities"); and
(c) junior to the 5% Preferred Stock, either as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up, or both, if such stock or series shall be Common Stock or if the
holders of the 5% Preferred Stock shall be entitled to receipt of dividends, and
of amounts distributable upon liquidation, dissolution or winding up, in
preference or priority to the holders of shares of such stock or series ("Junior
Securities").
(d) Each of (i) the 13% Series B Senior Redeemable Exchangeable
Preferred Stock (the "13% Preferred") and (ii) the 5-1/4% Convertible Preferred
Stock, Series A, (the "5-1/4% Series A") and any dividends paid on the 5-1/4%
Series A in accordance with its terms, to the extent that such dividends are
paid in preferred stock having terms substantially identical to the 5-1/4%
Series A and any dividends paid on preferred stock issued as in-kind dividends
thereon, to the extent such dividends are paid in preferred stock having terms
substantially identical to the 5-1/4% Series A (the 5-1/4% Series A and all such
<PAGE> 8
in-kind dividends being hereinafter referred to as the "5-1/4% Preferred") is a
Senior Security. Each of the 9.9% Non-Voting Mandatorily Redeemable Preferred
Stock, Series A ("9.9% Series A Preferred"), and 9.9% Non-Voting Mandatorily
Redeemable Preferred Stock, Series B ("9.9% Series B Preferred"), is a Junior
Security. One or more classes of Additional Preferred (as defined below) shall
be Parity Securities; provided, however, that there shall be no issue of other
Senior Securities, Parity Securities or rights or options exercisable for or
convertible into any such securities, except as approved by the holders of the
5% Preferred Stock pursuant to paragraph 9(f).
(e) The respective definitions of Senior Securities, Junior
Securities and Parity Securities shall also include any rights or options
exercisable for or convertible into any of the Senior Securities, Junior
Securities and Parity Securities, as the case may be. The 5% Preferred Stock
shall be subject to the creation of Junior Securities, Parity Securities and
Senior Securities as set forth herein.
(4) Dividends. (a) Subject to paragraph (8)(b)(ii), the holders of
shares of 5% Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors, out of funds legally available for the
payment of dividends, dividends at the quarterly rate of $12.50 per share
(assuming a $1,000.00 face amount) payable in cash, shares of Common Stock (such
Common Stock for this purpose to be assigned a value equal to the 25-Day Average
Market Price as of the record date for such Dividend Payment Date) or additional
shares of Preferred Stock of a class to be designated by the Board of Directors
having terms substantially identical to the 5% Preferred Stock except as
follows: (A) the Conversion Rate (as set forth in Section 8(a)) on such
Preferred Stock initially shall be the quotient resulting from the division of
the Conversion Rate (as then in effect on the 5% Preferred Stock) by the
Relevant Compounding Factor (except that for purposes of additional shares of
Preferred Stock payable as a dividend for the initial Dividend Period, the
Conversion Rate shall be the quotient resulting from the division of the
Conversion Rate (as then in effect) by [(90 - (# days in initial Dividend
Period)/90) x Relevant Compounding Factor]) and (B) the number of shares of such
Preferred Stock payable as a dividend on any Dividend Payment Date shall
increase for each Dividend Payment Date from the first Dividend Payment Date by
the Relevant Compounding Factor (such classes of Preferred Stock singularly and
collectively, the "Additional Preferred"). All dividends on the 5% Preferred
Stock, in whatever form, shall be payable in arrears quarterly on each Dividend
Payment Date and shall be cumulative from the Issue Date (except that dividends
on Additional Preferred shall accrue from the date such Additional Preferred is
issued or would have been issued in accordance with this Certificate of
Designation if such dividends had been declared), whether or not in any Dividend
Period or Dividend Periods there shall be funds of the Corporation legally
available for the payment of such dividends. Each such dividend shall be payable
to the holders of record of
<PAGE> 9
shares of the 5% Preferred Stock, as they appear on the stock records of the
Corporation at the close of business on the record date for such dividend. Upon
the declaration of any such dividend, the Board of Directors shall fix as such
record date on the fifth Business Day preceding the relevant Dividend Payment
Date and shall give notice on or prior to the record date of the form of payment
of such dividend. Accrued and unpaid dividends for any past Dividend Payment
Date may be declared and paid at any time, without reference to any Dividend
Payment Date, to holders of record on such record date, not more than 45 days
nor less than five Business Days preceding the payment date thereof, as may be
fixed by the Board of Directors.
(b) In addition to the dividends described in the preceding
paragraph, holders of shares of the 5% Preferred Stock shall be entitled to
receive an amount equal to the amount (and in the form of consideration) that
such holders would be entitled to receive if, pursuant to paragraph (8), they
had converted such 5% Preferred Stock fully into Common Stock immediately before
the record date for the payment of any such dividends on Common Stock. Each such
dividend shall be payable to the holders of record of shares of the 5% Preferred
Stock as they appear on the stock records of the Corporation at the close of
business on the record date for such dividend on Common Stock, and the
Corporation shall pay each such dividend on the applicable payment date for such
dividend on the Common Stock.
(c) For the purpose of determining the number of Additional
Preferred to be issued pursuant to paragraph (4)(a), each such Additional
Preferred shall be valued at $1,000.00. Holders of such Additional Preferred
shall be entitled to receive dividends payable at the rates specified in
paragraph (4)(a).
(d) The dividends payable for the initial Dividend Period, or any
other period shorter than a full Dividend Period, on the 5% Preferred Stock
shall accrue daily and be computed on the basis of a 360-day year and the actual
number of days in such period. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on the 5%
Preferred Stock that may be in arrears except as otherwise provided herein.
(e) So long as any shares of the 5% Preferred Stock are outstanding,
no dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on Parity Securities or Junior
Securities, for any period, nor shall any Parity Securities or Junior Securities
be redeemed, purchased or otherwise acquired for any consideration (or any
moneys be paid to or made available for a sinking fund for the redemption of any
such Parity Securities or Junior Securities) by the Corporation (except for
conversion into or exchange into other Parity Securities or Junior Securities,
as the case may be) unless, in each case, (i) full cumulative dividends on all
outstanding shares of the 5% Preferred Stock for all Dividend Periods
<PAGE> 10
terminating on or prior to the date of such redemption, repurchase or other
acquisition shall have been paid or set apart for payment, (ii) sufficient funds
shall have been paid or set apart for the payment of the dividend for the
current Dividend Period with respect to the 5% Preferred Stock and (iii) the
Corporation is not in default with respect to any redemption of shares of 5%
Preferred Stock by the Corporation pursuant to paragraph (6) below. When
dividends are not fully paid in Common Stock or Additional Preferred or are not
paid in full in cash or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the 5% Preferred Stock and all
dividends declared upon Parity Securities shall be declared ratably in
proportion to the respective amounts of dividends accumulated and unpaid on the
5% Preferred Stock and accumulated and unpaid on such Parity Securities.
(f) So long as any shares of the 5% Preferred Stock are outstanding,
no dividends (other than (i) any rights issued pursuant to a shareholder rights
plan as provided in paragraph (11) and (ii) dividends or distributions paid in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, Junior Securities) shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase, or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan of the Corporation or any
subsidiary) (all such dividends, distributions, redemptions or purchases being
hereinafter referred to as "Junior Securities Distributions") for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any shares of any such stock) by the Corporation, directly or
indirectly (except by conversion into or exchange for Junior Securities,
including pursuant to paragraph 4(c) of the 9.9% Series A Preferred and
paragraph 4(d) of the 9.9% Series B Preferred), unless in each case (A) full
cumulative dividends on all outstanding shares of the 5% Preferred Stock and all
other Parity Securities shall have been paid or set apart for payment for all
past Dividend Periods and dividend periods for such other stock, (B) sufficient
funds shall have been paid or set apart for the payment of the dividend for the
current Dividend Period with respect to the 5% Preferred Stock and all other
Parity Securities, (C) the Corporation is not in default with respect to any
redemption of shares of 5% Preferred Stock by the Corporation pursuant to
paragraph (6) below, (D) the Corporation has fully performed its obligations
under paragraphs (4)(b) and (6) hereof.
(5) Liquidation Preference. (a) In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
before any payment or distribution of the assets of the Corporation (whether
capital or surplus) shall be made to or set apart for the holders of Junior
Securities, the holders of the shares of 5% Preferred Stock shall be entitled to
receive the Liquidation Right. If, upon any liquidation, dissolution or winding
<PAGE> 11
up of the Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of the shares of 5% Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid and liquidating
payments on any Parity Securities, then such assets, or the proceeds thereof,
shall be distributed among the holders of shares of 5% Preferred Stock and any
such other Parity Securities ratably in accordance with the respective amounts
that would be payable on such shares of 5% Preferred Stock and any such other
stock if all amounts payable thereon were paid in full. For the purposes of this
paragraph (5), (i) a consolidation or merger of the Corporation with one or more
corporations, or (ii) a sale or transfer of all or substantially all of the
Corporation's assets, shall not be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary, of the Corporation.
(b) Subject to the rights of the holders of any Parity Securities,
upon any liquidation, dissolution or winding up of the Corporation, after
payment shall have been made in full to the holders of the 5% Preferred Stock,
as provided in this paragraph (5), any other series or class or classes of
Junior Securities shall, subject to the respective terms and provisions (if any)
applying thereto, be entitled to receive any and all assets remaining to be paid
or distributed, and the holders of the 5% Preferred Stock shall not be entitled
to share therein.
(6) Redemption. (a) On and after the first Business Day following
the earlier to occur of (i) the seventh anniversary of the Issue Date or (ii)
the date on which both (A) the 25-Day Average Market Price of the Common Stock
shall have exceeded $150.00 and (B) the fourth anniversary of the Issue Date, to
the extent the Corporation shall have funds legally available for such payment,
the Corporation may redeem at its option shares of 5% Preferred Stock, from time
to time in part, All But One Outstanding Share or, if the Qualified Holding
Condition is not satisfied, in whole, payable at the option of the Corporation
in (A) cash, at a redemption price of $1,000.00 per share, (B) in shares of
Common Stock, at a redemption price of $1,000.00 per share, or (C) in a
combination of cash and Common Stock, at a redemption price based on the
respective combination of consideration, together in each case with accrued and
unpaid dividends thereon, whether or not declared, to, but excluding, the date
fixed for redemption, without interest. For purposes of determining the number
of shares of Common Stock to be issued pursuant to this paragraph (6)(a), the
price per share of Common Stock shall be the 25-Day Average Market Price.
(b) On and after the first Business Day following the tenth
anniversary of the Issue Date, each holder of shares of 5% Preferred Stock shall
have the right to require the Corporation, to the extent the Corporation shall
have funds legally available therefor, to redeem such holder's shares of 5%
Preferred Stock, from time to time in part, All But One Outstanding Share or, if
the Qualified Holding Condition is not satisfied, in whole, at a redemption
price of $1,000.00 per share, payable at the option of the Corporation in cash,
<PAGE> 12
shares of Common Stock or a combination thereof, together with accrued and
unpaid dividends thereon to, but excluding, the date fixed for redemption,
without interest. For purposes of determining the number of shares of the Common
Stock to be issued pursuant to this paragraph (6)(b), the price per share of
Common Stock shall equal the 25-Day Average Market Price. Any holder of shares
of 5% Preferred Stock who elects to exercise its rights pursuant to this
paragraph (6)(b) shall deliver to the Corporation a written notice of election
not less than 20 days prior to the date on which such holder demands redemption
pursuant to this paragraph 6(b), which notice shall set forth the name of the
Holder, the number of shares of 5% Preferred Stock to be redeemed and a
statement that the election to exercise a redemption right is being made
thereby; and, subject to paragraph (10)(d), shall deliver to the Corporation on
or before the date of redemption certificates evidencing the shares of 5%
Preferred Stock to be redeemed, duly endorsed for transfer to the Corporation.
(c) If the Corporation shall not have redeemed all outstanding
shares of 5% Preferred Stock pursuant to paragraphs (6)(a) or (6)(b), on the
twentieth anniversary of the Issue Date (the "Mandatory Redemption Date"), to
the extent the Corporation shall have funds legally available for such payment,
the Corporation shall redeem All But One Outstanding Share of 5% Preferred
Stock, or, if the Qualified Holding Condition is not satisfied, all outstanding
shares of 5% Preferred Stock, at a redemption price of $1,000.00 per share,
payable at the option of the Corporation in cash, shares of Common Stock or a
combination thereof, together with accrued and unpaid dividends thereon to, but
excluding, the Mandatory Redemption Date, without interest. For purposes of
determining the number of shares of the Common Stock to be issued pursuant to
this paragraph (6)(c), the price per share of Common Stock shall be the 25-Day
Average Market Price. For purposes of the 5% Preferred Stock, "All But One
Outstanding Share" means all but one share of 5% Preferred Stock outstanding at
the relevant time. For the avoidance of doubt, so long as the Qualified Holding
Condition is satisfied, at least one share of 5% Preferred Stock shall remain
outstanding in perpetuity. As soon as (i) the Qualified Holding Condition is no
longer satisfied, and (ii) there is only one share of 5% Preferred Stock that
has not been redeemed pursuant to this paragraph (6) or converted pursuant to
paragraph (8), that one outstanding share of 5% Preferred Stock shall be
redeemed, payable, at the option of the holder, in cash or in Common Stock.
(d) If the Corporation is unable or shall fail to discharge its
obligation to redeem all outstanding shares or All But One Outstanding Share of
5% Preferred Stock pursuant to paragraphs 6(b) or 6(c) (each, a "Mandatory
Redemption Obligation"), the Mandatory Redemption Obligation shall be discharged
as soon as the Corporation is able to discharge such Mandatory Redemption
Obligation. If and so long as any Mandatory Redemption Obligation with respect
to the 5% Preferred Stock shall not be fully discharged, the Corporation shall
<PAGE> 13
not (i) directly or indirectly, redeem, purchase, or otherwise acquire any
Parity Security or discharge any mandatory or optional redemption, sinking fund
or other similar obligation in respect of any Parity Securities (except in
connection with a redemption, sinking fund or other similar obligation to be
satisfied pro rata with the 5% Preferred Stock) or (ii) declare or make any
Junior Securities Distribution (other than dividends or distributions paid in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, Junior Securities), or, directly or indirectly, discharge any mandatory or
optional redemption, sinking fund or other similar obligation in respect of the
Junior Securities.
(e) Upon any redemption of 5% Preferred Stock, the Corporation shall
pay the redemption price and any accrued and unpaid dividends in arrears to, but
excluding, the applicable redemption date.
(f) For purposes of paragraph (6)(a) only, unless full cumulative
dividends (whether or not declared) on all outstanding shares of 5% Preferred
Stock and any Parity Securities shall have been paid or contemporaneously are
declared and paid or set apart for payment for all Dividend Periods terminating
on or prior to the applicable redemption date and notice has been given in
accordance with paragraph (7), none of the shares of 5% Preferred Stock shall be
redeemed, and no sum shall be set aside for such redemption, unless shares of 5%
Preferred Stock are redeemed pro rata and notice has previously been given in
accordance with paragraph (7).
(7) Procedure for Redemption. (a) If the Corporation shall redeem
shares of 5% Preferred Stock pursuant to paragraph 6(a), notice of such
redemption shall be given by certified mail, return receipt requested, postage
prepaid, mailed not less than 30 days nor more than 60 days prior to the
redemption date, to each holder of record of the shares to be redeemed at such
holder's address as the same appears on the stock register of the Corporation
and confirmed by facsimile transmission to each holder of record if the
Corporation has been furnished with such facsimile address by the holder(s);
provided, however, that neither the failure to give such notice nor confirmation
nor any defect therein or in the mailing thereof, to any particular holder,
shall affect the sufficiency of the notice or the validity of the proceedings
for redemption with respect to the other holders. Any notice that was mailed in
the manner herein provided shall be conclusively presumed to have been duly
given on the date mailed whether or not the holder receives the notice. Each
such notice shall state: (i) the redemption date; (ii) the number of shares of
5% Preferred Stock to be redeemed and, if fewer than all the shares held by such
holder are to be redeemed, the number of shares to be redeemed from such holder;
(iii) the amount payable, whether such amount shall be paid in Common Stock or
in cash and if the payment is in Common Stock an explanation of the
determination of the amount to be paid; (iv) the place or places where
certificates for such shares are to be surrendered or the notice under paragraph
<PAGE> 14
(10)(d) should be sent for payment of the redemption price; and (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date, except as otherwise provided herein.
(b) If notice has been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the Corporation in providing
for the payment of the redemption price of the shares called for redemption and
dividends accrued and unpaid thereon, if any), (i) except as otherwise provided
herein, dividends on the shares of 5% Preferred Stock so called for redemption
shall cease to accrue, (ii) said shares shall no longer be deemed to be
outstanding, and (iii) all rights of the holders thereof as holders of the 5%
Preferred Stock shall cease (except the right to receive from the Corporation
the redemption price without interest thereon, upon surrender and endorsement
(or a constructive surrender under paragraph (10)(d)) of their certificates if
so required, and to receive any dividends payable thereon).
(c) Upon surrender (including a constructive surrender under
paragraph (10)(d)) in accordance with notice given pursuant to this paragraph
(7) of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall so
require and the notice shall so state), such shares shall be redeemed by the
Corporation at the redemption price aforesaid, plus any dividends payable
thereon. If fewer than all the outstanding shares of 5% Preferred Stock are to
be redeemed, the number of shares to be redeemed shall be determined by the
Board of Directors and the shares to be redeemed shall be selected pro rata
(with any fractional shares being rounded to the nearest whole share). In case
fewer than all the shares represented by any such certificate are redeemed, a
new certificate shall be issued, subject to a holder's election under paragraph
(10)(d), representing the surrendered shares without cost to the holder thereof.
(8) Conversion. (a) Subject to and upon compliance with the
provisions of this paragraph (8), a holder of shares of 5% Preferred Stock shall
have the right, at any time and from time to time, at such holder's option, to
convert any or All But One Outstanding Share or, if the Qualified Holding
Condition is not satisfied, all outstanding shares, of 5% Preferred Stock held
by such holder, but not fractions of shares, into fully paid and non-assessable
shares of Common Stock by surrendering such shares to be converted, such
surrender to be made in the manner provided in paragraph (8)(b) hereof. The
number of shares of Common Stock deliverable upon conversion of each share of 5%
Preferred Stock shall be equal to $1,000.00 divided by 125.00 (such quotient, as
adjusted as provided herein, the "Conversion Rate"). The Conversion Rate is
subject to adjustment from time to time pursuant to paragraph (8)(d) hereof. The
right to convert shares called for redemption pursuant to paragraph 6(a) shall
terminate at the close of business on the date immediately preceding the date
fixed for such redemption unless the Corporation shall default in making payment
of the amount payable upon such redemption, in which case such right of
<PAGE> 15
conversion shall be reinstated. Upon conversion, any accrued and unpaid
dividends on the 5% Preferred Stock at the date of conversion shall be paid to
the holder thereof in accordance with the provisions of paragraph (4), except
that, upon conversion of All But One Outstanding Share or, if the Qualified
Holding Condition is not satisfied, all outstanding shares, of 5% Preferred
Stock held by such holder, all such accrued and unpaid dividends at the date of
conversion shall be paid in Common Stock at the applicable Conversion Rate.
(b) (i) In order to exercise the conversion privilege, the holder of
each share of 5% Preferred Stock to be converted shall surrender (or
constructively surrender in accordance with paragraph (10)(d)) the certificate
representing such share, duly endorsed or assigned to the Corporation or in
blank, at the office of the Corporation, or to any transfer agent of the
Corporation previously designated by the Corporation to the holders of the 5%
Preferred Stock for such purposes, with a written notice of election to convert
completed and signed, specifying the number of shares to be converted. Such
notice shall state that the holder has satisfied any legal or regulatory
requirement for conversion, including compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976; provided, however, that the Corporation
shall use its best efforts in cooperating with such holder to obtain such legal
or regulatory approvals to the extent its cooperation is necessary. Such notice
shall also state the name or names (with address and social security or other
taxpayer identification number, if applicable) in which the certificate or
certificates for Common Stock are to be issued. Unless the shares issuable on
conversion are to be issued in the same name as the name in which such share of
5% Preferred Stock is registered, each share surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the Corporation,
duly executed by the holder or the holder's duly authorized attorney and an
amount sufficient to pay any transfer or similar tax (or evidence reasonably
satisfactory to the Corporation demonstrating that such taxes have been paid).
All certificates representing shares of 5% Preferred Stock surrendered for
conversion shall be canceled by the Corporation or the transfer agent.
(ii) Subject to the last sentence of paragraph (8)(a), holders of
shares of 5% Preferred Stock at the close of business on a dividend payment
record date shall not be entitled to receive the dividend payable on such shares
on the corresponding Dividend Payment Date if such holder shall have surrendered
(or made a constructive surrender under paragraph (10)(d)) for conversion such
shares at any time following the preceding Dividend Payment Date and prior to
such Dividend Payment Date.
(iii) Subject to a holders election under paragraph (10)(d), as
promptly as practicable after the surrender (including a constructive surrender
under paragraph (10)(d)) by a holder of the certificates for shares of 5%
Preferred Stock as aforesaid, the Corporation shall issue and shall deliver to
<PAGE> 16
such holder, or on the holder's written order, a certificate or certificates
(which certificate or certificates shall have the legend set forth in paragraph
(10)(c)) for the whole number of duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock issuable upon the conversion of such
shares in accordance with the provisions of this paragraph (8), and any
fractional interest in respect of a share of Common Stock arising on such
conversion shall be settled as provided in paragraph (8)(c). Upon conversion of
only a portion of the shares of 5% Preferred Stock represented by any
certificate, a new certificate shall be issued representing the unconverted
portion of the certificate so surrendered without cost to the holder thereof.
Subject to a holder's election under paragraph (10)(d), upon the surrender
(including a constructive surrender under paragraph (10)(d)) of certificates
representing shares of 5% Preferred Stock to be converted, such shares shall no
longer be deemed to be outstanding and all rights of a holder with respect to
such shares so surrendered shall immediately terminate except the right to
receive the Common Stock and other amounts payable pursuant to this paragraph
(8).
(iv) Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which the certificates
for shares of 5% Preferred Stock shall have been surrendered (or deemed
surrendered pursuant to an election under paragraph (10)(d)) and such notice
received by the Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Common Stock represented thereby at such time
on such date and such conversion shall be into a number of shares of Common
Stock equal to the product of the number of shares of 5% Preferred Stock
surrendered times the Conversion Rate in effect at such time on such date,
unless the stock transfer books of the Corporation shall be closed on that date,
in which event such Person or Persons shall be deemed to have become such holder
or holders of record at the close of business on the next succeeding day on
which such stock transfer books are open, but such conversion shall be based
upon the Conversion Rate in effect on the date upon which such shares shall have
been surrendered and such notice received by the Corporation.
(c) (i) No fractional shares or scrip representing fractions of
shares of Common Stock shall be issued upon conversion of the 5% Preferred
Stock. Instead of any fractional interest in a share of Common Stock that would
otherwise be deliverable upon the conversion of a share of 5% Preferred Stock,
the Corporation shall pay to the holder of such share an amount in cash based
upon the Current Market Price of Common Stock on the Trading Day immediately
preceding the date of conversion. If more than one share shall be surrendered
for conversion (or deemed surrendered under paragraph (10)(d)) at one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed
<PAGE> 17
on the basis of the aggregate number of shares of 5% Preferred Stock surrendered
(or deemed surrendered under paragraph (10)(d)) for conversion by such holder.
(ii) Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which the certificates
for shares of 5% Preferred Stock shall have been surrendered (or deemed
surrendered under paragraph (10)(d)) and such notice received by the Corporation
as aforesaid, and the Person or Persons in whose name or names any certificate
or certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of the
shares of Common Stock represented thereby at such time on such date and such
conversion shall be into a number of shares of Common Stock equal to the product
of the number of shares of 5% Preferred Stock surrendered times the Conversion
Rate in effect at such time on such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which event such Person or Persons
shall be deemed to have become such holder or holders of record at the close of
business on the next succeeding day on which such stock transfer books are open,
but such conversion shall be based upon the Conversion Rate in effect on the
date upon which such shares shall have been surrendered (or deemed surrendered
under paragraph (10)(d)) and such notice received by the Corporation.
(d) The Conversion Rate shall be adjusted from time to time as
follows:
(i) If the Corporation shall after the Issue Date (A) declare a
dividend or make a distribution on its Common Stock in shares of its Common
Stock, (B) subdivide its outstanding Common Stock into a greater number of
shares, (C) combine its outstanding Common Stock into a smaller number of
shares, or (D) effect any reclassification of its outstanding Common Stock, the
Conversion Rate in effect on the record date for such dividend or distribution,
or the effective date of such subdivision, combination or reclassification, as
the case may be, shall be proportionately adjusted so that the holder of any
share of 5% Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number and kind of shares of Common Stock that such
holder would have owned or have been entitled to receive after the happening of
any of the events described above had such share been converted immediately
prior to the record date in the case of a dividend or distribution or the
effective date in the case of a subdivision, combination or reclassification. An
adjustment made pursuant to this subparagraph (i) shall become effective
immediately after the opening of business on the Business Day next following the
record date (except as provided in paragraph (8)(h)) in the case of a dividend
or distribution and shall become effective immediately after the opening of
business on the Business Day next following the effective date in the case of a
subdivision, combination or reclassification. Adjustments in accordance with
this paragraph (8)(d)(i) shall be made whenever any event listed above shall
occur.
<PAGE> 18
(ii) If the Corporation shall after the Issue Date fix a record date
for the issuance of rights or warrants (in each case, other than any rights
issued pursuant to a shareholder rights plan) to all holders of Common Stock
entitling them (for a period expiring within 45 days after such record date) to
subscribe for or purchase Common Stock (or securities convertible into
Common Stock) at a price per share (or, in the case of a right or warrant to
purchase securities convertible into Common Stock, having an effective exercise
price per share of Common Stock, computed on the basis of the maximum number of
shares of Common Stock issuable upon conversion of such convertible securities,
plus the amount of additional consideration payable, if any, to receive one
share of Common Stock upon conversion of such securities) less than the 25-Day
Average Market Price on the date on which such issuance was declared or
otherwise announced by the Corporation (the "Determination Date"), then the
Conversion Rate in effect at the opening of business on the Business Day next
following such record date shall be adjusted so that the holder of each share of
5% Preferred Stock shall be entitled to receive, upon the conversion thereof,
the number of shares of Common Stock determined by multiplying (I) the
Conversion Rate in effect immediately prior to such record date by (II) a
fraction, the numerator of which shall be the sum of (A) the number of shares of
Common Stock outstanding on the close of business on the Determination Date and
(B) the number of additional shares of Common Stock offered for subscription or
purchase pursuant to such rights or warrants (or in the case of a right or
warrant to purchase securities convertible into Common Stock, the aggregate
number of additional shares of Common Stock into which the convertible
securities so offered are initially convertible), and the denominator of which
shall be the sum of (A) the number of shares of Common Stock outstanding on the
close of business on the Determination Date and (B) the number of shares that
the aggregate proceeds to the Corporation from the exercise of such rights or
warrants for Common Stock would purchase at such 25-Day Average Market Price on
such date (or, in the case of a right of warrant to purchase securities
convertible into Common Stock, the number of shares of Common Stock obtained by
dividing the aggregate exercise price of such rights or warrants for the maximum
number of shares of Common Stock issuable upon conversion of such convertible
securities, plus the aggregate amount of additional consideration payable, if
any, to convert such securities into Common Stock, by such 25-Day Average Market
Price). Such adjustment shall become effective immediately after the opening of
business on the Business Day next following such record date (except as provided
in paragraph (8)(h)). Such adjustment shall be made successively whenever such a
record date is fixed. In the event that after fixing a record date such rights
or warrants are not so issued, the Conversion Rate shall be readjusted to the
Conversion Rate which would then be in effect if such record date had not been
fixed. In determining whether any rights or warrants entitle the holders of
Common Stock to subscribe for or purchase shares of Common Stock at less than
such 25-Day Average Market Price, there shall be taken into account any
<PAGE> 19
consideration received by the Corporation upon issuance and upon exercise of
such rights or warrants, the value of such consideration, if other than cash, to
be determined by the Board of Directors in good faith. In case any rights or
warrants referred to in this subparagraph (ii) shall expire unexercised after
the same have been distributed or issued by the Corporation (or, in the case of
rights or warrants to purchase securities convertible into Common Stock once
exercised, the conversion right of such securities shall expire), the Conversion
Rate shall be readjusted at the time of such expiration to the Conversion Rate
that would have been in effect if no adjustment had been made on account of the
distribution or issuance of such expired rights or warrants.
(iii) If the Corporation shall fix a record date for the making of a
distribution to all holders of its Common Stock of evidences of its
indebtedness, shares of its capital stock or assets (excluding regular cash
dividends or distributions declared in the ordinary course by the Board of
Directors and dividends payable in Common Stock for which an adjustment is made
pursuant to paragraph (8)(d)(i)) or rights or warrants (in each case, other than
any rights issued pursuant to a shareholder rights plan) to subscribe for or
purchase any of its securities (excluding those rights and warrants issued to
all holders of Common Stock entitling them (for a period expiring within 45 days
after such record date) to subscribe for or purchase Common Stock or securities
convertible into shares of Common Stock, which rights and warrants are referred
to in and treated under subparagraph (ii) above) (any of the foregoing being
hereinafter in this subparagraph (iii) called the "Securities"), then in each
such case the Conversion Rate shall be adjusted so that the holder of each share
of 5% Preferred Stock shall be entitled to receive, upon the conversion thereof,
the number of shares of Common Stock determined by multiplying (I) the
Conversion Rate in effect immediately prior to the close of business on such
record date by (II) a fraction, the numerator of which shall be the 25-Day
Average Market Price per share of the Common Stock on such record date, and the
denominator of which shall be the 25-Day Average Market Price per share of the
Common Stock on such record date less the then-fair market value (as determined
by the Board of Directors in good faith, whose determinations shall be
conclusive) of the portion of the assets, shares of its capital stock or
evidences of indebtedness so distributed or of such rights or warrants
applicable to one share of Common Stock. Such adjustment shall be made
successively whenever such a record date is fixed; and in the event that after
fixing a record date such distribution is not so made, the Conversion Rate shall
be readjusted to the Conversion Rate which would then be in effect if such
record date had not been fixed. Such adjustment shall become effective
immediately at the opening of business on the Business Day next following
(except as provided in paragraph (8)(h)) the record date for the determination
of shareholders entitled to receive such distribution. For the purposes of this
subparagraph (iii), the distribution of a Security, which is distributed not
only to the holders of the Common Stock on the date fixed for
<PAGE> 20
the determination of shareholders entitled to such distribution of such
Security, but also is distributed with each share of Common Stock delivered to a
Person converting a share of 5% Preferred Stock after such determination date,
shall not require an adjustment of the Conversion Rate pursuant to this
subparagraph (iii); provided, however, that on the date, if any, on which a
Person converting a share of 5% Preferred Stock would no longer be entitled to
receive such Security with a share of Common Stock (other than as a result of
the termination of all such Securities), a distribution of such Securities shall
be deemed to have occurred and the Conversion Rate shall be adjusted as provided
in this subparagraph (iii) (and such day shall be deemed to be "the date fixed
for the determination of shareholders entitled to receive such distribution" and
"the record date" within the meaning of the three preceding sentences). If any
rights or warrants referred to in this subparagraph (iii) shall expire
unexercised after the same shall have been distributed or issued by the
Corporation, the Conversion Rate shall be readjusted at the time of such
expiration to the Conversion Rate that would have been in effect if no
adjustment had been made on account of the distribution or issuance of such
expired rights or warrants.
(iv) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Common Stock cash in the amount per share that,
together with the aggregate of the per share amounts of any other cash
distributions to all holders of its Common Stock made within the 12 months
preceding the date of payment of such distribution and in respect of which no
adjustment pursuant to this paragraph (iv) has been made exceeds 5.0% of the
25-Day Average Market Price immediately prior to the date of declaration of such
dividend or distribution (excluding any dividend or distribution in connection
with the liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, and any cash that is distributed upon a merger,
consolidation or other transaction for which an adjustment pursuant to paragraph
8(e) is made), then, in such case, the Conversion Rate shall be adjusted so that
the same shall equal the rate determined by multiplying the Conversion Rate in
effect immediately prior to the close of business on the Record Date for the
cash dividend or distribution by a fraction the numerator of which shall be the
Current Market Price of a share of the Common Stock on the Record Date and the
denominator shall be such Current Market Price less the per share amount of cash
so distributed during the 12-month period applicable to one share of Common
Stock, such adjustment to be effective immediately prior to the opening of
business on the Business Day following the Record Date; provided, however, that
in the event the denominator of the foregoing fraction is zero or negative, in
lieu of the foregoing adjustment, adequate provision shall be made so that each
holder of 5% Preferred Stock shall have the right to receive upon conversion, in
addition to the shares of Common Stock to which the holder is entitled, the
amount of cash such holder would have received had such holder converted each
<PAGE> 21
share of 5% Preferred Stock at the beginning of the 12-month period. In the
event that such dividend or distribution is not so paid or made, the Conversion
Rate shall again be adjusted to be the Conversion Rate which would then be in
effect if such dividend or distribution had not been declared. Notwithstanding
the foregoing, if any adjustment is required to be made as set forth in this
paragraph (8)(d)(iv), the calculation of any such adjustment shall include the
amount of the quarterly cash dividends paid during the 12-month reference period
only to the extent such dividends exceed the regular quarterly cash dividends
paid during the 12 months preceding the 12-month reference period. For purposes
of this paragraph (8)(d)(iv), "Record Date" shall mean, with respect to any
dividend or distribution in which the holders of Common Stock have the right to
receive cash, the date fixed for determination of shareholders entitled to
receive such cash.
In the event that at any time cash distributions to holders of
Common Stock are not paid equally on all series of Common Stock, the provisions
of this paragraph 8(d)(iv) will apply to any cash dividend or cash distribution
on any series of Common Stock otherwise meeting the requirements of this
paragraph, and shall be deemed amended to the extent necessary so that any
adjustment required will be made on the basis of the cash dividend or cash
distribution made on any such series.
(v) In case of the consummation of a tender or exchange offer (other
than an odd-lot tender offer) made by the Corporation or any subsidiary of the
Corporation for all or any portion of the outstanding shares of Common Stock to
the extent that the cash and fair market value (as determined in good faith by
the Board of Directors of the Corporation, whose determination shall be
conclusive and shall be described in a resolution of such Board) of any other
consideration included in such payment per share of Common Stock at the last
time (the "Expiration Time") tenders or exchanges may be made pursuant to such
tender or exchange offer (as amended) exceed by more than 5.0%, with any smaller
excess being disregarded in computing the adjustment to the Conversion Rate
provided in this paragraph (8)(d)(v), the first reported sale price per share of
the Common Stock on the Trading Day next succeeding the Expiration Time, then
the Conversion Rate shall be adjusted so that the same shall equal the rate
determined by multiplying the Conversion Rate in effect immediately prior to the
Expiration Time by a fraction the numerator of which shall be the sum of (x) the
fair market value (determined as aforesaid) of the aggregate consideration
payable to shareholders based on the acceptance (up to any maximum specified in
the terms of the tender or exchange offer) of all shares validly tendered or
exchanged and not withdrawn as of the Expiration Time (the shares deemed so
accepted, up to any such maximum, being referred to as the "Purchase Shares")
and (y) the product of the number of shares of Common Stock outstanding (less
any Purchase Shares) on the Expiration Time and the first reported sale price of
<PAGE> 22
the Common Stock on the Trading Day next succeeding the Expiration Time, and the
denominator of which shall be the number of shares of Common Stock outstanding
(including any tendered or exchanged shares) on the Expiration Time multiplied
by the first reported sale price of the Common Stock on the Trading Day next
succeeding the Expiration Time, such adjustment to become effective immediately
prior to the opening of business on the day following the Expiration Time.
(vi) No adjustment in the Conversion Rate shall be required unless
such adjustment would require a cumulative increase or decrease of at least 1%
in the Conversion Rate; provided, however, that any adjustments that by reason
of this subparagraph (vi) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment until made, and provided
further that any adjustment shall be required and made in accordance with the
provisions of this paragraph (8) (other than this subparagraph (vi)) not later
than such time as may be required in order to preserve the tax-free nature of a
distribution for United States income tax purposes to the holders of shares of
5% Preferred Stock or Common Stock. Notwithstanding any other provisions of this
paragraph (8), the Corporation shall not be required to make any adjustment of
the Conversion Rate for the issuance of any shares of Common Stock pursuant to
any plan providing for the reinvestment of dividends or interest payable on
securities of the Corporation and the investment of additional optional amounts
in shares of Common Stock under such plan. All calculations under this paragraph
(8) shall be made to the nearest dollar or to the nearest 1/1,000 of a share, as
the case may be. Anything in this paragraph (8)(d) to the contrary
notwithstanding, the Corporation shall be entitled, to the extent permitted by
law, to make such adjustments in the Conversion Rate, in addition to those
required by this paragraph (8)(d), as it in its discretion shall determine to be
advisable in order that any stock dividends subdivision of shares,
reclassification or combination of shares, distribution or rights or warrants to
purchase stock or securities, or a distribution of other assets (other than cash
dividends) hereafter made by the Corporation to its shareholders shall not be
taxable.
(vii) In the event that, at any time as a result of shares of any
other class of capital stock becoming issuable in exchange or substitution for
or in lieu of shares of Common Stock or as a result of an adjustment made
pursuant to the provisions of this paragraph (8)(d), the holder of 5% Preferred
Stock upon subsequent conversion shall become entitled to receive any shares of
capital stock of the Corporation other than Common Stock, the number of such
other shares so receivable upon conversion of any shares of 5% Preferred Stock
shall thereafter be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions contained herein.
(e) (i) If the Corporation shall be a party to any transaction
<PAGE> 23
(including without limitation, a merger, consolidation, sale of all or
substantially all of the Corporation's assets or recapitalization of the Common
Stock and excluding any transaction as to which paragraph (8)(d)(i) applies)
(each of the foregoing being referred to herein as a "Transaction"), in each
case as a result of which shares of Common Stock shall be converted into the
right to receive stock, securities or other property (including cash or any
combination thereof), there shall be no adjustment to the Conversion Rate but
each share of 5% Preferred Stock which is not converted into the right to
receive stock, securities or other property in connection with such Transaction
shall thereafter be convertible into the kind and amount of shares of stock,
securities and other property (including cash or any combination thereof)
receivable upon the consummation of such Transaction by a holder of that number
of shares or fraction thereof of Common Stock into which one share of 5%
Preferred Stock was convertible immediately prior to such Transaction, assuming
such holder of Common Stock (i) is not a Person with which the Corporation
consolidated or into which the Corporation merged or which merged into the
Corporation or to which such sale or transfer was made, as the case may be
("Constituent Person"), or an affiliate of a Constituent Person and (ii) failed
to exercise his rights of election, if any, as to the kind or amount of stock
securities and other property (including cash) receivable upon such Transaction
(provided that if the kind or amount of stock, securities and other property
(including cash) receivable upon such Transaction is not the same for each share
of Common Stock of the Corporation held immediately prior to such Transaction by
other than a Constituent Person or an affiliate thereof and in respect of which
such rights of election shall not have been exercised ("non-electing share"),
then for the purpose of this paragraph (8)(e) the kind and amount of stock,
securities and other property (including cash) receivable upon such Transaction
by each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares). The provisions
of this paragraph (8)(e) shall similarly apply to successive Transactions.
(ii) Notwithstanding anything herein to the contrary , if the
Corporation is reorganized such that the Common Stock is exchanged for the
common stock of a new entity ("Holdco") whose common stock is traded on the
Nasdaq National Market or another recognized securities exchange or automated
quotation system, then the Corporation, by notice to and consultation with the
holders of the 5% Preferred Stock, may cause the exchange of this 5% Preferred
Stock for preferred stock of Holdco having the same terms and conditions as set
forth herein; provided that the rights attaching to the preferred stock of
Holdco shall be adjusted so as to comply with the local law of the country of
incorporation of Holdco or the new share structure of Holdco subject to such
rights effectively giving the same economic rights as the 5% Preferred Stock
(including for these purposes any resultant change in the tax treatment for the
holders of such stock).
<PAGE> 24
(f) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock; or
(ii) the Corporation shall authorize the granting to the holders of
the Common Stock of rights or warrants to subscribe for or purchase any
shares of any class or any other rights or warrants; or
(iii) there shall be any subdivision, combination or
reclassification of the Common Stock or any consolidation or merger to
which the Corporation is a party and for which approval of any
shareholders of the Corporation is required, or the sale or transfer of
all or substantially all of the assets of the Corporation as an entirety;
or
(iv) there shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
then the Corporation shall cause to be filed with any transfer agent designated
by the Corporation pursuant to paragraph (8)(b) and shall cause to be mailed to
the holders of shares of the 5% Preferred Stock at their addresses as shown on
the stock records of the Corporation, as promptly as possible, but at least ten
days prior to the applicable date hereinafter specified, a notice stating (A)
the date on which a record is to be taken for the purpose of such dividend (or
such other distribution) or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights or warrants are to be determined or (B)
the date on which such subdivision, combination, reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution or winding up or
other action is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property, if any,
deliverable upon such subdivision, combination, reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution or winding up. Failure to give
or receive such notice or any defect therein shall not affect the legality or
validity of any distribution, right, warrant subdivision, combination,
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, winding up or other action, or the vote upon any of the foregoing.
(g) Whenever the Conversion Rate is adjusted as herein provided, the
Corporation shall prepare an officer's certificate with respect to such
adjustment of the Conversion Rate setting forth the adjusted Conversion Rate and
the effective date of such adjustment and shall mail a copy of such officer's
certificate to the holder of each share of 5% Preferred Stock at such holder's
<PAGE> 25
last address as shown on the stock records of the Corporation. If the
Corporation shall have designated a transfer agent pursuant to paragraph (8)(b),
it shall also promptly file with such transfer agent an officer's certificate
setting forth the Conversion Rate after such adjustment and setting forth a
brief statement of the facts requiring such adjustment which certificate shall
be conclusive evidence of the correctness of such adjustment.
(h) In any case in which paragraph (8)(d) provides that an
adjustment shall become effective on the day next following a record date for an
event, the Corporation may defer until the occurrence of such event (i) issuing
to the holder of any share of 5% Preferred Stock converted after such record
date and before the occurrence of such event the additional shares of Common
Stock issuable upon such conversion by reason of the adjustment required by such
event over and above the Common Stock issuable upon such conversion before
giving effect to such adjustment and (ii) paying to such holder any amount in
cash in lieu of any fraction pursuant to paragraph (8)(c).
(i) For purposes of this paragraph (8), the number of shares of
Common Stock at any time outstanding shall not include any shares of Common
Stock then owned or held by or for the account of the Corporation. The
Corporation shall not pay a dividend or make any distribution on shares of
Common Stock held in the treasury of the Corporation.
(j) There shall be no adjustment of the Conversion Rate in case of
the issuance of any stock of the Corporation in a reorganization, acquisition or
other similar transaction except as specifically set forth in this paragraph
(8). If any single action would require adjustment of the Conversion Rate
pursuant to more than one subparagraph of this paragraph (8), only one
adjustment shall be made and such adjustment shall be the amount of adjustment
that has the highest absolute value.
(k) If the Corporation shall take any action affecting the Common
Stock, other than action described in this paragraph (8), that in the opinion of
the Board of Directors materially adversely affects the conversion rights of the
holders of the shares of 5% Preferred Stock, the Conversion Rate may be
adjusted, to the extent permitted by law, in such manner, if any, and at such
time, as the Board of Directors may determine to be equitable in the
circumstances; provided that the provisions of this paragraph (8)(k) shall not
affect any rights the holders of 5% Preferred Stock may have at law or in
equity.
(l) (i) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock or its issued shares of Common
Stock held in its treasury, or both, for the purpose of effecting conversion of
the 5% Preferred Stock, the full number of shares of Common Stock deliverable
<PAGE> 26
upon the conversion of all outstanding shares of 5% Preferred Stock not
theretofore converted. For purposes of this paragraph (8)(l) the number of
shares of Common Stock that shall be deliverable upon the conversion of all
outstanding shares of 5% Preferred Stock shall be computed as if at the time of
computation all such outstanding shares were held by a single holder.
(ii) The Corporation covenants that any shares of Common Stock
issued upon conversion of the 5% Preferred Stock shall be duly authorized,
validly issued, fully paid and non-assessable. Before taking any action that
would cause an adjustment increasing the Conversion Rate such that the quotient
of $1,000.00 and the Conversion Rate (which quotient initially shall be $125.00)
would be reduced below the then-par value of the shares of Common Stock
deliverable upon conversion of the 5% Preferred Stock, the Corporation will take
any corporate action that, in the opinion of its counsel, may be necessary in
order that the Corporation may validly and legally issue fully paid and
non-assessable shares of Common Stock based upon such adjusted Conversion Rate.
(iii) Prior to the delivery of any securities that the Corporation
shall be obligated to deliver upon conversion of the 5% Preferred Stock, the
Corporation shall comply with all applicable federal and state laws and
regulations which required action to be taken by the Corporation.
(m) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
shares of Common Stock or other securities or property on conversion of the 5%
Preferred Stock pursuant hereto; provided, however, that the Corporation shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issue or delivery of shares of Common Stock or other securities
or property in a name other than that of the holder of the 5% Preferred Stock to
be converted and no such issue or delivery shall be made unless and until the
Person requesting such issue or delivery has paid to the Corporation the amount
of any such tax or established, to the satisfaction of the Corporation, that
such tax has been paid.
(n) No adjustment in the Conversion Rate need be made for a
transaction referred to in paragraph (8)(d)(i) through (v) above to the extent
that all holders of 5% Preferred Stock are entitled to participate in such
transaction pursuant to paragraph 4(b).
(9) Voting Rights. (a) The holders of record or shares of 5%
Preferred Stock shall not be entitled to any voting rights except as hereinafter
provided in this paragraph (9) or as otherwise provided by law.
(b) If and whenever either (i) six quarterly dividends (whether or
<PAGE> 27
not consecutive) payable on the 5% Preferred Stock have not been paid in full,
(ii) the Corporation shall have failed to discharge its Mandatory Redemption
Obligation, or (iii) there occurs a Bankruptcy Event (any such event described
in the preceding subparagraphs (i) through (iii) being hereinafter referred to
as a "Trigger Event"), a vote of the holders of shares of 5% Preferred Stock,
voting as a single class, will be required on all matters brought to
shareholders of the Corporation. Whenever all arrears in dividends on the 5%
Preferred Stock then outstanding shall have been paid and dividends thereon for
the current quarterly dividend period shall have been paid or declared and set
apart for payment, the Corporation shall have fulfilled its Mandatory Redemption
Obligation, and all Bankruptcy Events shall have been cured (the "Trigger Event
Cure"), then the right of the holders of the 5% Preferred Stock to vote as
described in the this paragraph 9(b) shall cease (but subject always to the same
provisions for the vesting of such voting rights if any Trigger Event occurs).
(c) In addition to the power to elect a director in accordance with
paragraph (9)(d), upon the occurrence of any Trigger Event, the number of
directors then constituting the Board of Directors shall be increased by two and
the holders of shares of 5% Preferred Stock, together with the holders of shares
of every other series of preferred stock (including, without limitation,
Additional Preferred) upon which like rights to vote for the election of two
additional directors have been conferred and are exercisable (resulting from
either the failure to pay dividends or the failure to redeem) (any such other
series is referred to as the "Preferred Shares"), voting as a single class
regardless of series, shall be entitled to elect the two additional directors to
serve on the Board of Directors at any annual meeting of stockholders or special
meeting held in place thereof, or at a special meeting of the holders of 5%
Preferred Stock and the Preferred Shares, called as hereinafter provided.
Whenever all arrears in dividends on the Preferred Shares then outstanding shall
have been paid and dividends thereon for the current quarterly dividend period
shall have been paid or declared and set apart for payment, the Corporation
shall have fulfilled any redemption obligation in respect of the Preferred
Shares, and the Trigger Event Cure has occurred, then the right of the holders
of the 5% Preferred Stock and the Preferred Shares to elect such additional two
directors shall cease (but subject always to the same provisions for the vesting
of such voting rights if any Trigger Event occurs), and the terms of office of
all persons elected as directors by the holders of 5% Preferred Stock and the
Preferred Shares shall forthwith terminate and the number of members of the
Board of Directors shall be reduced accordingly. At any time after such voting
power shall have been so vested in holders of shares of 5% Preferred Stock and
the Preferred Shares, the Secretary of the Corporation may, and upon the written
request of any holder of 5% Preferred Stock (addressed to the secretary at the
principal office of the Corporation) shall, call a special meeting of the
holders of the 5% Preferred Stock and of the Preferred Shares for the election
of the two directors to be elected by them as herein provided, such call to be
made by notice similar to that provided in the Bylaws of the Corporation for a
<PAGE> 28
special meeting of the stockholders or as required by law. If any such special
meeting required to be called as above provided shall not be called by the
Secretary of the Corporation within 20 days after receipt of any such request,
then any holder of shares of 5% Preferred Stock may call such meeting, upon the
notice above provided, and for that purpose shall have access to the stock books
of the Corporation. The directors elected at any such special meeting shall hold
office until the next annual meeting of the stockholders or special meeting held
in lieu thereof if such office shall not have previously terminated as above
provided. If any vacancy shall occur among the directors elected by the holders
of the 5% Preferred Stock and the Preferred Shares, a successor shall be elected
by the Board of Directors, upon the nomination of the then-remaining director
elected by the holders of the 5% Preferred Stock and the Preferred Shares or the
successor of such remaining director, to serve until the next annual meeting of
the stockholders or special meeting held in place thereof if such office shall
not have previously terminated as provided above.
(d) (i) In addition to any other rights granted in this paragraph
(9) to elect directors or to vote on any matter submitted to stockholders, all
holders of shares of 5% Preferred Stock, voting separately as a class, shall
have the right to elect one director to serve on the Board of Directors, so long
as the Qualified Holding Condition is satisfied. Immediately upon failure of the
Qualified Holding Condition, this paragraph (9)(d) shall be of no further effect
and the rights granted herein to the holders of the 5% Preferred Stock shall
cease to apply.
(ii) Such voting rights of the holders of shares of 5% Preferred
Stock may be exercised initially at a special meeting called pursuant to
subparagraph (iii) of this paragraph (9)(d) or at any annual meeting of
stockholders, and thereafter at annual meetings of stockholders, provided that
such voting rights may not be exercised at any meeting unless holders of
one-third of the outstanding shares of 5% Preferred Stock shall be present at
such meeting in person or by proxy. The absence of a quorum of the holders of
Common Stock shall not affect the exercise by the holders of shares of 5%
Preferred Stock of such rights. At any meeting at which the holders of shares of
5% Preferred Stock shall exercise such voting rights initially, they shall have
the right, voting separately as a class, to elect one director to fill one
vacancy in the Board of Directors, if any such vacancy may then exist, or, if
such right is exercised at an annual meeting, to elect one director. If
necessary, the holders of the shares of 5% Preferred Stock shall have the right
to make such increase in the number of members of the Board of Directors as
shall be necessary to permit them to so elect one director.
(iii) Unless the holders of shares of 5% Preferred Stock shall have
previously exercised their right to elect one director, the Board of Directors
shall order, and any stockholder or stockholders owning in the aggregate not
<PAGE> 29
less than 25% of the total number of the shares of 5% Preferred Stock
outstanding may request, the calling of a special meeting of the holders of
shares of 5% Preferred Stock, which meeting shall thereupon promptly be called
by the Secretary of the Corporation. Notice of such meeting and of any annual
meeting at which holders of shares of 5% Preferred Stock are entitled to vote
pursuant to this paragraph (9)(d) shall be given to each holder of record of
shares of 5% Preferred Stock by mailing a copy of such notice to him at his last
address as the same appears on the books of the Corporation. Such meeting shall
be called for a time not earlier than 20 days and not later then 60 days after
such order or request or in default of the calling of such meeting within 60
days after such order or request, such meeting may be called on similar notice
by any stockholder or stockholders owning in the aggregate not less than 25% of
the total number of outstanding shares of 5% Preferred Stock.
(iv) The holders of shares of Common Stock and shares of 5%
Preferred Stock, and other classes or series of stock of the Corporation, if
applicable, shall continue to be entitled to elect all the directors until
holders of the shares of 5% Preferred Stock shall have exercised their right to
elect one director, voting as a separate class, after the exercise of which
right (x) the director so elected by the holders of shares of 5% Preferred Stock
shall continue in office until his successor shall have been elected by such
holders, and (y) any vacancy in the Board of Directors may (except as provided
in paragraph (9)(d)(ii)) be filled by vote of a majority of the remaining
directors theretofore elected by the holders of the class of capital stock which
elected the director whose office shall have become vacant. References in this
paragraph (9)(d)(iv) to directors elected by the holders of a particular class
of capital stock shall include directors elected by such directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(e) Without the written consent of the holders of at least 66-2/3%
in liquidation preference of the outstanding shares of 5% Preferred Stock or the
vote of holders of at least 66-2/3% in liquidation preference of the outstanding
shares of 5% Preferred Stock at a meeting of the holders of 5% Preferred Stock
called for such purpose, the Corporation will not amend, alter or repeal any
provision of the Certificate of Incorporation (by merger or otherwise) so as to
adversely affect the preferences, rights or powers of the 5% Preferred Stock;
provided that any such amendment that changes the dividend payable on, the
Conversion Rate with respect to, or the liquidation preference of the 5%
Preferred Stock shall require the affirmative vote at a meeting of holders of 5%
Preferred Stock called for such purpose or written consent of the holder of each
share of 5% Preferred Stock.
(f) Without the written consent of the holders of at least 66-2/3%
in liquidation preference of the outstanding shares of 5% Preferred Stock or the
vote of holders of at least 66-2/3% in liquidation preference of the outstanding
shares of 5% Preferred Stock at a meeting of such holders called for such
<PAGE> 30
purpose, the Corporation will not issue any additional 5% Preferred Stock or
create, authorize or issue any Parity Securities or Senior Securities or
increase the authorized amount of any such other class or series; provided that
this paragraph 9(f) shall not limit the right of the Corporation to (i) issue
Additional Preferred as dividends pursuant to paragraph 4 or (ii) to issue
Parity Securities or Senior Securities in order to refinance, redeem or refund
the 13% Preferred or the 5-1/4% Preferred, provided that the maximum accrual
value (i.e., the sum of stated value and maximum amount payable in kind over the
term from issuance to first date of mandatory redemption or redemption at the
option of the holder) of such Parity Securities may not exceed the maximum
accrual value of the 13% Preferred or the 5-1/4% Preferred, respectively.
(g) In exercising the voting rights set forth in this paragraph (9),
each share of 5% Preferred Stock shall have one vote per share, except that when
any other series of preferred stock shall have the right to vote with the 5%
Preferred Stock as a single class on any matter, then the 5% Preferred Stock and
other series shall have with respect to such matters one vote per $1,000 of
stated liquidation preference. Except as otherwise required by applicable law or
as set forth herein, the shares of 5% Preferred Stock shall not have any
relative, participating, optional or other special voting rights and powers and
the consent of the holders thereof shall not be required for the taking of any
corporate action.
(h) Nothing in this paragraph (9) shall be in derogation of any
rights that a holder of shares of 5% Preferred Stock may have in his capacity as
a holder of shares of Common Stock.
(10) General Provisions. (a) The headings of the paragraphs,
subparagraphs, clauses and subclauses of this Certificate of Designation are for
convenience of reference only and shall not define, limit or affect any of the
provisions hereof.
(b) If the Corporation shall have failed to declare or pay dividends
as required pursuant to paragraph (4) hereof or shall have failed to discharge
any obligation to redeem shares of 5% Preferred Stock pursuant to paragraph (6)
hereof, the holders of shares of 5% Preferred Stock shall be entitled to
receive, in addition to all other amounts required to be paid hereunder, when,
as and if declared by the Board of Directors, out of funds legally available for
the payment of dividends, cash dividends on the aggregate dividends which the
Corporation shall have failed to declare or pay or the redemption price,
together with accrued and unpaid dividends thereon, as the case may be, at a
rate of 2% per quarter, compounded quarterly, for the period during which the
failure to pay dividends or failure to discharge an obligation to redeem shares
of 5% Preferred Stock shall continue.
<PAGE> 31
(c) The shares of 5% Preferred Stock shall bear the following
legend:
THE SHARES OF PREFERRED STOCK, PAR VALUE $.01, OF THE COMPANY (THE
"PREFERRED STOCK") (AND THE SHARES OF COMMON STOCK, PAR VALUE $.01, OF THE
COMPANY (THE "COMMON STOCK") INTO WHICH THE PREFERRED STOCK MAY BE CONVERTED)
REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES
ABSENT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND
ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM
REGISTRATION REQUIREMENTS. THE TRANSFER OF THE PREFERRED STOCK (OR COMMON STOCK,
IF THE PREFERRED STOCK HAS BEEN CONVERTED) EVIDENCED BY THIS CERTIFICATE IS
SUBJECT TO THE RESTRICTIONS ON TRANSFER PROVIDED FOR IN THE PURCHASE AGREEMENT,
DATED JULY 15, 1999, AS MAY BE AMENDED, AMONG THE CORPORATION AND FRANCE
TELECOM, A COPY OF WHICH IS ON FILE AT THE EXECUTIVE OFFICES OF THE CORPORATION
AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF SUCH PREFERRED STOCK UPON
WRITTEN REQUEST TO THE CORPORATION.
THE SHARES OF PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE MAY BE
CONVERTED INTO COMMON STOCK, PAR VALUE $.01, OF THE COMPANY (THE "COMMON STOCK")
OR REDEEMED IN EXCHANGE FOR COMMON STOCK WITHOUT THE SURRENDER AND EXCHANGE OF
THIS CERTIFICATE FOR CERTIFICATES REPRESENTING SUCH COMMON STOCK. A NOTICE OF
SUCH CONVERSION EVENT, IF ANY, IS ON FILE AT THE EXECUTIVE OFFICES OF THE
CORPORATION AND
<PAGE> 32
WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF THIS CERTIFICATE UPON WRITTEN
REQUEST TO THE CORPORATION.
The shares of Common Stock issuable upon conversion of the 5%
Preferred Stock shall bear the following legend:
THE SHARES OF COMMON STOCK, PAR VALUE $.01, OF THE COMPANY (THE
"COMMON STOCK") REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD IN
THE UNITED STATES ABSENT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION FROM REGISTRATION REQUIREMENTS. THE TRANSFER OF THE COMMON STOCK
EVIDENCED BY THIS CERTIFICATE IS SUBJECT TO THE RESTRICTIONS ON TRANSFER
PROVIDED FOR IN THE PURCHASE AGREEMENT, DATED JULY 15, 1999, AS MAY BE AMENDED,
AMONG THE CORPORATION AND FRANCE TELECOM, A COPY OF WHICH IS ON FILE AT THE
EXECUTIVE OFFICES OF THE CORPORATION AND WILL BE FURNISHED WITHOUT CHARGE TO THE
HOLDER OF SUCH COMMON STOCK UPON WRITTEN REQUEST TO THE CORPORATION.
(d) (i) Whenever in connection with any conversion or redemption of
the 5% Preferred Stock in exchange for Common Stock the holder is required to
surrender certificates representing such shares of 5% Preferred Stock, such
holder may, by written notice to the Corporation and its transfer agent, elect
to retain such certificates. In such case, the certificates so retained by the
holder thereof shall be deemed to represent, at and from the date of such
conversion or redemption, the number of shares of Common Stock issuable upon
such conversion or redemption (subject to paragraph (8)(c), if applicable), and
shall be so reflected upon the books of the Corporation and its transfer agent.
(ii) (A) A holder who has previously elected to retain certificates
representing the 5% Preferred Stock in accordance with paragraph (10)(d)(i) upon
conversion or redemption may subsequently elect to receive certificates
representing the shares of Common Stock issued upon such conversion or
<PAGE> 33
redemption. To receive certificates representing such shares of Common Stock,
the holder of such certificate shall surrender it, duly endorsed or assigned to
the Corporation or in blank, at the office of the Corporation, or to any
transfer agent of the Corporation previously designated by the Corporation for
such purposes, with a written notice of that election.
(B) Unless the certificates to be issued shall be registered in the
same name as the name in which such surrendered certificates are registered,
each certificate so surrendered shall be accompanied by instruments of transfer,
in form satisfactory to the Corporation, duly executed by the holder or the
holder's duly authorized attorney and an amount sufficient to pay any transfer
or similar tax (or evidence reasonably satisfactory to the Corporation
demonstrating that such taxes have been paid). All certificates so surrendered
shall be canceled by the Corporation or the transfer agent.
(C) As promptly as practicable after the surrender by a holder of
such certificates, the Corporation shall issue and shall deliver to such holder,
or on the holder's written order, a certificate or certificates (which
certificate or certificates shall have the legend set forth in paragraph
(10)(c)) for the number of duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock represented by the certificates so
surrendered.
(11) Shareholder Rights Plan. The shares of 5% Preferred Stock shall
be entitled to the benefits of a number of rights issuable under the Rights
Agreement, dated as of October 1, 1993, as amended, between the Company and
Continental Stock Transfer & Trust Company or any successor plan of similar
purpose and effect ("Rights") equal to the number of shares of Common Stock then
issuable upon conversion of the 5% Preferred Stock at the prevailing Conversion
Rate. Any shares of Common Stock deliverable upon conversion of a share of 5%
Preferred Stock or upon payment of a dividend shall be accomplished by a Right."
<PAGE> 1
NTL INCORPORATED
$1,200,000,000
5-3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2009
---------------------------------
INDENTURE
Dated as of December 22, 1999
---------------------------------
------------------------
The Chase Manhattan Bank
Trustee
------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I........................................................................................................ 1
Section 1.01 Definitions.................................................................................... 1
Section 1.02 Other Definitions.............................................................................. 8
Section 1.03 Incorporation by Reference of Trust Indenture Act.............................................. 9
Section 1.04 Rules of Construction.......................................................................... 10
ARTICLE II. THE NOTES............................................................................................ 10
Section 2.01 Form and Dating................................................................................ 10
Section 2.02 Execution and Authentication................................................................... 12
Section 2.03 Registrar and Paying Agent..................................................................... 12
Section 2.04 Paying Agent to Hold Money in Trust............................................................ 13
Section 2.05 Holder Lists................................................................................... 13
Section 2.06 Transfer and Exchange.......................................................................... 13
Section 2.07 Replacement Notes.............................................................................. 18
Section 2.08 Outstanding Notes.............................................................................. 18
Section 2.09 Treasury Notes................................................................................. 19
Section 2.10 Temporary Notes; Global Notes.................................................................. 19
Section 2.11 Cancellation................................................................................... 20
Section 2.12 Defaulted Interest............................................................................. 20
ARTICLE III. REDEMPTION.......................................................................................... 20
Section 3.01 Notices to Trustee............................................................................. 20
Section 3.02 Selection of Notes to Be Redeemed.............................................................. 20
Section 3.03 Notice of Redemption........................................................................... 21
Section 3.04 Effect of Notice of Redemption................................................................. 22
Section 3.05 Deposit of Redemption Price.................................................................... 22
Section 3.06 Notes Redeemed in Part......................................................................... 22
Section 3.07 Optional Redemption and Optional Tax Redemption................................................ 22
Section 3.08 Mandatory Redemption........................................................................... 22
Section 3.09 Purchase Offer................................................................................. 22
ARTICLE IV. COVENANTS............................................................................................ 25
Section 4.01 Payment of Notes............................................................................... 25
Section 4.02 Reports........................................................................................ 25
Section 4.03 Compliance Certificate......................................................................... 25
Section 4.04 Stay, Extension and Usury Laws................................................................. 26
Section 4.05 Corporate Existence............................................................................ 26
Section 4.06 Taxes.......................................................................................... 26
Section 4.07 Change of Control.............................................................................. 27
Section 4.08 Payment of Additional Amounts.................................................................. 27
ARTICLE V. CONVERSION............................................................................................ 28
Section 5.01 Conversion Privilege........................................................................... 28
Section 5.02 Conversion Procedure........................................................................... 28
Section 5.03 Fractional Shares.............................................................................. 29
Section 5.04 Taxes on Conversion............................................................................ 29
Section 5.05 Company to Provide Stock....................................................................... 29
Section 5.06 Adjustment of Conversion Price................................................................. 30
Section 5.07 No Adjustment.................................................................................. 33
Section 5.08 Other Adjustments.............................................................................. 33
Section 5.09 Adjustments for Tax Purposes................................................................... 33
Section 5.10 Notice of Adjustment........................................................................... 34
Section 5.11 Notice of Certain Transactions................................................................. 34
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 5.12 Effect of Reclassifications, Consolidations, Mergers or Sales on Conversion
Privilege...................................................................................... 34
Section 5.13 Trustee's Disclaimer........................................................................... 35
ARTICLE VI. SUBORDINATION........................................................................................ 35
Section 6.01 Agreement to Subordinate and Ranking........................................................... 35
Section 6.02 No Payment on Notes if Senior Debt in Default.................................................. 36
Section 6.03 Distribution on Acceleration of Notes; Dissolution and Reorganization;
Subrogation of Notes........................................................................... 37
Section 6.04 Reliance by Senior Debt on Subordination Provisions............................................ 40
Section 6.05 No Waiver of Subordination Provisions.......................................................... 40
Section 6.06 Trustee's Relation to Senior Debt.............................................................. 41
Section 6.07 Other Provisions Subject Hereto................................................................ 41
ARTICLE VII. SUCCESSORS.......................................................................................... 42
Section 7.01 Merger, Consolidation or Sale of Assets........................................................ 42
Section 7.02 Successor Corporation Substituted.............................................................. 43
ARTICLE VIII. DEFAULTS AND REMEDIES.............................................................................. 43
Section 8.01 Events of Default.............................................................................. 43
Section 8.02 Acceleration................................................................................... 45
Section 8.03 Other Remedies................................................................................. 45
Section 8.04 Waiver of Past Defaults........................................................................ 46
Section 8.05 Control by majority............................................................................ 46
Section 8.06 Limitation on Suits............................................................................ 46
Section 8.07 Rights of Holders to Receive Payment........................................................... 47
Section 8.08 Collection Suit by Trustee..................................................................... 47
Section 8.09 Trustee May File Proofs of Claim............................................................... 47
Section 8.10 Priorities..................................................................................... 47
Section 8.11 Undertaking for Costs.......................................................................... 48
ARTICLE IX. TRUSTEE.............................................................................................. 48
Section 9.01 Duties of Trustee.............................................................................. 48
Section 9.02 Rights of Trustee.............................................................................. 49
Section 9.03 Individual Rights of Trustee................................................................... 49
Section 9.04 Trustee's Disclaimer........................................................................... 49
Section 9.05 Notice of Defaults............................................................................. 49
Section 9.06 Reports by Trustee to Holders.................................................................. 50
Section 9.07 Compensation and Indemnity..................................................................... 50
Section 9.08 Replacement of Trustee......................................................................... 51
Section 9.09 Successor Trustee by Merger, Etc. ............................................................. 52
Section 9.10 Eligibility; Disqualification.................................................................. 52
Section 9.11 Preferential Collection of Claims Against Company.............................................. 52
ARTICLE X. DISCHARGE OF INDENTURE................................................................................ 52
Section 10.01 Termination of Company's Obligations........................................................... 52
Section 10.02 Repayment to Company........................................................................... 52
ARTICLE XI. AMENDMENTS, SUPPLEMENTS AND WAIVERS.................................................................. 53
Section 11.01 Without Consent of Holders..................................................................... 53
Section 11.02 With Consent of Holders........................................................................ 53
Section 11.03 Compliance with Trust Indenture Act............................................................ 54
Section 11.04 Revocation and Effect of Consents.............................................................. 54
Section 11.05 Notation on or Exchange of Notes............................................................... 55
Section 11.06 Trustee Protected.............................................................................. 55
ARTICLE XII. MISCELLANEOUS....................................................................................... 55
Section 12.01 Trust Indenture Act Controls................................................................... 55
Section 12.02 Notices........................................................................................ 55
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 12.03 Communication by Holders with Other Holders.................................................... 56
Section 12.04 Certificate and Opinion as to Conditions Precedent............................................. 56
Section 12.05 Statements Required in Certificate or Opinion.................................................. 56
Section 12.06 Rules by Trustee and Agents.................................................................... 56
Section 12.07 Legal Holidays................................................................................. 57
Section 12.08 No Recourse Against Others..................................................................... 57
Section 12.09 Counterparts and Facsimile Signatures.......................................................... 57
Section 12.10 Variable Provisions............................................................................ 57
Section 12.11 Governing Law.................................................................................. 58
Section 12.12 No Adverse Interpretation of Other Agreements.................................................. 58
Section 12.13 Successors..................................................................................... 58
Section 12.14 Severability................................................................................... 58
Section 12.15 Table of Contents, Headings, Etc. ............................................................. 58
</TABLE>
iii
<PAGE> 5
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
- --------------------------- -----------------
<S> <C>
310 (a)(1)................................................................................................ 9.10
(a)(2) ................................................................................................... 9.10
(a)(3).................................................................................................... N.A.
(a)(4).................................................................................................... N.A.
(a)(5).................................................................................................... 9.10
(b) ..................................................................................................... 9.08,
9.10
(c) ..................................................................................................... N.A.
311(a).................................................................................................... 9.11
(b) ..................................................................................................... 9.11
(c) ..................................................................................................... N.A.
312 (a)................................................................................................... 2.05
(b) ..................................................................................................... 12.03
(c) ..................................................................................................... 12.03
313(a).................................................................................................... 9.06
(b)(1).................................................................................................... N.A.
(b)(2).................................................................................................... 9.06
(c) ..................................................................................................... 9.06
(d) ..................................................................................................... 9.06
314(a).................................................................................................... 4.02
4.03,
12.02
(b) ..................................................................................................... N.A.
(c)(1).................................................................................................... 12.04
(c)(2).................................................................................................... 12.04
(c)(3).................................................................................................... N.A.
(d) ..................................................................................................... N.A.
(e) ..................................................................................................... N.A.
(f) ..................................................................................................... N.A.
315 (a)................................................................................................... 9.01(b)
(b) ..................................................................................................... 9.05
(c) ..................................................................................................... 9.01(a)
(d) ..................................................................................................... 9.01(c)
(e) ..................................................................................................... 8.11
316 (a)(last sentence).................................................................................... 2.09
(a)(1)(A)................................................................................................. 8.05
(a)(1)(B)................................................................................................. 8.04
(a)(2).................................................................................................... N.A.
(b) ..................................................................................................... 8.07
(c) ..................................................................................................... 11.04
317 (a)(1)................................................................................................ 8.08
(a)(2).................................................................................................... 8.09
(b) ..................................................................................................... 2.04
318 (a)................................................................................................... N.A.
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
iv
<PAGE> 6
INDENTURE, dated as of December 22, 1999, between NTL Incorporated, a
Delaware corporation (the "COMPANY"), and The Chase Manhattan Bank, a New York
corporation, as trustee (the "TRUSTEE").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders (as defined in Section 1.01 hereof)
of the Company's 5-3/4% Convertible Subordinated Notes due 2009 (the "NOTES"):
ARTICLE I
Section 1.01 Definitions.
"AFFILIATE" of any specified Person means any other Person directly
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"AGENT" means any Registrar, Paying Agent or Conversion Agent.
"ANNUALIZED PRO FORMA EBITDA" means, with respect to any Person, such
Person's Pro Forma EBITDA for the latest fiscal quarter multiplied by four.
"ASSET SALE" means (i) any sale, lease, transfer, conveyance or other
disposition of any assets (including by way of a sale-and-leaseback) other than
the sale or transfer of inventory or goods held for sale in the ordinary course
of business or (ii) any issuance, sale, lease, transfer, conveyance or other
disposition of any Equity Interests of any of the Company's Restricted
Subsidiaries to any Person; in either case other than (A) to (w) the Company,
(x) any Wholly Owned Subsidiary, or (y) any Subsidiary which is a Subsidiary of
the Company on the Issuance Date provided that at the time of and after giving
effect to such issuance, sale, lease, transfer, conveyance or other disposition
to such Subsidiary, the Company's ownership percentage in such Subsidiary is
equal to or greater than such percentage on the Issuance Date or (B) the
issuance, sale, transfer, conveyance or other disposition of Equity Interests of
a Subsidiary in exchange for capital contributions made on a pro rata basis by
the holders of the Equity Interests of such Subsidiary.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or any
authorized committee of the Board of Directors.
"BOARD RESOLUTION" means a duly authorized resolution of the Board of
Directors.
"BUSINESS DAY" means any day that is not a Legal Holiday.
<PAGE> 7
"CAPITAL STOCK" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock, including,
without limitation, partnership interests.
"CHANGE OF CONTROL" means (i) the sale, lease or transfer of all or
substantially all of the assets of the Company to any "Person" or "group"
(within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any
successor provision to either of the foregoing, including any group acting for
the purpose of acquiring, holding or disposing of securities within the meaning
of Rule 13d-5(b)(1) under the Exchange Act) (other than any Permitted Holder),
(ii) the approval by the requisite stockholders of the Company of a plan of
liquidation or dissolution of the Company, (iii) any "Person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act or any successor
provision to either of the foregoing, including any group acting for the purpose
of acquiring, holding or disposing of securities within the meaning of Rule 13d-
5(b)(1) under the Exchange Act), other than any Permitted Holder, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more
than 50% of the total voting power of all classes of the voting stock of the
Company and/or warrants or options to acquire such voting stock, calculated on a
fully diluted basis, unless, as a result of such transaction, the ultimate
direct or indirect ownership of the Company is substantially the same
immediately after such transaction as it was immediately prior to such
transaction, or (iv) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Company's Board of Directors
(together with any new directors whose election or appointment by such board or
whose nomination for election by the shareholders of the Company was approved by
a vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Company's Board of Directors then in office.
"COMMON STOCK" means the common stock, par value $0.01 per share, of
the Company as the same exists at the date of the execution of this Indenture or
as such stock may be constituted from time to time.
"COMPANY" means the party named as such above until a successor
replaces it in accordance with Article VII and thereafter means the successor.
"COMPLETION" has the meaning given to that term in the Termination
Agreement.
"CONSOLIDATED INTEREST EXPENSE" means, for any Person, for any period,
the amount of interest in respect of Indebtedness (including amortization of
original issue discount, amortization of debt issuance costs, and non-cash
interest payments on any Indebtedness and the interest portion of any deferred
payment obligation and after taking into account the effect of elections made
under any Interest Rate Agreement, however denominated, with respect to such
Indebtedness), the amount of Redeemable Dividends, Restricted Subsidiary
Preferred Stock Dividends and the interest component of rentals in respect of
any capital lease obligation paid, in each case whether accrued or scheduled to
be paid or accrued by such Person and its Subsidiaries (other than
Non-Restricted Subsidiaries) during such period to the extent such amounts were
deducted in computing Consolidated Net Income, determined on a consolidated
basis in accordance with GAAP. For purposes of this definition, interest on a
capital lease obligation
-2-
<PAGE> 8
shall be deemed to accrue at an interest rate reasonably determined by such
Person to be the rate of interest implicit in such capital lease obligation in
accordance with GAAP consistently applied.
"CONSOLIDATED NET INCOME" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries
(other than Non-Restricted Subsidiaries) for such period, on a consolidated
basis, determined in accordance with GAAP; provided that (i) the Net Income of
any Person that is not a Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid to the referent Person or a Wholly Owned
Subsidiary, (ii) the Net Income of any Person that is a Subsidiary (other than a
Subsidiary of which at least 80% of the Capital Stock having ordinary voting
power for the election of directors or other governing body of such Subsidiary
is owned by the referent Person directly or indirectly through one or more
Subsidiaries) shall be included only to the extent of the amount of dividends or
distributions paid to the referent Person or a Wholly Owned Subsidiary, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"CWC CONSUMERCO" means the residential cable (including digital
services and development), business cable, indirect residential telephone and
residential Internet businesses of Cable & Wireless Communications plc.
"DAILY MARKET PRICE" means the price of a share of Common Stock on the
relevant date, determined (a) on the basis of the last reported sale price
regular way of the Common Stock as reported on the Nasdaq Stock Market's
National Market (the "NNM"), or if the Common Stock is not then listed on the
NNM, as reported on such national securities exchange upon which the Common
Stock is listed, or (b) if there is no such reported sale on the day in
question, on the basis of the average of the closing bid and asked quotations
regular way as so reported, or (c) if the Common Stock is not listed on the NNM
or on any national securities exchange, on the basis of the average of the high
bid and low asked quotations regular way on the day in question in the
over-the-counter market as reported by the National Association of Securities
Dealers Automated Quotation System, or if not so quoted, as reported by National
Quotation Bureau, Incorporated, or a similar organization.
"DEFAULT" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"DEPOSITARY" shall mean The Depository Trust Company, its nominees and
their respective successors.
"DISQUALIFIED STOCK" means any Capital Stock which, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the Notes mature.
-3-
<PAGE> 9
"EBITDA" means, for any Person, for any period, an amount equal to (A)
the sum of (i) Consolidated Net Income for such period (exclusive of any gain or
loss realized in such period upon an Asset Sale), plus (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period, plus (iv) depreciation for such
period on a consolidated basis, plus (v) amortization of intangibles for such
period on a consolidated basis, plus (vi) any other non-cash item reducing
Consolidated Net Income for such period, minus (B) all non-cash items increasing
Consolidated Net Income for such period, all for such Person and its
Subsidiaries determined in accordance with GAAP consistently applied.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any Indebtedness that is
convertible into, or exchangeable for Capital Stock).
"EXCESS PAYMENT" means the excess of (A) the aggregate of the cash and
value of other consideration paid by the Company or any of its Subsidiaries with
respect to shares acquired in a tender offer or other negotiated transaction
over (B) the market value of each such acquired shares after giving effect to
the completion of a tender offer or other negotiated transaction.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE RATE CONTRACT" means, with respect to any Person, any
currency swap agreements, forward exchange rate agreements, foreign currency
futures or options, exchange rate collar agreements, exchange rate insurance and
other agreements or arrangements, or combination thereof, the principal purpose
of which is to provide protection against fluctuations in currency exchange
rates. An Exchange Rate Contract may also include an Interest Rate Agreement.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect on the Issuance Date.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"HOLDER" means a Person in whose name a Note is registered in the
register referred to in Section 2.03.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect
-4-
<PAGE> 10
thereof) or representing the balance deferred and unpaid of the purchase price
of any property (including pursuant to capital leases and sale-and-leaseback
transactions) or representing any hedging obligations under an Exchange Rate
Contract or an Interest Rate Agreement, except any such balance that constitutes
an accrued expense or trade payable, if and to the extent any of the foregoing
indebtedness (other than obligations under an Exchange Rate Contract or an
Interest Rate Agreement) would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP, and also includes, to the extent
not otherwise included, the Guarantee of items which would be included within
this definition.
"INDENTURE" means this Indenture, as amended from time to time.
"INITIAL PURCHASERS" means, Morgan Stanley & Co. Incorporated, Goldman,
Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith
Barney Inc., Warburg Dillon Read LLC., Chase Securities Inc., Lehman Brothers
Inc., and Wasserstein Perella Securities, Inc.
"INTEREST RATE AGREEMENT" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"ISSUANCE DATE" means the date on which the Notes are first
authenticated and issued.
"LICENSE" means any license issued or awarded pursuant to the
Broadcasting Act 1990, the Cable and Broadcasting Act 1984, the
Telecommunications Act 1984 or the Wireless Telegraphy Act 1948 (in each case,
as such Acts may, from time to time, be amended, modified or re-enacted) (or
equivalent statutes of any jurisdiction) to operate or own a Cable Business.
"LIQUIDATED DAMAGES" has the meaning set forth in Section 2 of the
Notes.
"MATERIAL LICENSE" means a License held by the Company or any of its
Subsidiaries which License at the time of determination covers a number of Net
Households which equals or exceeds 5% of the aggregate number of Net Households
covered by all of the Licenses held by the Company and its Subsidiaries at such
time.
"MATERIAL SUBSIDIARY" means (i) NTL (UK) Group, Inc. (formerly known as
OCOM Sub II, Inc.), NTL Group Limited, CableTel Surrey, CableTel Cardiff
Limited, CableTel Glasgow, CableTel Newport and CableTel Kirklees and (ii) any
other Subsidiary of the Company which is a "significant subsidiary" as defined
in Rule 1-02(w) of Regulation S-X under the Securities Act and the Exchange Act
(as such Regulation is in effect on the date hereof).
"NET HOUSEHOLDS" means the product of (i) the number of households
covered by a License in the United Kingdom and (ii) the percentage of the entity
holding such License which is owned directly or indirectly by the Company.
"NET INCOME" means, with respect to any Person for a specific period,
the net income (loss) of such Person during such period, determined in
accordance with GAAP, excluding,
-5-
<PAGE> 11
however, any gain (but not loss) during such period, together with any related
provision for taxes on such gain (but not loss), realized during such period in
connection with any Asset Sale (including, without limitation, dispositions
pursuant to sale-and-leaseback transactions), and excluding any extraordinary
gain (but not loss) during such period, together with any related provision for
taxes on such extraordinary gain (but not loss).
"NON-RECOURSE DEBT" means Indebtedness or that portion of Indebtedness
as to which none of the Company, nor any Restricted Subsidiary: (i) provides
credit support (including any undertaking, agreement or instrument which would
constitute Indebtedness); (ii) is directly or indirectly liable; or (iii)
constitutes the lender.
"NON-RESTRICTED SUBSIDIARY" means (A) a Subsidiary that (a) at the time
of its designation by the Board of Directors as a Non-Restricted Subsidiary has
not acquired any assets, at any previous time, directly or indirectly from the
Company or any of its Restricted Subsidiaries, (b) has no Indebtedness other
than Non-Recourse Debt and (c) that at the time of such designation, after
giving pro forma effect to such designation, the ratio of Indebtedness to
Annualized Pro Forma EBITDA of the Company is equal to or less than the ratio of
Indebtedness to Annualized Pro Forma EBITDA of the Company immediately preceding
such designation, provided, however, that if the ratio of Indebtedness to
Annualized Pro Forma EBITDA of the Company immediately preceding such
designation is 6:1 or less, then the ratio of Indebtedness to Annualized Pro
Forma EBITDA of the Company may be 0.5 greater than such ratio immediately
preceding such designation; (B) any Subsidiary which (a) has been acquired or
capitalized out of or by Equity Interests (other than Disqualified Stock) of the
Company or Capital Stock Sale Proceeds therefrom, (b) has no Indebtedness other
than Non-Recourse Debt and (c) is designated as a Non-Restricted Subsidiary by
the Board of Directors or is merged, amalgamated or consolidated with or into,
or its assets or capital stock is to be transferred to, a Non-Restricted
Subsidiary; or (C) any Subsidiary of a Non-Restricted Subsidiary.
"NOTES" has the meaning set forth in the preamble hereto.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers, one
of whom must be the Chairman of the Board, the President, the Treasurer or a
Vice President of the Company.
"OPINION OF COUNSEL" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"PERMITTED DESIGNEE" means (i) a spouse or a child of a Permitted
Holder, (ii) trusts for the benefit of a Permitted Holder or a spouse or child
of a Permitted Holder, (iii) in the event of the death or incompetence of a
Permitted Holder, his estate, heirs, executor, administrator, committee or other
personal representative or (iv) any Person so long as a Permitted Holder owns at
least 50% of the voting power of all classes of the voting stock of such Person.
-6-
<PAGE> 12
"PERMITTED HOLDERS" means George S. Blumenthal, J. Barclay Knapp and
their Permitted Designees.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PRO FORMA EBITDA" means for any Person, for any period, the EBITDA of
such Person as determined on a consolidated basis in accordance with GAAP
consistently applied after giving effect to the following: (i) if, during or
after such period, such Person or any of its Subsidiaries shall have made any
Asset Sale, Pro Forma EBITDA of such Person and its Subsidiaries for such period
shall be reduced by an amount equal to the Pro Forma EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset Sale for
the period or increased by an amount equal to the Pro Forma EBITDA (if negative)
directly attributable thereto for such period and (ii) if, during or after such
period, such Person or any of its Subsidiaries completes an acquisition of any
Person or business which immediately after such acquisition is a Subsidiary of
such Person or whose assets are held directly by such Person or a Subsidiary of
such Person, Pro Forma EBITDA shall be computed so as to give pro forma effect
to the acquisition of such Person or business; and provided further that, with
respect to the Company, all of the foregoing references to "Subsidiary" or
"Subsidiaries" shall be deemed to refer only to a "Restricted Subsidiary" or
"Restricted Subsidiaries" of the Company.
"PURCHASE AGREEMENT" means the Purchase Agreement, dated as of December
16, 1999, among the Company and the Initial Purchasers.
"REDEEMABLE DIVIDEND" means, for any dividend with regard to
Disqualified Stock, the quotient of the dividend divided by the difference
between one and the maximum statutory federal income tax rate (expressed as a
decimal number between 1 and 0) then applicable to the issuer of such
Disqualified Stock.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
relating to the Notes and the underlying Common Stock, dated December 22, 1999,
among the Company and the Initial Purchasers party thereto.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company which is
not a Non-Restricted Subsidiary.
"RESTRICTED SUBSIDIARY PREFERRED STOCK DIVIDEND" means, for any
dividend with regard to preferred stock of a Restricted Subsidiary, the quotient
of the dividend divided by the difference between one and the maximum statutory
federal income tax rate (expressed as a decimal number between 1 and 0) then
applicable to the issuer of such preferred stock.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
-7-
<PAGE> 13
"SENIOR DEBT" means the principal of, interest on and other amounts due
on (i) Indebtedness of the Company, whether outstanding on the date hereof or
hereafter created, incurred, assumed or guaranteed by the Company, for money
borrowed from banks or other financial institutions; (ii) Indebtedness of the
Company, whether outstanding on the date hereof or hereafter created, incurred,
assumed or guaranteed by the Company; and (iii) Indebtedness of the Company
under interest rate swaps, caps or similar hedging agreements and foreign
exchange contracts, currency swaps or similar agreements: unless, in the
instrument creating or evidencing or pursuant to which Indebtedness under (i) or
(ii) is outstanding, it is expressly provided that such Indebtedness is not
senior in right of payment to the Notes. Senior Debt includes, with respect to
the obligations described in clauses (i) and (ii) above, interest accruing,
pursuant to the terms of such Senior Debt, on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company, whether or
not post-filing interest is allowed in such proceeding, at the rate specified in
the instrument governing the relevant obligation. Notwithstanding anything to
the contrary in the foregoing, Senior Debt shall not include: (a) Indebtedness
of or amounts owed by the Company for compensation to employees, or for goods or
materials purchased in the ordinary course of business, or for services; or (b)
Indebtedness of the Company to a Subsidiary of the Company.
"SHELF REGISTRATION STATEMENT" shall have the meaning set forth in the
Registration Rights Agreement.
"SUBSIDIARY" means any corporation, association or other business
entity of which more than 50% of the total voting power of shares of Capital
Stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
(Section)(Section) 77aaa-77bbbb) as in effect on the date of execution of this
Indenture.
"TRANSACTION AGREEMENT" means the Transaction Agreement dated as of
July 26, 1999, between Bell Atlantic Corporation, Cable and Wireless plc, Cable
& Wireless Communication plc and the Company, as such agreement may be amended
and restated from time to time.
"TRUSTEE" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor.
"TRUST OFFICER" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"WHOLLY OWNED SUBSIDIARY" means, at any time, a Restricted Subsidiary
all of the Capital Stock of which (except directors' qualifying shares) is at
the time owned directly or indirectly by the Company.
Section 1.02 Other Definitions.
-8-
<PAGE> 14
<TABLE>
<CAPTION>
DEFINED
TERM IN SECTION
- ---- ----------
<S> <C>
"ADDITIONAL AMOUNTS"................................. 4.08
"AGENT MEMBER"....................................... 2.01
"BANKRUPTCY LAW"..................................... 8.01
"CEDEL".............................................. 2.01
"CHANGE OF CONTROL PAYMENT".......................... 4.07
"COMMENCEMENT DATE".................................. 3.09
"CONVERSION AGENT"................................... 2.03
"CONVERSION DATE".................................... 5.02
"CONVERSION PRICE"................................... 5.06
"CONVERSION SHARES".................................. 5.06
"CURRENT MARKET PRICE"............................... 5.06
"CUSTODIAN".......................................... 8.01
"DISTRIBUTION DATE".................................. 5.06
"DISTRIBUTION RECORD DATE"........................... 5.06
"EUROCLEAR".......................................... 2.01
"EVENT OF DEFAULT"................................... 8.01
"GLOBAL NOTE"........................................ 2.01
"LEGAL HOLIDAY"...................................... 12.08
"OFFER AMOUNT"....................................... 3.09
"OFFICER"............................................ 12.11
"PAYING AGENT"....................................... 2.03
"PAYMENT BLOCKAGE NOTICE"............................ 6.02
"PAYMENT BLOCKAGE PERIOD"............................ 6.02
"PAYMENT DEFAULT".................................... 8.01
"PURCHASE DATE"...................................... 3.09
"PURCHASE OFFER"..................................... 3.09
"QIBs"............................................... 2.01
"REGULATION S"....................................... 2.01
"REGULATION S GLOBAL NOTE" .......................... 2.01
"REGISTRAR".......................................... 2.03
"RESTRICTED NOTES"................................... 2.10(b)
"RIGHTS"............................................. 5.06
"RULE 144A".......................................... 2.01
"RULE 144A GLOBAL NOTE".............................. 2.01
"TENDER PERIOD"...................................... 3.09
</TABLE>
Section 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"INDENTURE SECURITIES" means the Notes;
"INDENTURE SECURITY HOLDER" means a Holder of a Note;
-9-
<PAGE> 15
"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "institutional trustee" means the Trustee; and
"OBLIGOR" on the Notes means the Company or any other obligor on the
Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.04 Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP consistently applied;
(c) references to "GAAP" shall mean GAAP in effect as of the
time when and for the period as to which such accounting principles are
to be applied;
(d) "OR" is not exclusive;
(e) words in the singular include the plural, and in the
plural include the singular;
(f) provisions apply to successive events and transactions;
(g) references to sections of or rules under the Securities
Act shall be deemed to include substitute, replacement or successor
sections or rules adopted by the SEC from time to time; and
(h) a reference to "$" or U.S. Dollars is to United States
dollars.
ARTICLE II.
THE NOTES
Section 2.01 Form and Dating.
(a) General.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto, which is hereby incorporated by
reference and expressly made a part of this Indenture. The Notes may have
notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Company is subject, if any, or usage (provided that any
such notation, legend or endorsement is in a form acceptable to the Company).
The Company
-10-
<PAGE> 16
shall furnish any such legend not contained in Exhibit A to the Trustee in
writing. Each Note shall be dated the date of its authentication. The Notes
shall be in denominations of $1,000 and integral multiples thereof. The terms
and provisions of the Notes set forth in Exhibit A are part of this Indenture
and to the extent applicable, the Company and the Trustee, by their execution
and delivery of this Indenture, expressly agree to such terms and provisions and
to be bound thereby. However, to the extent any provision of any Note conflicts
with the express provisions of this Indenture, the provisions of this Indenture
shall govern and be controlling.
(b) Global Notes.
The Notes are being offered and sold by the Company pursuant to the
Purchase Agreement.
Notes transferred in reliance on Regulation S under the Securities Act
("REGULATION S"), as provided in Section 2.06(a)(ii) hereof, shall be issued in
the form of one or more permanent Global Notes in definitive, fully registered
form without interest coupons with the Global Notes Legend and Restricted Notes
Legend set forth in Exhibit A hereto (the "REGULATION S GLOBAL NOTE"), which
shall be deposited on behalf of the transferee of the Notes represented thereby
with the Trustee, at its New York office, as custodian, for the Depositary, and
registered in the name of the Depositary or the nominee of the Depositary for
the accounts of designated agents holding on behalf of the Euroclear System
("EUROCLEAR") or Cedelbank, societe anonyme ("CEDEL"), duly executed by the
Company and authenticated by the Trustee as hereinafter provided. The aggregate
principal amount of the Regulation S Global Note may from time to time be
increased or decreased by adjustments made on the records of the Trustee and the
Depositary or its nominee as hereinafter provided.
Notes offered and sold to Qualified Institutional Buyers ("QIBs") in
reliance on Rule 144A under the Securities Act ("RULE 144A"), as provided in the
Purchase Agreement, shall be issued initially in the form of one or more
permanent Global Notes in definitive, fully registered form without interest
coupons with the Global Notes Legend and Restricted Notes Legend set forth in
Exhibit A hereto ("RULE 144A GLOBAL NOTE"), which shall be deposited on behalf
of the purchasers of the Notes represented thereby with the Trustee, at its New
York office, as custodian for the Depositary, and registered in the name of the
Depositary or a nominee of the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Rule 144A Global Note may from time to time be increased or
decreased by adjustments made on the records of the Trustee and the Depositary
or its nominee as hereinafter provided.
(c) Book-Entry Provisions.
This Section 2.01(c) shall apply only to the Regulation S Global Note
and the Rule 144A Global Note issued in the form of one or more permanent Global
Notes (collectively, the "GLOBAL NOTES") deposited with or on behalf of the
Depositary.
The Company shall execute and the Trustee shall, in accordance with
this Section 2.01(c), authenticate and deliver initially one or more Global
Notes that (a) shall be registered in the name
-11-
<PAGE> 17
of the Depositary for such Global Note or Global Notes or the nominee of such
Depositary and (b) shall be delivered by the Trustee to such Depositary or
pursuant to such Depositary's instructions or held by the Trustee as custodian
for the Depositary.
Members of, or participants in, the Depositary ("AGENT MEMBERS") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depositary or by the Trustee as the custodian of the
Depositary or under such Global Note, and the Depositary may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the absolute
owner of such Global Note for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent of
the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depositary or impair, as between
the Depositary and its Agent Members, the operation of customary practices of
such Depositary governing the exercise of the rights of an owner of a beneficial
interest in any Global Note.
(d) Certificated Notes.
After a transfer of any Notes during the period of the effectiveness of
a Shelf Registration Statement with respect to the Notes and pursuant thereto,
all requirements for Restricted Notes Legends on such Note will cease to apply,
and a certificated Note without a Restricted Notes Legend will be available to
the Holder of such Notes, subject to Section 2.10(d) hereof.
Section 2.02 Execution and Authentication.
One Officer shall sign the Notes for the Company by manual or facsimile
signature.
If an Officer whose signature is on a Note no longer holds that office
at the time the Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of an authorized officer of the Trustee. The signature shall be conclusive
evidence that the Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by an
Officer, authenticate Notes for original issue up to an aggregate principal
amount stated in paragraph 6 of the Notes. The aggregate principal amount of
Notes outstanding at any time may not exceed $1,200,000,000 except as provided
in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders, the
Company or an Affiliate.
Section 2.03 Registrar and Paying Agent.
-12-
<PAGE> 18
The Company shall maintain in the Borough of Manhattan, City of New
York, State of New York, (i) offices or agencies where the Notes may be
presented for registration of transfer or for exchange ("REGISTRAR") (ii)
offices or agencies where the Notes may be presented for payment ("PAYING
AGENT") and (iii) offices or agencies where the Notes may be presented for
conversion ("CONVERSION AGENT"). The Company initially designates the Trustee at
its corporate trust offices in the Borough of Manhattan, City of New York, State
of New York to act as principal Registrar, Paying Agent and Conversion Agent.
The principal Registrar shall keep a register of the Notes and of their transfer
and exchange. The Company may appoint one or more co-registrars, one or more
additional paying agents and one or more additional Conversion Agents in such
other locations as it shall determine. If, and so long as, the Notes are listed
on the Luxembourg Stock Exchange, the Company will maintain an additional
Registrar and Paying Agent in Luxembourg. The term "Registrar" includes any
co-registrar, the term "Paying Agent" includes any additional paying agent and
the term "Conversion Agent" includes any additional conversion agent. The
Company may change any Paying Agent, Registrar or Conversion Agent without prior
notice to any Holder. The Company shall notify the Trustee of the name and
address of any Agent not a party to this Indenture. If the Company fails to
appoint or maintain another entity as Registrar, Paying Agent or Conversion
Agent, the Trustee shall act as such. The Company or any of its Affiliates may
act as Paying Agent, Registrar or Conversion Agent.
Section 2.04 Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal or interest on the Notes, and will notify the Trustee of any default
by the Company in making any such payment. While any such default continues, the
Trustee may require a Paying Agent to pay all money held by it to the Trustee
and to account for any money disbursed by it. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or an Affiliate
of the Company) shall have no further liability for the money. If the Company or
an Affiliate of the Company acts as Paying Agent, it shall segregate and hold in
a separate trust fund for the benefit of the Holders all money held by it as
Paying Agent.
Section 2.05 Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee on or before each interest payment date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders.
Section 2.06 Transfer and Exchange.
Where Notes are presented to the Registrar or a co-registrar with a
request to register a transfer or to exchange them for an equal principal amount
of Notes of other denominations, the Registrar shall register the transfer or
make the exchange if its requirements for such transactions
-13-
<PAGE> 19
are met. To permit registrations of transfers and exchanges, the Company shall
issue and the Trustee shall authenticate Notes at the Registrar's request. No
service charge shall be made for any registration of transfer or exchange
(except as otherwise expressly permitted herein), but the Company may require
payment of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer tax or
similar governmental charge payable upon exchanges pursuant to Sections 2.10,
3.06 or 11.05 hereof).
The Company shall not be required (i) to issue, register the transfer
of or exchange any Note for a period beginning at the opening of business 15
days before the day of any selection of Notes to be redeemed under Section 3.02
hereof and ending at the close of business on the day of selection, or (ii) to
register the transfer, or exchange, of any Note so selected for redemption in
whole or in part, except the unredeemed portion of any Note being redeemed in
part.
(a) Notwithstanding any provision to the contrary herein, so
long as a Global Note remains outstanding and is held by or on behalf
of the Depositary, transfers of a Global Note, in whole or in part, or
of any beneficial interest therein, shall only be made in accordance
with Section 2.01(b) and this Section 2.06(a); provided, however, that
beneficial interests in a Global Note may be transferred to Persons who
take delivery thereof in the form of a beneficial interest in the same
Global Note in accordance with the transfer restrictions set forth in
the Restricted Notes Legend and under the heading "Transfer
Restrictions" in the Company's Offering Memorandum dated December 16,
1999.
(i) Except for transfers or exchanges made in accordance with
clauses (ii) through (iii) of this Section 2.06(a), transfers of a
Global Note shall be limited to transfers of such Global Note in whole,
but not in part, to nominees of the Depositary or to a successor of the
Depositary or such successor's nominee.
(ii) Rule 144A Global Note to Regulation S Global Note. If an
owner of a beneficial interest in the Rule 144A Global Note deposited
with the Depositary or the Trustee as custodian for the Depositary
wishes at any time to transfer its interest in such Rule 144A Global
Note to a Person who is required to take delivery thereof in the form
of an interest in the Regulation S Global Note, such owner may, subject
to the rules and procedures of the Depositary, exchange or cause the
exchange of such interest for an equivalent beneficial interest in the
Regulation S Global Note. Upon receipt by the principal Registrar of
(1) instructions given in accordance with the Depositary's procedures
from an Agent Member directing the principal Registrar to credit or
cause to be credited a beneficial interest in the Regulation S Global
Note in an amount equal to the beneficial interest in the Rule 144A
Global Note to be exchanged, (2) a written order given in accordance
with the Depositary's procedures containing information regarding the
participant account of the Depositary and the Euroclear or Cedel
account to be credited with such increase and (3) a certificate in the
form of Exhibit B attached hereto given by
-14-
<PAGE> 20
the Holder of such beneficial interest, then the principal Registrar
shall instruct the Depositary to reduce or cause to be reduced the
principal amount of the Rule 144A Global Note and to increase or cause
to be increased the principal amount of the Regulation S Global Note by
the aggregate principal amount of the beneficial interest in the Rule
144A Global Note equal to the beneficial interest in the Regulation S
Global Note to be exchanged or transferred, to credit or cause to be
credited to the account of the Person specified in such instructions a
beneficial interest in the Regulation S Global Note equal to the
reduction in the principal amount of the Rule 144A Global Note and to
debit or cause to be debited from the account of the Person making such
exchange or transfer the beneficial interest in the Rule 144A Global
Note that is being exchanged or transferred.
(iii) Regulation S Global Note to Rule 144A Global Note. If an
owner of a beneficial interest in the Regulation S Global Note
deposited with the Depositary or with the Trustee as custodian for the
Depositary wishes at any time to transfer its interest in such
Regulation S Global Note to a Person who is required to take delivery
thereof in the form of an interest in the Rule 144A Global Note, such
Holder may, subject to the rules and procedures of Euroclear or Cedel,
as the case may be, and the Depositary, exchange or cause the exchange
of such interest for an equivalent beneficial interest in the Rule 144A
Global Note. Upon receipt by the principal Registrar of (1)
instructions from Euroclear or Cedel, if applicable, and the
Depositary, directing the principal Registrar to credit or cause to be
credited a beneficial interest in the Rule 144A Global Note equal to
the beneficial interest in the Regulation S Global Note to be exchanged
or transferred, (2) a written order given in accordance with the
Depositary's procedures containing information regarding the
participant account of the Depositary and (3) a certificate in the form
of Exhibit C attached hereto given by the owner of such beneficial
interest, then Euroclear or Cedel or the principal Registrar, as the
case may be, will instruct the Depositary to reduce or cause to be
reduced the Regulation S Global Note and to increase or cause to be
increased the principal amount of the Rule 144A Global Note by the
aggregate principal amount of the beneficial interest in the Regulation
S Global Note to be exchanged or transferred, and the principal
Registrar shall instruct the Depositary, concurrently with such
reduction, to credit or cause to be credited to the account of the
Person specified in such instructions a beneficial interest in the Rule
144A Global Note equal to the reduction in the principal amount of the
Regulation S Global Note and to debit or cause to be debited from the
account of the Person making such exchange or transfer the beneficial
interest in the Regulation S Global Note that is being exchanged or
transferred.
(iv) Restricted Note to Restricted Note. If a Holder of a
Restricted Note wishes at any time to transfer such Restricted Note to
a Person who is required to take delivery thereof in the form of a
Restricted Note, such Holder
-15-
<PAGE> 21
may, subject to the restrictions on transfer set forth herein and in
such Restricted Note, cause the exchange of such Restricted Note for
one or more Restricted Notes of any authorized denomination or
denominations and of the same aggregate principal amount. Upon receipt
by the principal Registrar of (1) such Restricted Note, duly endorsed
as provided herein, (2) instructions from such Holder directing the
principal Registrar to authenticate and deliver one or more Restricted
Notes of the same aggregate principal amount as the Restricted Note to
be exchanged, such instructions to contain the name or authorized
denomination or denominations of the Restricted Notes to be so issued
and appropriate delivery instructions, (3) a certificate from the
Holder of the Restricted Note to be exchanged in the form of Exhibit D
attached hereto, (4) a certificate in the form of Exhibit E attached
hereto given by the Person acquiring the Restricted Notes for which
such interest is being exchanged, to the effect set forth therein, and
(5) such other certifications, legal opinions or other information as
the Company may reasonably require to confirm that such transfer is
being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act, then
the Registrar shall cancel or cause to be canceled such Restricted Note
and concurrently therewith, the Company shall execute, and the Trustee
shall authenticate and deliver, one or more Restricted Notes of the
same aggregate principal amount, in accordance with the instructions
referred to above.
(v) Restricted Note to Rule 144A Note. If an owner of a
Restricted Note registered in the name of such owner wishes at any time
to transfer such Restricted Note to a Person who is required to take
delivery thereof in the form of an interest in the Rule 144A Global
Note, such Holder may, subject to the rules and procedures of the
Depositary, exchange or cause the exchange of such Restricted Note for
an equivalent beneficial interest in the Rule 144A Global Note. Upon
receipt by the principal Registrar of (1) instructions from the
Company, directing the principal Registrar (A) to credit or cause to be
credited a beneficial interest in the Rule 144A Global Note equal to
the principal amount of the Restricted Note to be exchanged or
transferred and (B) to cancel such Restricted Note to be exchanged or
transferred, (2) a written order given in accordance with the
Depositary's procedures containing information regarding the
participant account of the Depositary and (3) a certificate in the form
of Exhibit C attached hereto given by the owner of such Restricted
Note, then the principal Registrar will instruct the Trustee to cancel
such Restricted Note and will instruct the Depositary to increase or
cause to be increased the principal amount of the Rule 144A Global Note
by the principal amount of the Restricted Note to be exchanged or
transferred, and the principal Registrar shall instruct the Depositary,
concurrently with such cancellation of the Restricted Note, to credit
or cause to be credited to the account of the Person specified in such
instructions a beneficial interest in the Rule 144A Global Note equal
to the principal amount of the Restricted Note to be canceled by the
Trustee.
-16-
<PAGE> 22
(vi) Restricted Note to Regulation S Global Note. If an owner
of a Restricted Note registered in the name of such owner wishes at any
time to transfer such Restricted Note to a Person who is required to
take delivery thereof in the form of an interest in the Regulation S
Global Note, such owner may, subject to the rules and procedures of the
Euroclear or Cedel, as the case may be, exchange or cause the exchange
of such Restricted Note for an equivalent beneficial interest in the
Regulation S Global Note. Upon receipt by the principal Registrar of
(1) instructions from the Company, directing the principal Registrar
(A) to credit or cause to be credited a beneficial interest in the
Regulation S Global Note equal to the principal amount of the
Restricted Note to be exchanged or transferred and (B) to cancel such
Restricted Note to be exchanged or transferred, (2) a written order
given in accordance with the Depositary's procedures containing
information regarding the participant account of the Euroclear or Cedel
account to be credited with such increase and (3) a certificate in the
form of Exhibit B attached hereto given by the Holder of such
Restricted Note, then the principal Registrar will instruct the Trustee
to cancel such Restricted Note and will instruct the Depositary to
increase or cause to be increased the principal amount of the
Regulation S Global Note by the principal amount of the Restricted Note
to be exchanged or transferred, and the principal Registrar shall
instruct the Depositary, concurrently with such cancellation of the
Restricted Note, to credit or cause to be credited to the account of
the Person specified in such instructions a beneficial interest in the
Regulation S Global Note equal to the principal amount of the
Restricted Note to be cancelled by the Trustee.
(vii) Other Exchanges. In the event that a beneficial interest
in a Global Note is exchanged for a certificated Note in definitive
registered form pursuant to Section 2.10, prior to the effectiveness of
a Shelf Registration Statement with respect to such Notes, such Notes
may be exchanged only in accordance with such procedures as are
substantially consistent with the provisions of clauses (ii) through
(iv) above (including the certification requirements intended to ensure
that such transfers comply with Rule 144A, Rule 144, Regulation S or
any other available exemption from registration, as the case may be)
and such other procedures as may from time to time be adopted by the
Company.
(b) Except in connection with a Shelf Registration Statement
contemplated by and in accordance with the terms of the Registration
Rights Agreement, if Notes are issued upon the transfer, exchange or
replacement of Notes bearing the Restricted Notes Legend set forth in
Exhibit A hereto, or if a request is made to remove such Restricted
Notes Legend on Notes, the Notes so issued shall bear the Restricted
Notes Legend, or the Restricted Notes Legend shall not be removed, as
the case may be, unless there is delivered to the Company such
satisfactory evidence, which may include an opinion of counsel licensed
to practice law in the State of New York, as may be reasonably required
by the Company, that neither the legend nor the restrictions on
transfer set forth therein
-17-
<PAGE> 23
are required to ensure that transfers thereof comply with the
provisions of Rule 144A, Rule 144, Regulation S or any other available
exemption from registration under the Securities Act or, with respect
to Restricted Notes, that such Notes are not "restricted" within the
meaning of Rule 144 under the Securities Act. Upon provision of such
satisfactory evidence, the Trustee, at the direction of the Company,
shall authenticate and deliver Notes that do not bear the legend.
(c) Neither the Company nor the Trustee shall have any
responsibility for any actions taken or not taken by the Depositary and
the Company shall have no responsibility for any actions taken or not
taken by the Trustee as agent or custodian of the Depositary.
Section 2.07 Replacement Notes.
If the Holder of a Note claims that the Note has been lost, destroyed
or wrongfully taken or if such Note is mutilated and is surrendered to the
Trustee, the Company shall issue and the Trustee shall authenticate a
replacement Note if the Trustee's and the Company's requirements are met. If
required by the Trustee or the Company, an indemnity bond must be sufficient in
the judgment of both to protect the Company, the Trustee, any Agent or any
authenticating agent from any loss which any of them may suffer if a Note is
replaced. The Company may charge for its expenses in replacing a Note.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, or is about to be purchased by the
Company pursuant to Article III hereof, the Company in its discretion may,
instead of issuing a new Note, pay or purchase such Note, as the case may be.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.08 Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, and those described in this Section as not outstanding.
If a Note is replaced, paid or purchased pursuant to Section 2.07
hereof, it ceases to be outstanding unless the Trustee receives proof
satisfactory to it that the replaced, paid or purchased Note is held by a bona
fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
Except as set forth in Section 2.09 hereof, a Note does not cease to be
outstanding because the Company or an Affiliate of the Company holds the Note.
-18-
<PAGE> 24
Section 2.09 Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or an Affiliate of the Company shall be considered as though they are
not outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes that the Trustee knows are so owned shall be so disregarded.
Section 2.10 Temporary Notes; Global Notes.
(a) Until definitive Notes are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Notes.
Temporary Notes shall be substantially in the form of definitive Notes
but may have variations that the Company considers appropriate for
temporary Notes. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate definitive Notes in exchange for
temporary Notes. Holders of temporary Notes shall be entitled to all of
the benefits of this Indenture.
(b) A Global Note deposited with the Depositary or with the
Trustee as custodian for the Depositary pursuant to Section 2.01 shall
be transferred to the beneficial owners thereof in the form of
certificated Notes, which certificated Note shall bear the Restricted
Notes Legend set forth in Exhibit A hereto (the "Restricted Notes")
unless otherwise provided by Section 2.01(d) and Section 2.06(b), only
if such transfer complies with Section 2.06 and (i) the Depositary
notifies the Company that it is unwilling or unable to continue as
Depositary for such Global Note or if at any time such Depositary
ceases to be a "clearing agency" registered under the Exchange Act and
a successor depositary is not appointed by the Company within 90 days
of such notice, or (ii) an Event of Default has occurred and is
continuing.
(c) Any Global Note that is transferable to the beneficial
owners thereof in the form of certificated Notes pursuant to this
Section 2.10 shall be surrendered by the Depositary to the Trustee to
be so transferred, in whole or from time to time in part, without
charge, and the Trustee shall authenticate and deliver, upon such
transfer of each portion of such Global Note, an equal aggregate
principal amount of Notes of authorized denominations in the form of
certificated Notes. Any portion of a Global Note transferred pursuant
to this Section 2.10 shall be executed, authenticated and delivered
only in denominations of $1,000 and any integral multiple thereof and
registered in such names as the Depositary shall direct. Any Note in
the form of certificated Notes delivered in exchange for an interest in
the Global Notes shall, except as otherwise provided by Section 2.06(b)
bear the Restricted Notes Legend set forth in Exhibit A hereto.
(d) The registered Holder of a Global Note may grant proxies
and otherwise authorize any Person, including Agent Members and Persons
that may hold interests through Agent Members, to take any action which
a Holder is entitled to take under this Indenture or the Notes.
-19-
<PAGE> 25
(e) In the event of the occurrence of either of the events
specified in Section 2.10(b), the Company will promptly make available
to the Trustee a reasonable supply of certificated Notes in definitive,
fully registered form without interest coupons.
Section 2.11 Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar, Paying Agent and Conversion Agent shall forward to
the Trustee any Notes surrendered to them for registration of transfer, exchange
or payment. The Trustee shall promptly cancel all Notes surrendered for
registration of transfer, exchange, payment, conversion, replacement or
cancellation and shall dispose of canceled Notes as the Company directs. The
Company may not issue new Notes to replace Notes that it has paid or that have
been delivered to the Trustee for cancellation.
Section 2.12 Defaulted Interest.
If the Company fails to make a payment of interest on the Notes, it
shall pay such defaulted interest plus any interest payable on the defaulted
interest, in any lawful manner. It may pay such defaulted interest, plus any
such interest payable on it, to the Persons who are Holders on a subsequent
special record date. The Company shall fix any such record date and payment
date, provided that no such record date shall be less than 10 days prior to the
related payment date for such defaulted interest. At least 15 days before any
such record date, the Company shall mail to Holders a notice that states the
special record date, the related payment date and amount of such interest to be
paid.
ARTICLE III.
REDEMPTION
Section 3.01 Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of the Notes and Section 3.07 hereof or pursuant to the
Optional Tax Redemption provision of the Notes (Section 8 of the Notes), it
shall notify the Trustee of the redemption date and the principal amount of
Notes to be redeemed, and in connection with an Optional Tax Redemption as
provided in the Notes or an Optional Redemption pursuant to Section 7(a) of the
Notes, such notice shall be accompanied by an Officers' Certificate to the
effect that the conditions to such redemption contained herein have been
complied with. The Company shall give each notice provided for in this Section
3.01 at least 50 days before the redemption date (unless a shorter notice period
shall be satisfactory to the Trustee).
Section 3.02 Selection of Notes to Be Redeemed.
If less than all of the Notes are to be redeemed at any time, selection
of Notes shall be made by the Trustee on a pro rata basis or by lot or by method
that complies with the requirements of any exchange on which the Notes are
listed and that the Trustee considers fair and appropriate, provided that no
Notes of $1,000 or less shall be redeemed in part. The Trustee
-20-
<PAGE> 26
shall make the selection not more than 60 days and not less than 30 days before
the redemption date from Notes outstanding not previously called for redemption.
Notes and portions of Notes selected shall be in amounts of $1,000 or integral
multiples of $1,000. Provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption. The Trustee
shall notify the Company promptly of the Notes or portions of Notes to be called
for redemption.
If any Note selected for partial redemption is converted in part after
such selection, the converted portion of such Note shall be deemed (so far as
may be) to be the portion to be selected for redemption. The Notes (or portions
thereof) so selected shall be deemed duly selected for redemption for all
purposes hereunder, notwithstanding that any such Note is converted in whole or
in part before the mailing of the notice of redemption. Upon any redemption of
less than all the Notes, the Company and the Trustee may treat as outstanding
any Notes surrendered for conversion during the period 15 days next preceding
the mailing of a notice of redemption and need not treat as outstanding any Note
authenticated and delivered during such period in exchange for the unconverted
portion of any Note converted in part during such period.
Section 3.03 Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address and, if and so
long as the Notes are listed on the Luxembourg Stock Exchange, publish a notice
of such redemption in a leading newspaper with circulation in Luxembourg. The
notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is to be redeemed in part only, the portion of
the principal amount thereof redeemed, and that, after the redemption
date, upon surrender of such Note, a new Note in principal amount equal
to the unredeemed portion thereof shall be issued in the name of the
Holder thereof upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price plus accrued interest,
if any, and Liquidated Damages, if any;
(f) that interest on Notes called for redemption ceases to
accrue on and after the redemption date; and
(g) the paragraph of the Notes pursuant to which the Notes
called for redemption are being redeemed.
-21-
<PAGE> 27
Such notice shall also state the current Conversion Price and the date
on which the right to convert such Notes or portions thereof into Common Stock
of the Company will expire.
At the Company's request, the Trustee shall give notice of redemption
in the Company's name and at its expense; provided that the Company shall have
delivered to the Trustee, at least 45 days prior to the redemption date, an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice, as provided in the preceding
paragraph.
Section 3.04 Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become due and payable on the redemption
date at the price set forth in the Note. A notice of redemption may not be
conditional.
Section 3.05 Deposit of Redemption Price.
On or before the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent money sufficient to pay (i) the redemption
price of and accrued interest on all Notes to be redeemed on that date unless
theretofore converted into Common Stock pursuant to the provisions hereof and
(ii) any Make-Whole Payment required by Section 7(a) of the Notes. The Trustee
or the Paying Agent shall return to the Company any money not required for that
purpose.
Section 3.06 Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and the Trustee shall authenticate for the Holder at the expense of the
Company a new Note equal in principal amount to the unredeemed portion of the
Note surrendered.
Section 3.07 Optional Redemption and Optional Tax Redemption.
The Company may redeem all or any portion of the Notes, upon the terms
and at the redemption prices set forth in the Notes. The Company may also redeem
all of the Notes in accordance with the Optional Tax Redemption provision of the
Notes (Section 8 of the Notes). Any redemption pursuant to this Section 3.07
shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof.
Section 3.08 Mandatory Redemption
The Company shall not be required to make mandatory redemption payments
with respect to the Notes.
Section 3.09 Purchase Offer.
-22-
<PAGE> 28
(a) In the event that, pursuant to 4.07 hereof, the Company
shall commence an offer to all Holders of the Notes to purchase Notes
(the "PURCHASE OFFER"), the Company shall follow the procedures in this
Section 3.09.
(b) The Purchase Offer shall remain open for a period
specified by the Company which shall be no less than 30 calendar days
and no more than 40 calendar days following its commencement (the
"COMMENCEMENT DATE") (as determined in accordance with Section 4.07
hereof), except to the extent that a longer period is required by
applicable law (the "TENDER PERIOD"). Upon the expiration of the Tender
Period (the "PURCHASE DATE"), the Company shall purchase the principal
amount of all of the Notes required to be purchased pursuant to Section
4.07 hereof (the "OFFER AMOUNT").
(c) If the Purchase Date is on or after an interest payment
record date and on or before the related interest payment date, any
accrued interest shall be paid to the Person in whose name a Note is
registered at the close of business on such record date, and no
additional interest will be payable to Holders who tender Notes
pursuant to the Purchase Offer.
(d) The Company shall provide the Trustee with notice of the
Purchase Offer at least 10 days before the Commencement Date.
(e) On or before the Commencement Date, the Company or the
Trustee (at the expense of the Company) shall send, by first class
mail, a notice to each of the Holders, which shall govern the terms of
the Purchase Offer and shall state:
(i) that the Purchase Offer is being made pursuant to this
Section 3.09 and Section 4.07 hereof and the length of time the
Purchase Offer will remain open;
(ii) the purchase price (as determined in accordance with
Section 4.07 hereof) and the Purchase Date, and that all Notes tendered
will be accepted for payment;
(iii) that any Note or portion thereof not tendered or
accepted for payment will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the
purchase price, any Note or portion thereof accepted for payment
pursuant to the Purchase Offer will cease to accrue interest after the
Purchase Date;
(v) that Holders electing to have a Note or portion thereof
purchased pursuant to any Purchase Offer will be required to surrender
the Note, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the
third Business Day preceding the Purchase Date;
-23-
<PAGE> 29
(vi) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the close of business on
the second Business Day preceding the Purchase Date, or such longer
period as may be required by law, a letter or a telegram, telex or
facsimile transmission (receipt of which is confirmed and promptly
followed by a letter) setting forth the name of the Holder, the
principal amount of the Note or portion thereof the Holder delivered
for purchase and a statement that such Holder is withdrawing his
election to have the Note or portion thereof purchased;
(vii) that Holders whose Notes were purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered.
In addition, the notice shall, to the extent permitted by applicable
law, be accompanied by a copy of the information regarding the Company and its
Subsidiaries which is required to be contained in the most recent Quarterly
Report on Form 10-Q or Annual Report on Form 10-K (including any financial
statements or other information required to be included or incorporated by
reference therein) and any Reports on Form 8-K filed since the date of such
Quarterly Report or Annual Report (or would have been required to file if the
Company remained a company incorporated in the United States), as the case may
be, which the Company has filed (or would have been required to file if it
remained a company incorporated in the United States) with the SEC on or prior
to the date of the notice. The notice shall contain all instructions and
materials necessary to enable such Holders to tender Notes pursuant to the Asset
Sale Offer or the Purchase Offer, as the case may be.
(f) On the Purchase Date, the Company shall, to the extent
lawful, (i) accept for payment the Notes or portions thereof tendered
pursuant to the Purchase Offer, (ii) deposit with the Paying Agent an
amount equal to the Offer Amount in respect of all Notes or portions
thereof so tendered, and (iii) deliver to or cause to be delivered to
the Trustee the Notes so accepted together with an Officers'
Certificate stating the Notes or portions thereof tendered to the
Company and accepted for payment. The Paying Agent shall promptly mail
to each Holder of Notes so accepted for payment (or, if such Holder of
Notes holds an aggregate principal amount of Notes in excess of
$5,000,000, pay by wire transfer in immediately available funds at the
election of such Holder if such Holder previously specified in writing
to the Company and the Paying Agent appropriate wire transfer
instructions) an amount equal to the Offer Amount for such Notes, and
the Trustee shall promptly authenticate and mail to each Holder a new
Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note shall be in a
principal amount of $1,000 or an integral multiple of $1,000. Any Notes
not so accepted shall be promptly mailed or delivered by or on behalf
of the Company to the Holder thereof. The Company will publicly
announce in a newspaper of general circulation the results of the
Purchase Offer on or as soon as practicable after the Purchase Date.
-24-
<PAGE> 30
(g) The Purchase Offer shall be made by the Company in
compliance with all applicable provisions of the Exchange Act, and all
applicable tender offer rules promulgated thereunder, and shall include
all instructions and materials necessary to enable such Holders to
tender their Notes.
ARTICLE IV.
COVENANTS
Section 4.01 Payment of Notes.
The Company shall pay the principal of, premium, if any, Liquidated
Damages, if any, and interest on, the Notes on the dates and in the manner
provided in the Notes. Principal, premium, if any, Liquidated Damages, if any,
and interest shall be considered paid on the date due if the Paying Agent (other
than the Company or an Affiliate of the Company) holds on that date money
designated for and sufficient to pay all principal, premium, if any, Liquidated
Damages, if any, and interest then due. To the extent lawful, the Company shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on (i) overdue principal and premium, if any, at the rate borne
by the Notes, compounded semiannually; and (ii) overdue installments of interest
or Liquidated Damages, if any, (without regard to any applicable grace period)
at the same rate, compounded semiannually.
Section 4.02 Reports.
Whether or not required by the rules and regulations of the SEC, so
long as any Notes are outstanding, the Company shall file with the SEC and
furnish to the Trustee and to the Holders of Notes, all quarterly and annual
financial information required to be contained in a filing with the SEC on Forms
10-Q and 10-K (or the equivalent thereof under the Exchange Act for foreign
private issuers in the event the Company becomes a corporation organized under
the laws of the United Kingdom, the Netherlands, the Netherlands Antilles,
Bermuda or the Cayman Islands), including a "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants, in each case, as required by the rules and regulations
of the SEC as in effect on the Issuance Date. This Section 4.02 will apply
notwithstanding that the Company becomes a corporation organized under the laws
of the United Kingdom, the Netherlands, the Netherlands Antilles, Bermuda or the
Cayman Islands.
Section 4.03 Compliance Certificate.
The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year of the Company, an Officers' Certificate stating that a
review of the activities of the Company and its subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under, and complied with the covenants
and conditions contained in, this Indenture, and further stating, as to each
such Officer signing such certificate, that to the best of his knowledge the
Company has kept, observed, performed and fulfilled each and every covenant, and
complied with the covenants and conditions contained in this Indenture and is
not
-25-
<PAGE> 31
in default in the performance or observance of any of the terms, provisions and
conditions hereof (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he may have
knowledge) and that to the best of his knowledge no event has occurred and
remains in existence by reason of which payments on account of the principal or
of interest, if any, on the Notes are prohibited.
One of the Officers signing such Officers' Certificate shall be either
the Company's principal executive officer, principal financial officer or
principal accounting officer.
The Company will so long as any of the Notes are outstanding, deliver
to the Trustee, forthwith upon becoming aware of any Default or Event of Default
an Officers' Certificate specifying such Default or Event of Default.
Immediately upon the occurrence of any Registration Default giving rise
to Liquidated Damages or the cure of any such Registration Default, the Company
shall give the Trustee notice thereof and of the event giving rise to such
Registration Default or the cure of any such Registration Default (such notice
to be contained in an Officers' Certificate) and prior to receipt of such
Officers' Certificate the Trustee shall be entitled to assume that no such
Registration Default has occurred or been cured, as the case may be.
Section 4.04 Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
Section 4.05 Corporate Existence.
Subject to Article VII hereof, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence and the corporate, partnership or other existence of each subsidiary
of the Company in accordance with the respective organizational documents of
each subsidiary and the rights (charter and statutory), licenses and franchises
of the Company and its subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any subsidiary, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its subsidiaries taken as a
whole and that the loss thereof is not adverse in any material respect to the
Holders. The Company shall notify the Trustee in writing of any subsidiary which
qualifies as a Material Subsidiary and is not specified in clause (i) of the
definition thereof.
Section 4.06 Taxes.
-26-
<PAGE> 32
The Company shall, and shall cause each of its subsidiaries to, pay
prior to delinquency all taxes, assessments and governmental levies, except as
contested in good faith and by appropriate proceedings.
Section 4.07 Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder of
Notes shall have the right to require the Company to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Notes pursuant to the Purchase Offer at a purchase price equal
to 101% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of
purchase (the "CHANGE OF CONTROL PAYMENT").
(b) Within 40 days following any Change of Control, the
Company shall mail to each Holder the notice provided by Section
3.09(e).
Section 4.08 Payment of Additional Amounts.
At least 10 days prior to the first date on which payment of principal
and any premium, Liquidated Damages or interest on the Notes is to be made, and
at least 10 days prior to any subsequent such date if there has been any change
with respect to the matters set forth in the Officers' Certificate described in
this Section 4.08, the Company shall furnish the Trustee and the Paying Agent,
if other than the Trustee, with an Officers' Certificate instructing the Trustee
and the Paying Agent whether the Company is obligated to pay Additional Amounts
(as defined in Section 3 of the Notes) with respect to such payment of
principal, or of any premium or interest or Liquidated Damages, if any, on the
Notes. If the Company will be obligated to pay Additional Amounts with respect
to such payment then such Officers' Certificate shall specify by country the
amount, if any, required to be withheld on such payments to such Holders and the
Company will pay to the Trustee or the Paying Agent such Additional Amounts. The
Company shall indemnify the Trustee and the Paying Agent for, and hold them
harmless against, any loss, liability or expense reasonably incurred without
negligence or bad faith on their part arising out of or in connection with
actions taken or omitted by any of them in reliance on any Officers' Certificate
furnished to them pursuant to this Section 4.08.
Whenever in this Indenture or the Notes there is mentioned, in any
context, the payment of principal (and premium, if any), Offer Amount, interest
or any other amount payable, including Liquidated Damages, under or with respect
to any Note such mention shall be deemed to include mention of the payment of
Additional Amounts provided for in this Section 4.08 and Section 3 of the Notes
to the extent that, in such context, Additional Amounts are, were or would be
payable in respect thereof pursuant to the provisions of this Section 4.08 and
Section 3 of the Notes and express mention of the payment of Additional Amounts
(if applicable) in any provisions hereof shall not be construed as excluding
Additional Amounts in those provisions hereof where such express mention is not
made (if applicable).
-27-
<PAGE> 33
ARTICLE V.
CONVERSION
Section 5.01 Conversion Privilege.
A Holder of a Note may convert it into fully paid and nonassessable
shares of Common Stock at any time after 90 days following the Issuance Date and
prior to maturity at the Conversion Price then in effect, except that, with
respect to any Note called for redemption, such conversion right shall terminate
at the close of business on the Business Day immediately preceding the
redemption date (unless the Company shall default in making the redemption
payment when it becomes due, in which case the conversion right shall terminate
on the date such default is cured). The number of shares of Common Stock
issuable upon conversion of a Note is determined by dividing the principal
amount of such Note by the conversion price in effect on the Conversion Date
(the "CONVERSION PRICE").
The initial Conversion Price is stated in paragraph 13 of the Notes and
is subject to adjustment as provided in this Article V.
A holder may convert a portion of a Note equal to any integral multiple
of $1,000. Provisions of this Indenture that apply to conversion of all of a
Note also apply to conversion of a portion of it.
Section 5.02 Conversion Procedure.
To convert a Note, a holder must satisfy the requirements in paragraph
13 of the Notes. The date on which the holder satisfies all of those
requirements is the conversion date (the "CONVERSION DATE"). As soon as
practicable after the Conversion Date, the Company shall deliver to the Holder
through the Conversion Agent a certificate for the number of whole shares of
Common Stock issuable upon the conversion and a check for any fractional share
determined pursuant to Section 5.03 hereof. The Person in whose name the
certificate is registered shall become the stockholder of record on the
Conversion Date and, as of such date, such Person's rights as a Holder shall
cease; provided, however, that no surrender of a Note on any date when the stock
transfer books of the Company shall be closed shall be effective to constitute
the Person entitled to receive the shares of Common Stock upon such conversion
as the stockholder of record of such shares of Common Stock on such date, but
such surrender shall be effective to constitute the Person entitled to receive
such shares of Common Stock as the stockholder of record thereof for all
purposes at the close of business on the next succeeding day on which such stock
transfer books are open; provided further, however, that such conversion shall
be at the Conversion Price in effect on the date that such Note shall have been
surrendered for conversion, as if the stock transfer books of the Company had
not been closed.
No payment or adjustment will be made for accrued and unpaid interest
or Liquidated Damages, if any, on a converted Note or for dividends or
distributions on shares of Common Stock issued upon conversion of a Note, but if
any holder surrenders a Note for conversion after the close of business on the
record date for the payment of an installment of interest and prior to the
opening of business on the next interest payment date, then, notwithstanding
such conversion,
-28-
<PAGE> 34
the interest payable on such interest payment date shall be paid to the holder
of such Note on such record date. In such event, such Note, when surrendered for
conversion, need not be accompanied by payment of an amount equal to the
interest payable on such interest payment date on the portion so converted.
If a holder converts more than one Note at the same time, the number of
whole shares of Common Stock issuable upon the conversion shall be based on the
total principal amount of Notes converted.
Upon surrender of a Note that is converted in part, the Trustee shall
authenticate for the holder a new Note equal in principal amount to the
unconverted portion of the Note surrendered.
Section 5.03 Fractional Shares.
The Company will not issue fractional shares of Common Stock upon
conversion of a Note. In lieu thereof, the Company will pay an amount in cash
based upon the Daily Market Price of the Common Stock on the trading day prior
to the date of conversion.
Section 5.04 Taxes on Conversion.
The issuance of certificates for shares of Common Stock upon the
conversion of any Note shall be made without charge to the converting Holder for
such certificates or for any tax in respect of the issuance of such
certificates, and such certificates shall be issued in the respective names of,
or in such names as may be directed by, the Holder or Holders of the converted
Note; provided, however, that in the event that certificates for shares of
Common Stock are to be issued in a name other than the name of the holder of the
Note converted, such Note, when surrendered for conversion, shall be accompanied
by an instrument of transfer, in form satisfactory to the Company, duly executed
by the registered holder thereof or his duly authorized attorney; and provided
further, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificates in a name other than that of the holder of the
converted Note, and the Company shall not be required to issue or deliver such
certificates unless or until the Person or Persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid or is
not applicable.
Section 5.05 Company to Provide Stock.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, solely for
the purpose of issuance upon conversion of Notes as herein provided, a
sufficient number of shares of Common Stock to permit the conversion of all
outstanding Notes for shares of Common Stock. All shares of Common Stock which
may be issued upon conversion of the Notes shall be duly authorized, validly
issued, fully paid and nonassessable when so issued. Shares of Common Stock
issuable upon conversion of a Restricted Note shall bear such restrictive
legends as the Company shall provide in accordance with applicable law. If
shares of Common Stock are to be issued upon conversion of a Restricted Note and
they are to be registered in a name other than that of the
-29-
<PAGE> 35
holder of such Restricted Note, then the Person in whose name such shares of
Common Stock are to be registered must deliver to the Trustee a certificate
satisfactory to the Company and signed by such Person as to compliance with the
restrictions on transfer contained in such restrictive legends.
Section 5.06 Adjustment of Conversion Price.
The Conversion Price shall be subject to adjustment from time to time
as follows:
(a) In case the Company shall (1) pay a dividend in shares of
Common Stock to holders of Common Stock, (2) make a distribution in
shares of Common Stock to holders of Common Stock, (3) subdivide its
outstanding shares of Common Stock into a greater number of shares of
Common Stock or (4) combine its outstanding shares of Common Stock into
a smaller number of shares of Common Stock, the Conversion Price in
effect immediately prior to such action shall be adjusted so that the
holder of any Note thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock which he would
have owned immediately following such action had such Notes been
converted immediately prior thereto. Any adjustment made pursuant to
this subsection (a) shall become effective immediately after the record
date in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a
subdivision or combination.
(b) In case the Company shall issue rights or warrants to
substantially all holders of Common Stock entitling them (for a period
commencing no earlier than the record date for the determination of
holders of Common Stock entitled to receive such rights or warrants and
expiring not more than 45 days after such record date) to subscribe for
or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price per share less than the current market price
(as determined pursuant to subsection (f) below) of the Common Stock on
such record date, the Conversion Price shall be adjusted so that the
same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to such record date by a fraction of
which the numerator shall be the number of shares of Common Stock
outstanding on such record date, plus the number of shares of Common
Stock which the aggregate offering price of the offered shares of
Common Stock (or the aggregate conversion price of the convertible
securities so offered) would purchase at such current market price, and
of which the denominator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of
Common Stock offered (or into which the convertible securities so
offered are convertible). Such adjustments shall become effective
immediately after such record date.
(c) In case the Company shall distribute to all holders of
Common Stock shares of any class of stock other than Common Stock,
evidences of indebtedness or other assets (other than cash dividends
out of current or retained earnings), or shall distribute to
substantially all holders of Common Stock rights or warrants to
subscribe for securities (other than those referred to in subsection
(b) above), then in each such case the Conversion Price shall be
adjusted so that the same shall equal the price determined by
-30-
<PAGE> 36
multiplying the Conversion Price in effect immediately prior to the
date of such distribution by a fraction of which the numerator shall be
the current market price (determined as provided in subsection (f)
below) of the Common Stock on the record date mentioned below less the
then fair market value (as determined by the Board of Directors, whose
determination shall be conclusive evidence of such fair market value
and described in a Board Resolution) of the portion of the assets so
distributed or of such subscription rights or warrants applicable to
one share of Common Stock, and of which the denominator shall be such
current market price of the Common Stock. Such adjustment shall become
effective immediately after the record date for the determination of
the holders of Common Stock entitled to receive such distribution.
Notwithstanding the foregoing, in the event that the Company shall
distribute rights or warrants (other than those referred to in
subsection (b) above) ("RIGHTS") pro rata to holders of Common Stock,
the Company may, in lieu of making any adjustment pursuant to this
Section 5.06, make proper provision so that each holder of a Note who
converts such Note (or any portion thereof) after the record date for
such distribution and prior to the expiration or redemption of the
Rights shall be entitled to receive upon such conversion, in addition
to the shares of Common Stock issuable upon such conversion (the
"CONVERSION SHARES"), a number of Rights to be determined as follows:
(i) if such conversion occurs on or prior to the date for the
distribution to the holders of Rights of separate certificates
evidencing such Rights (the "DISTRIBUTION DATE"), the same number of
Rights to which a holder of a number of shares of Common Stock equal to
the number of Conversion Shares is entitled at the time of such
conversion in accordance with the terms and provisions of and
applicable to the Rights; and (ii) if such conversion occurs after the
Distribution Date, the same number of Rights to which a holder of the
number of shares of Common Stock into which the principal amount of the
Note so converted was convertible immediately prior to the Distribution
Date would have been entitled on the Distribution Date in accordance
with the terms and provisions of and applicable to the Rights.
(d) In case the Company shall, by dividend or otherwise, at
any time distribute to all holders of its Common Stock cash (including
any distributions of cash out of current or retained earnings of the
Company but excluding any cash that is distributed as part of a
distribution requiring a Conversion Price adjustment pursuant to
paragraph (c) of this Section 5.06) in an aggregate amount that,
together with the sum of (x) the aggregate amount of any other
distributions to all holders of its Common Stock made in cash plus (y)
all Excess Payments, in each case made within the 12 months preceding
the date fixed for determining the stockholders entitled to such
distribution (the "DISTRIBUTION RECORD DATE") and in respect of which
no Conversion Price adjustment pursuant to paragraphs (c) or (e) of
this Section 5.06 or this paragraph (d) has been made, exceeds 10% of
the product of the current market price per share (determined as
provided in paragraph (f) of this Section 5.06) of the Common Stock on
the Distribution Record Date times the number of shares of Common Stock
outstanding on the Distribution Record Date (excluding shares held in
the treasury of the Company), the Conversion Price shall be reduced so
that the same shall equal the price determined by multiplying such
Conversion Price in effect immediately prior to the effectiveness of
the Conversion Price reduction contemplated by this paragraph (d) by a
fraction of which the numerator shall be the
-31-
<PAGE> 37
current market price per share (determined as provided in paragraph (f)
of this Section 5.06) of the Common Stock on the Distribution Record
Date less the amount of such cash and other consideration (including
any Excess Payments) so distributed applicable to one share (based on
the pro rata portion of the aggregate amount of such cash and other
consideration (including any Excess Payments), divided by the shares of
Common Stock outstanding on the Distribution Record Date) of Common
Stock and the denominator shall be such current market price per share
(determined as provided in paragraph (f) of this Section 5.06) of the
Common Stock on the Distribution Record Date, such reduction to become
effective immediately prior to the opening of business on the day
following the Distribution Record Date.
(e) In case a tender offer or other negotiated transaction
made by the Company or any Subsidiary for all or any portion of the
Common Stock shall be consummated, if an Excess Payment is made in
respect of such tender offer or other negotiated transaction and the
amount of such Excess Payment, together with the sum of (x) the
aggregate amount of all Excess Payments plus (y) the aggregate amount
of all distributions to all holders of the Common Stock made in cash
(specifically including distributions of cash out of retained
earnings), in each case made within the 12 months preceding the date of
payment of such current negotiated transaction consideration or
expiration of such current tender offer, as the case may be (the
"PURCHASE DATE"), and as to which no adjustment pursuant to paragraph
(c) or paragraph (d) of this Section 5.06 or this paragraph (e) has
been made, exceeds 10% of the product of the current market price per
share (determined as provided in paragraph (f) of this Section 5.06) of
the Common Stock on the Purchase Date times the number of shares of
Common Stock outstanding (including any tendered shares but excluding
any shares held in the treasury of the Company) on the Purchase Date,
the Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying such Conversion Price in effect
immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this paragraph (e) by a fraction of which the
numerator shall be the current market price per share (determined as
provided in paragraph (f) of this Section 5.06) of the Common Stock on
the Purchase Date less the amount of such Excess Payments and such cash
distributions, if any, applicable to one share (based on the pro rata
portion of the aggregate amount of such Excess Payments and such cash
distributions, divided by the shares of Common Stock outstanding on the
Purchase Date) of Common Stock and the denominator shall be such
current market price per share (determined as provided in paragraph (f)
of this Section 5.06) of the Common Stock on the Purchase Date, such
reduction to become effective immediately prior to the opening of
business on the day following the Purchase Date.
(f) The current market price per share of Common Stock on any
date shall be deemed to be the average of the Daily Market Prices for
the shorter of: (i) 30 consecutive business days ending on the last
full trading day on the exchange or market referred to in determining
such Daily Market Prices prior to the time of determination or (ii) the
period commencing on the date next succeeding the first public
announcement of the issuance of such rights or warrants or such
distribution through such last full trading day prior to the time of
determination (the "CURRENT MARKET PRICE").
-32-
<PAGE> 38
(g) In any case in which this Section 5.06 shall require that
an adjustment be made immediately following a record date, the Company
may elect to defer (but only until five Business Days following the
filing by the Company with the Trustee of the certificate described in
Section 5.10 hereof) issuing to the holder of any Note converted after
such record date the shares of Common Stock and other Capital Stock of
the Company issuable upon such conversion over and above the shares of
Common Stock and other Capital Stock of the Company issuable upon such
conversion only on the basis of the Conversion Price prior to
adjustment; and, in lieu of the shares the issuance of which is so
deferred, the Company shall issue or cause its transfer agents to issue
due bills or other appropriate evidence of the right to receive such
shares.
Section 5.07 No Adjustment.
No adjustment in the Conversion Price shall be required until
cumulative adjustments amount to 1% or more of the Conversion Price as last
adjusted; provided, however, that any adjustments which by reason of this
Section 5.07 are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Article V
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be. No adjustment need be made for rights to purchase Common Stock
pursuant to a Company plan for reinvestment of dividends or interest. No
adjustment need be made for a change in the par value or no par value of the
Common Stock.
Section 5.08 Other Adjustments.
(a) In the event that, as a result of an adjustment made
pursuant to Section 5.06 hereof, the holder of any Note thereafter
surrendered for conversion shall become entitled to receive any shares
of Capital Stock of the Company other than shares of its Common Stock,
thereafter the Conversion Price of such other shares so receivable upon
conversion of any Note shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained in this Article V.
(b) In the event that shares of Common Stock are not delivered
after the expiration of any of the rights or warrants referred to in
Section 5.06(b) and Section 5.06(c) hereof, the Conversion Price shall
be readjusted to the Conversion Price which would otherwise be in
effect had the adjustment made upon the issuance of such rights or
warrants been made on the basis of delivery of only the number of
shares of Common Stock actually delivered.
Section 5.09 Adjustments for Tax Purposes.
The Company may make such reductions in the Conversion Price, in
addition to those required by Section 5.06 hereof, as it determines to be
advisable in order that any stock dividend, subdivision of shares, distribution
or rights to purchase stock or securities or distribution of securities
convertible into or exchangeable for stock made by the Company to its
stockholders will not be taxable to the recipients thereof.
-33-
<PAGE> 39
Section 5.10 Notice of Adjustment.
Whenever the Conversion Price is adjusted, the Company shall promptly
mail to Holders at the addresses appearing on the Registrar's books a notice of
the adjustment and file with the Trustee an Officers' Certificate briefly
stating the facts requiring the adjustment and the manner of computing it. The
certificate shall be conclusive evidence of the correctness of such adjustment.
Section 5.11 Notice of Certain Transactions.
In the event that:
(1) the Company takes any action which would require an adjustment in
the Conversion Price;
(2) the Company takes any action that would require a supplemental
indenture pursuant to Section 5.12; or
(3) there is a dissolution or liquidation of the Company;
a Holder of a Note may wish to convert such Note into shares of Common Stock
prior to the record date for or the effective date of the transaction so that he
may receive the rights, warrants, securities or assets which a holder of shares
of Common Stock on that date may receive. Therefore, the Company shall mail to
Holders at the addresses appearing on the Registrar's books and the Trustee a
notice stating the proposed record or effective date, as the case may be. The
Company shall mail the notice at least 15 days before such date; however,
failure to mail such notice or any defect therein shall not affect the validity
of any transaction referred to in clause (1), (2) or (3) of this Section 5.11.
Section 5.12 Effect of Reclassifications, Consolidations, Mergers or Sales
on Conversion Privilege.
If any of the following shall occur, namely: (i) any reclassification
or change of outstanding shares of Common Stock issuable upon conversion of
Notes (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
(ii) any consolidation or merger to which the Company is a party other than a
merger in which the Company is the continuing corporation and which does not
result in any reclassification of, or change (other than a change in name, or
par value, or from par value to no par value, or from no par value to par value
or as a result of a subdivision or combination) in, outstanding shares of Common
Stock or (iii) any sale or conveyance of all or substantially all of the
property or business of the Company as an entirety, then the Company, or such
successor or purchasing corporation, as the case may be, shall, as a condition
precedent to such reclassification, change, consolidation, merger, sale or
conveyance, execute and deliver to the Trustee a supplemental indenture in form
satisfactory to the Trustee providing that the holder of each Note then
outstanding shall have the right to convert such Note into the kind and amount
of shares of stock and other securities and property (including cash) receivable
upon such
-34-
<PAGE> 40
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock deliverable upon conversion of such Note
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance. Such supplemental indenture shall provide for adjustments of the
Conversion Price which shall be as nearly equivalent as may be practicable to
the adjustments of the Conversion Price provided for in this Article V. The
foregoing, however, shall not in any way affect the right a holder of a Note may
otherwise have, pursuant to clause (ii) of the last sentence of subsection (c)
of Section 5.06 hereof, to receive Rights upon conversion of a Note. If, in the
case of any such consolidation, merger, sale or conveyance, the stock or other
securities and property (including cash) receivable thereupon by a holder of
Common Stock includes shares of stock or other securities and property of a
corporation other than the successor or purchasing corporation, as the case may
be, in such consolidation, merger, sale or conveyance, then such supplemental
indenture shall also be executed by such other corporation and shall contain
such additional provisions to protect the interests of the holders of the Notes
as the Board of Directors of the Company shall reasonably consider necessary by
reason of the foregoing. The provision of this Section 5.12 shall similarly
apply to successive consolidations, mergers, sales or conveyances.
In the event the Company shall execute a supplemental indenture
pursuant to this Section 5.12, the Company shall promptly file with the Trustee
an Officers' Certificate briefly stating the reasons therefor, the kind or
amount of shares of stock or securities or property (including cash) receivable
by holders of the Notes upon the conversion of their Notes after any such
reclassification, change, consolidation, merger, sale or conveyance and any
adjustment to be made with respect thereto.
Section 5.13 Trustee's Disclaimer.
The Trustee has no duty to determine when an adjustment under this
Article V should be made, how it should be made or what such adjustment should
be, but may accept as conclusive evidence of the correctness of any such
adjustment, and shall be protected in relying upon the Officers' Certificate
with respect thereto which the Company is obligated to file with the Trustee
pursuant to Section 5.10 hereof. The Trustee makes no representation as to the
validity or value of any securities or assets issued upon conversion of Notes,
and the Trustee shall not be responsible for the Company's failure to comply
with any provisions of this Article V.
The Trustee shall not be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture executed
pursuant to Section 5.12, but may accept as conclusive evidence of the
correctness thereof, and shall be protected in relying upon, the Officers'
Certificate with respect thereto which the Company is obligated to file with the
Trustee pursuant to Section 5.12 hereof.
ARTICLE VI.
SUBORDINATION
Section 6.01 Agreement to Subordinate and Ranking.
-35-
<PAGE> 41
The Company, for itself and its successors, and each holder, by his
acceptance of Notes, agree that the payment of the principal of or interest or
Liquidated Damages, if any, on or any other amounts due on the Notes is
subordinated in right of payment, to the extent and in the manner stated in this
Article VI, to the prior payment in full of all existing and future Senior Debt.
The Notes shall rank pari passu with, and shall not be senior in right of
payment to, any Indebtedness of the Company whether outstanding on the date of
this Indenture or hereafter created, incurred, issued or guaranteed by the
Company, where the instrument creating or evidencing such Indebtedness expressly
provides that such Indebtedness ranks pari passu with the Notes.
Section 6.02 No Payment on Notes if Senior Debt in Default.
Anything in this Indenture to the contrary notwithstanding, no payment
on account of principal of or redemption of, interest or Liquidated Damages, if
any, on or other amounts due on the Notes, and no redemption, purchase, or other
acquisition of the Notes, shall be made by or on behalf of the Company (i)
unless full payment of amounts then due for principal and interest and of all
other amounts then due on all Senior Debt has been made or duly provided for
pursuant to the terms of the instrument governing such Senior Debt, (ii) if, at
the time of such payment, redemption, purchase or other acquisition, or
immediately after giving effect thereto, there shall exist under any Senior
Debt, or any agreement pursuant to which any Senior Debt is issued, any default,
which default shall not have been cured or waived and which default shall have
resulted in the full amount of such Senior Debt being declared due and payable
or (iii) if, at the time of such payment, redemption, purchase or other
acquisition, the Trustee shall have received written notice from any of the
holders of Senior Debt or such holder's representative (a "PAYMENT BLOCKAGE
NOTICE") that there exists under such Senior Debt, or any agreement pursuant to
which such Senior Debt is issued, any default, which default shall not have been
cured or waived, permitting the holders thereof to declare any amounts of such
Senior Debt due and payable, but only for the period (the "PAYMENT BLOCKAGE
PERIOD") commencing on the date of receipt of the Payment Blockage Notice and
ending (unless earlier terminated by notice given to the Trustee by the holders
of such Senior Debt) on the earlier of (a) the date on which such event of
default shall have been cured or waived or (b)180 days from the receipt of the
Payment Blockage Notice. Upon termination of the Payment Blockage Period,
payments on account of principal of or interest or Liquidated Damages, if any,
on the Notes (other than, subject to Section 6.03 hereof, amounts due and
payable by reason of the acceleration of the maturity of the Notes) and
redemptions, purchases or other acquisitions may be made by or on behalf of the
Company. Notwithstanding anything herein to the contrary, (a) only one Payment
Blockage Notice may be given during any period of 360 consecutive days with
respect to the same event of default or any other events of default on the same
issue of Senior Debt existing and known to the Person giving such notice at the
time of such notice unless such event of default or such other events of default
have been cured or waived for a period of not less than 90 consecutive days and
(b) no new Payment Blockage Period may be commenced by the holder or holders of
the same issue of Senior Debt or their representative or representatives during
any period of 360 consecutive days unless all events of default which were the
object of the immediately preceding Payment Blockage Notice, and any other event
of default on the same issue of Senior Debt existing and known to the Person
giving such notice at the time of such notice, have been cured or waived.
-36-
<PAGE> 42
In the event that, notwithstanding the provisions of this Section 6.02,
payments are made by or on behalf of the Company in contravention of the
provisions of this Section 6.02, such payments shall be held by the Trustee, any
Paying Agent or the holders, as applicable, in trust for the benefit of, and
shall be paid over to and delivered to, the holders of Senior Debt or their
representative or the trustee under the indenture or other agreement (if any),
pursuant to which any instruments evidencing any Senior Debt may have been
issued for application to the payment of all Senior Debt ratably according to
the aggregate amounts remaining unpaid to the extent necessary to pay all Senior
Debt in full in accordance with the terms of such Senior Debt, after giving
effect to any concurrent payment or distribution to or for the holders of Senior
Debt.
The Company shall give prompt written notice to the Trustee and any
Paying Agent of any default or event of default under any Senior Debt or under
any agreement pursuant to which any Senior Debt may have been issued.
Section 6.03 Distribution on Acceleration of Notes; Dissolution and
Reorganization; Subrogation of Notes.
(a) If the Notes are declared due and payable because of the occurrence
of an Event of Default, the Company or the Trustee shall give prompt written
notice to the holders of all Senior Debt or to the trustee(s) for such Senior
Debt of such acceleration. The Company may not pay the principal of or interest
or Liquidated Damages, if any, on or any other amounts due on the Notes until
five days after such holders or trustee(s) of Senior Debt receive such notice
and, thereafter, the Company may pay the principal of or interest or Liquidated
Damages, if any, on or any other amounts due on the Notes only if the provisions
of this Article VI permit such payment.
(b) Upon (i) any acceleration of the principal amount due on the Notes
because of an Event of Default or (ii) any distribution of assets of the Company
upon any dissolution, winding up, liquidation or reorganization of the Company
(whether in bankruptcy, insolvency or receivership proceedings or upon an
assignment for the benefit of creditors or any other dissolution, winding up,
liquidation or reorganization of the Company):
(1) the holders of all Senior Debt shall first be entitled to
receive payment in full of the principal thereof, the interest thereon
and any other amounts due thereon before the holders are entitled to
receive payment on account of the principal of or interest or
Liquidated Damages, if any, on or any other amounts due on the Notes;
(2) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities (other
than securities of the Company as reorganized or readjusted or
securities of the Company or any other corporation provided for by a
plan of reorganization or readjustment the payment of which is
subordinate, at least to the extent provided in this Article VI with
respect to the Notes, to the payment in full without diminution or
modification by such plan of all Senior Debt), to which the holders or
the Trustee would be entitled except for the provisions of this Article
VI, shall be paid by the liquidating trustee or agent or other Person
making such a payment or distribution, directly to the holders of
Senior Debt (or their representatives(s) or trustee(s)
-37-
<PAGE> 43
acting on their behalf), ratably according to the aggregate amounts
remaining unpaid on account of the principal of or interest on and
other amounts due on the Senior Debt held or represented by each, to
the extent necessary to make payment in full of all Senior Debt
remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt; and
(3) in the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (other than
securities of the Company as reorganized or readjusted, or securities
of the Company or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at
least to the extent provided in this Article VI with respect to the
Notes, to the payment in full without diminution or modification by
such plan of Senior Debt), shall be received by the Trustee or the
holders before all Senior Debt is paid in full, such payment or
distribution shall be held in trust for the benefit of, and be paid
over to upon request by a holder of the Senior Debt, the holders of the
Senior Debt remaining unpaid (or their representatives) or trustee(s)
acting on their behalf, ratably as aforesaid, for application to the
payment of such Senior Debt until all such Senior Debt shall have been
paid in full, after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt.
Subject to the payment in full of all Senior Debt, the holders shall be
subrogated to the rights of the holders of Senior Debt to receive payments or
distributions of cash, property or securities of the Company applicable to the
Senior Debt until the principal of and interest and Liquidated Damages, if any,
on the Notes shall be paid in full and, for purposes of such subrogation, no
such payments or distributions to the holders of Senior Debt of cash, property
or securities which otherwise would have been payable or distributable to
holders shall, as between the Company, its creditors other than the holders of
Senior Debt, and the holders, be deemed to be a payment by the Company to or on
account of the Senior Debt, it being understood that the provisions of this
Article VI are and are intended solely for the purpose of defining the relative
rights of the Holders, on the one hand, and the holders of Senior Debt, on the
other hand.
Nothing contained in this Article VI or elsewhere in this Indenture or
in the Notes is intended to or shall (i) impair, as between the Company and its
creditors other than the holders of Senior Debt, the obligation of the Company,
which is absolute and unconditional, to pay to the holders the principal of and
interest and Liquidated Damages, if any, on the Notes as and when the same shall
become due and payable in accordance with the terms of the Notes or is intended
to or (ii) affect the relative rights of the holders and creditors of the
Company other than holders of Senior Debt or, as between the Company and the
Trustee, the obligations of the Company to the Trustee, or (iii) prevent the
Trustee or the holders from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article VI of the holders of Senior Debt in respect of cash, property
and securities of the Company received upon the exercise of any such remedy.
Upon distribution of assets of the Company referred to in this Article
VI, the Trustee, subject to the provisions of Section 9.01 hereof, and the
holders shall be entitled to rely upon a
-38-
<PAGE> 44
certificate of the liquidating trustee or agent or other Person making any
distribution to the Trustee or to the holders for the purpose of ascertaining
the Persons entitled to participate in such distribution, the holders of the
Senior Debt and other indebtedness of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article VI. The Trustee, however, shall not be
deemed to owe any fiduciary duty to the holders of Senior Debt. Nothing
contained in this Article VI or elsewhere in this Indenture, or in any of the
Notes, shall prevent the good faith application by the Trustee of any moneys
which were deposited with it hereunder, prior to its receipt of written notice
of facts which would prohibit such application, for the purpose of the payment
of or on account of the principal of or interest or Liquidated Damages, if any,
on, the Notes unless, prior to the date on which such application is made by the
Trustee, the Trustee shall be charged with notice under Section 6.03(d) hereof
of the facts which would prohibit the making of such application.
(c) The provisions of this Article VI shall not be applicable to any
cash, properties or securities received by the Trustee or by any holder when
received as a holder of Senior Debt and nothing in Section 9.11 hereof or
elsewhere in this Indenture shall deprive the Trustee or such holder of any of
its rights as such holder.
(d) The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment of
money to or by the Trustee in respect of the Notes pursuant to the provisions of
this Article VI. The Trustee, subject to the provisions of Section 9.01 hereof,
shall be entitled to assume that no such fact exists unless the Company or any
holder of Senior Debt or any trustee therefor has given such notice to the
Trustee. Notwithstanding the provisions of this Article VI or any other
provisions of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any fact which would prohibit the making of any payment of
monies to or by the Trustee in respect of the Notes pursuant to the provisions
in this Article VI, unless, and until three Business Days after, the Trustee
shall have received written notice thereof from the Company or any holder or
holders of Senior Debt or from any trustee therefor; and, prior to the receipt
of any such written notice, the Trustee, subject to the provisions of Section
9.01 hereof, shall be entitled in all respects conclusively to assume that no
such facts exist; provided that if on a date not less than three Business Days
immediately preceding the date upon which by the terms hereof any such monies
may become payable for any purpose (including, without limitation, the principal
of or interest or Liquidated Damages, if any, on any Note), the Trustee shall
not have received with respect to such monies the notice provided for in this
Section 6.03(d), than anything herein contained to the contrary notwithstanding,
the Trustee shall have full power and authority to receive such monies and to
apply the same to the purpose for which they were received, and shall not be
affected by any notice to the contrary which may be received by it on or after
such prior date.
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior Debt
(or a trustee on behalf of such holder) to establish that such notice has been
given by a holder of Senior Debt (or a trustee on behalf of any such holder or
holders). In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of
Senior Debt to participate in any payment or distribution pursuant to this
Article VI, the Trustee may request
-39-
<PAGE> 45
such Person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of Senior Debt held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article VI, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment; nor shall the Trustee be charged with knowledge of the curing or
waiving of any default of the character specified in Section 6.02 hereof or that
any event or any condition preventing any payment in respect of the Notes shall
have ceased to exist, unless and until the Trustee shall have received an
Officers' Certificate to such effect.
(e) The provisions of this Section 6.03 applicable to the Trustee shall
also apply to any Paying Agent for the Company.
Section 6.04 Reliance by Senior Debt on Subordination Provisions.
Each holder of any Note by his acceptance thereof acknowledges and
agrees that the foregoing subordination provisions are, and are intended to be,
an inducement and a consideration for each holder of any Senior Debt, whether
such Senior Debt was created or acquired before or after the issuance of the
Notes, to acquire and continue to hold, or to continue to hold, such Senior
Debt, and such holder of Senior Debt shall be deemed conclusively to have relied
on such subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Debt. Notice of any default in the payment of
any Senior Debt, except as expressly stated in this Article VI, and notice of
acceptance of the provisions hereof are hereby expressly waived. Except as
otherwise expressly provided herein, no waiver, forbearance or release by any
holder of Senior Debt under such Senior Debt or under this Article VI shall
constitute a release of any of the obligations or liabilities of the Trustee or
holders of the Notes provided in this Article VI.
Section 6.05 No Waiver of Subordination Provisions.
Except as otherwise expressly provided herein, no right of any present
or future holder of any Senior Debt to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms,
provisions and covenants of this Indenture, regardless of any knowledge thereof
any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt may, at any time and from time to time, without the
consent of, or notice to, the Trustee or the holders of the Notes, without
incurring responsibility to the holders of the Notes and without impairing or
releasing the subordination provided in this Article VI or the obligations
hereunder of the holders of the Notes to the holders of Senior Debt, do any one
or more of the following: (i) change the manner, place or terms of payment of,
or renew or alter, Senior Debt, or otherwise amend or supplement in any manner
Senior Debt or any instrument evidencing the same or any agreement under which
Senior Debt is outstanding; (ii) sell, exchange, release or otherwise dispose of
any property pledged, mortgaged or otherwise securing
-40-
<PAGE> 46
Senior Debt; (iii) release any Person liable in any manner for the collection of
Senior Debt; and (iv) exercise or refrain from exercising any rights against the
Company or any other Person.
Section 6.06 Trustee's Relation to Senior Debt.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article VI in respect of any Senior Debt at any time
held by it, to the same extent as any holder of Senior Debt, and nothing in
Section 9.11 hereof or elsewhere in this Indenture shall deprive the Trustee of
any of its rights as such holder.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform or to observe only such of its covenants and obligation, as are
specifically set forth in this Article VI, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into this
Indenture against the Trustee. The Trustee shall not owe any fiduciary duty to
the holders of Senior Debt but shall have only such obligations to such holders
as are expressly set forth in this Article VI.
Each holder of a Note by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article VI and appoints the
Trustee his attorney-in-fact for any and all such purposes, including, in the
event of any dissolution, winding up or liquidation or reorganization under any
applicable bankruptcy law of the Company (whether in bankruptcy, insolvency or
receivership proceedings or otherwise), the timely filing of a claim for the
unpaid balance of such holder's Notes in the form required in such proceedings
and the causing of such claim to be approved. If the Trustee does not file a
claim or proof of debt in the form required in such proceedings prior to 30 days
before the expiration of the time to file such claims or proofs, then any holder
or holders of Senior Debt or their representative or representatives shall have
the right to demand, sue for, collect, receive and receipt for the payments and
distributions in respect of the Notes which are required to be paid or delivered
to the holders of Senior Debt as provided in this Article VI and to file and
prove all claims therefore and to take all such other action in the name of the
holders or otherwise, as such holders of Senior Debt or representative thereof
may determine to be necessary or appropriate for the enforcement of the
provisions of this Article VI.
Section 6.07 Other Provisions Subject Hereto.
Expect as expressly stated in this Article VI, notwithstanding anything
contained in this Indenture to the contrary, all the provisions of this
Indenture and the Notes are subject to the provisions of this Article VI.
However, nothing in this Article VI shall apply to or adversely affect the
claims of, or payment, to, the Trustee pursuant to Section 9.07 hereof.
Notwithstanding the foregoing, the failure to make a payment on account of
principal of or interest or Liquidated Damages, if any, on the Notes by reason
of any provision of this Article VI shall not be construed as preventing the
occurrence of an Event of Default under Section 8.01 hereof.
-41-
<PAGE> 47
ARTICLE VII.
SUCCESSORS
Section 7.01 Merger, Consolidation or Sale of Assets.
The Company may not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, another corporation, Person or
entity unless:
(a) the Company is the surviving corporation or the entity or
the Person formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United Kingdom,
the Netherlands, the Netherlands Antilles, Bermuda or the Cayman
Islands or of the United States, any state thereof or the District of
Columbia;
(b) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or
Person to which such sale, assignment, transfer, lease, conveyance or
other disposition will have been made assumes all the Obligations
(including the due and punctual payment of Additional Amounts if the
surviving corporation is a corporation organized or existing under the
laws of the United Kingdom, the Netherlands, the Netherlands Antilles,
Bermuda or the Cayman Islands) of the Company, pursuant to a
supplemental indenture in a form reasonably satisfactory to the
Trustee, under the Notes and this Indenture;
(c) immediately after such transaction no Default or Event of
Default exists;
(d) the Company or any entity or Person formed by or surviving
any such consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been made
will have a ratio of Indebtedness to Annualized Pro Forma EBITDA equal
to or less than the ratio of Indebtedness to Annualized Pro Forma
EBITDA of the Company immediately preceding the transaction; provided,
however, that if the ratio of Indebtedness to Annualized Pro Forma
EBITDA of the Company immediately preceding such transaction is 6:1 or
less, then the ratio of Indebtedness to Annualized Pro Forma EBITDA of
the Company may be 0.5 greater than such ratio immediately preceding
such transaction; and
(e) such transaction would not result in the loss of any
material authorization or Material License of the Company or its
Subsidiaries.
For all purposes of this Indenture, the assignment of the Company's
rights under the Transaction Agreement relating to the acquisition of CWC
ConsumerCo to a holding company of the Company shall be deemed not to be a
disposition of substantially all of the assets of the Company.
-42-
<PAGE> 48
Section 7.02 Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 7.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person has been named as the Company herein; provided, however, that
the predecessor Company in the case of a sale, assignment, transfer, lease,
conveyance or other disposition shall not be released from the obligation to pay
the principal of and interest on the Notes.
ARTICLE VIII.
DEFAULTS AND REMEDIES
Section 8.01 Events of Default.
An "EVENT OF DEFAULT" occurs if:
(a) the Company defaults in the payment of interest or
Liquidated Damages, if any, (and Additional Amounts, if applicable) on
any Note when the same becomes due and payable and the Default
continues for a period of 30 days after the date due and payable;
(b) the Company defaults in the payment of the principal of
any Note when the same becomes due and payable at maturity, upon
redemption or otherwise;
(c) the Company fails to observe or perform any covenant or
agreement contained in Section 4.07 hereof;
(d) the Company fails to observe or perform any other covenant
or agreement contained in this Indenture or the Notes, required by it
to be performed and the Default continues for a period of 60 days after
notice from the Trustee to the Company or from the Holders of 25% in
aggregate principal amount of the then outstanding Notes to the Company
and the Trustee stating that such notice is a "Notice of Default";
(e) default (other than any default with respect to (i) any
bank facility at Completion of the acquisition by the Company of CWC
ConsumerCo and (ii) the sterling or US dollar denominated bonds of
Cable & Wireless Communications plc acquired in the acquisition by the
Company of CWC ConsumerCo) under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any
Restricted Subsidiary (or the payment of which is guaranteed by the
Company or any Restricted Subsidiary), whether such Indebtedness or
guarantee now exists or is created after the Issuance Date, which
default:
-43-
<PAGE> 49
(i) is caused by a failure to pay when due principal of or
interest on such Indebtedness within the grace period provided for in
such Indebtedness (which failure continues beyond any applicable grace
period) (a "PAYMENT DEFAULT"); or
(ii) results in the acceleration of such Indebtedness prior to
its express maturity
(iii) and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there is a Payment Default or the maturity of
which has been so accelerated, aggregates $10 million or more;
(f) a final judgment or final judgments (other than any
judgment as to which a reputable insurance company has accepted full
liability) for the payment of money are entered by a court or courts of
competent jurisdiction against the Company or any Restricted Subsidiary
of the Company which remains undischarged for a period (during which
execution shall not be effectively stayed) of 60 days, provided that
the aggregate of all such judgments exceeds $5 million;
(g) the Company or any Material Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(i) commences a voluntary case;
(ii) consents to the entry of an order for relief against it
in an involuntary case in which it is the debtor;
(iii) consents to the appointment of a Custodian of it or for
all or substantially all of its property;
(iv) makes a general assignment for the benefit of its
creditors; or
(v) generally is unable to pay its debts as the same become
due;
(h) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Company or any Material
Subsidiary in an involuntary case;
(ii) appoints a Custodian of the Company or any Material
Subsidiary or for all or substantially all of its property; or
(iii) orders the liquidation of the Company or any Material
Subsidiary, and the order or decree remains unstayed and in effect for
60 days; and
-44-
<PAGE> 50
(i) the revocation of a Material License.
The term "BANKRUPTCY LAW" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors or the protection of creditors.
The term "CUSTODIAN" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
Section 8.02 Acceleration.
If an Event of Default (other than an Event of Default specified in
clauses (g) and (h) of Section 8.01 hereof) occurs and is continuing, the
Trustee by notice to the Company, or the Holders of at least 25% in principal
amount of the then outstanding Notes by notice to the Company and the Trustee,
may declare all the Notes to be due and payable. Upon such declaration, the
principal of, premium, if any, and interest and Liquidated Damages, if any, on,
the Notes shall be due and payable immediately. If an Event of Default specified
in clause (g) or (h) of Section 8.01 hereof occurs, such an amount shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder. The Holders of a majority in
principal amount of the then outstanding Notes by notice to the Trustee may
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of the acceleration. In the case of any Event of Default
pursuant to the provisions of Section 8.01 occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to Section
7(b) of the Notes, an equivalent premium shall, upon demand of the Holders of at
least 25% in principal amount of the then outstanding Notes delivered to the
Company and the Trustee, also become and be immediately due and payable to the
extent permitted by law, anything in this Indenture or in the Notes contained to
the contrary notwithstanding. If an Event of Default occurs on or prior to
December 18, 2002, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
restriction on redemption of the Notes on or prior to December 18, 2002,
pursuant to Section 7(a) of the Notes, then the premium payable for purposes of
this paragraph for each of the years ending on December 15 of the years
(December 18, in the case of the year 2002) set forth below shall, subject to
the foregoing demand, be as set forth in the following table expressed as a
percentage of the amount that would otherwise be due pursuant to this Section
8.02 hereof but for the provisions of this sentence.
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2000.......................................... 105.750%
2001.......................................... 105.175%
2002.......................................... 104.600%
</TABLE>
Section 8.03 Other Remedies.
-45-
<PAGE> 51
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal or interest on the
Notes or to enforce the performance of any provision of the Notes or this
Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. All remedies are cumulative
to the extent permitted by law.
Section 8.04 Waiver of Past Defaults.
The Holders of a majority in principal amount of the then outstanding
Notes by notice to the Trustee may waive an existing Default or Event of Default
and its consequences except a continuing Default or Event of Default in the
payment of the principal of or interest on any Note. When a Default or Event of
Default is waived, it is cured and ceases; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereon.
Section 8.05 Control by majority.
The Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
it. However, the Trustee may refuse to follow any direction that conflicts with
law or this Indenture, is unduly prejudicial to the rights of other Holders, or
would involve the Trustee in personal liability.
Section 8.06 Limitation on Suits.
A Holder may pursue a remedy with respect to this Indenture or the
Notes only if:
(a) the Holder gives to the Trustee notice of a continuing
Event of Default;
(b) the Holders of at least 25% in principal amount of the
then outstanding Notes make a request to the Trustee to pursue the
remedy;
(c) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee
a direction inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
-46-
<PAGE> 52
Section 8.07 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, Liquidated Damages, if any,
and interest on the Note, on or after the respective due dates expressed in the
Note, or to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Holder made pursuant to this Section 8.07.
Section 8.08 Collection Suit by Trustee.
If an Event of Default specified in Section 8.01(a) or (b), hereof
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal, Liquidated Damages, if any, and interest remaining unpaid on the
Notes and interest on overdue principal, Liquidated Damages, if any, and
interest and such further amount as shall be sufficient to cover the costs and,
to the extent lawful, expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
Section 8.09 Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee and
the Holders allowed in any judicial proceedings relative to the Company, its
creditors or its property. Nothing contained herein shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 8.10 Priorities.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee for amounts due under Section 9.07 hereof;
Second: to the holders of Senior Debt to the extent required by
Article VI;
Third: to Holders for amounts due and unpaid on the Notes for
principal, Liquidated Damages, if any, and interest (and Additional Amounts, if
applicable), ratably, without preference or priority of any kind, according to
the amounts due and payable on the Notes for principal, Liquidated Damages, if
any, and interest, respectively; and
Fourth: to the Company.
The Trustee may fix a record date and payment date for any payment to
Holders made pursuant to this Section 8.10.
-47-
<PAGE> 53
Section 8.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 8.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 8.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE IX
TRUSTEE
Section 9.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default: (i)
the Trustee need perform only those duties that are specifically set
forth in this Indenture and no others and (ii) in the absence of bad
faith on its part, the Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However, the Trustee
shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture and to confirm the
correctness of all mathematical computations.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that: (i) this paragraph does not limit the effect
of paragraph (b) of this Section 9.01; (ii) the Trustee shall not be
liable for any error of judgment made in good faith by a Trust Officer,
unless it is proved that the Trustee was negligent in ascertaining the
pertinent facts and (iii) the Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in accordance
with a direction received by it pursuant to Section 8.05 hereof.
(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this
Section 9.01.
(e) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity satisfactory to it against
any loss, liability or expense.
-48-
<PAGE> 54
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the
Company. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
Section 9.02 Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, or both. The
Trustee shall not be liable for any action it takes or omits to take in
good faith in reliance on such Officers' Certificate or Opinion of
Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or
within its rights or powers.
(e) The Trustee shall not be charged with knowledge of any
Event of Default under subsection (c), (d), (e), (f) or (i) (and
subsection (a) or (b) if the Trustee does not act as Paying Agent) of
Section 8.01 or of the identity of any Material Subsidiary referred to
in clause (ii) of the definition thereof unless either (1) a Trust
Officer of the Trustee assigned to its Capital Markets Fiduciary
Services Department shall have actual knowledge thereof, or (2) the
Trustee shall have received notice thereof in accordance with Section
12.02 hereof from the Company or any Holder.
Section 9.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or an
Affiliate with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
9.10 and 9.11 hereof.
Section 9.04 Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Notes, it shall not be accountable for the Company's use
of the proceeds from the Notes, and it shall not be responsible for any
statement of the Company in the Indenture or any statement in the Notes other
than its authentication or for compliance by the Company with the Registration
Rights Agreement.
Section 9.05 Notice of Defaults.
-49-
<PAGE> 55
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders a notice of the Default
or Event of Default within 90 days after it occurs. Except in the case of a
Default or Event of Default in payment on any Note, the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interests of Holders.
Section 9.06 Reports by Trustee to Holders.
Within 60 days after the reporting date stated in Section 12.10, the
Trustee shall mail to Holders a brief report dated as of such reporting date
that complies with TIA (Section) 313(a) if and to the extent required by such
(Section) 313(a). The Trustee also shall comply with TIA (Section) 313(b)(2).
The Trustee shall also transmit by mail all reports as required by TIA (Section)
313(c).
A copy of each report at the time of its mailing to Holders shall be
filed with the SEC and each stock exchange on which the Notes are listed. The
Company shall notify the Trustee when the Notes are listed on any stock
exchange.
Section 9.07 Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable disbursements,
expenses and advances incurred or made by it. Such disbursements and expenses
may include the reasonable disbursements, compensation and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee against any loss or liability
incurred by it except as set forth in the next paragraph. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity. The
Company shall defend the claim and the Trustee shall cooperate in the defense.
The Trustee may have separate counsel and the Company shall pay the reasonable
fees, disbursements and expenses of such counsel. The Company need not pay for
any settlement made without its consent, which consent shall not be unreasonably
withheld.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section 9.07, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee, except money or property held in trust to pay
principal and interest on particular Notes.
Without prejudice to any other rights available to the Trustee under
applicable law, when the Trustee incurs expenses or renders services after an
Event of Default specified in Section 8.01(g) or (h) hereof occurs, the expenses
and the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
-50-
<PAGE> 56
All amounts owing to the Trustee under this Section 9.07 shall be
payable by the Company in United States dollars.
Section 9.08 Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 9.08.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company. The Company may remove the
Trustee if:
(a) the Trustee fails to comply with Section 9.10 hereof,
unless the Trustee's duty to resign is stayed as provided in TIA
(Section) 310(b);
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the then outstanding Notes may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 9.10 hereof, unless the
Trustee's duty to resign is stayed as provided in TIA (Section) 310(b), any
Holder who has been a bona fide Holder of a Note for at least six months may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, subject to the lien provided for
in Section 9.07 hereof. Notwithstanding replacement of the Trustee pursuant to
this Section 9.08 hereof, the Company's obligations under
-51-
<PAGE> 57
Section 9.07 hereof shall continue for the benefit of the retiring trustee with
respect to expenses and liabilities incurred by it prior to such replacement.
Section 9.09 Successor Trustee by Merger, Etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
Section 9.10 Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (Section) 310(a)(1) and (5). The Trustee shall always have a
combined capital and surplus as stated in Section 12.10 hereof. The Trustee is
subject to TIA (Section) 310(b).
Section 9.11 Preferential Collection of Claims Against Company.
The Trustee is subject to TIA (Section) 311(a), excluding any creditor
relationship listed in TIA (Section) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (Section) 311(a) to the extent indicated
therein.
ARTICLE X
DISCHARGE OF INDENTURE
Section 10.01 Termination of Company's Obligations.
This Indenture shall cease to be of further effect (except that the
Company's obligations under Sections 9.07 and 10.02 hereof shall survive) when
all outstanding Notes theretofore authenticated and issued have been delivered
to the Trustee for cancellation and the Company has paid all sums payable
hereunder.
Section 10.02 Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the Company upon
request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon written
request any money held by them for the payment of principal or interest that
remains unclaimed for two years after the date upon which such payment shall
have become due; provided, however, that the Company shall have first caused
notice of such payment to the Company to be mailed to each Holder entitled
thereto no less than 30 days prior to such payment. After payment to the
Company, the Trustee and the Paying Agent shall have no further liability with
respect to such money and Holders entitled to the money must look to the Company
for payment as general creditors unless any applicable abandoned property law
designates another Person.
-52-
<PAGE> 58
ARTICLE XI
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 11.01 Without Consent of Holders.
The Company and the Trustee may amend or supplement this Indenture or
the Notes without the consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to comply with Sections 5.12 and 7.01 hereof;
(c) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(d) to make any change that does not adversely affect the
interests hereunder of any Holder; or
(e) to qualify the Indenture under the TIA or to comply with
the requirements of the SEC in order to maintain the qualification of
the Indenture under the TIA.
Section 11.02 With Consent of Holders.
Subject to Section 8.07 hereof, the Company and the Trustee may amend
or supplement this Indenture or the Notes with the written consent of the
Holders of at least a majority in principal amount of the then outstanding
Notes. Subject to Sections 8.04 and 8.07 hereof, the Holders of a majority in
principal amount of the Notes then outstanding may also waive compliance in a
particular instance by the Company with any provision of this Indenture or the
Notes. However, without the consent of each Holder affected, an amendment,
supplement or waiver under this Section 11.02 may not:
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of
any Note or alter the provisions of Sections 7 and 8 of the Notes;
(c) reduce the rate of or change the time for payment of
interest on any Note;
(d) waive a default in the payment of the principal of, or
interest or Liquidated Damages, if any, on, any Note (except a
rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in
the Note;
(f) make any change in Section 8.04 or 8.07 hereof;
-53-
<PAGE> 59
(g) waive a redemption payment with respect to any Note;
(h) impair the right to convert the Notes into Common Stock;
(i) modify Article V or VI in a manner adverse to the Holders
of Notes; and
(j) make any change in the foregoing amendment and waiver
provisions of this Article XI.
To secure a consent of the Holders under this Section 11.02, it shall
not be necessary for the Holders to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof.
After an amendment, supplement or waiver under this Section 11.02
becomes effective, the Company shall mail to Holders a notice briefly describing
the amendment or waiver.
Section 11.03 Compliance with Trust Indenture Act.
Every amendment to this Indenture or the Notes shall be set forth in a
supplemental indenture that complies with the TIA as then in effect.
Section 11.04 Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder or subsequent Holder may revoke the consent as to
his Note or portion of a Note if the Trustee receives the notice of revocation
before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Notes have
consented to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the
provisions of the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies), and only those
Persons, shall be entitled to consent to such amendment, supplement or waiver or
to revoke any consent previously given, whether or not such Persons continue to
be Holders after such record date. No consent shall be valid or effective for
more than 90 days after such record date unless consents from Holders of the
principal amount of Notes required hereunder for such amendment or waiver to be
effective shall have also been given and not revoked within such 90-day period.
After an amendment, supplement or waiver becomes effective it shall
bind every Holder, unless it is of the type described in any of clauses (a)
through (j) of Section 11.02 hereof. In such case, the amendment or waiver shall
bind each Holder who has consented to it and every subsequent Holder that
evidences the same debt as the consenting Holder's Note.
-54-
<PAGE> 60
Section 11.05 Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment or
waiver on any Note thereafter authenticated. The Company in exchange for all
Notes may issue and the Trustee shall authenticate new Notes that reflect the
amendment or waiver.
Failure to make such notation on a Note or to issue a new Note as
aforesaid shall not affect the validity and effect of such amendment or waiver.
Section 11.06.Trustee Protected.
The Trustee shall sign all supplemental indentures, except that the
Trustee may, but need not, sign any supplemental indenture that adversely
affects its rights.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Trust Indenture Act Controls.
This Indenture is subject to the provisions of the TIA that are
required to be incorporated into this Indenture (or, prior to the registration
of the Notes pursuant to the Registration Rights Agreement, would be required to
be incorporated into this Indenture if it were qualified under the TIA), and
shall, to the extent applicable, be governed by such provisions. If any
provision of this Indenture limits, qualifies, or conflicts with another
provision which is required (or would be so required) to be incorporated in this
Indenture by the TIA, the incorporated provision shall control.
Section 12.02 Notices.
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in Person or mailed by first class
mail to the other's address stated in Section 12.10 hereof. The Company or the
Trustee by notice to the other may designate additional or different addresses
for subsequent notices or communications.
Any notice or communication to a Holder shall be mailed by first class
mail to his address shown on the register kept by the Registrar. Failure to mail
a notice or communication to a Holder or any defect in it shall not affect its
sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
If the Notes are listed on the Luxembourg Stock Exchange, any notice or
communication to the Holders shall also be given by publication in a daily
newspaper with general circulation in Luxembourg.
-55-
<PAGE> 61
All other notices or communications shall be in writing.
In case by reason of the suspension of regular mail service, or by
reason of any other cause, it shall be impossible to mail any notice as required
by the Indenture, then such method of notification as shall be made with the
approval of the Trustee shall constitute a sufficient mailing of such notice.
Section 12.03 Communication by Holders with Other Holders.
Holders may communicate pursuant to TIA (Section) 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA (Section) 312(c).
Section 12.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 12.05 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than pursuant to Section 4.03)
shall include:
(a) a statement that the Person signing such certificate or
rendering such opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, such
Person has made such examination or investigation as is necessary to
enable such Person to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.
Section 12.06 Rules by Trustee and Agents.
-56-
<PAGE> 62
The Trustee may make reasonable rules for action by, or a meeting of,
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 12.07 Legal Holidays.
A "LEGAL HOLIDAY" is a Saturday, a Sunday or a day on which banking
institutions in the State of New York are not required to be open. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest or
Liquidated Damages, if any, shall accrue for the intervening period. If any
other operative date for purposes of this Indenture shall occur on a Legal
Holiday then for all purposes the next succeeding day that is not a Legal
Holiday shall be such operative date.
Section 12.08 No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the Notes
or the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Notes.
Section 12.09 Counterparts and Facsimile Signatures.
This Indenture may be executed by manual or facsimile signature in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
Section 12.10 Variable Provisions.
"OFFICER" means the Chairman of the Board, the President, any Vice
President, the Treasurer, the Secretary, any Assistant Treasurer or any
Assistant Secretary of the Company.
The first certificate pursuant to Section 4.03 hereof shall be for the
fiscal year ended on December 31, 1999.
The reporting date for Section 9.06 hereof is March 15 of each year.
The first reporting date is March 15, 2000.
The Trustee shall always have a combined capital and surplus of at
least $100,000,000 as set forth in its most recent published annual report of
condition.
The Company's address is:
NTL Incorporated
110 East 59th Street, 26th Floor
New York, New York 10022
-57-
<PAGE> 63
Attention: Richard J. Lubasch, Esq.
Executive Vice President and General Counsel
The Trustee's address is:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Attention: Capital Markets Fiduciary Services
Section 12.11 Governing Law.
THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE
AND THE NOTES, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
Section 12.12 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or an Affiliate. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 12.13 Successors.
All agreements of the Company in this Indenture and the Notes shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
Section 12.14 Severability.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 12.15 Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table, and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
-58-
<PAGE> 64
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
NTL INCORPORATED, as Company
By: __________________________________
Name:
Title:
THE CHASE MANHATTAN BANK, as Trustee
By: __________________________________
Name:
Title:
<PAGE> 65
EXHIBIT A
[FORM OF FACE OF INITIAL NOTE]
[Global Notes Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Notes Legend]
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY AND ANY SHARES OF COMMON STOCK ISSUED UPON CONVERSION
HEREOF MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE
SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE
BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY AND ANY SHARES OF COMMON STOCK
ISSUED UPON CONVERSION HEREOF MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED,
ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, IF AVAILABLE, (c) OUTSIDE
THE UNITED STATES TO A NON-U.S. PERSON IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE
A-1
<PAGE> 66
904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION
OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE PURCHASER WILL, AND EACH SUBSEQUENT
PURCHASER IS REQUIRED TO, NOTIFY ANY SUBSEQUENT PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY OR ANY COMMON STOCK ISSUABLE UPON CONVERSION HEREOF OF
THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
A-2
<PAGE> 67
No. ________
$ ______
CUSIP No. 629407AN7
5-3/4% CONVERTIBLE SUBORDINATED NOTE DUE 2009
NTL Incorporated, a Delaware corporation (the "COMPANY"), promises to
pay to ______________, or registered assigns, the principal sum of
____________________ ($____________ ), [or such other amount as is indicated on
Schedule A hereof,*] on December 15, 2009, subject to the further provisions of
this Note set forth on the reverse hereof which further provisions shall for all
purposes have the same effect as if set forth at this place.
Interest Payment Dates: June 15 and December 15, commencing June 15, 2000
Record Dates: June 1 and December 1
IN WITNESS WHEREOF, NTL Incorporated has caused this Note to be signed
manually or by facsimile by one of its duly authorized officers.
Dated: ______________________________
NTL INCORPORATED
by: _________________________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 5-3/4% Convertible Subordinated Notes due 2009 described in
the within-mentioned Indenture.
THE CHASE MANHATTAN BANK, as Trustee
By:______________________________________
Authorized Officer
- --------
* Applicable to Global Notes only
A-3
<PAGE> 68
[FORM OF REVERSE OF INITIAL NOTE]
NTL INCORPORATED
5-3/4% Convertible Subordinated Note due 2009
1. Interest. NTL INCORPORATED, a Delaware corporation (the "COMPANY"),
is the issuer of 5-3/4% Convertible Subordinated Notes due 2009 (the "NOTES").
The Notes will accrue interest at a rate of 5-3/4% per annum. The Company
promises to pay interest on the Notes in cash semiannually on each June 15 and
December 15, commencing on June 15, 2000, to Holders of record on the
immediately preceding June 1 and December 1, respectively. Interest on the Notes
will accrue from the most recent date to which interest has been paid, or if no
interest has been paid, from December 22, 1999. Interest will be computed on the
basis of a 360-day year of twelve 30-day months. The Company will pay interest
on overdue principal at the interest rate borne by the Notes, compounded
semiannually, and it shall pay interest on overdue installments of interest and
Liquidated Damages, if any, (without regard to any applicable grace period) at
the same interest rate compounded semiannually. Any interest paid on this Note
shall be increased to the extent necessary to pay Additional Amounts as set
forth in this Note.
2. Registration Rights. The holder of this Note is entitled to the
benefits of a Registration Rights Agreement, dated as of December 22, 1999,
among the Company and the Initial Purchasers (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement the Company has
agreed for the benefit of the Holders of the Notes, that (i) it will, at its
cost, within 135 days after the closing of the sale of the Notes (the
"Closing"), file a shelf registration statement (the "Shelf Registration
Statement") with the Securities and Exchange Commission (the "Commission") with
respect to resales of the Notes and the Common Stock issuable upon conversion
thereof, (ii) it will use its best efforts to cause such Shelf Registration
Statement to be declared effective within 255 days after the Closing, and (iii)
it will use its best efforts to keep such Shelf Registration Statement
continuously effective under the Securities Act, subject to certain exceptions
specified in the Registration Rights Agreement until the second anniversary of
the date of the Closing. If (a) the Company fails to file the Shelf Registration
Statement required by the Registration Rights Agreement on or before the date
specified above for such filing, (b) such Shelf Registration Statement is not
declared effective by the Commission on or prior to the date specified above for
such effectiveness, or (c) the Shelf Registration Statement is declared
effective but thereafter ceases to be effective or useable in connection with
resales of Transfer Restricted Securities (as defined in the Registration Rights
Agreement) during the periods specified in the Registration Rights Agreement
(each such event referred to in clauses (a) through (c) above a "Registration
Default"), then the Company will pay liquidated damages to each Holder of
Transfer Restricted Securities, with respect to the first 90-day period
immediately following the occurrence of such Registration Default in an amount
equal to $.05 per week per $1,000 principal amount of Notes constituting
Transfer Restricted Securities held by such Holder ("LIQUIDATED DAMAGES"),
provided that a Holder of Transfer Restricted Securities shall not be entitled
to the benefit of any Liquidated Damages unless and until such Holder shall have
furnished to the Company the information required by Section 4(l) of the
Registration Rights Agreement. The amount of Liquidated Damages will increase by
an additional $.05 per week per $1,000 principal amount constituting Transfer
Restricted Securities with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum
A-4
<PAGE> 69
amount of Liquidated Damages of $.50 per week per $1,000 principal amount of
Notes constituting Transfer Restricted Securities. All accrued Liquidated
Damages shall be paid by the Company on each Interest Payment Date for which
Liquidated Damages are owed to the holders of Global Notes by wire transfer of
immediately available funds or by federal funds check and to holders of
certificated Notes registered as such as of the preceding Record Date by mailing
checks to their registered addresses. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease.
3. Additional Amounts. This Section 3 shall apply only in the event
that the Company becomes, or a successor to the Company is, a corporation
organized or existing under the laws of the United Kingdom, the Netherlands, the
Netherlands Antilles, Bermuda or the Cayman Islands. All payments made by the
Company on this Note shall be made without deduction for or on account of, any
and all present or future taxes, duties, assessments, or governmental charges of
whatever nature unless the deduction or withholding of such taxes, duties,
assessments or governmental charges is then required by law. If any deduction or
withholding for or on account of any present or future taxes, assessments or
other governmental charges of the United Kingdom, the Netherlands, the
Netherlands Antilles, Bermuda or the Cayman Islands (or any political
subdivision or taxing authority thereof or therein) shall at any time be
required in respect of any amounts to be paid by the Company under this Note,
the Company shall pay or cause to be paid such additional amounts ("ADDITIONAL
AMOUNTS") as may be necessary in order that the net amounts received by a Holder
of this Note after such deduction or withholding shall be not less than the
amounts specified in this Note to which the Holder of this Note is entitled;
provided, however, that the Company shall not be required to make any payment of
Additional Amounts for or on account of:
(a) any tax, assessment or other governmental charge to the
extent such tax, assessment or other governmental charge would not have
been imposed but for (i) the existence of any present or former
connection between such Holder (or between a fiduciary, settlor,
beneficiary, member or shareholder of, or possessor of a power over,
such Holder, if such Holder is an estate, nominee, trust, partnership
or corporation), other than the holding of this Note or the receipt of
amounts payable in respect of this Note, and the United Kingdom, the
Netherlands, the Netherlands Antilles, Bermuda or the Cayman Islands
(or any political subdivision or taxing authority thereof or therein)
including, without limitation, such Holder (or such fiduciary, settlor,
beneficiary, member, shareholder or possessor) being or having been a
citizen or resident thereof or being or having been present or engaged
in trade or business therein or having or having had a permanent
establishment therein or (ii) the presentation of this Note (where
presentation is required) for payment on a date more than 30 days after
the date on which such payment became due and payable or the date on
which payment thereof is duly provided for, whichever occurs later,
except to the extent that the Holder would have been entitled to
Additional Amounts had this Note been presented on the last day of such
period of 30 days;
(b) any tax, assessment or other governmental charge that is
imposed or withheld by reason of the failure to comply by the Holder of
this Note or, if different, the
A-5
<PAGE> 70
beneficial owner of the interest payable on this Note, with a timely
request of the Company addressed to such Holder or beneficial owner to
provide information, documents or other evidence concerning the
nationality, residence, identity or connection with the taxing
jurisdiction of such Holder or beneficial owner which is required or
imposed by a statute, regulation or administrative practice of the
taxing jurisdiction as a precondition to exemption from all or part of
such tax, assessment or governmental charge;
(c) any estate, inheritance, gift, sales, transfer, personal
property or similar tax, assessment or other governmental charge;
(d) any tax, assessment or other governmental charge which is
collectible otherwise than by withholding from payments of principal
amount, redemption amount, Change of Control Payment or interest with
respect to a Note or withholding from the proceeds of a sale or
exchange of a Note;
(e) any tax, assessment or other governmental charge required
to be withheld by any Paying Agent from any payment of principal
amount, redemption amount, Change of Control Payment or interest with
respect to a Note, if such payment can be made, and is in fact made,
without such withholding by any other Paying Agent located inside the
United States;
(f) any tax, assessment or other governmental charge imposed
on a Holder that is not the beneficial owner of a Note to the extent
that the beneficial owner would not have been entitled to the payment
of any such Additional Amounts had the beneficial owner directly held
the Note;
(g) any combination of items (a), (b), (c), (d), (e) and (f)
above;
nor shall Additional Amounts be paid with respect to any payment of the
principal of, or any interest on, this Note to any Holder who is a fiduciary or
partnership or other than the sole beneficial owner of such payment to the
extent that a beneficiary or settlor would not have been entitled to any
Additional Amounts had such beneficiary or settlor been the Holder of this Note.
All references to principal amount or interest on the Notes in the Indenture or
the Notes shall include any Additional Amounts payable to the Company pursuant
to this Section 3.
4. Method of Payment. The Company will pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the record date for the next interest payment date
even though Notes are canceled after the record date and on or before the
interest payment date. Holders must surrender Notes to a Paying Agent to collect
principal and premium payments. The Company will pay principal, premium, if any,
interest and Liquidated Damages, if any, in money of the United States that at
the time of payment is legal tender for payment of public and private debts. At
the option of the Company, payment of interest due on any interest payment date
may be made by check mailed to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes (provided that a Holder
of Notes with an aggregate principal amount of Notes in excess of
A-6
<PAGE> 71
$5,000,000 will be paid interest by wire transfer in immediately available funds
at the election of such Holder if such Holder previously specified in writing to
the Company and the Paying Agent appropriate wire transfer instructions at least
10 days prior to the applicable interest payment date).
5. Paying Agent, Conversion Agent and Registrar. The Trustee will act
as Paying Agent, Conversion Agent and Registrar in the City of New York, New
York. The Company may change any Paying Agent, Conversion Agent or Registrar
without prior notice. The Company or any of its Affiliates may act in any such
capacity. If, and so long as, the Notes are listed on the Luxembourg Stock
Exchange, the Company will maintain an additional Registrar and Paying Agent in
Luxembourg.
6. Indenture. The Company issued the Notes under an Indenture, dated as
of December 22, 1999 (the "INDENTURE"), between the Company and The Chase
Manhattan Bank, as Trustee. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by the Trust Indenture Act of
1939 (15 U.S. Code (Section)(Section) 77aaa-77bbbb) as in effect on the date of
the Indenture. The Notes are subject to, and qualifiEd by, all such terms,
certain of which are summarized hereon, and Holders are referred to the
Indenture and such Act for a statement of such terms. The Notes are unsecured
general obligations of the Company limited to $1,200,000,000 in aggregate
principal amount and subordinated in right of payment to all existing and future
Senior Debt of the Company.
7. Optional Redemption.
(a) Provisional Redemption. At any time on or prior to December 18,
2002 (the "PROVISIONAL REDEMPTION DATE"), the Company may redeem the Notes, in
whole or in part (the "PROVISIONAL REDEMPTION"), at the following redemption
prices plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the applicable redemption date if the Daily Market Price of the Common Stock
equals or exceeds the following trigger percentages of the prevailing Conversion
Price then in effect for at least 20 trading days in any consecutive 30-day
trading period ending on the trading day prior to the date of mailing of the
notice of Provisional Redemption (the "NOTICE DATE"), if called for redemption
in the 12-month period ending on December 15 in the case of 2000 or 2001 and
December 18 in the case of 2002:
<TABLE>
<CAPTION>
TRIGGER REDEMPTION
YEAR PERCENTAGE PRICE
---- ---------- -----
<S> <C> <C>
2000............................................... 170% 105.750%
2001............................................... 160% 105.175%
2002............................................... 150% 104.600%
</TABLE>
Upon any Provisional Redemption, the Company shall make an additional
payment in cash (the "MAKE-WHOLE PAYMENT") with respect to the Notes converted
into Common Stock between the Notice Date and the Provisional Redemption Date to
the Holders thereof as of the applicable Conversion Dates. The Make-Whole
Payment will be equal to the sum of the
A-7
<PAGE> 72
aggregate amount of interest payments that would otherwise have accrued from the
Provisional Redemption Date through December 18, 2002 (the "MAKE-WHOLE PERIOD").
(b) Subsequent Optional Redemption. Except as provided in Section 8
hereof, the Notes will be redeemable, in whole or from time to time in part in
any integral multiple of $1,000, at the option of the Company at any time after
December 18, 2002, at the following redemption prices which are expressed as
percentages of the principal amount set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, upon not less than 30 nor more than 60 days' prior notice, if redeemed
during the 12-month period beginning December 15 of the years indicated (or
December 18 in the case of 2002):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
-------------- ---------
<S> <C>
2002...................................................... 104.025%
2003...................................................... 103.450%
2004...................................................... 102.875%
2005...................................................... 102.300%
2006...................................................... 101.725%
2007...................................................... 101.150%
2008...................................................... 100.575%
2009 and after ............................................ 100.000%
</TABLE>
8. Optional Tax Redemption. (a) The Notes may be redeemed at the option
of the Company, in whole but not in part, upon not less than 30 nor more than 60
days notice, at any time at a redemption price equal to the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the
date fixed for redemption if after the date on which Section 3 of this Note
becomes applicable (the "RELEVANT DATE") there has occurred any change in or
amendment to the laws (or any regulations or official rulings promulgated
thereunder) of the United Kingdom, the Netherlands, the Netherlands Antilles,
Bermuda or the Cayman Islands (or any political subdivision or taxing authority
thereof or therein), or any change in or amendment to the official application
or interpretation of such laws, regulation or rulings (a "CHANGE IN TAX LAW")
which becomes effective after the Relevant Date, as a result of which the
Company is or would be so required on the next succeeding Interest Payment Date
to pay Additional Amounts with respect to the Notes as described under Section 3
hereof with respect to withholding taxes imposed by the United Kingdom, the
Netherlands, the Netherlands Antilles, Bermuda or the Cayman Islands (or any
political subdivision or taxing authority thereof or therein) (a "WITHHOLDING
TAX") and such Withholding Tax is imposed at a rate that exceeds the rate (if
any) at which Withholding Tax was imposed on the Relevant Date, provided,
however, that (i) this paragraph shall not apply to the extent that, at the
Relevant Date it was known or would have been known had professional advice of a
nationally recognized accounting firm in the United Kingdom, the Netherlands,
the Netherlands Antilles, Bermuda or the Cayman Islands, as the case may be,
been sought, that a Change in Tax Law in the United Kingdom, the Netherlands,
the Netherlands Antilles, Bermuda or the Cayman Islands was to occur after the
Relevant Date, (ii) no such notice of redemption may be given earlier than 90
days prior to the earliest date on which the Company would be obliged to pay
such Additional Amounts were a
A-8
<PAGE> 73
payment in respect of the Notes then due, (iii) at the time such notice of
redemption is given, such obligation to pay such Additional Amount remains in
effect and (iv) the payment of such Additional Amounts cannot be avoided by the
use of any reasonable measures available to the Company.
The Notes may also be redeemed, in whole but not in part, at any time
at a redemption price equal to the principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, to the date fixed for redemption
if the Person formed after the Relevant Date by a consolidation, amalgamation,
reorganization or reconstruction (or other similar arrangement) of the Company
or the Person into which the Company is merged after the Relevant Date or to
which the Company conveys, transfers or leases its properties and assets after
the Relevant Date substantially as an entirety (collectively, a "SUBSEQUENT
CONSOLIDATION") is required, as a consequence of such Subsequent Consolidation
and as a consequence of a Change in Tax Law in the United Kingdom, the
Netherlands, the Netherlands Antilles, Bermuda or the Cayman Islands occurring
after the date of such Subsequent Consolidation to pay Additional Amounts with
respect to Notes with respect to Withholding Tax as described under Section 3
hereof and such Withholding Tax is imposed at a rate that exceeds the rate (if
any) at which Withholding Tax was or would have been imposed on the date of such
Subsequent Consolidation, provided, however, that this paragraph shall not apply
to the extent that, at the date of such Subsequent Consolidation it was known or
would have been known had professional advice of a nationally recognized
accounting firm in the United Kingdom, the Netherlands, the Netherlands
Antilles, Bermuda or the Cayman Islands, as the case may be, been sought, that a
Change in Tax Law in the United Kingdom, the Netherlands, the Netherlands
Antilles, Bermuda or the Cayman Islands was to occur after such date.
The Company will also pay, or make available for payment, to Holders on
the Redemption Date any Additional Amounts (as described, but subject to the
exceptions referred to, in Section 3 hereof) resulting from the payment of such
Redemption Price.
9. Notice of Redemption. Notice of redemption will be mailed at least
30 days but not more than 60 days before the redemption date to each Holder of
the Notes to be redeemed at his address of record and, if and so long as the
Notes are listed on the Luxembourg Stock Exchange, will be published at least 30
days but not more than 60 days before the redemption date in a leading newspaper
with circulation in Luxembourg. The Notes in denominations larger than $1,000
may be redeemed in part but only in integral multiples of $1,000. In the event
of a redemption of less than all of the Notes, the Notes will be chosen for
redemption by the Trustee in accordance with the Indenture. On and after the
redemption date, interest ceases to accrue on the Notes or portions of them
called for redemption.
If this Note is redeemed subsequent to a record date with respect to
any interest payment date specified above and on or prior to such interest
payment date, then any accrued interest will be paid to the Person in whose name
this Note is registered at the close of business on such record date.
A-9
<PAGE> 74
10. Mandatory Redemption. The Company will not be required to make
mandatory redemption or repurchase payments with respect to the Notes. There are
no sinking fund payments with respect to the Notes.
11. Repurchase at Option of Holder. If there is a Change of Control,
the Company shall be required to offer to purchase on the Purchase Date all
outstanding Notes at a purchase price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
to the Purchase Date. Holders of Notes that are subject to an offer to purchase
will receive a Change of Control offer from the Company prior to any related
Purchase Date and may elect to have such Notes or portions thereof in authorized
denominations purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below.
12. Subordination. The payment of the principal of, interest on or any
other amounts due on the Notes is subordinated in right of payment to all
existing and future Senior Debt of the Company, as described in the Indenture.
Each Holder, by accepting a Note, agrees to such subordination and authorizes
and directs the Trustee on its behalf to take such action as may be necessary or
appropriate to effectuate the subordination so provided and appoints the Trustee
as its attorney-in-fact for such purpose.
13. Conversion. The holder of any Note has the right, exerciseable at
any time after 90 days following the Issuance Date and prior to the close of
business (New York time) on the date of the Note's maturity, to convert the
principal amount thereof (or any portion thereof that is an integral multiple of
$1,000) into shares of Common Stock at the initial Conversion Price of $135.23
per share, subject to adjustment under certain circumstances as set forth in the
Indenture, except that if a Note is called for redemption, the conversion right
will terminate at the close of business on the Business Day immediately
preceding the date fixed for redemption.
To convert a Note, a holder must (1) complete and sign a conversion
notice substantially in the form set forth below, (2) surrender the Note to a
Conversion Agent, (3) furnish appropriate endorsements or transfer documents if
required by the Registrar or Conversion Agent and (4) pay any transfer or
similar tax, if required. Upon conversion, no adjustment or payment will be made
for interest or dividends, but if any holder surrenders a Note for conversion
after the close of business on the record date for the payment of an installment
of interest and prior to the opening of business on the next interest payment
date, then, notwithstanding such conversion, the interest payable on such
interest payment date will be paid to the registered holder of such Note on such
record date. In such event, such Note, when surrendered for conversion, need not
be accompanied by payment of an amount equal to the interest payable on such
interest payment date on the portion so converted. The number of shares issuable
upon conversion of a Note is determined by dividing the principal amount of the
Note converted by the Conversion Price in effect on the Conversion Date. No
fractional shares will be issued upon conversion but a cash adjustment will be
made for any fractional interest.
A Note in respect of which a holder has delivered an "Option of Holder
to Elect Purchase" form appearing below exercising the option of such holder to
require the Company to purchase such Note may be converted only if the notice of
exercise is withdrawn as provided
A-10
<PAGE> 75
above and in accordance with the terms of the Indenture. The above description
of conversion of the Notes is qualified by reference to, and is subject in its
entirety by, the more complete description thereof contained in the Indenture.
14. Denominations, Transfer, Exchange. The Notes are in registered
form, without coupons, in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered, and Notes may be exchanged, as
provided in the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
need not exchange or register the transfer of any Note or portion of a Note
selected for redemption (except the unredeemed portion of any Note being
redeemed in part). Also, it need not exchange or register the transfer of any
Note for a period of 15 days before a selection of Notes to be redeemed.
15. Persons Deemed Owners. Except as provided in paragraph 4 of this
Note, the registered Holder of a Note may be treated as its owner for all
purposes.
16. Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for two years, the Trustee and the Paying Agent shall pay the
money back to the Company at its written request. After that, Holders of Notes
entitled to the money must look to the Company for payment unless an abandoned
property law designates another Person and all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
17. Defaults and Remedies. The Notes shall have the Events of Default
set forth in Section 8.01 of the Indenture. Subject to certain limitations in
the Indenture, if an Event of Default occurs and is continuing, the Trustee by
notice to the Company or the Holders of at least 25% in aggregate principal
amount of the then outstanding Notes by notice to the Company and the Trustee
may declare all the Notes to be due and payable immediately, except that in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, all unpaid principal and interest accrued on the Notes shall become
due and payable immediately without further action or notice. The Holders of a
majority in principal amount of the Notes then outstanding by written notice to
the Trustee may rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default have been cured or waived except nonpayment of principal or interest
that has become due solely because of the acceleration. Holders may not enforce
the Indenture or the Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes issued under the Indenture may direct the Trustee in its
exercise of any trust or power. The Company must furnish annually compliance
certificates to the Trustee. The above description of Events of Default and
remedies is qualified by reference, and subject in its entirety, to the more
complete description thereof contained in the Indenture.
18. Amendments, Supplements and Waivers. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes (including consents obtained in connection with a tender offer or exchange
offer for Notes), and any existing default may be
A-11
<PAGE> 76
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Notes. Without the consent of any Holder, the Indenture or the
Notes may be amended among other things, to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for assumption of the Company's obligations to
Holders, to make any change that does not adversely affect the rights of any
Holder or to qualify the Indenture under the TIA or to comply with the
requirements of the SEC in order to maintain the qualification of the Indenture
under the TIA.
19. Trustee Dealings with the Company. The Trustee, in its individual
or any other capacity may become the owner or pledgee of the Notes and may
otherwise deal with the Company or an Affiliate with the same rights it would
have, as if it were not Trustee, subject to certain limitations provided for in
the Indenture and in the TIA. Any Agent may do the same with like rights.
20. No Recourse Against Others. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation. Each
Holder of the Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for the issue of the Notes.
21. Governing Law. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL
GOVERN THE INDENTURE AND THE NOTES WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS
THEREOF.
22. Authentication. The Notes shall not be valid until authenticated by
the manual signature of an authorized officer of the Trustee or an
authenticating agent.
23. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (- Custodian), and UGMA (= Uniform Gifts to
Minors Act).
The Company will furnish to any Holder of the Notes upon written
request and without charge a copy of the Indenture. Request may be made to:
NTL Incorporated
110 East 59th Street, 26th Floor
New York, New York 10022
Attention of: Richard J. Lubasch, Esq.
Executive Vice President and General Counsel
A-12
<PAGE> 77
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to
___________________________________________________
(Insert assignee's social security or tax I.D. no.)
___________________________________________________
___________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _________________________________ agent to transfer this
Note on the books of the Company. The agent may substitute another to act for
him.
Your Signature: ____________________________________________________
(Sign exactly as your name appears on the other side of
this Note)
Date: __________________
Signature Guarantee: * ____________________________________________
In connection with any transfer of any of the Notes evidenced by this
certificate occurring prior to the date that is two years after the
later of the date of original issuance of such Notes and the last date,
if any, on which such Notes were owned by the Company or any Affiliate
of the Company, the undersigned confirms that such Notes are being
transferred:
CHECK ONE BOX BELOW
(1) [ ] to the Company or any subsidiary thereof,
(2) [ ] to a qualified institutional buyer in compliance with Rule
144A,
(3) [ ] outside the United States in compliance with Rule 904 under
the Securities Act,
(4) [ ] pursuant to the exemption from registration provided by Rule
144 under the Securities Act (if available) or
(5) [ ] pursuant to an effective registration statement under the
Securities Act.
- ----------
* Signature must be guaranteed by a commercial bank, trust company or
member firm of the New York Stock Exchange
A-13
<PAGE> 78
________________________
Signature
Signature Guarantee*
____________________________
Signature must be guaranteed
______________________________________________________________
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Date: _____________________
___________________________
* Signature must be guaranteed by a commercial bank, trust company or
member firm of the New York Stock Exchange.
NOTICE: To be executed by an executive officer
A-14
<PAGE> 79
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note or a portion thereof repurchased
by the Company pursuant to Section 3.09 or 4.07 of the Indenture, check the box:
[ ]
If the purchase is in part, indicate the portion (in denominations of
$1,000 or any integral multiple thereof) to be purchased: ______________________
Your Signature: ______________________________________________________
(Sign exactly as your name appears on the other side of
this Note)
Date: ________________________
Signature Guarantee:**/
**/ Signature must be guaranteed by a commercial bank, trust company or member
firm of the New York Stock Exchange.
A-15
<PAGE> 80
ELECTION TO CONVERT
To NTL Incorporated
The undersigned owner of this Note hereby irrevocably exercises the
option to convert this Note, or the portion below designated, into Common Stock
of NTL Incorporated in accordance with the terms of the Indenture referred to in
this Note, and directs that the shares issuable and deliverable upon conversion,
together with any check in payment for fractional shares, be issued in the name
of and delivered to the undersigned, unless a different name has been indicated
in the assignment below. If the shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto.
Any holder of Notes, upon the exercise of its conversion rights in
accordance with the terms of the Indenture and the Note, agrees to be bound by
the terms of the Registration Rights Agreement relating to the Common Stock
issuable upon conversion of the Notes.
Date:
in whole ___
Portions of Note to be converted ($1,000 or
integral multiples thereof): $______________
Signature ______________________________________
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number
________________________________________________
________________________________________________
________________________________________________
Signature Guarantee: * ________________________
- ----------
* Signature must be guaranteed by a commercial bank, trust company or
member firm of the New York Stock Exchange.
A-16
<PAGE> 81
[TO BE ATTACHED TO GLOBAL NOTES]
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT
The initial principal amount of this Global Note shall be
$__________________. The following increases or decreases in the principal
amount of this Global Note have been made:
<TABLE>
<CAPTION>
Amount of decrease in Amount of increase Principal amount of Signature of Date of exchange
principal amount of in principal amount this Global Note authorized officer following such
this Global Note of this Global Note of Trustee or Notes decrease or increase
Custodian
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
A-17
<PAGE> 82
EXHIBIT B
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
FROM RULE 144A GLOBAL NOTE OR RESTRICTED NOTE
TO REGULATION S GLOBAL NOTE
(Transfers pursuant to (Section) 2.06(a)(ii) or 2.06(a)(vi)
of the Indenture)
The Chase Manhattan Bank, as Trustee
450 West 33rd Street
New York, New York 10001
Attn: Capital Markets Fiduciary Services
Re: NTL Incorporated 5-3/4% Convertible Subordinated Notes due
2009 (the "NOTES")
Reference is hereby made to the Indenture, dated as December
22, 1999 (the "INDENTURE"), between NTL Incorporated, as Issuer, and The Chase
Manhattan Bank, as Trustee.
This letter relates to $[ ] [check one] (i) [ ] aggregate
principal amount of Notes which are held in the form of the Rule 144A Global
Note (CUSIP No. 629407AN7) with the Depositary or (ii) [ ] principal amount of
Restricted Note (CUSIP No. _________) registered, in either case, in the name of
[ ] (the "TRANSFEROR") to effect the transfer of the Notes in exchange for
an equivalent beneficial interest in the Regulation S Global Notes.
In connection with such request, the Transferor does hereby
certify that such transfer has been effected in accordance with (i) the transfer
restrictions set forth in the Notes and (ii) that:
(1) the offer of the Notes was not made to a Person in the
United States;
(2) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither the
Transferor nor any Person acting on its behalf knows that the
transaction was pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the United States Securities Act of
1933, as amended (the "SECURITIES ACT").
In addition, if the sale is made during a distribution
compliance period and the provisions of Rule 903(c)(2) or (3) or Rule 904(c)(1)
of Regulation S are applicable thereto, we
B-1
<PAGE> 83
confirm that such sale has been made in accordance with the applicable
provisions of Rule 903(c)(2) or (3) or Rule 904(c)(1), as the case may be.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Capitalized terms used in this
certificate and not otherwise defined in the Indenture have the meanings set
forth in Regulation S.
[Name of Transferor]
By:___________________________
Name:
Title:
Dated:
cc: NTL Incorporated
110 East 59th Street
New York, New York 10022
Attn: Richard J. Lubasch, Esq.
Executive Vice President and General Counsel
B-2
<PAGE> 84
EXHIBIT C
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
FROM REGULATION S GLOBAL NOTE OR RESTRICTED NOTE
TO RULE 144A GLOBAL NOTE
(Transfers pursuant to (Section) 2.06(a)(iii) or 2.06(a)(v)
of the Indenture)
The Chase Manhattan Bank, as Trustee
450 West 33rd Street
New York, New York 10001
Attn: Capital Markets Fiduciary Services
Re: NTL Incorporated 5-3/4% Convertible Subordinated Notes due
2009 (the "NOTES")
Reference is hereby made to the Indenture, dated as of
December 22, 1999 (the "INDENTURE"), between NTL Incorporated, as Issuer, and
The Chase Manhattan Bank, as Trustee. Capitalized terms used but not defined
herein shall have the respective meanings given them in the Indenture.
This letter relates to $[ ] [check one] (i) [ ] aggregate
principal amount of Notes which are held in the form of the Regulation S Global
Note (CUSIP No. ____) with the Depositary or (ii) [ ] principal amount of
Restricted Note (CUSIP No. ______) registered, in each case, in the name of
[ ] (the "TRANSFEROR") to effect the transfer of the Notes in exchange for
an equivalent beneficial interest in the Rule 144A Global Note.
In connection with such request, and in respect of such Notes
the Transferor does hereby certify that such Notes are being transferred in
accordance with (i) the transfer restrictions set forth in the Notes and (ii)
Rule 144A under the United States Securities Act of 1933, as amended, to a
transferee that the Transferor reasonably believes is purchasing the Notes for
its own account or an account with respect to which the transferee exercises
sole investment discretion and the transferee and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A, in a
transaction meeting the requirements of Rule 144A and in accordance with
applicable securities laws of any state of the United States or any other
jurisdiction.
[Name of Transferor],
By:___________________________
Name:
Title:
Dated:
cc: NTL Incorporated
110 East 59th Street
C-1
<PAGE> 85
New York, New York 10022
Attn: Richard J. Lubasch, Esq.
Executive Vice President and General Counsel
C-2
<PAGE> 86
EXHIBIT D
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
FROM RESTRICTED
NOTE TO RESTRICTED NOTE
(Transfers pursuant to (Section) 2.06(a)(iv) of the Indenture)
The Chase Manhattan Bank, as Trustee
450 West 33rd Street
New York, New York 10001
Attn: Capital Markets Fiduciary Services
Re: NTL Incorporated 5-3/4% Convertible Subordinated Notes due
2009 (the "NOTES")
Reference is hereby made to the Indenture, dated as of
December 22, 1999 (the "INDENTURE"), between NTL Incorporated, as Issuer, and
The Chase Manhattan Bank, as Trustee. Capitalized terms used but not defined
herein shall have the respective meanings given them in the Indenture.
This letter relates to $[ ] aggregate principal amount of
Notes which are held in the form of a Restricted Note (CUSIP No. [ ] in the
name of [name of transferor] (the "TRANSFEROR") to effect the transfer of the
Notes.
In connection with such request, and in respect of such Notes,
the Transferor does hereby certify that such Notes are being transferred (i) in
accordance with the transfer restrictions set forth in the Notes and (ii) in
accordance with applicable securities laws of any state of the United States or
any other jurisdiction.
*Insert, if appropriate.
[Name of Transferor],
By:___________________________
Name:
Title:
Dated:
cc: NTL Incorporated
110 East 59th Street
New York, New York 10022
Attn: Richard J. Lubasch, Esq.
Executive Vice President and General Counsel
D-1
<PAGE> 87
EXHIBIT E
FORM OF ACCREDITED INVESTOR CERTIFICATE
NTL Incorporated
110 East 59th Street
New York, New York 10022
We are delivering this letter in connection with our purchase of $
principal amount of 5-3/4% Convertible Subordinated Notes due 2009 (the
"Convertible Notes") of NTL Incorporated, a Delaware corporation (the "Company")
issued pursuant to an indenture, dated December 22, 1999, between the Company
and The Chase Manhattan Bank, as trustee, as described in the Offering
Memorandum (the "Offering Memorandum") relating to such offering.
We hereby confirm that:
(i) we are an "accredited investor" within
the meaning of Rule 501 (a) (1), (2), (3), (4) or (7) under the Securities Act
of 1933, as amended (the "Securities Act"), or an entity in which all of the
equity owners are accredited investors within the meaning of Rule 501(a) (1),
(2), (3), (4) or (7), under the Securities Act (an "Accredited Investor");
(ii) (A) any purchase of the Convertible
Notes by us will be for our own account or for the account of one or more other
Accredited Investors or as fiduciary for the account of one or more trusts, each
of which is an "accredited investor" within the meaning of Rule 501 (a) (7)
under the Securities Act and for each of which we exercise sole investment
discretion or (B) we are a "bank," within the meaning of Section 3(a) (2) of the
Securities Act, or a "savings and loan association" or other institution
described in Section 3(a) (5) (A) of the Securities Act that is acquiring the
Convertible Notes as fiduciary for the account of one or more institutions for
which we exercise sole investment discretion;
(iii) in the event that we purchase any of
the Convertible Notes, we will acquire Convertible Notes having a minimum
purchase price of not less than $100,000 for our own account or for any separate
account for which we are acting;
(iv) we have such knowledge and experience
in financial and business matters that we are capable of evaluating the merits
and risks of purchasing the Convertible Notes;
(v) we are not acquiring the Convertible
Notes with a view to any distribution thereof in a transaction that would
violate the Securities Act or the securities laws of any State of the United
States or any other applicable jurisdictions; provided that the disposition of
our property and the property of
E-1
<PAGE> 88
any accounts for which we are acting as fiduciary shall remain at all times
within our control;
(vi) we have received a copy of the Offering
Memorandum and acknowledge that we have had access to such financial and other
information, and have been afforded the opportunity to ask such questions of
representatives of the Company and receive answers thereto, as we deem necessary
in connection with our decision to purchase the Convertible Notes.
We understand that the Convertible Notes are being offered in
a transaction not involving any public offering within the meaning of
the Securities Act, that the Convertible Notes have not been registered
under the Securities Act, and we agree, on our own behalf and on behalf
of each account for which we acquire any Convertible Notes, that the
Convertible Notes may be offered, resold, pledged or otherwise
transferred only (i) inside the United States to a person whom we
reasonably believe to be a Qualified Institutional Buyer (as defined in
Rule 144A under the Securities Act) in a transaction meeting the
requirements of Rule 144A, in a transaction meeting the requirements of
Rule 144 under the Securities Act, if available, or outside the United
States to a non-U.S. person in a transaction meeting the requirements
of Rule 904 under the Securities Act, or unless the holder thereof is
the initial accredited investor, in accordance with another exemption
from the registration requirements of the Securities Act (and based
upon an opinion of counsel if the Company so requests), (ii) to the
Company or (iii) pursuant to an effective registration statement under
the Securities Act, and, in each case, in accordance with any
applicable securities laws of any State of the United States or any
other applicable jurisdiction. We understand that the registrar and
transfer agent will not be required to accept for registration of
transfer any Convertible Notes, except upon presentation of evidence
satisfactory to the Company, as applicable, that the foregoing
restrictions on transfer have been complied with. We further understand
that Convertible Notes will be in the form of definitive physical
certificates and that any such certificates will bear a legend
reflecting the substance of this paragraph. We further agree to provide
any person purchasing the Convertible Notes or the Common Stock
issuable upon conversion thereof (other than pursuant to clause (iii)
of this paragraph) from us a notice advising such purchaser that
resales of such securities are restricted as stated therein.
We acknowledge that you, the Company, and others will rely upon our
confirmations, acknowledgments and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
E-2
<PAGE> 89
Dated:
________________________________________
By: ____________________________________
Its: ___________________________________
Address:________________________________
________________________________
cc: The Chase Manhattan Bank, as Trustee
450 West 33rd Street
New York, New York 10001
Attn: Capital Markets Fiduciary Services
E-3
<PAGE> 1
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into
as of this 13th day of August, 1999, between NTL Incorporated, a Delaware
corporation (the "Company"), and France Telecom S.A., a societe anonyme
organized under the laws of France (the "Purchaser").
WHEREAS, the Purchaser intends to purchase (a) 750,000 shares of 5%
Cumulative Participating Convertible Preferred Stock, Series A, par value, $.0l
per share (the "Preferred Stock") of the Company, and (b) 2,702,703 shares of
Common Stock, par value $.0l of the Company (the "Common Stock"), each pursuant
to the terms and conditions of a Purchase Agreement dated as of July 15, 1999
between the Company and the Purchaser (the "Purchase Agreement");
WHEREAS, each share of Preferred Stock is initially convertible into
eight shares of Common Stock; and
WHEREAS, as a condition to the Purchaser's obligation to close the
transactions contemplated under the Purchase Agreement, the Company must enter
into this Agreement with the Purchaser;
NOW, THEREFORE, in consideration of the foregoing, the parties to this
Agreement hereby agree as follows:
ARTICLE ONE
DEFINITIONS
Capitalized terms used but not defined herein shall have the meaning
ascribed thereto in the Purchase Agreement.
"Blackout Period" shall have the meaning set forth in Section 3.01(b).
"Cogecom" shall have the meaning set forth in Section 6.06.
"Demand" shall have the meaning set forth in Section 2.01.
"Exchange Act" shall mean the United States Securities Exchange Act of
1934, as amended, or any United States federal statute then in effect that has
replaced such statute, and a reference to a particular section thereof shall be
deemed to include a reference to the comparable section, if any, of any such
replacement United States federal statute.
<PAGE> 2
"Existing Agreements" means (i) the Registration Rights Agreement,
dated January 28, 1999, between the Company and Microsoft Corporation, (ii) the
Registration Rights Agreement, dated September 22, 1998, between the Company and
Vision Networks III B.V., (iii) the Registration Rights Agreement, dated March
8, 1999, by and among the Company and the various Shareholders Listed in Annex A
thereto, and (iv) the Registration Rights Agreement, dated October 28, 1998, by
and among the Company, Comcast Corporation and Warburg, Pincus Investors, L.P.
"Existing Holders" shall have the meaning set forth in Section 2.05.
"5% Preferred Stock" means the Preferred Stock and any other shares of
preferred stock of the Company having substantially identical terms to the
Preferred Stock and issued as dividends on the Preferred Stock or shares of
preferred stock issued as dividends thereon.
"Indemnified Person" shall have the meaning set forth in Section
5.01(a).
"indemnifying parties" shall have the meaning set forth in Section
5.01(c).
"Investment Agreement" means the Investment Agreement dated July 26,
1999, between the Company and the Purchaser.
"Losses" shall have the meaning set forth in Section 5.01(a).
"Maximum Number" shall have the meaning set forth in Section 2.05.
"Person" shall mean an individual, trustee, corporation, partnership,
limited liability company, joint stock company, trust, unincorporated
association, union, business association, firm or other entity.
"Preliminary Prospectus" shall mean any preliminary Prospectus or
preliminary Prospectus supplement that may be included in any Registration
Statement.
"Proceedings" and "Proceeding" shall have the meaning set forth in
Section 5.01(c).
"Prospectus" shall mean the Prospectus included in any Registration
Statement, as amended or supplemented by any Prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement, and all other amendments and supplements
to the Prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference in such
Prospectus.
"Public Offering" shall mean the offer of shares of Common Stock or
securities convertible into or exchangeable for Common Stock on a
broadly-distributed basis, not limited to sophisticated investors (except for
qualified institutional buyers pursuant to Rule 144A under the Securities Act),
pursuant to a firm-commitment or best-efforts underwriting or purchase
arrangement.
2
<PAGE> 3
"Registrable Securities" means (a) the Common Shares, (b) any shares of
Common Stock issued upon the conversion or redemption of 5% Preferred Stock, and
(c) any shares of Common Stock issued as dividends upon the 5% Preferred Stock.
If as a result of any reclassification, stock split, stock dividend, business
combination, exchange offer or other transaction or event, any capital stock,
evidences of indebtedness, warrants, options, rights or other securities
(collectively "Other Securities") are issued or transferred to the Purchaser in
respect of Registrable Securities held by the Purchaser, references herein to
Registrable Securities shall be deemed to include such Other Securities.
"Registration Expenses" has the meaning set forth in Section 4.01.
"Registration Statement" shall mean any registration statement of the
Company under the Securities Act that covers any of the Registrable Securities,
including the Prospectus, amendments and supplements to such Registration
Statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
Registration Statement.
"Regulations" shall mean the General Rules and Regulations of the SEC
under the Securities Act.
"Rule 144" shall mean Rule 144 of the Regulations, as such rule may be
amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders of such securities being free of the registration and
prospectus delivery requirements of the Securities Act.
"SEC" shall mean the United States Securities and Exchange Commission
or any other United States federal agency at the time administering the
Securities Act or the Exchange Act.
"Seller" and "Sellers" shall have the meaning set forth in Section
2.06.
ARTICLE TWO
REGISTRATION UNDER THE SECURITIES ACT
SECTION 2.01. Demand Registration. If at any time the Purchaser shall
request the Company in writing (each, a "Demand") to register under the
Securities Act a specified number of Registrable Securities, the Company shall
use its best efforts to effect the registration under the Securities Act of the
Registrable Securities which the Company has been so requested to register as
soon as reasonably practicable so as to permit the sale thereof, and in
connection therewith shall prepare and file a Registration Statement with the
SEC under the Securities Act to effect such registration; provided, that each
such request shall (i) specify the number of shares of Registrable Securities
intended to be offered and sold, (ii) describe the nature or method of the
proposed offer
3
<PAGE> 4
and sale thereof, and (iii) contain the undertaking of the Purchaser to provide
all such information and materials and take all such action as may be required
in order to permit the Company to comply with all applicable requirements of the
SEC and to obtain any desired acceleration of the effective date of such
Registration Statement. The Company agrees not to grant to any other person
registration rights pursuant to which such person would have the right to
register shares of Common Stock on a Registration Statement filed by the Company
pursuant to the exercise of the Purchaser's rights under this Agreement.
SECTION 2.02. Limits on Demand Registrations. The Company shall not be
required to effect any registration pursuant to Section 2.01 after three Demands
requested by the Purchaser pursuant to Section 2.01 shall have been effected
unless, after such three Demands have been effected, the Purchaser has not sold
all shares of Registrable Securities then held by it. In that event, the
Purchaser and the Company shall negotiate in good faith the provision by the
Company of additional Demands pursuant to this Agreement as are reasonably
appropriate.
SECTION 2.03. Withdrawal. The Purchaser shall have the right to request
withdrawal of any Registration Statement filed with the SEC pursuant to Section
2.01 or Section 2.07 (and the Company shall so withdraw such Registration
Statement) so long as such Registration Statement has not become effective,
provided that, in such case, the Purchaser shall pay all related out-of-pocket
Registration Expenses reasonably incurred by the Company unless a Registration
Statement shall be effected pursuant to Section 2.01 within 270 days after such
withdrawal.
SECTION 2.04. Effective Registration Statement. A registration
requested pursuant to Section 2.01 shall not be deemed to be effected (i) if a
Registration Statement with respect thereto shall not have become effective
under the Securities Act and remained effective for at least 90 days or until
the completion of the distribution of the Registrable Securities thereunder,
whichever is earlier (including, without limitation, because of a withdrawal of
such Registration Statement by the Purchaser prior to the effectiveness thereof
pursuant to Section 2.03 hereof), (ii) if, after it has become effective, such
registration is interfered with for any reason by any stop order, injunction or
other order or requirement of the SEC or any other governmental authority, or as
a result of the initiation of any proceeding for such a stop order by the SEC
through no fault of the Purchaser and the result of such interference is to
prevent the Purchaser from disposing of such Registrable Securities proposed to
be sold in accordance with the intended methods of disposition, (iii) the
Company exercises its rights under Section 3.01(b) and the result is a delay in
the proposed distribution of any Registrable Securities and the Purchaser
determines not to sell such Registrable Securities pursuant to such registration
as a result of such delay, or (iv) if the conditions to closing specified in the
purchase agreement or underwriting agreement entered into in connection with any
underwritten offering shall not be satisfied or waived with the consent of the
Purchaser, other than as a result of any breach by the Purchaser or any
underwriter of its obligations thereunder or hereunder.
SECTION 2.05. "Piggy-Back" Rights. If the Company proposes to register
any shares of Common Stock for itself or any of its stockholders (the "Existing
Holders") under the Securities Act
4
<PAGE> 5
on a Registration Statement on Form S-1, Form S-2 or Form S-3 (or an equivalent
general registration form then in effect) for purposes of a Public Offering of
such shares, the Company shall give written notice of such proposal at least 20
days before the anticipated filing date, with notice shall include the intended
method of distribution of such shares, to the Purchaser. Such notice shall
specify at a minimum the number of shares of Common Stock proposed to be
registered, the proposed filing date of such Registration Statement, any
proposed means of distribution of such shares and the proposed managing
underwriter, if any. Subject to Section 2.06, upon the written request of the
Purchaser, given within 10 days after the receipt of any such written notice by
facsimile confirmed by mail (which request shall specify the Registrable
Securities intended to be disposed of by the Purchaser), the Company will use
its best efforts to include in the Registration Statement with respect to such
Public Offering the Registrable Securities referred to in the Purchaser's
request; provided, however, that any participation in such Public Offering by
the Purchaser shall be on substantially the same terms as the Company's (or its
other stockholders') participation therein; and provided further that the amount
of Registrable Securities to be included in any such Public Offering shall not
exceed the maximum number which the managing underwriter of such Public Offering
considers in good faith to be appropriate based on market conditions and other
relevant factors (the "Maximum Number"). The Purchaser shall have the right to
withdraw a request to include Registrable Securities in any Public Offering
pursuant to this Section 2.05 by giving written notice to the Company of its
election to withdraw such request at least five business days prior to the
proposed effective date of such Registration Statement.
SECTION 2.06. (a) Allocation of Securities Included in a Public
Offering. If the lead managing underwriter for any Public Offering to be
effected pursuant to Section 2.05 of this Agreement shall advise the Company and
the Purchaser (each, a "Seller" and, collectively, the "Sellers") in writing
that the number of shares of Common Stock sought to be included in such Public
Offering (including those sought to be offered by the Company, those sought to
be offered by the Sellers and those sought to be offered by Existing Holders) is
more than the Maximum Number, the shares of Common Stock to be included in such
Public Offering shall be allocated pursuant to the following procedures: First,
the Company shall be entitled to include all of the securities that it has
proposed to include, and second, to the extent that any other securities may be
included without exceeding the Maximum Number, and subject to rights of any
parties under the Existing Agreements, the Purchaser shall be entitled to
participate in that registration on a basis no less favorable than that of any
other holder of the Company's securities.
(b) Notwithstanding anything to the contrary in Section 2.05 and
Section 2.06, the Purchaser shall be entitled to participate in a Public
Offering effected by the Company pursuant to a request under an Existing
Agreement only to the extent that the terms of such Existing Agreement permits
an Existing Holder to so participate. The Company agrees that in any
modification or amendment of an Existing Agreement, the rights of the Purchaser
as granted under this Agreement will not be adversely affected, and that
registration rights granted by the Company under any future registration rights
agreement that the Company may enter into will be on a basis no more favorable
than the rights granted to the Purchaser herein, unless the Company also grants
equivalent rights to the Purchaser at the time of such other agreement.
5
<PAGE> 6
SECTION 2.07. Shelf Registration. (a) If at any time the Purchaser
shall request to the Company in writing, the Company shall use its best efforts
to file and cause to be declared effective a "shelf" Registration Statement on
any appropriate form pursuant to Rule 415 (or similar rule that may be adopted
by the SEC) under the Securities Act for Registrable Securities, which form
shall be available for the sale of the Registrable Securities in accordance with
the intended method or methods of distribution thereof. The Company agrees to
use its best efforts to keep such Registration Statement continuously effective
and usable for resale of Registrable Securities, for a period of twenty-four
months from the date on which the SEC declares such Registration Statement
effective or such shorter period which will terminate at such time as the
Purchaser has sold all the Registrable Securities covered by such Registration
Statement; provided, however, that the Company may elect that such Registration
Statement not be filed or usable during any Blackout Period (as defined in
Section 3.01(b)). Any request by the Purchaser to effect a "shelf" registration
statement pursuant to this Section 2.07 shall count as one Demand for purposes
of the limitations on Demands set forth in Section 2.02.
ARTICLE THREE
OBLIGATIONS OF THE COMPANY
SECTION 3.01. (a) Whenever the Company is required by the provisions of
this Agreement to use its best efforts to effect the registration of any Common
Stock under the Securities Act, the Company shall (i) prepare and, as soon as
reasonably possible and in any event within 45 days following receipt of a
notice from the Purchaser to that effect, file with the SEC a Registration
Statement with respect to such Registrable Securities, and shall use its best
efforts to cause such Registration Statement to become effective and to remain
effective until the sale of all of the shares of Registrable Securities so
registered or, in the case of a "shelf" registration statement filed pursuant to
Section 2.07, for the period specified in that Section; (ii) prepare and file
with the SEC such amendments and supplements to such Registration Statement and
the Prospectus used in connection therewith as may be reasonably necessary to
make and to keep such Registration Statement effective and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all securities proposed to be registered pursuant to such Registration
Statement until the sale of all of the shares of Registrable Securities so
registered or, in the case of a "shelf" registration statement filed pursuant to
Section 2.07, for the period specified in that Section; and (iii) take all such
other action either necessary or desirable to permit the shares of Registrable
Securities held by the Purchaser to be registered and disposed of in accordance
with the method of disposition described herein.
(b) Notwithstanding the foregoing, if the Company shall furnish to the
Purchaser a certificate signed by its Chairman, Chief Executive Officer or Chief
Financial Officer stating that (i) filing a Registration Statement or
maintaining effectiveness of a current Registration Statement would have a
material adverse effect on the Company or its stockholders in relation to any
material financing, acquisition or other corporate transaction, and the Company
has determined in good faith that such disclosure is not in the best interests
of the Company and its shareholders, or (ii) the Company has determined in good
faith that the filing or maintaining effectiveness of a current
6
<PAGE> 7
Registration Statement would require disclosure of material information the
Company has a valid business purpose of retaining as confidential, the Company
shall be entitled to postpone filing or suspend the use by the Purchaser of the
Registration Statement for a reasonable period of time, but not in excess of 60
consecutive calendar days (a "Blackout Period"). The Company shall be entitled
to exercise such suspension rights more than one time in any calendar year;
provided that such exercise shall not prevent the Purchaser from being entitled
to at least 240 days of effective registration rights per year and that no
suspension period may commence if it is less than 30 calendar days from the
prior such suspension period.
(c) In connection with any Registration Statement, the following
provisions shall apply:
(1) The Company shall furnish to the Purchaser, prior to the filing
thereof with the SEC, a copy of any Registration Statement, and each
amendment thereof and each amendment or supplement, if any, to the
Prospectus included therein and shall afford the Purchaser, the managing
underwriters, and their respective counsel, if any, a reasonable opportunity
within a reasonable time period to review and comment on copies of all such
documents (including a reasonable opportunity to review copies of any
documents to be incorporated by reference therein and all exhibits thereto)
proposed to be filed.
(2) The Company shall take such action as may be necessary so that: (i)
any Registration Statement and any amendment thereto and any Prospectus
forming part thereof and any amendment or supplement thereto (and each
report or other document incorporated therein by reference) complies in all
material respects with the Securities Act and the Exchange Act and the
respective rules and regulations thereunder, (ii) any Registration Statement
and any amendment thereto does not, when it becomes effective, contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (iii) any Prospectus forming part of any Registration
Statement, and any amendment or supplement to such Prospectus, does not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(3) (A) The Company shall advise the Purchaser and, if requested by the
Purchaser, confirm such advice in writing:
(i) when a Registration Statement and any amendment thereto has
been filed with the SEC and when the Registration Statement or any
post-effective amendment thereto has become effective; and
(ii) of any request by the SEC for amendments or supplements to
the Registration Statement or the Prospectus included therein or for
additional information.
7
<PAGE> 8
(B) The Company shall advise the Purchaser and, if requested by the
Purchaser, confirm such advice in writing of:
(i) the issuance by the SEC of any stop order suspending
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose;
(ii) the receipt by the Company of any notification with respect
to the suspension of the qualification of the securities included
therein for sale in any jurisdiction or the initiation of any
proceeding for such purpose; and
(iii) the happening of any event that requires the making of any
changes in the Registration Statement or the Prospectus so that, as of
such date, the Registration Statement and the Prospectus do not contain
an untrue statement of a material fact and do not omit to state a
material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in the light of the
circumstances under which they were made) not misleading (which advice
shall be accompanied by an instruction to suspend the use of the
Prospectus relating to such Registrable Securities until the requisite
changes have been made).
(4) The Company shall use its best efforts to prevent the issuance, and
if issued to obtain the withdrawal, of any order suspending the
effectiveness of the Registration Statement relating to such Registrable
Securities at the earliest possible time.
(5) The Company shall furnish to the Purchaser with respect to the
Registration Statement relating to such Registrable Securities, without
charge, such number of copies of such Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules, and all reports, other documents and exhibits (including those
incorporated by reference) as the Purchaser shall reasonably request.
(6) The Company shall furnish to the Purchaser such number of copies of
any Prospectus (including any preliminary Prospectus and any amended or
supplemented Prospectus) relating to such Registrable Securities, in
conformity with the requirements of the Securities Act, as the Purchaser may
reasonably request in order to effect the offering and sale of the shares of
such Registrable Securities to be offered and sold, but only while the
Company shall be required under the provisions hereof to cause the
Registration Statement to remain effective, and the Company consents (except
during a Blackout Period or event contemplated by Section
3.01(c)(3)(B)(iii)) to the use of the Prospectus or any amendment or
supplement thereto by the Purchaser in connection with the offering and sale
of the Registrable Securities covered by the Prospectus or any amendment or
supplement thereto.
(7) Prior to any offering of Registrable Securities pursuant to any
Registration Statement, the Company shall use its best efforts to register
or qualify the Registrable Securities covered by such Registration Statement
under the securities or blue sky laws
8
<PAGE> 9
of such states as the Purchaser shall reasonably request, maintain any such
registration or qualification current until the earlier of the sale of the
Registrable Securities so registered or 90 days subsequent to the effective
date of the Registration Statement, and do any and all other acts and things
either reasonably necessary or advisable to enable the Purchaser to
consummate the public sale or other disposition of the Registrable
Securities in jurisdictions where the Purchaser desires to effect such sales
or other disposition; provided that the Company shall not be required to
take any action that would subject it to the general jurisdiction of the
courts of any jurisdiction in which it is not so subject or to qualify as a
foreign corporation in any jurisdiction where the Company is not so
qualified.
(8) In connection with any offering of Registrable Securities
registered pursuant to this Agreement, the Company shall (x) furnish the
Purchaser, at the Company's expense, on a timely basis with certificates
free of any restrictive legends representing ownership of the Registrable
Securities being sold in such denominations and registered in such names as
the Purchaser shall request and (y) instruct the transfer agent and
registrar of the Registrable Securities to release any stop transfer orders
with respect to the Registrable Securities.
(9) Upon the occurrence of any event contemplated by Section
3.01(c)(3)(B)(iii) above, the Company shall promptly prepare a
post-effective amendment to any Registration Statement or an amendment or
supplement to the related Prospectus or file any other required document so
that, as thereafter delivered to purchasers of the Registrable Securities
included therein, the Prospectus will not include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. If the Company notifies the Purchaser of the
occurrence of any Blackout Period or any event contemplated by Section
3.01(c)(3)(B)(iii) above, the Purchaser shall suspend the use of the
Prospectus, for a period not to exceed thirty calendar days in accordance
with Section 3.01(b), until the requisite changes to the Prospectus have
been made.
(10) The Company shall make generally available to its security holders
or otherwise provide in accordance with Section 11(a) of the Securities Act
as soon as practicable after the effective date of the applicable
Registration Statement an earnings statement satisfying the provisions of
Section 11(a) of the Securities Act.
(11) The Company shall, if requested, promptly include or incorporate
in a Prospectus supplement or post-effective amendment to a Registration
Statement, such information as the managing underwriters administering an
underwritten offering of the Registrable Securities registered thereunder
reasonably request to be included therein and to which the Company does not
reasonably object and shall make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after they are
notified of the matters to be included or incorporated in such Prospectus
supplement or post-effective amendment.
9
<PAGE> 10
(12) If requested, the Company shall enter into an underwriting
agreement with a nationally recognized investment banking firm or firms
selected by the Purchaser and reasonably acceptable to the Company
containing representations, warranties, indemnities and agreements then
customarily included by an issuer in underwriting agreements with respect to
secondary underwritten distributions, and in connection therewith, if an
underwriting agreement is entered into, cause the same to contain
indemnification provisions and procedures substantially identical to those
set forth in Article Five (or such other provisions and procedures
acceptable to the managing underwriters, if any) with respect to all parties
to be indemnified pursuant to Article Five and take all such other actions
as are reasonably requested by the managing underwriters for such
underwritten offering in order to expedite or facilitate the registration or
the disposition of such Registrable Securities.
(13) In the event the Purchaser proposes to conduct an underwritten
Public Offering, then the Company shall: (i) make reasonably available for
inspection by the Purchaser and its counsel, any underwriter participating
in any distribution pursuant to such Registration Statement, and any
attorney, accountant or other agent retained by the Purchaser or any such
underwriter, all relevant financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries as shall be
reasonably necessary to enable them to conduct a "reasonable" investigation
for purposes of Section 11(a) of the Securities Act; (ii) cause the
Company's officers, directors and employees to make reasonably available for
inspection all relevant information reasonably requested by the Purchaser or
any such underwriter, attorney, accountant or agent in connection with any
such Registration Statement, in each case, as is customary for similar due
diligence examinations; provided that any information that is designated in
writing by the Company, in good faith, as confidential at the time of
delivery of such information shall be kept confidential by the Purchaser,
such underwriter, or any such, attorney, accountant or agent, unless such
disclosure is made in connection with a court proceeding or required by law,
or such information becomes available to the public generally or through a
third party without an accompanying obligation of confidentiality; (iii)
obtain opinions of counsel to the Company and updates thereof (which counsel
and opinions (in form, scope and substance) shall be reasonably satisfactory
to the managing underwriters, if any, addressed to the Purchaser and the
underwriters, if any, covering such matters as are customarily covered in
opinions requested in underwritten offerings and such other matters as may
be reasonably requested by the Purchaser and underwriters (it being agreed
that the matters to be covered by such opinion or written statement by such
counsel delivered in connection with such opinions shall include in
customary form, without limitation, as of the date of the opinion and as of
the effective date of the Registration Statement or most recent
post-effective amendment thereto, as the case may be, the absence from such
Registration Statement and the Prospectus included therein, as then amended
or supplemented, including the documents incorporated by reference therein,
of an untrue statement of a material fact or the omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading; (iv) obtain "cold comfort" letters and
updates thereof from the independent public accountants of the Company (and,
if necessary, any other independent
10
<PAGE> 11
public accountants of any subsidiary of the Company or of any business
acquired by the Company for which financial statements and financial data
are, or are required to be, included in the Registration Statement),
addressed to the Purchaser and the underwriters, if any, in customary form
and covering matters of the type customarily covered in "cold comfort"
letters in connection with primary underwritten offerings; and (v) deliver
such documents and certificates as may be reasonably requested by the
Purchaser and the managing underwriters, if any, and with any customary
conditions contained in the underwriting agreement or other agreement
entered into by the Company. The foregoing actions set forth in clauses
(iii), (iv) and (v) of this Section 3.01(c)(13) shall be performed at each
closing under any underwritten offering to the extent required thereunder.
(14) The Company will use its best efforts to cause such Registrable
Securities to be admitted for quotation on the Nasdaq National Market or
other stock exchange or trading system on which the Common Stock primarily
trades on or prior to the effective date of any Registration Statement
hereunder.
(15) The Company shall use its best efforts to take all other steps
reasonably necessary to effect the registration, offering and sale of the
Registrable Securities covered by a Registration Statement contemplated
hereby and enter into any other customary agreements and take such other
actions, including participation in "roadshows" as are reasonably required
in order to expedite or facilitate the disposition of such Registrable
Securities, and the Company shall secure the participation of its management
for such purposes.
(16) The Company shall, at the reasonable request of the Purchaser,
hold periodic meetings with representatives of the Purchaser to report on
the market for the Company's securities and opportunities for the Purchaser
to effect sales of such Registrable Securities.
(d) With a view to making available the benefits of certain rules and
regulations of the SEC which may at any time permit the sale of the Registrable
Securities to the public without registration, the Company agrees to:
(1) Make and keep public information available, as those terms are
understood and defined in and interpreted under Rule 144, at all times;
(2) During the term of this Agreement, furnish to the Purchaser upon
request: (i) a written statement by the Company as to its compliance with
the reporting requirements of Rule 144, (ii) a copy of the most recent
annual or quarterly report of the Company, and (iii) such other reports and
documents of the Company as the Purchaser may reasonably request in availing
itself of any rule or regulation of the SEC allowing the Purchaser to sell
any such securities without registration.
11
<PAGE> 12
ARTICLE FOUR
EXPENSES
SECTION 4.01. Expenses Payable by the Company. Except as provided in
Section 4.02 below, all fees and expenses incident to the registration and sale
of Registrable Securities shall be borne by the Company whether or not a
Registration Statement is filed or becomes effective, including, without
limitation, (i) all registration, qualification and filing fees (including,
without limitation, (A) fees with respect to filings required to be made with
the NASD and (B) fees and expenses of compliance with state securities or blue
sky laws (including, without limitation, fees and disbursements of counsel for
the Company or the underwriters, or both, in connection with blue sky
qualifications of the Registrable Securities)), (ii) messenger and delivery
expenses, word processing, duplicating and printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities in a
form eligible for deposit with The Depository Trust Company, printing
Preliminary Prospectuses, Prospectuses, Prospectus supplements, including those
delivered to or for the account of the Purchaser as provided in this Agreement,
and printing or preparing any underwriting agreement, agreement among
underwriters and related syndicate or selling group agreements, pricing
agreements and blue sky memoranda), (iii) fees and disbursements of counsel for
the Company, (iv) fees and disbursements of all independent certified public
accountants for the Company (including, without limitation, the expenses of any
"comfort letters" required by or incident to such performance), (v) the fees and
expenses of any "qualified independent underwriter" or other independent
appraiser participating in an offering pursuant to Section 3 of Rule 2720 of the
Conduct Rules of the NASD (unless such qualified independent underwriter is
required as a result of an affiliation between an underwriter selected by the
Purchaser and the Purchaser, in which case such fees and expenses will be borne
by the Purchaser), (vi) Securities Act liability insurance, if the Company so
desires such insurance, (vii) all out-of-pocket expenses of the Company
(including, without limitation, expenses incurred by the Company, its officers,
directors, employees and agents performing legal or accounting duties or
preparing or participating in "roadshow" presentations or of any public
relations, investor relations or other consultants or advisors retained by the
Company in connection with any roadshow, including travel and lodging expenses
of such roadshows), and (viii) the fees and expenses incurred in connection with
the quotation or listing of shares of Common Stock on any securities exchange or
automated securities quotation system. The fees and expenses set forth in this
Section 4.01 are collectively referred to as "Registration Expenses".
SECTION 4.02. Expenses Payable by the Purchaser. The Purchaser shall
pay all underwriting discounts and commissions or broker's commissions incurred
in connection with the sale or other disposition of Registrable Securities for
or on behalf of the Purchaser's account as well as the fees and expenses of the
Purchaser's counsel.
12
<PAGE> 13
ARTICLE FIVE
INDEMNIFICATION AND CONTRIBUTION
SECTION 5.01. (a) Indemnification by the Company. The Company shall,
without limitation as to time, indemnify and hold harmless, to the fullest
extent permitted by law, the Purchaser and any underwriter participating in the
distribution, their respective officers, directors, partners and agents and
employees of each of them, each Person who controls the Purchaser or any such
underwriter (within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act) and the officers, directors, partners, agents and
employees of each such controlling person (individually, an "Indemnified
Person") from and against any and all losses, claims, damages, liabilities,
costs (including, without limitation, costs of investigating, preparing to
defend, defending and appearing as a third-party witness and attorneys' fees and
disbursements) and expenses, including any amounts paid in respect of any
settlements (collectively, "Losses"), joint or several, without duplication, as
incurred, arising out of or based upon any untrue or alleged untrue statement of
a material fact contained in any Registration Statement, Prospectus or form of
prospectus, or in any amendment or supplements thereto or in any Preliminary
Prospectus, or arising out of or based upon, in the case of the Registration
Statement or any amendments thereto, any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and, in the case of the Prospectus or form of
prospectus, or in any amendments or supplements thereto, or in any Preliminary
Prospectus, any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading except, in either case,
(i) to the extent, but only to the extent, that such untrue or alleged untrue
statement or omission or alleged omission has been made therein in reliance upon
and in conformity with information furnished in writing to the Company by such
Indemnified Person expressly for use therein and (ii) if the Person asserting
any such Losses who purchased the Registrable Securities which are the subject
thereof did not receive a copy of an amended Preliminary Prospectus or the final
Prospectus (or the final Prospectus as amended or supplemented) at or prior to
the written confirmation of the sale of such Registrable Securities to such
person (if it is determined that the Company has provided such Preliminary
Prospectus and it was the responsibility of such Indemnified Person to provide
such person with a current copy of the Prospectus or amended or supplemented
Prospectus, as the case may be) and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact made in such
Preliminary Prospectus was corrected in the amended Preliminary Prospectus or
the final Prospectus (or the final Prospectus as amended and supplemented).
(b) Indemnification by Purchaser. In connection with any Registration
Statement in which the Purchaser as a holder of Registrable Securities is
participating, the Purchaser shall severally but not jointly, without limitation
as to time, indemnify and hold harmless, to the fullest extent permitted by law,
the Company, any underwriter participating in the distribution and their
respective directors, officers, agents and employees, each Person who controls
the Company or any such underwriter (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling person, from and against any and all
Losses, as incurred, arising out of or based upon (i) any untrue or alleged
untrue
13
<PAGE> 14
statement of a material fact contained in any Registration Statement,
Prospectus, or form of prospectus, or in any amendment or supplement thereto or
in any Preliminary Prospectus, or arising out of or based upon, in the case of
the Registration Statement or any amendments thereto, any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, and, in the case of the Prospectus, or
form of prospectus, or in any amendments or supplements thereto, or in any
Preliminary Prospectus, any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, in
either case, to the extent, but only to the extent, that such untrue or alleged
untrue statement or omission or alleged omission has been made therein in
reliance upon and in conformity with information furnished in writing to the
Company by the Purchaser expressly for use therein or (ii) the failure of the
Purchaser (if it is determined that it was the responsibility of the Purchaser)
at or prior to the written confirmation of the sale of the Registrable
Securities to send or deliver a copy of an amended Preliminary Prospectus or the
final Prospectus (or the final Prospectus as amended or supplemented) to the
Person asserting any such Losses who purchased the Registrable Securities which
are the subject thereof and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact made in such Preliminary
Prospectus was corrected in the amended Preliminary Prospectus or the final
Prospectus (or the final Prospectus as amended and supplemented). In no event
shall the liability of the Purchaser hereunder be, or be claimed by the Company
to be, greater in amount than the dollar amount of the proceeds actually
received by the Purchaser upon the sale of the Registrable Securities giving
rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Each Indemnified Person
shall give prompt notice to the party or parties from which such indemnity is
sought (the "indemnifying parties") of the commencement of any action or
proceeding (including any governmental investigation) (collectively
"Proceedings" and individually a "Proceeding") with respect to which such
Indemnified Person seeks indemnification or contribution pursuant hereto;
provided, however, that the failure so to notify the indemnifying parties shall
not relieve the indemnifying parties from any obligation or liability except to
the extent that the indemnifying party was otherwise unaware of such Proceeding
and the indemnifying parties shall have been materially prejudiced by such
failure. The indemnifying parties shall have the right, exercisable by giving
written notice to an indemnified party promptly after the receipt of written
notice from such indemnified party of such Proceeding, to assume, at the
indemnifying parties' expense, the defense of any such proceeding, with counsel
reasonably satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such Proceeding; provided,
however, that an indemnified party or parties (if more than one such indemnified
party is named in any Proceeding) shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless: (i) the indemnifying party or parties agree
to pay such fees and expenses; or (ii) the indemnifying parties fail promptly to
assume the defense of such Proceeding or fail promptly to employ counsel
reasonably satisfactory to such indemnified party or parties; or (iii) the named
parties to any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party, and the indemnified party or
parties shall have been advised by counsel that
14
<PAGE> 15
there may be a conflict between the positions of the indemnifying party or an
affiliate of the indemnifying party and such indemnified party or parties in
conducting the defense of such action or proceeding or that there may be legal
defenses available to such indemnified party or parties different from or in
addition to those available to the indemnifying party or such affiliate, in
which case, if such indemnified party or parties notifies the indemnifying
parties in writing that it elects to employ separate counsel at the expense of
the indemnifying parties, the indemnifying parties shall not have the right to
assume the defense thereof and such counsel shall be at the expense of the
indemnifying parties, it being understood, however, that the indemnifying
parties shall not, in connection with any one such Proceeding or separate but
substantially similar or related Proceedings in the same jurisdiction, arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel) at any time for such indemnified party
or parties. Whether or not such defense is assumed by the indemnifying parties,
such indemnifying parties or indemnified party or parties will not be subject to
any liability for any settlement made without its or their consent (but such
consent will not be unreasonably withheld). No indemnifying party shall be
liable for any settlement of any such action or proceeding effected without its
written consent, but if settled with its written consent each indemnifying party
jointly and severally agrees, subject to the exception and limitations set forth
above, to indemnify and hold harmless each indemnified party from and against
any loss or liability by reason of such settlement. No indemnification provided
for in Section 5.01(a) or 5.01(b) shall be available to any party who shall fail
to give notice as provided in this Section 5.01(c) if the party to whom notice
was not given was unaware of the proceeding to which such notice would have
related and was materially prejudiced by the failure to give such notice, but
the failure to give such notice shall not relieve the indemnifying party or
parties from any liability which it or they may have to the indemnified party
otherwise than on account of the provisions of Section 5.01(a) or 5.01(b). No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect of such claim or litigation.
(d) Contribution. If the indemnification provided for in this Section
5.01 is unavailable to an indemnified party or is insufficient to hold such
indemnified party harmless for any Losses in respect to which this Section 5.01
would otherwise apply by its terms, except by reasons of Section 5.01(a)(i) or
(ii) hereof or the failure of the indemnified party to give notice as required
in Section 5.01(c) hereof (provided that the indemnifying party was unaware of
the proceeding to which such notice would have related and was materially
prejudiced by the failure to give such notice), then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, shall have
an obligation to contribute to the amount paid or payable by such indemnified
party as a result of such Losses, in such proportion as is appropriate to
reflect the relative fault of the indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the actions, statements
or omissions that resulted in such Losses as well as any other relevant
equitable considerations. Where the indemnified party is an underwriter
participating in the distribution of Registrable Securities, however, each
indemnifying party, and, in addition, if the indemnifying party is the
Purchaser, the Company, shall have an obligation to contribute to the
15
<PAGE> 16
amount paid or payable by such indemnified part as the result of such Losses in
such proportion as is appropriate to reflect not only (i) the relative fault of
the Company, the Purchaser and the underwriters in connection with the actions,
statements or omissions that resulted in such Losses, as well as any other
relevant equitable considerations, but also (ii) the relative benefits received
by the Purchaser on the one hand and the underwriters on the other hand from the
distribution of the Registrable Securities. The relative benefit derived by the
parties shall be determined by reference to, among other things, the fact that
the Company entered into this Agreement to induce the Purchaser to engage in the
transaction pursuant to which the Registrable Securities were acquired. The
relative benefits received by the Purchaser on the one hand and the underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from any such offering (before deducting expenses) received by the
Purchaser bear to the total underwriting discounts or commissions received by
the underwriters. The relative fault of such indemnifying party, on the one
hand, and indemnified party, on the other hand, shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been taken by, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent any such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include any legal or other fees or expenses
incurred by such party in connection with any Proceeding, to the extent such
party would have been indemnified for such expenses if the indemnification
provided for in Section 5.01(a) or Section 5.01(b) were available to such party.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.01(d) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5.01(d), if the Purchaser is an
indemnifying party, it shall not be required to contribute any amount in excess
of the amount by which the total price at which the Registrable Securities sold
by such indemnifying party and distributed to the public were offered to the
public (net of any underwriting discounts and commissions and expenses) exceeds
the amount of any damages that such indemnifying party has otherwise been
required to pay or has paid by reason of such untrue or alleged untrue statement
or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(e) Remedies Cumulative. The indemnity, contribution and expense
reimbursement obligations under this Section 5.01 shall be in addition to any
liability each indemnifying person may otherwise have and shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party.
(f) Underwriting Agreement Controls. In the event of any conflict
between the indemnification and contribution terms as herein set forth and as
set forth in any underwriting agreement entered pursuant hereto, the
underwriting agreement shall control.
16
<PAGE> 17
(g) The obligations of the Company and the Purchaser under this Section
5.01 shall survive the completion of any offering of Registrable Securities in a
Registration Statement.
ARTICLE SIX
GENERAL PROVISIONS
SECTION 6.01. Notices. Except as otherwise provided in this Agreement,
any notice or other communication given under this Agreement shall be sufficient
if in writing and sent by registered or certified mail, return receipt
requested, postage prepaid, to a party at its address set forth below (or at
such other address as shall be designated for such purpose by such party in a
written notice to the other party hereto):
(a) If to the Company:
NTL Incorporated
110 East 59th Street
New York, NY 10022
Telecopy: (212) 906-8497
Attention: Richard J. Lubasch, Esq.
(e-mail: [email protected])
with copies (which shall not constitute notice to the Company) to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Telecopy: (212) 735-2000
Attention: Thomas Kennedy, Esq.
(e-mail: [email protected])
(b) If to the Purchaser:
France Telecom, S.A.
208-212, rue Raymond Losserand
75505 Paris Cedex 15, France
Telecopy: (331) 44-44-21-54
Attention: Philippe Mc Allister
(e-mail: [email protected])
17
<PAGE> 18
with a copy (which shall not constitute notice to the Purchaser) to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Telecopy: (212) 848-7179
Attention: Alfred J. Ross, Esq.
All such notices and communications shall be effective when received by the
addressee.
SECTION 6.02. Governing Law. This Agreement shall be governed in all
respects by the internal laws of the State of New York as applied to contracts
entered into solely between residents of, and to be performed entirely within,
such state, and without reference to principles of conflicts of laws or choice
of laws.
SECTION 6.03. Entire Agreement; Amendments. This Agreement constitutes
the full and entire understanding and agreement between the parties with regard
to the subject matter hereof and supersedes all prior agreements and
understandings among the parties relating to the subject matter hereof. Neither
this Agreement nor any term hereof may be amended, waived, discharged or be
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
SECTION 6.04. Successor and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
SECTION 6.05. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restriction of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
SECTION 6.06. Transfer or Assignment of Registration Rights. The
registration rights set forth in this Agreement shall be transferable or
assignable by the Purchaser, in whole or in part and from time to time; provided
that each transferee agrees in writing to be subject to all the terms and
conditions of this Agreement. The parties understand and agree that Compagnie
Generale des Communications (COGECOM) S.A. ("Cogecom") shall be entitled to
exercise any right granted hereunder to the Purchaser, so long as Cogecom (a)
remains a wholly-owned subsidiary of the Purchaser and (b) holds any Registrable
Securities.
SECTION 6.07. Remedies. In the event of a breach by any party of any of
its obligations under this Agreement, the other parties, in addition to being
entitled to exercise all rights provided herein or granted by law, including
recovery of damages, will be entitled to specific performance of their rights
under this Agreement. The Company and the Purchaser agree that monetary damages
18
<PAGE> 19
would not be adequate compensation for any loss incurred by reason of a breach
by the Company or the Purchaser, as the case may be, of any of the provisions of
this Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, the Company or the Purchaser, as
the case may be, shall waive the defense that a remedy at law would be adequate.
No failure or delay on the part of the Company or the Purchaser in exercising
any right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy.
SECTION 6.08. Subsequent Agreement. The parties agree that when a
registration rights agreement is executed and delivered by the parties as
contemplated by the Investment Agreement, such registration rights agreement
will supersede this agreement and this agreement shall be of no further force
and effect.
[The balance of this page intentionally left blank.]
19
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective authorized officers as of the date set forth above.
NTL INCORPORATED
By: /S/ Richard J. Lubasch
---------------------------------
Name: Richard J. Lubasch
Title: Executive Vice President,
General Counsel and Secretary
FRANCE TELECOM S.A.
By:
---------------------------------
Name:
Title:
20
<PAGE> 1
================================================================================
$1,200,000,000 5-3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2009
REGISTRATION RIGHTS AGREEMENT
Dated as of December 22, 1999
by and among
NTL INCORPORATED
and
MORGAN STANLEY & CO. INCORPORATED
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
SALOMON SMITH BARNEY INC
WARBURG DILLON READ LLC
CHASE SECURITIES INC.
LEHMAN BROTHERS INC.
WASSERSTEIN PERELLA SECURITIES, INC.
================================================================================
<PAGE> 2
This Registration Rights Agreement (this "AGREEMENT") is made and entered into
as of December 22, 1999 by and among NTL Incorporated, a Delaware corporation
(the "COMPANY"), and Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith Barney Inc,
Warburg Dillon Read LLC, Chase Securities Inc., Lehman Brothers Inc. and
Wasserstein Perella Securities, Inc.(each an "INITIAL PURCHASER" and
collectively, the "INITIAL PURCHASERS"). The Company proposes to issue and sell
to the Initial Purchasers (the "INITIAL PLACEMENT") $1,200,000,000 5-3/4%
Convertible Subordinated Notes Due 2009 (the "NOTES"). As an inducement to the
Initial Purchasers to enter into the purchase agreement, dated as of December
16, 1999 ( the "PURCHASE AGREEMENT"), and in satisfaction of a condition to the
Initial Purchasers' obligations thereunder, the Company agrees with the Initial
Purchasers, (i) for the benefit of the Initial Purchasers and (ii) for the
benefit of the holders from time to time of the Notes whose names appear in the
register maintained by the Registrar in accordance with the provisions of the
Indenture (as defined in Section 1 hereof) (including the Initial Purchasers),
as follows:
1. DEFINITIONS
Capitalized terms used herein without definition shall have their
respective meanings set forth in the Purchase Agreement. As used in this
Agreement, the following capitalized defined terms shall have the following
meanings:
"ACT" means the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
"AFFILIATE" of any specified person means any other person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such specified person. For purposes of this definition, control of
a person means the power, direct or indirect, to direct or cause the direction
of the management and policies of such person whether by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"CLOSING DATE" has the meaning set forth in the Purchase Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par value $0.01
per share, issuable upon the conversion of the Notes.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"HOLDER" has the meaning set forth in Section 2 hereof.
"INDENTURE" means the Indenture, dated as of December 22, 1999, between
the Company and the Trustee, relating to the Notes, as the same may be amended
from time to time in accordance with the terms thereof.
<PAGE> 3
"INITIAL PLACEMENT" has the meaning set forth in the preamble hereto.
"LOSSES" has the meaning set forth in Section 7(d) hereof.
"MAJORITY HOLDERS" means the Holders of a majority of the aggregate
principal amount at maturity of securities registered under a Shelf Registration
Statement.
"MANAGING UNDERWRITERS" means the investment banker or investment
bankers and manager or managers that shall administer an underwritten offering.
"NOTES" has the meaning set forth in the preamble hereto.
"PROSPECTUS" means the prospectus included in any Shelf Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of Transfer Restricted Securities covered by such Shelf
Registration Statement, and all amendments and supplements to the Prospectus,
including post-effective amendments.
"SHELF REGISTRATION" means a registration effected pursuant to Section
3 hereof.
"SHELF REGISTRATION PERIOD" has the meaning set forth in Section 3(b)
hereof.
"SHELF REGISTRATION STATEMENT" means a "shelf" registration statement
of the Company pursuant to the provisions of Section 3 hereof that covers some
or all of the Transfer Restricted Securities as applicable, on an appropriate
form under Rule 415 under the Act, or any similar rule that may be adopted by
the Commission, amendments and supplements to such registration statement,
including post-effective amendments, and in each case, including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"SUPPLEMENT DELAY PERIOD" means any period commencing on the date of
receipt by a Holder of Transfer Restricted Securities of any notice from the
Company of the existence of any fact or event of the kind described in Section
4(b)(2) hereof and ending on the date of receipt by such Holder of an amended or
supplemented Shelf Registration Statement or Prospectus, as contemplated by
Section 4(h) hereof, or the receipt by such Holder of written notice from the
Company (the "ADVICE") that the use of the Prospectus may be resumed, and the
receipt of copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus.
"TRANSFER RESTRICTED SECURITIES" means each Note and the Common Stock
issuable upon conversion thereof until (i) the date on which such Note or Common
Stock issuable upon conversion thereof has been effectively registered under the
Act and disposed of in accordance with the Shelf Registration Statement (ii) the
date on which such Note or Common Stock issuable upon conversion thereof is
distributed to the public pursuant to Rule 144 under the Act (or any similar
provision then in effect) or is saleable pursuant to Rule 144(k) under the Act
or (iii) the date upon which such Note is converted into Common Stock in
accordance with the terms and provisions of the Indenture or otherwise ceases to
be outstanding.
2
<PAGE> 4
"TRUSTEE" means the trustee with respect to the Notes under the
Indenture.
"UNDERWRITER" means any underwriter of Notes in connection with an
offering thereof under a Shelf Registration Statement.
2. HOLDERS
A person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER") whenever such person becomes the registered holder of such
Notes under the Indenture and includes broker-dealers that hold Transfer
Restricted Securities (i) as a result of market making activities and other
trading activities and (ii) which were acquired directly from the Company or an
Affiliate.
3. SHELF REGISTRATION
The Company shall, within 135 days of the date of original issuance of
the Notes, file with the Commission and thereafter shall use its best efforts to
cause to be declared effective under the Act on or prior to 255 days after the
date of original issuance of the Notes, a Shelf Registration Statement relating
to the offer and sale of the Transfer Restricted Securities by the Holders from
time to time in accordance with the methods of distribution elected by such
Holders and set forth in such Shelf Registration Statement.
The Company shall use its best efforts to keep the Shelf Registration
Statement continuously effective in order to permit the Prospectus forming part
thereof to be usable by Holders for a period of two years from the date the
Shelf Registration statement is declared effective by the Commission (or until
one year after such effective date if such Shelf Registration Statement is filed
at the request of an Initial Purchaser) or such shorter period that will
terminate when (i) all the Transfer Restricted Securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement, (ii) the date on which, in the opinion of counsel to the Company, all
of the Transfer Restricted Securities then held by the Holders may be sold by
such Holders in the public United States securities markets in the absence of a
registration statement covering such sales or (iii) the date on which there
ceases to be outstanding any Transfer Restricted Securities (in any such case,
such period being called the "SHELF REGISTRATION PERIOD"). The Company shall be
deemed not to have used its best efforts to keep the Shelf Registration
Statement effective during the requisite period if it voluntarily takes any
action that would result in Holders of Transfer Restricted Securities covered
thereby not being able to offer and sell such securities during that period,
unless (i) such action is required by applicable law, (ii) such action is taken
by the Company in good faith and for valid business reasons (not including
avoidance of the Company's obligations hereunder), including the acquisition or
divestiture of assets, so long as the Company promptly thereafter complies with
the requirements of Section 4(h) hereof, if applicable or (iii) such action is
taken because of any fact or circumstance giving rise to a Supplement Delay
Period.
4. REGISTRATION PROCEDURES
In connection with any Shelf Registration Statement, the following
provisions shall apply:
3
<PAGE> 5
(a) The Company shall ensure that (i) any Shelf Registration Statement
and any amendment thereto and any Prospectus forming part thereof and
any amendment or supplement thereto complies in all material respects
with the Act and the rules and regulations thereunder, (ii) any Shelf
Registration Statement and any amendment thereto does not, when it
becomes effective, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any
Prospectus forming part of any Shelf Registration Statement, and any
amendment or supplement to such Prospectus, does not include an untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements, in the light of the circumstances
under which they were made, not misleading.
(b) (1) The Company shall advise the Initial Purchasers and the Holders
of Transfer Restricted Securities covered thereby, and, if requested by
the Initial Purchasers or any such Holder, confirm such advice in
writing when a Shelf Registration Statement and any amendment thereto
has been filed with the Commission and when the Shelf Registration
Statement or any post-effective amendment thereto has become effective.
(2) The Company shall advise the Initial Purchasers and the
Holders of Transfer Restricted Securities covered thereby, and, if
requested by the Initial Purchasers or any such Holder, confirm such
advice in writing:
(i) of any request by the Commission for amendments or
supplements to the Shelf Registration Statement or the
Prospectus included therein or for additional information;
(ii) of the initiation by the Commission of proceedings
relating to a stop order suspending the effectiveness of the
Shelf Registration Statement;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Shelf Registration
Statement;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the
securities included therein for sale in any jurisdiction or
the initiation or threatening of any proceeding for such
purpose; and
(v) of the existence of any fact and the happening of any
event (including, without limitation, pending negotiations
relating to, or the consummation of, a transaction or the
occurrence of any event which would require additional
disclosure of material non-public information by the Company
in the Shelf Registration Statement as to which the Company
has a bona fide business purpose for
4
<PAGE> 6
preserving confidential or which renders the Company unable to
comply with Commission requirements) that, in the opinion of
the Company, makes untrue any statement of a material fact
made in its Shelf Registration Statement, the Prospectus or
any amendment or supplement thereto or any document
incorporated by reference therein or requires the making of
any changes in the Shelf Registration Statement or the
Prospectus so that, as of such date, the statements therein
are not misleading and do not omit to state a material fact
required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in light of
the circumstances under which they were made) not misleading.
Such advice may be accompanied by an instruction to suspend the use of
the Prospectus until the requisite changes have been made.
(c) The Company shall use its best efforts to obtain the withdrawal of
any order suspending the effectiveness of any Shelf Registration
Statement at the earliest possible time.
(d) The Company shall use its best efforts to furnish to each selling
Holder included within the coverage of any Shelf Registration Statement
who so requests in writing and who has provided to the Company an
address for notices, without charge, at least one conformed copy of
such Shelf Registration Statement and any post-effective amendment
thereto, including financial statements and, if the Holder so requests
in writing, all exhibits and schedules (including those incorporated by
reference).
(e) The Company shall, during the Shelf Registration Period, deliver to
each Holder of Transfer Restricted Securities covered by any Shelf
Registration Statement and who has provided to the Company an address
for notices, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) contained in such Shelf
Registration Statement and any amendment or supplement thereto as such
Holder may reasonably request; subject to any notice by the Company in
accordance with Section 5(b) hereof, the Company consents to the use of
the Prospectus or any amendment or supplement thereto by each of the
selling Holders for the purposes of offering and resale of the Transfer
Restricted Securities covered by the Prospectus in accordance with the
applicable regulations promulgated under the Act.
(f) Prior to any offering of Transfer Restricted Securities pursuant to
any Shelf Registration Statement, the Company shall register or qualify
or cooperate with the Holders of Transfer Restricted Securities named
therein and their respective counsel in connection with the
registration or qualification of such Transfer Restricted Securities
for offer and sale under the securities or blue sky laws of such
jurisdictions of the United States as any such Holders reasonably
request in writing not later than the date that is five business days
prior to the date
5
<PAGE> 7
upon which this Agreement specifies that the Shelf Registration
Statement shall become effective; provided, however, that the Company
will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action
which would subject it to general service of process or to taxation in
any such jurisdiction where it is not then so subject.
(g) The Company shall endeavor to cooperate with the Holders of
Transfer Restricted Securities to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities to
be sold pursuant to any Shelf Registration Statement free of any
restrictive legends and in such denominations and registered in such
names as Holders may request in writing at least two business days
prior to sales of securities pursuant to such Shelf Registration
Statement.
(h) Upon the occurrence of any event contemplated by paragraph
(b)(2)(v) hereof, the Company shall promptly prepare a post-effective
amendment to any Shelf Registration Statement or an amendment or
supplement to the related Prospectus or file any other required
document so that as thereafter delivered to purchasers of the Transfer
Restricted Securities covered thereby, the Prospectus will not include
an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that
in the event of a material business transaction (including, without
limitation, pending negotiations relating to such a transaction) which
would, in the opinion of counsel to the Company, require disclosure by
the Company in the Shelf Registration Statement of material non-public
information for which the Company has a bona fide business purpose for
not disclosing or which information is not available for filing with
the Commission, then for so long as such circumstances exist, the
Company shall not be required to prepare and file a supplement or
post-effective amendment hereunder.
(i) Not later than the effective date of any such Shelf Registration
Statement hereunder, the Company shall cause to be provided a
CUSIP/ISIN number for the Notes registered under such Shelf
Registration Statement, and provide the applicable trustee with printed
certificates for such Notes in a form eligible for deposit with DTC.
(j) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make
generally available to its security holders in a regular filing on Form
10-Q or 10-K an earnings statement satisfying the provisions of Rule
158 (which need not be audited) for the twelve-month period commencing
after effectiveness of the Shelf Registration Statement.
(k) The Company shall cause the Indenture to be qualified under the
Trust Indenture Act in a timely manner.
6
<PAGE> 8
(l) The Company may require each Holder of Transfer Restricted
Securities, which are to be sold pursuant to any Shelf Registration
Statement, to furnish to the Company within 20 business days after
written request for such information has been made by the Company, such
information regarding the Holder and the distribution of such
securities as the Company may from time to time reasonably require for
inclusion in such Shelf Registration Statement and such other
information as may be necessary or advisable in the reasonable opinion
of the Company and its counsel, in connection with such Shelf
Registration Statement. No Holder of Transfer Restricted Securities
shall be entitled to use the Prospectus unless and until such Holder
shall have furnished the information required by this Section 4(l) and
all such information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not
materially misleading.
(m) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf
Registration Statement, such information as the Managing Underwriters
and Majority Holders reasonably agree should be included therein and
shall make all required filings of such Prospectus supplement or
post-effective amendment as soon as notified of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
provided, however, that the Company shall not be required to take any
action pursuant to this Section 4(m) that would, in the opinion of
counsel for the Company, violate applicable law or to include
information the disclosure of which at the time would have an adverse
effect on the business or operations of the Company and/or its
subsidiaries, as determined in good faith by the Company.
(n) In the case of any Shelf Registration Statement, the Company shall
enter into such agreements (including underwriting agreements) and take
all other reasonably appropriate actions in order to expedite or
facilitate the registration or the disposition of the Transfer
Restricted Securities, and in connection therewith, if an underwriting
agreement is entered into, cause the same to contain indemnification
provisions and procedures no less favorable than those set forth in
Section 7 (or such other provisions and procedures acceptable to the
Majority Holders and the Managing Underwriters, if any), with respect
to all parties to be indemnified pursuant to Section 7 from Holders of
Notes to the Company.
(o) In the case of any Shelf Registration Statement, the Company shall:
(i) make reasonably available for inspection by
representatives of the Holders of Transfer Restricted
Securities to be registered thereunder, the Managing
Underwriter participating in any disposition pursuant to such
Shelf Registration Statement, and any attorney, accountant or
other agent retained by the Holders or any such Managing
Underwriter, at the office where normally kept during normal
business hours, all financial and other records, pertinent
corporate documents and properties of the Company and
7
<PAGE> 9
its subsidiaries, and cause the Company's officers, directors
and employees to supply all relevant information reasonably
requested by the Holders or any Managing Underwriter,
attorney, accountant or other agent in connection with any
such Shelf Registration Statement as is customary for similar
due diligence examinations; provided, however, that the
foregoing inspection and information gathering shall be
coordinated by the Managing Underwriters, if any, or by one
counsel designated by the Holders and that such persons shall
first agree in writing with the Company that any information
that is designated in writing by the Company, in good faith,
as confidential at the time of delivery of such information
shall be kept confidential by such person, unless such
disclosure is made in connection with a court proceeding or
required by law, or such information becomes available to the
public generally or through a third party without an
accompanying obligation of confidentiality;
(ii) make such representations and warranties to the Holders
of Transfer Restricted Securities registered thereunder and
the underwriters, if any, in form, substance and scope as are
customarily made by issuers to underwriters in underwritten
offerings and covering matters including, but not limited to,
those set forth in the Purchase Agreement;
(iii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the Managing
Underwriters, if any), addressed to each selling Holder and
the underwriters, if any, covering such matters as are
customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably
requested by such Holders and underwriters;
(iv) obtain "cold comfort" letters (or, in the case of any
person that does not satisfy the conditions for receipt of a
"cold comfort" letter specified in Statement on Auditing
Standards No. 72, an "agreed-upon procedures letter") and
updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of
the Company or of any business acquired by the Company for
which financial statements and financial data are, or are
required to be, included in the Shelf Registration Statement),
addressed where reasonably practicable to each selling Holder
of Transfer Restricted Securities registered thereunder and
the underwriters, if any, in customary form and covering
matters of the type customarily covered in "cold comfort"
letters in connection with primary underwritten offerings; and
8
<PAGE> 10
(v) deliver such documents and certificates as may be
reasonably requested by the Majority Holders and the Managing
Underwriters, if any, including those to evidence compliance
with Section 4(j) and with any customary conditions contained
in the underwriting agreement or other agreement entered into
by the Company.
The foregoing actions set forth in clauses (ii), (iii), (iv)
and (v) of this Section 4(o) shall, if reasonably requested by the
Majority Holder or the Majority Underwriters, be performed at (A) the
effectiveness of such Shelf Registration Statement and each
post-effective amendment thereto and (B) each closing under any
underwriting or similar agreement, as to the extent required
thereunder.
(vi) The Company may offer securities of the Company other
than the Notes under the Shelf Registration Statement, except
where such offer would conflict with the terms of the Purchase
Agreement.
5. HOLDERS' AGREEMENTS
Each Holder of Transfer Restricted Securities, by the acquisition of
such Transfer Restricted Securities, agrees:
(a) To furnish the information required to be furnished pursuant to
Section 4(n) hereof within the time period set forth therein.
(b) That upon receipt of a notice of the commencement of a Supplement
Delay Period, it will keep the fact of such notice confidential,
forthwith discontinue disposition of its Transfer Restricted Securities
pursuant to the Shelf Registration Statement, and will not deliver any
Prospectus forming a part thereof until receipt of the amended or
supplemented Shelf Registration Statement or Prospectus, as applicable,
as contemplated by Section 4(h) hereof, or until receipt of the Advice.
If a Supplement Delay Period should occur, the Shelf Registration
Period shall be extended by the number of days of which the Supplement
Delay Period is comprised; provided that the Shelf Registration Period
shall not be extended if the Company has received an opinion of counsel
(which counsel, if different from counsel to the Company referred to in
Section 5(a) and (b) of the Purchase Agreement, shall be reasonably
satisfactory to the Majority Holders of the Transfer Restricted
Securities named in the Shelf Registration Period) to the effect that
the Transfer Restricted Securities can be freely tradeable without the
continued effectiveness of the Shelf Registration Statement.
(c) If so directed by the Company in a notice of the commencement of a
Supplement Delay Period, each Holder of Transfer Restricted Securities
will deliver to the Company (at the Company's expense) all copies,
other than
9
<PAGE> 11
permanent file copies then in such Holder's possession, of the
Prospectus covering the Transfer Restricted Securities.
(d) Sales of such Transfer Restricted Securities pursuant to a Shelf
Registration Statement shall only be made in the manner set forth in
such currently effective Shelf Registration Statement.
6. REGISTRATION EXPENSES
The Company shall bear all expenses incurred in connection with the
performance of its obligations under Sections 2, 3 and 4 hereof and, in the
event of any Shelf Registration Statement, will reimburse the Holders for the
reasonable fees and disbursements of one firm or counsel designated by the
Majority Holders to act as counsel for the Holders in connection therewith.
Notwithstanding the foregoing or anything in this Agreement to the contrary,
each Holder shall pay all underwriting discounts and commission of any
underwriters with respect to any Transfer Restricted Securities sold by it.
7. INDEMNIFICATION AND CONTRIBUTION
(a) In connection with any Shelf Registration Statement, the Company
agrees to indemnify and hold harmless each Holder of Transfer
Restricted Securities covered thereby (including each Initial
Purchaser), the directors, officers, employees, partners,
representatives and agents of each such Holder and each person who
controls any such Holder within the meaning of either Section 15 of the
Act or Section 20 of the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact contained in
the Shelf Registration Statement as originally filed or in any
amendment thereof, or in any preliminary Prospectus or Prospectus, or
in any amendment thereof or supplement thereto, or arise out of, or are
based upon, the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and to reimburse each such
indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that (i) the Company will not be liable in any case to the
extent that any such loss, claim, damage or liability arises out of, or
is based upon, any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of any such Holder or by the Managing Underwriters specifically
for inclusion therein and (ii) the Company will not be liable to any
indemnified party under this indemnity agreement with respect to the
Shelf Registration Statement or Prospectus to the extent that any such
loss, claim, damage or liability of such indemnified party
10
<PAGE> 12
results solely from an untrue statement of a material fact contained
in, or the omission of a material fact from, the Shelf Registration
Statement or Prospectus, which untrue statement or omission was
corrected in an amended or supplemented Shelf Registration Statement or
Prospectus, if the person alleging such loss, claim, damage or
liability was not sent or given, at or prior to the written
confirmation of such sale, a copy of the amended or supplemented Shelf
Registration Statement or Prospectus if the Company had previously
furnished copies thereof to such indemnified party and if delivery of a
prospectus is required by the Act and was not so made. This indemnity
agreement will be in addition to any liability which the Company may
otherwise have.
The Company also agrees to indemnify or contribute to Losses
of, as provided in Section 7(d), any underwriters of Notes registered under a
Shelf Registration Statement, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Initial Purchasers and the selling Holders provided in
this Section 7(a) and shall, if requested by any Holder, enter into an
underwriting agreement reflecting such agreement, as provided in Section 4(p)
hereof.
(b) Each Holder of Transfer Restricted Securities covered by a Shelf
Registration Statement (including each Initial Purchaser) severally
agrees to indemnify and hold harmless (i) the Company, (ii) each of its
directors, (iii) each of its officers who signs such Shelf Registration
Statement and (iv) each person who controls the Company within the
meaning of either the Act or the Exchange Act to the same extent as the
foregoing indemnity from the Company to each such Holder, but only with
reference to written information relating to such Holder furnished to
the Company by or on behalf of such Holder specifically for inclusion
in the documents referred to in the foregoing indemnity. This indemnity
agreement will be in addition to any liability which any such Holder
may otherwise have. In no event shall any Holder, its directors,
officers or any person who controls such Holder be liable or
responsible for any amount in excess of the amount by which the total
amount received by such Holder with respect to its sale of Transfer
Restricted Securities pursuant to a Shelf Registration Statement
exceeds (i) the amount paid by such Holder for such Transfer Restricted
Securities and (ii) the amount of any damages that such Holder, its
directors, officers or any person who controls such Holder has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.
(c) Promptly after receipt by an indemnified party under this Section 7
or notice of the commencement of any action, the indemnified party
will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 7, notify the indemnifying party
in writing of the commencement thereof; but the failure to so notify
the indemnifying party (i) will not relieve it from liability under
paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the
forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the
11
<PAGE> 13
indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to
represent the indemnified party in any action for which indemnification
is sought (in which case the indemnifying party shall not thereafter be
responsible for the fees and expenses of any separate counsel retained
by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory
to the indemnified party. Notwithstanding the indemnifying party's
election to appoint counsel to represent the indemnified party in an
action, the indemnified party shall have the right to employ separate
counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel
(and local counsel) if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present
such counsel with a conflict of interest, (ii) the actual or potential
defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party, and the indemnified party
reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties that are different from or additional
to those available to the indemnifying party, (iii) the indemnifying
party did not employ counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice
of the institution of such action or (iv) the indemnifying party
authorized the indemnified party to employ separate counsel at the
expense of the indemnifying party. An indemnifying party shall not,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding for which
indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim
or action), unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding and does not
include a statement as to or an admission of fault, culpability or a
failure to act, by or on behalf of the indemnified party.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 7 is unavailable or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying
party, in lieu of indemnifying such indemnified party, shall have a
joint and several obligation to contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or defending same)
(collectively "LOSSES") to which such indemnified party may be subject
in such proportion as is appropriate to reflect the relative benefits
received by such indemnifying party, on the one hand, and such
indemnified party, on the other hand, from the Initial Placement and
the Shelf Registration Statement that resulted in such Losses;
provided, however, that in no case shall any Initial Purchaser or any
subsequent Holder of any Note be responsible, in the aggregate, for any
amount in excess of the purchase discount on the initial offering price
of such
12
<PAGE> 14
Notes or commission applicable to such Note, nor shall any underwriter
be responsible for any amount in excess of the underwriting discount or
commission applicable to the securities purchased by such underwriter
under the Shelf Registration Statement that resulted in such Losses. If
the allocation provided by the immediately preceding sentence is
unavailable for any reason, the indemnifying party and the indemnified
party shall contribute in such proportion as is appropriate to reflect
not only such relative benefits, but also the relative fault of such
indemnifying party, on the one hand, and such indemnified party, on the
other hand, in connection with the statements or omissions which
resulted in such Losses, as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be
equal to the sum of (x) the total net proceeds from the Initial
Placement (before deducting expenses) (which shall be $941,380,000) and
(y) the total amount of additional interest that the Company was not
required to pay as a result of registering the securities covered by
the Shelf Registration Statement that resulted in such Losses. Benefits
received by the Initial Purchasers shall be deemed to be equal to the
total purchase discounts and commissions in connection with the Initial
Placement, and benefits received by any other Holders shall be deemed
to be equal to the value of receiving Notes registered under the Act.
Benefits received by any underwriter shall be deemed to be equal to the
total underwriting discounts and commissions, as set forth on the cover
page of the Prospectus forming a part of the Shelf Registration
Statement that resulted in such Losses. Relative fault shall be
determined by reference to whether any alleged untrue statement or
omission relates to information provided by the indemnifying party, on
the one hand, or by the indemnified party, on the other hand. The
parties agree that it would not be just and equitable if contribution
were determined by pro rata allocation or any other method of
allocation that does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this paragraph
(d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person who controls a Holder
within the meaning of either the Act or the Exchange Act and each
director, officer, employee and agent of such Holder shall have the
same rights to contribution as such Holder, and each person who
controls the Company within the meaning of either the Act or the
Exchange Act, each officer of the Company who shall have signed the
Shelf Registration Statement and each director of the Company shall
have the same rights to contribution as the Company, subject in each
case to the applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 7 shall remain in full force and
effect, regardless of any investigation made by or on behalf of any
Holder or the Company or any of the officers, directors or controlling
persons referred to in Section 7 hereof, and will survive the sale by a
Holder of Transfer Restricted Securities.
13
<PAGE> 15
8. RULE 144A AND RULE 144
The Company agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder, to such Holder or beneficial owner of
Transfer Restricted Securities in connection with any sale thereof and any
prospective purchaser of such Transfer Restricted Securities designated by such
Holder or beneficial owner, the information required by Rule 144A(d)(4) under
the Act in order to permit resales of such Transfer Restricted Securities
pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of the
Exchange Act, to make all filings required thereby in a timely manner in order
to permit resales of such Transfer Restricted Securities pursuant to Rule 144.
9. MISCELLANEOUS
(a) No Inconsistent Agreements. The Company has not, as of the date
hereof, entered into, nor shall it, on or after the date hereof, enter
into, any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders herein or otherwise conflicts
with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, unless the Company has obtained
the written consent of the Holders of at least a majority of the then
outstanding aggregate principal amount of Notes; provided, however,
that with respect to any matter that directly or indirectly affects the
rights of any Initial Purchaser hereunder, the Company shall obtain the
written consent of each such Initial Purchaser against which such
amendment, qualification, supplement, waiver or consent is to be
effective. Notwithstanding the foregoing (except the foregoing
proviso), a waiver or consent to depart from the provisions hereof,
with respect to a matter, which relates exclusively to the rights of
Holders whose securities are being sold pursuant to a Shelf
Registration Statement and does not directly or indirectly affect the
rights of other Holders, may be given by the Majority Holders,
determined on the basis of Notes being sold rather than registered
under such Shelf Registration Statement.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery,
first-class mail, telex, telecopier, or air courier guaranteeing
overnight delivery:
(i) if to a Holder, at the most current address given by such
holder to the Company in accordance with the provisions of
this Section 9(c), which address initially is, with respect to
each Holder, the address of such Holder maintained by the
registrar under the Indenture, with a copy in like manner to
Morgan Stanley & Co. Incorporated;
14
<PAGE> 16
(ii) if to the Initial Purchasers, initially at the respective
addresses set forth in the Purchase Agreement; and
(iii) if to the Company, initially at its address set forth in
the Purchase Agreement.
All such notices and communications shall be deemed to have
been duly given when received.
The Initial Purchasers or the Company by notice to the other
may designate additional or different addresses for subsequent notices or
communications.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of, and be binding upon, the successors and assigns of each of the
parties hereto, including, without the need for an express assignment
or any consent by the Company thereto, subsequent Holders of Notes. The
Company hereby agrees to extend the benefits of this Agreement to any
Holder of Notes and any such Holder may specifically enforce the
provisions of this Agreement as if an original party hereto.
(e) Counterparts. This agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same agreement.
(f) Headings. The headings in this agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
(g) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable
to agreements made and to be performed in said State (without reference
to the conflict of law rules thereof).
(h) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason,
the validity, legality and enforceability of any such provision in
every other respect and the remaining provisions hereof shall not be in
any way impaired or affected thereby, it being intended that all of the
rights and privileges of the parties shall be enforceable to the
fullest extent permitted by law.
(i) Notes Held by the Company, etc. Whenever the consent or approval of
Holders of a specified percentage of principal amount of Notes is
required hereunder, Notes held by the Company or its Affiliates (other
than subsequent Holders of Notes if such subsequent Holders are deemed
to be Affiliates solely by reason of their holdings of such Notes)
shall not be counted in determining
15
<PAGE> 17
whether such consent or approval was given by the Holders of such
required percentage.
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties
hereto with respect to the subject matter contained herein. There are
no restrictions, promises, warranties or undertakings, other than those
set forth or referred to herein with respect to the registration rights
granted with respect to the Transfer Restricted Securities. This
Agreement supersedes all prior agreements and understandings between
the parties with respect to such subject matter.
16
<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
NTL INCORPORATED
By: ______________________________________
Name:
Title:
MORGAN STANLEY & CO. INCORPORATED
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
SALOMON SMITH BARNEY INC
WARBURG DILLON READ LLC
CHASE SECURITIES INC.
LEHMAN BROTHERS INC.
WASSERSTEIN PERELLA SECURITIES, INC.
By: MORGAN STANLEY & CO. INCORPORATED
By: _____________________________________
Name:
Title:
<PAGE> 1
AMENDMENT NO. 2 TO THE RIGHTS AGREEMENT
AMENDMENT NO. 2 TO THE RIGHTS AGREEMENT (this "Amendment"), dated as
of October 23, 1999, by and between NTL INCORPORATED, a Delaware corporation
(the "Company"), and CONTINENTAL STOCK TRANSFER & TRUST COMPANY, as Rights Agent
(the "Rights Agent"). This Amendment amends the Rights Agreement, as amended
(the "Rights Agreement"), dated October 13, 1993, by and between the Company and
the Rights Agent. Capitalized terms used in this Amendment without definition
shall have the meanings given to them in the Rights Agreement.
Whereas, in accordance with Section 27 of the Rights Agreement, an
officer of the Company has delivered to the Rights Agent an officer's
certificate as to the compliance of this Amendment with Section 27 of the Rights
Agreement;
Whereas, the Company has been made aware of discussions between France
Telecom, S.A. ("France Telecom") on the one hand and European Cable Capital
Partners, L.P.; Bridge Street Fund 1996, L.P.; GS Capital Partners L.P. and
Stone Street Fund 1996, L.P. (collectively, the "Partnerships"), which hold
shares of Company Common Stock acquired earlier this year (collectively, the
"Partnership Shares"), on the other, concerning the sale by the Partnerships of
3,300,000 shares of the Partnership Shares (the "Partnership Sale Shares") to
France Telecom and pursuant to the provisions of Section 2.7 of the registration
rights agreement, dated March 8, 1999, by and between the Company and, among
other parties, the Partnerships (the "Partnerships Registration Rights
Agreement"), France Telecom has agreed to purchase up to an additional
approximately 1,400,000 shares of Common Stock from shareholders with
"tag-along" (collectively, the "Tag Along Shares" and together with the
Partnership Sale Shares, collectively, the "Sale Shares");
Whereas, France Telecom's wholly owned subsidiary, Compagnie Generale
des Communications (Cogecom) S.A. ("COGECOM") holds 3,378,379 shares of Common
Stock and 750,000 shares of 5% Cumulative Participating Convertible Preferred
Stock, Series A (the "Series A Preferred Stock"), of the Company, which is
convertible into an aggregate of 7,500,000 shares of Common Stock; and
Whereas, the Board of Directors of the Company has determined that it
is in the best interests of the Company and its stockholders, to amend, to the
extent necessary, the Rights Agreement to exempt the purchase of the Sale Shares
by France Telecom from the application of the Rights Agreement.
1
<PAGE> 2
In consideration of the premises and the mutual agreements set forth
herein and in the Rights Agreement, the parties hereto, intending to be legally
bound hereby, agree as follows:
Section 1. Incorporation of "COGECOM," "France Telecom,"
"Partnership Sale Shares," "Partnership Shares," "Partnerships," "Partnerships
Registration Rights Agreement," "Sale Shares," "Series A Preferred Stock" and
"Tag Along Shares" as Defined Terms of Rights Agreement. The terms "COGECOM,"
"France Telecom," "Partnership Sale Shares," "Partnership Shares,"
"Partnerships," "Partnerships Registration Rights Agreement," "Sale Shares,"
"Series A Preferred Stock" and "Tag Along Shares" and the respective definitions
of such terms as set forth in the preamble of this Amendment are hereby
incorporated in the Rights Agreement under the heading "Certain Definitions" in
Section 1 thereof.
Section 2. Amendment to Definition of "Acquiring Person."
Section 1(a) of the Rights Agreement is hereby amended to add the following
sentence after the last sentence thereof, which sentence was added pursuant to
Amendment No. 1 to the Rights Agreement, dated as of March 31, 1999:
"Notwithstanding anything in this Agreement to the contrary,
France Telecom and/or any of France Telecom's Affiliates or Associates
shall not be considered an Acquiring Person as a result of having
become the Beneficial Owner of (i) the Common Stock issued and sold
pursuant to the Purchase Agreement, (ii) the Common Stock issued upon
conversion or redemption of, or as a dividend with respect to, the
Series A Preferred Stock and any subsequent series of preferred stock
of the Company resulting from the issuance of the Series A Preferred
Stock or (iii) the Sale Shares. Notwithstanding the foregoing, in the
event France Telecom and/or any of France Telecom's Affiliates or
Associates shall acquire any Common Stock or securities convertible,
exercisable, exchangeable or redeemable into Common Stock or be issued
Common Stock upon the conversion, exercise, exchange or redemption of,
or as a dividend with respect to securities of the Company after the
date hereof and other than as described in the immediately preceding
sentence, then (i) France Telecom and/or any of France Telecom's
Affiliates or Associates shall be deemed to beneficially own all such
securities as well as any securities previously or thereafter acquired
and then owned by France Telecom and/or any of France Telecom's
Affiliates or Associates and (ii) all securities deemed to be
beneficially owned by France Telecom and/or any of France Telecom's
Affiliates or Associates shall be counted in determining when such
Person is an "Acquiring Person."
2
<PAGE> 3
Section 3. Rights Agreement as Amended. The term "Agreement"
as used in the Rights Agreement shall be deemed to refer to the Rights Agreement
as amended hereby. The foregoing amendments shall be effective as of the date
hereof, and, except as set forth herein, the Rights Agreement shall remain in
full force and effect and shall be otherwise unaffected hereby.
Section 4. Counterparts. This Amendment may be executed in any
number of counterparts, and each of such counterparts shall for all purposes be
deemed an original, but all such counterparts shall together constitute but one
and the same instrument.
Section 5. Governing Law. This Amendment shall be deemed to be
a contract made under the laws of the State of Delaware and for all purposes
shall be governed by and construed in accordance with the laws of such State
applicable to contracts made and to be performed entirely within such State.
Section 6. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
Attest: NTL INCORPORATED
By: /s/ Richard J. Lubasch By: /s/ George S. Blumenthal
-------------------------------- ------------------------------------
Name: Richard J. Lubasch Name: George S. Blumenthal
Title: Executive Vice President- Title: Chairman and Treasurer
General Counsel and Secretary
Attest: CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By: /s/ William F. Seegraber By: /s/ Michael J. Nelson
-------------------------------- ------------------------------------
Name: William F. Seegraber Name: Michael J. Nelson
Title: Vice President Title: President
3
<PAGE> 1
FORM OF DIRECTOR AND OFFICER INDEMNITY AGREEMENT
AGREEMENT, dated as of ______________________, between NTL
Incorporated, a Delaware corporation (the "Company"), and separately with each
director and officer of the Company (the "Indemnitee").
WHEREAS, Indemnitee is a director or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in today's environment;
WHEREAS, as a result of substantial changes in the marketplace for
directors and officers liability insurance, the Company does not maintain such
insurance;
WHEREAS, the Bylaws of the Company requires the Company to indemnify
and advance expenses to its directors and officers to the fullest extent
permitted by law and the Indemnitee has been serving and continues to serve as a
director or officer of the Company in part in reliance on such provision;
WHEREAS, Section 145(f) of the Delaware General Corporation Law
expressly recognizes that the indemnification provisions of the Delaware
Corporation Law are not exclusive of any other rights to which a person seeking
indemnification may be entitled by by-law, agreement, vote of stockholders or
otherwise, and this Agreement is being entered into pursuant to such provision;
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to assure Indemnitee's continued service to
the Company in an effective manner and Indemnitee's reliance on the aforesaid
Bylaws and in part to provide Indemnitee with specific contractual assurance
that the protection promised by the Bylaws will be available to Indemnitee
(regardless of, among other things, any amendment to or revocation or any change
in the composition of the Company's Board of Directors or acquisition of the
Company), the Company wishes to provide in this Agreement for the
Indemnification of and the advancing of expenses to Indemnitee to the full
extent (whether partial or complete) permitted by law and as set forth in this
Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and of
Indemnitee continuing to serve the Company directly or, at its request, with
another enterprise, and intending to be legally bound hereby, the parties hereto
agree as follows:
1.0 CERTAIN DEFINITIONS.
(a) Change in Control: shall be deemed to have occurred if (i) any
"person" (as such term is used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as
<PAGE> 2
amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 20% or more of the total
voting power represented by the Company's then outstanding voting securities, or
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 80% of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets.
(b) Claim: is any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether conducted by or on behalf
of the Company or any other party, that Indemnitee in good faith believes might
lead to the institution of any such action, suit or proceeding, whether civil,
criminal, administrative, investigative or other.
(c) Expenses: include attorneys' fees and all other costs, expenses and
obligations paid or incurred in connection with investigating, defending, being
a witness in or participating in (including an appeal), or preparing to defend,
be a witness in or participate in any Claim relating to any Indemnifiable Event.
(d) Indemnifiable Event: is any event or occurrence related to the fact
that Indemnitee is or was a director, officer, employee, agent or fiduciary of
the Company, or is or was serving at the request of the Company as a director,
officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other entity.
(e) Indemnification Period: shall be such period as the Indemnitee
shall continue to serve as a director, officer, employee, agent or fiduciary of
the Company, or shall continue at the request of the Company to serve as a
director, officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other entity, and thereafter so long as the
Indemnification shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding or any inquiry or investigation, whether
civil, criminal or investigative, arising out of the Indemnitee's tenure in the
foregoing positions.
<PAGE> 3
(f) Losses: are any judgments, fines and amounts paid in settlement
(including all interest assessments and other charges paid or payable in
connection with or in respect of such judgments, fines, penalties or amounts
paid in settlement) of such action, suit or proceeding.
(g) Reviewing Party: shall mean (I) the Board of Directors (provided
that a majority of directors are not parties to the Claim), (ii) a person or
body selected by the Board of Directors and (iii) if there has been a Change in
Control, the special independent counsel referred to in subsection 3(b) hereof.
2.0 INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
Subject to the limitations set forth herein and in Section 3 hereof,
the Company hereby agrees to indemnify Indemnitee as follows
(a) Basic Indemnification. The Company shall hold harmless and
indemnify Indemnitee to the fullest extent authorized or permitted (I) by the
General Corporation Law of the State of Delaware, or any other applicable law,
the Company's Restated Certificate of Incorporation or By-Laws as in effect on
the date hereof, or (ii) by any amendment thereof or other statutory provisions
authorizing or permitting such indemnification which is adopted after the date
hereof.
(b) Additional Indemnification. Without limiting the generality of
subsection (a) hereof, in the event Indemnitee was, is or becomes a participant
in a Claim by reason of (or arising in part out of) an Indemnifiable Event, the
Company shall indemnity Indemnitee to the fullest extent permitted by law, as
soon as practicable after written demand is presented to the Company, against
any and all Expenses and Losses.
(c) Advancement of Expenses. In the event Indemnitee is, was or becomes
a participant in any Claim by reason of an Indemnifiable Event, if so requested
by Indemnitee, the Company shall advance any and all such Expenses to
Indemnitee.
3.0 GENERAL LIMITATIONS ON INDEMNIFICATION.
(a) Determination of Reviewing Party. Notwithstanding the foregoing,
(I) the obligations of the Company set forth in Section 2 hereof (except with
respect to Expense advances made prior to any determination by a Reviewing Party
referred to below that Indemnitee substantively would not be permitted to be
indemnified for Claims for Indemnifiable Events with respect to which such
advances are being made) shall be subject to the condition that the Reviewing
Party shall not have determined (in a written opinion, in any case in which the
special independent counsel referred to in subsection (b) hereof is involved)
that Indemnitee would not be permitted to be so indemnified under applicable
law, and (ii) if, when and to the extent that the Reviewing Party determines
that Indemnitee would not be permitted to be so indemnified under applicable
law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby
agrees to reimburse the Company) for all such amounts theretofore paid (unless
Indemnitee has
<PAGE> 4
commenced legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, in
which event Indemnitee shall not be required to so reimburse the Company until a
final judicial determination is made with respect thereto as to which all rights
of appeal therefrom have been exhausted or lapsed) and shall not be obligated to
indemnify or advance any additional amounts to Indemnitee (unless there has been
a determination by a court of competent jurisdiction that the Indemnitee would
be permitted to be so indemnified under applicable law).
If there has been no determination by the Reviewing Party or if the
Reviewing Party determines that Indemnitee substantively would not be permitted
to be indemnified in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation in any court in the States of New York or
Delaware having subject matter jurisdiction thereof and in which venue is proper
seeking an order or judgment by the court equivalent to the determination of the
Reviewing Party or challenging any such determination by the Reviewing Party or
any aspect thereof; any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
(b) Change in Control of Company. The Company agrees that if there is a
Change in Control of the Company, then with respect to all matters thereafter
arising concerning the rights of Indemnitee to indemnity payments and expense
advances under this Agreement or the Company's Restated Certificate of
Incorporation, any other agreements or its By-laws now or hereafter in effect
relating to Claims for Indemnifiable Events, the Company shall seek legal advice
only from special independent counsel selected by Indemnitee and approved by the
Company (which approval shall not be unreasonably withheld), and who has not
otherwise performed services for the Company (other than in connection with such
matters) or Indemnitee. In the event that Indemnitee and the Company are unable
to agree on the selection of the special independent counsel, such special
independent counsel shall be selected by lot from among at least five law firms
each in New York City, New York, and having no less than 10 partners. Such
selection shall be made in the presence of Indemnitee (and his legal counsel or
either of them, as Indemnitee may elect). Such special independent counsel,
among other things, shall determine whether and to what extent the Indemnitee
would be permitted to be indemnified under applicable law and shall render its
written opinion to the Company and Indemnitee to such effect.
The Company agrees to pay the reasonable fees of the special
independent counsel referred to above and to fully indemnify such counsel
against any and all Expenses and Losses arising out of or relating to this
Agreement or its engagement pursuant hereto.
4.0 NO MODIFICATION.
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the
<PAGE> 5
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver. Any waiver shall be in writing.
5.0 SUBROGATION.
In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable to the Company effectively to bring suit to
enforce such rights.
6.0 REIMBURSEMENT.
The Company shall not be liable under this Agreement to make any
payment in connection with any claim made against Indemnitee to the extent
Indemnitee has otherwise actually received payment (under any insurance policy
or otherwise) of the amounts otherwise indemnifiable hereunder.
7.0 EFFECTIVENESS.
This Agreement shall be of full force and effect immediately upon its
execution.
8.0 NOTIFICATION AND DEFENSE OF CLAIM.
Promptly after receipt by Indemnitee of notice of the commencement of
any action, suit or proceeding, Indemnitee will, if a Claim in respect thereof
is to be made against the Company under this Agreement, notify the Company of
the commencement hereof; but the omission so to notify the Company will not
relieve it from any liability which it may have to Indemnitee otherwise than
under this Agreement. With respect to any such action, suit or proceeding as to
which Indemnitee notifies the Company of the commencement thereof:
(a) the Company will be entitled to participate therein at its own
expense; and
(b) except as otherwise provided below, to the extent that it may wish,
the Company jointly with any other indemnifying party similarly notified will be
entitled to assume the defense thereof, with counsel satisfactory to Indemnitee.
After notice from the Company to Indemnitee of its election to assume the
defense thereof, the Company will not be liable to Indemnitee under this
Agreement for any legal or other expenses subsequently incurred by Indemnitee in
connection with the defense thereof other than reasonable costs of investigation
or as otherwise provided below. Indemnitee shall have the right to employ its
counsel in such action, suit or proceeding, but the fees and expenses of such
counsel incurred after notice from the Company of its assumption of the defense
thereof shall be at the expense of Indemnitee unless (I) the employment of
counsel by Indemnitee has been authorized by the Company, (ii) Indemnitee shall
have
<PAGE> 6
reasonably concluded that there may be a conflict of interest between the
Company and the Indemnitee in the conduct of the defense of such action or (iii)
the Company shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the fees and expenses of counsel shall be at
the expense of the Company. The Company shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of the Company
or as to which the Indemnitee shall have made the conclusion provided for in
(ii) above.
(c) The Company shall not be liable to indemnify the Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any action or
claim in any manner which would impose any penalty or limitation on the
Indemnitee without the Indemnitee's written consent. Neither the Company nor the
Indemnitee will unreasonably withhold their consent to any proposed settlement
9.0 NON-EXCLUSIVITY.
The rights of the Indemnitee hereunder shall not be deemed exclusive of
any other rights he may have under the Company's Restated Certificate of
Incorporation, the Company's Bylaws or the Delaware General Corporation Law or
otherwise, and to the extent that during the Indemnification Period the rights
of the then existing directors and officers are more favorable to such directors
or officers than the rights currently provided thereunder or under this
Agreement to Indemnitee, Indemnitee shall be entitled to the full benefits of
such more favorable rights.
10.0 BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors, assigns,
including any direct or indirect successor by purchase, merger, consolidation or
otherwise to all or substantially all of the business and/or assets of the
Company, spouses, heirs and personal and legal representatives. This Agreement
shall continue in effect during the Indemnification Period, regardless of
whether Indemnitee continues to serve as an officer or director of the Company
or of any other enterprise at the Company's request.
11.0 SEVERABILITY.
The provisions of this Agreement shall be severable in the event that
any provision hereof (including any provision within a single section, paragraph
or sentence) is held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, and the remaining provisions shall remain enforceable
to the fullest extent permitted by law.
<PAGE> 7
12.0 GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware.
13.0 ENTIRE AGREEMENT AND TERMINATION.
This Agreement represents the entire agreement between the parties; and
there are no other agreements, contracts or understandings between the parties
with respect to the subject matter of this Agreement. No termination or
cancellation of this Agreement shall be effective unless in writing and signed
by both parties hereto.
NTL INCORPORATED
By: ________________________________________________
Name:
Title:
By: ________________________________________________
Name:
<PAGE> 8
Schedule to Indemnity Agreement
George S. Blumenthal October 13, 1993
J. Barclay Knapp October 13, 1993
Richard J. Lubasch October 13, 1993
Robert T. Goad March 16, 1999
Gregg Gorelick October 13, 1993
John F. Gregg August 16, 1996
Sidney R. Knafel October 13, 1993
Ted H. McCourtney October 13, 1993
Del Mintz October 13, 1993
Alan J. Patricof October 13, 1993
Warren Potash October 13, 1993
Michael S. Willner October 13, 1993
<PAGE> 1
EXHIBIT 11
NTL INCORPORATED
CALCULATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Weighted Average Number of Shares
---------------------------------
Date Total Year Ended Year Ended Year Ended
Issued Description of Issuance Outstanding 31-Dec-99 31-Dec-98 31-Dec-97
- ------ ----------------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
12/31/95 Common Stock 47,189,173 47,189,173 47,189,173 47,189,173
02/13/96 Common Stock 3,473 3,473 3,473 3,473
02/22/96 Common Stock 833 833 833 833
02/28/96 Common Stock 7,686 7,686 7,686 7,686
03/06/96 Common Stock 1,770 1,770 1,770 1,770
03/12/96 Common Stock 9,258 9,258 9,258 9,258
03/20/96 Common Stock 5,391 5,391 5,391 5,391
03/25/96 Common Stock 117,188 117,188 117,188 117,188
04/11/96 Common Stock 16,280 16,280 16,280 16,280
04/26/96 Common Stock 39,063 39,063 39,063 39,063
05/30/96 Common Stock 2,083 2,083 2,083 2,083
06/13/96 Common Stock 201,239 201,239 201,239 201,239
06/14/96 Common Stock 206,250 206,250 206,250 206,250
08/29/96 Common Stock 2,210,938 2,210,938 2,210,938 2,210,938
11/06/96 Common Stock 69 69 69 69
11/25/96 Common Stock 1,738 1,738 1,738 1,738
12/26/96 Common Stock 8,594 8,594 8,594 8,594
12/27/96 Common Stock 3,125 3,125 3,125 3,125
12/31/96 Common Stock 79,167 79,167 79,167 79,167
01/14/97 Common Stock 1,563 1,563 1,563 1,503
01/17/97 Common Stock 7,014 7,014 7,014 6,688
01/21/97 Common Stock 36,456 36,456 36,456 32,678
02/06/97 Common Stock 348 348 348 286
03/26/97 Common Stock 2,344 2,344 2,344 1,798
05/30/97 Common Stock 1,406 1,406 1,406 828
06/20/97 Common Stock 1,564 1,564 1,564 831
06/25/97 Common Stock 8,334 8,334 8,334 4,316
07/10/97 Common Stock 28,073 28,073 28,073 13,383
09/16/97 Common Stock 5,520 5,520 5,520 1,603
09/26/97 Common Stock 44,791 44,791 44,791 11,781
10/03/97 Common Stock 313 313 313 77
10/15/97 Common Stock 12,873 12,873 12,873 2,714
10/16/97 Common Stock 3,516 3,516 3,516 731
12/10/97 Common Stock 869 869 869 50
12/18/97 Common Stock 1,123 1,123 1,123 41
12/22/97 Common Stock 3,125 3,125 3,125 77
12/26/97 Common Stock 3,125 3,125 3,125 42
01/08/98 Common Stock 62,714 62,714 61,339
01/12/98 Common Stock 8,438 8,438 8,159
01/16/98 Common Stock 5,222 5,222 4,994
01/26/98 Common Stock 2,344 2,344 2,177
01/28/98 Common Stock 30,208 30,208 27,891
01/29/98 Common Stock 469 469 431
02/03/98 Common Stock 12,500 12,500 11,336
02/06/98 Common Stock 1,563 1,563 1,405
02/09/98 Common Stock 11,458 11,458 10,202
02/10/98 Common Stock 1,875 1,875 1,664
02/11/98 Common Stock 5,088 5,088 4,502
02/17/98 Common Stock 12,813 12,813 11,128
02/25/98 Common Stock 4,375 4,375 3,703
</TABLE>
<PAGE> 2
EXHIBIT 11
NTL INCORPORATED
CALCULATION OF NET LOSS PER SHARE
<TABLE>
Weighted Average Number of Shares
---------------------------------
Date Total Year Ended Year Ended Year Ended
Issued Description of Issuance Outstanding 31-Dec-99 31-Dec-98 31-Dec-97
- ------ ----------------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
03/04/98 Common Stock 313 313 258
03/06/98 Common Stock 5,938 5,938 4,880
03/11/98 Common Stock 14,531 14,531 11,744
03/12/98 Common Stock 2,188 2,188 1,763
03/13/98 Common Stock 4,063 4,063 3,261
03/23/98 Common Stock 11,042 11,042 8,563
04/02/98 Common Stock 4,688 4,688 3,506
04/06/98 Common Stock 5,938 5,938 4,375
04/07/98 Common Stock 10,417 10,417 7,648
04/13/98 Common Stock 2,656 2,656 1,906
04/20/98 Common Stock 5,781 5,781 4,039
04/24/98 Common Stock 10,871,123 10,871,123 7,475,759
04/27/98 Common Stock 1,563 1,563 1,061
05/07/98 Common Stock 3,048,438 3,048,438 1,987,748
05/12/98 Common Stock 1,250 1,250 798
05/18/98 Common Stock 3,125 3,125 1,944
05/19/98 Common Stock 6,875 6,875 4,256
05/21/98 Common Stock 4,219 4,219 2,589
05/26/98 Common Stock 37,761 37,761 22,656
05/27/98 Common Stock 5,625 5,625 3,359
06/05/98 Common Stock 3,125 3,125 1,789
06/08/98 Common Stock 1,523 1,523 859
06/10/98 Common Stock 5,000 5,000 2,794
06/25/98 Common Stock 15,625 15,625 8,091
06/29/98 Common Stock 625 625 317
07/02/98 Common Stock 19,661 19,661 9,805
07/06/98 Common Stock 2,500 2,500 1,219
07/14/98 Common Stock 7,344 7,344 3,420
07/16/98 Common Stock 313 313 144
07/22/98 Common Stock 1,250 1,250 555
07/23/98 Common Stock 1,719 1,719 758
07/29/98 Common Stock 41,875 41,875 17,784
08/03/98 Common Stock 47,917 47,917 19,692
08/12/98 Common Stock 10,156 10,156 3,923
08/20/98 Common Stock 3,438 3,438 1,253
08/26/98 Common Stock 26,667 26,667 9,278
09/17/98 Common Stock 11,719 11,719 3,372
10/02/98 Common Stock 625 625 155
10/05/98 Common Stock 17,353 17,353 4,136
10/07/98 Common Stock 406 406 95
10/19/98 Common Stock 4,427 4,427 886
10/21/98 Common Stock 7,019 7,019 1,366
10/27/98 Common Stock 13,522,119 13,522,119 2,408,048
10/30/98 Common Stock 55 55 9
11/09/98 Common Stock 156 156 22
11/16/98 Common Stock 20,234 20,234 2,495
11/17/98 Common Stock 15,775,705 15,775,705 1,901,725
11/19/98 Common Stock 19,938 19,938 2,294
11/24/98 Common Stock 9,375 9,375 950
11/25/98 Common Stock 120 120 13
</TABLE>
<PAGE> 3
EXHIBIT 11
NTL INCORPORATED
CALCULATION OF NET LOSS PER SHARE
<TABLE>
Weighted Average Number of Shares
---------------------------------
Date Total Year Ended Year Ended Year Ended
Issued Description of Issuance Outstanding 31-Dec-99 31-Dec-98 31-Dec-97
- ------ ----------------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
11/30/98 Common Stock 21,875 21,875 1,858
12/02/98 Common Stock 642 642 52
12/07/98 Common Stock 12,672 12,672 833
12/08/98 Common Stock 18,802 18,802 1,184
12/11/98 Common Stock 3,125 3,125 172
12/15/98 Common Stock 391 391 17
12/22/98 Common Stock 58 58 2
12/23/98 Common Stock 148 148 3
12/24/98 Common Stock 125 125 3
12/29/98 Common Stock 15,625 15,625 86
12/30/98 Common Stock 2,402 2,402 6
12/31/98 Common Stock 13,413 13,413
01/04/99 Common Stock 6,250 6,182
01/06/99 Common Stock 469 461
01/07/99 Common Stock 156 153
01/11/99 Common Stock 46,044 44,655
01/12/99 Common Stock 115,782 111,974
01/14/99 Common Stock 2,394 2,302
01/15/99 Common Stock 7,031 6,742
01/19/99 Common Stock 250 237
01/20/99 Common Stock 28,125 26,584
01/21/99 Common Stock 1,876 1,768
01/22/99 Common Stock 10,574 9,937
01/25/99 Common Stock 80,158 74,667
01/26/99 Common Stock 14,687 13,641
01/27/99 Common Stock 938 868
01/28/99 Common Stock 4,688 4,328
01/29/99 Common Stock 18,906 17,404
02/01/99 Common Stock 5,313 4,846
02/02/99 Common Stock 13,438 12,222
02/03/99 Common Stock 499 452
02/05/99 Common Stock 35,976 32,425
02/08/99 Common Stock 4,219 3,768
02/09/99 Common Stock 6,250 5,565
02/10/99 Common Stock 27,083 24,041
02/12/99 Common Stock 9,464 8,350
02/16/99 Common Stock 5,313 4,629
02/17/99 Common Stock 10,625 9,228
02/19/99 Common Stock 7,813 6,742
02/22/99 Common Stock 75 64
02/23/99 Common Stock 6,563 5,591
02/26/99 Common Stock 39,844 33,622
03/01/99 Common Stock 40,625 33,947
03/03/99 Common Stock 274 227
03/05/99 Common Stock 57 48
03/08/99 Common Stock 19,855,189 16,210,538
03/11/99 Common Stock 20,677 16,711
03/12/99 Common Stock 10,000 8,054
03/15/99 Common Stock 16,615 13,245
03/16/99 Common Stock 15,939 12,662
</TABLE>
<PAGE> 4
EXHIBIT 11
NTL INCORPORATED
CALCULATION OF NET LOSS PER SHARE
<TABLE>
Weighted Average Number of Shares
---------------------------------
Date Total Year Ended Year Ended Year Ended
Issued Description of Issuance Outstanding 31-Dec-99 31-Dec-98 31-Dec-97
- ------ ----------------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
03/17/99 Common Stock 5,125 4,058
03/23/99 Common Stock 7,019 5,442
03/26/99 Common Stock 39,068 29,970
03/30/99 Common Stock 14,377 10,870
03/31/99 Common Stock 70,326 52,985
04/01/99 Common Stock 10,156 7,624
04/08/99 Common Stock 465,893 340,804
04/09/99 Common Stock 469 342
04/12/99 Common Stock 63 45
04/13/99 Common Stock 19,063 13,683
04/14/99 Common Stock 19,531 13,966
04/15/99 Common Stock 29,689 21,147
04/19/99 Common Stock 17,368 12,180
04/20/99 Common Stock 625 437
04/21/99 Common Stock 31 22
04/23/99 Common Stock 63 43
04/26/99 Common Stock 29,890 20,391
04/28/99 Common Stock 17,031 11,526
04/29/99 Common Stock 24,688 16,639
04/30/99 Common Stock 7,813 5,244
05/03/99 Common Stock 14,063 9,324
05/04/99 Common Stock 15,625 10,317
05/05/99 Common Stock 9,156 6,021
05/07/99 Common Stock 20,423 13,317
05/10/99 Common Stock 15,775 10,157
05/12/99 Common Stock 3,438 2,194
05/14/99 Common Stock 22,188 14,042
05/17/99 Common Stock 1,563 976
05/18/99 Common Stock 100,938 62,775
05/19/99 Common Stock 2,188 1,354
05/20/99 Common Stock 58,552 36,094
05/21/99 Common Stock 8,396 5,152
05/24/99 Common Stock 6,852 4,149
05/25/99 Common Stock 11,874 7,156
05/26/99 Common Stock 16,250 9,750
05/28/99 Common Stock 6,563 3,902
06/02/99 Common Stock 11,781 6,843
06/04/99 Common Stock 31,250 17,979
06/07/99 Common Stock 141 80
06/08/99 Common Stock 52,032 29,366
06/10/99 Common Stock 542,944 303,453
06/11/99 Common Stock 3,907 2,173
06/14/99 Common Stock 97,524 53,438
06/15/99 Common Stock 156 85
06/16/99 Common Stock 7,500 4,068
06/17/99 Common Stock 575,574 310,651
06/18/99 Common Stock 7,969 4,279
06/21/99 Common Stock 850,569 449,753
06/22/99 Common Stock 4,415,447 2,320,208
06/24/99 Common Stock 571,959 297,732
</TABLE>
<PAGE> 5
EXHIBIT 11
NTL INCORPORATED
CALCULATION OF NET LOSS PER SHARE
<TABLE>
Weighted Average Number of Shares
---------------------------------
Date Total Year Ended Year Ended Year Ended
Issued Description of Issuance Outstanding 31-Dec-99 31-Dec-98 31-Dec-97
- ------ ----------------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
06/28/99 Common Stock 3,024,169 1,541,084
07/08/99 Common Stock 6,656 3,210
07/09/99 Common Stock 3,438 1,648
07/13/99 Common Stock 1,273,094 596,436
07/14/99 Common Stock 78,414 36,522
07/20/99 Common Stock 18,345 8,241
07/22/99 Common Stock 39,367 17,471
07/23/99 Common Stock 1,406 620
07/26/99 Common Stock 156 68
07/28/99 Common Stock 20,592 8,801
08/02/99 Common Stock 969 401
08/05/99 Common Stock 29,063 11,784
08/09/99 Common Stock 2,500 986
08/12/99 Common Stock 8,136 3,143
08/13/99 Common Stock 4,222,974 1,619,771
08/16/99 Common Stock 3,750 1,408
08/17/99 Common Stock 6,250 2,329
08/18/99 Common Stock 4,073 1,506
08/20/99 Common Stock 4,845 1,765
08/23/99 Common Stock 24,531 8,737
09/03/99 Common Stock 938 306
09/07/99 Common Stock 470 148
09/09/99 Common Stock 1,954 604
09/10/99 Common Stock 12,610 3,869
09/13/99 Common Stock 1,402 418
09/17/99 Common Stock 3,125 899
09/21/99 Common Stock 1,563 432
09/23/99 Common Stock 25,471 6,909
09/27/99 Common Stock 1,719 447
09/30/99 Common Stock 625 158
10/04/99 Common Stock 8,487 2,045
10/12/99 Common Stock 2,266 496
10/15/99 Common Stock 1,563 330
10/21/99 Common Stock 416 81
10/25/99 Common Stock 4,688 860
10/26/99 Common Stock 156,516 28,301
11/02/99 Common Stock 1,250 202
11/03/99 Common Stock 8,438 1,340
11/05/99 Common Stock 5,938 911
11/08/99 Common Stock 13,125 1,906
11/10/99 Common Stock 32,941 4,603
11/12/99 Common Stock 22,814 3,063
11/15/99 Common Stock 6,220 783
11/16/99 Common Stock 13,750 1,695
11/18/99 Common Stock 626 74
11/19/99 Common Stock 26,875 3,092
11/22/99 Common Stock 15,000 1,603
11/23/99 Common Stock 264 27
11/24/99 Common Stock 20,815 2,014
11/29/99 Common Stock 156 14
</TABLE>
<PAGE> 6
EXHIBIT 11
NTL INCORPORATED
CALCULATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Weighted Average Number of Shares
---------------------------------
Date Total Year Ended Year Ended Year Ended
Issued Description of Issuance Outstanding 31-Dec-99 31-Dec-98 31-Dec-97
- ------ ----------------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
12/01/99 Common Stock 3,750 308
12/03/99 Common Stock 12,875 988
12/07/99 Common Stock 15,313 1,007
12/08/99 Common Stock 15,563 981
12/10/99 Common Stock 33,201 1,910
12/13/99 Common Stock 2,594 128
12/16/99 Common Stock 15,189 625
12/17/99 Common Stock 91,542 3,510
12/21/99 Common Stock 5,000 137
12/22/99 Common Stock 2,500 62
12/23/99 Common Stock 76,408 1,674
12/27/99 Common Stock 27,345 300
12/29/99 Common Stock 51,261 281
12/30/99 Common Stock 13,744 37
12/31/99 Common Stock 14,250
---------------------------------------------------------------------------------------
Total 132,415,895 119,418,138 64,378,182 50,182,745
=======================================================================================
Loss before extraordinary item ($732,683,000) ($503,927,000) ($328,557,000)
Preferred stock dividend (73,709,000) (18,761,000) (11,978,000)
------------------------------------------------------------------
(806,392,000) (522,688,000) (340,535,000)
Extraordinary item (3,034,000) (30,689,000) (4,500,000)
------------------------------------------------------------------
Loss available to common
shareholders ($809,426,000) ($553,377,000) ($345,035,000)
==================================================================
Basic and diluted net loss per
common share:
Loss before extraordinary item ($6.75) ($8.12) ($6.79)
Extraordinary item (0.03) (0.48) (0.09)
------------------------------------------------------------------
Net loss ($6.78) ($8.60) ($6.88)
==================================================================
</TABLE>
<PAGE> 1
NTL INCORPORATED AND SUBSIDIARIES AS OF 12/31/99
U.S. SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C>
NAME JURISDICTION OWNERSHIP
NTL Communications Corp. Delaware 100%
Bearsden Nominees, Inc. Delaware 100%
CableTel Ventures Limited Delaware 100%
CableTel Programming, Inc. Delaware 100%
L.D. Data, Inc. Delaware 100%
NTL Australia SPV, Inc. Delaware 100%
NTL Digital (US), Inc. Delaware 100%
NTL France SPV, Inc. Delaware 100%
NTL International Broadcasting, Inc. Delaware 100%
NTL International Services, Inc. Delaware 100%
NTL (Triangle) LLC Delaware 100%
NTL (UK) Group, Inc. Delaware & UK (dual) 100%
NTL Holdings Incorporated Delaware 100%
Holdings Merger Sub Inc. Delaware 100%
UK SUBSIDIARIES
NAME OWNERSHIP
Andover Cablevision Limited 100%
Anglia Cable Communications Limited 100%
Berkhamsted Properties & Building Contractors Limited 100%
Bracknell Cable TV Limited 100%
Cable Television Limited 100%
Cable Thames Valley Limited 100%
CableTel Cardiff Limited 100%
CableTel Central Hertfordshire Limited 100%
CableTel Hertfordshire Limited 100%
CableTel Herts and Beds Limited 100%
CableTel Investments Limited 100%
CableTel Limited 100%
CableTel Newport 100%
CableTel North Bedfordshire Limited 100%
</TABLE>
-1-
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C>
CableTel Northern Ireland Limited 100%
CableTel Scotland Limited 100%
CableTel Surrey and Hampshire Limited 100%
CableTel Telecom Supplies Limited 100%
CableTel (UK) Limited 100%
CableTel West Glamorgan Limited 100%
CableTel West Riding Limited 100%
Cambridge Cable Services Limited 100%
Cambridge Holding Company Limited 100%
CCL Corporate Communication Services Limited 100%
Columbia Management Limited 100%
ComTel Cable Services Limited 100%
ComTel Coventry Limited 100%
Credit-Track Debt Recovery Limited 100%
Diamond Cable Acquisitions Limited 100%
Diamond Cable (Bassetlaw) Limited 100%
Diamond Cable (Burton-upon-Trent) Limited 100%
Diamond Cable (Chesterfield) Limited 100%
Diamond Cable Communications Limited 100%
Diamond Cable Construction Limited 100%
Diamond Cable CPE Limited 100%
Diamond Cable (Grantham) Limited 100%
Diamond Cable (Grimclee) Limited 100%
Diamond Cable (Hinckley) Limited 100%
Diamond Cable (Leicester) Limited 100%
Diamond Cable (Lincoln) Limited 100%
Diamond Cable (Lincolnshire) Limited 100%
Diamond Cable (Mansfield) Limited 100%
Diamond Cable (Melton Mowbray) Limited 100%
Diamond Cable (Newark-on-Trent) Limited 100%
Diamond Cable (Ravenshead) Limited 100%
Diamond Cable (Vale of Belvoir) Limited 100%
Diamond Holdings Limited 100%
Diamond Visual Communications Limited 100%
Digital Television Network Limited 100%
DTELS Limited 100%
East Coast Cable Limited 100%
East Midlands Cable Communications Limited 100%
East Midlands Cable Group Limited 100%
East Midlands Cable Holdings Limited 100%
Enablis Limited 100%
Heartland Cablevision (UK) Limited 100%
Heartland Cablevision II (UK) Limited 100%
Herts Cable Limited 90%
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Jewel Holdings Limited 100%
Lanbase Limited 100%
Lanbase European Holdings Limited 100%
LCL Cable (Holdings) Limited 100%
LCL Telephones Limited 100%
Lichfield Cable Communications Limited 100%
Maza Limited 100%
Metro Hertfordshire Limited 100%
Metro South Wales Limited 100%
National Transcommunications Limited 100%
Northampton Cable Television Limited 80%
NTL Cambridge Limited 100%
NTL Communications Limited 100%
NTL Darlington Limited 100%
NTL Digital Limited 100%
NTL Digital Radio Limited 100%
NTL Employee Trust Limited 100%
NTL Glasgow 100%
NTL Group Limited 100%
NTL Insurance Limited 100%
NTL Internet Limited 100%
NTL Investment Holdings Limited 100%
NTL Kirklees 100%
NTL Limited 100%
NTL Midlands Limited 100%
NTL Milton Keynes Limited 100%
NTL Networks Limited 100%
NTL Pension Trustees Limited 100%
NTL Radio Services Limited 75%
NTL South Central Limited 100%
NTL South Wales Limited 100%
NTL Systems Limited 100%
NTL Teesside Limited 100%
NTL Telecom Services Limited 100%
NTL Trustees Limited 100%
NTL Westminster Limited 100%
Oxford Cable Limited 100%
Premium TV Limited 100%
Premium TV (Ventures) Limited 100%
Prospectre Limited 100%
Secure Backup Systems Limited 100%
</TABLE>
-3-
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
South Yorkshire Cablevision (UK) Limited 100%
Southern East Anglia Cable Limited 100%
Stafford Communications Limited 100%
Swindon Cable Limited 100%
Tamworth Cable Communications Limited 100%
Virgin Net Limited 50%
Vision Networks Services UK Limited 100%
Wessex Cable Limited 100%
Workplace Technologies plc 100%
Workplace Technologies Trustees Company Limited 100%
Workplace Technologies (Ireland) Limited 100%
XL Debt Recovery Agency Limited 100%
X-Tant Limited 70%
</TABLE>
-4-
<PAGE> 5
REPUBLIC OF IRELAND SUBSIDIARIES
NAME OWNERSHIP
Cablelink Galway Limited 100%
Cablelink Construction Limited 100%
Cablelink Limited 100%
Cablelink Waterford Limited 100%
Dublin Cablesystems Limited 100%
REPUBLIC OF FRANCE SUBSIDIARIES
NAME OWNERSHIP
NTL France S.A.S. 100%
NTL France Holding S.A.S. 100%
NTL Ile de France SNC 100%
NTL 91 SNC 100%
NTL Region Parisienne SNC 100%
NTL Essone SNC 100%
OTHER FOREIGN SUBSIDIARIES
NAME COUNTRY OWNERSHIP
NTL Australia Pty Ltd. Australia 100%
National Transmission Company Pty Ltd. Australia 100%
NTL Belgium, SPRL Belgium 100%
Workplace Technologies (Hong Kong) Ltd Hong Kong 100%
NTL Broadcast Sdn Bhd Malaysia 100%
Nogenta Holding BV Netherlands 100%
National Transcommunications Spain, S.L. Spain 100%
Sun Savings, SL Spain 100%
Canarias Target, SL Spain 100%
Lanbase Espania, SL Spain 100%
NTL Broadcast (Thailand) Ltd. Thailand 100%
-5-
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Forms S-8 No. 33-41527, No. 33-55446, No. 33-55448, No. 33-78848, No. 33-78844,
No. 333-44763, No. 333-44765, No. 333-13007, No. 33-78834, No. 33-95270, No.
333-13015, No. 333-76601, No. 333-63615, No. 333-89271 and No. 333-75829 of NTL
Incorporated (the "Company") and in the related Prospectuses of our report
dated March 7, 2000, with respect to the consolidated financial statements and
schedules of the Company included in the Annual Report (Form 10-K) for the year
ended December 31, 1999.
ERNST & YOUNG LLP
New York, New York
March 16, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,597,144,000
<SECURITIES> 344,502,000
<RECEIVABLES> 379,799,000
<ALLOWANCES> (85,594,000)
<INVENTORY> 0
<CURRENT-ASSETS> 3,318,588,000
<PP&E> 6,495,875,000
<DEPRECIATION> (898,227,000)
<TOTAL-ASSETS> 12,211,566,000
<CURRENT-LIABILITIES> 1,057,125,000
<BONDS> 8,798,024,000
141,805,000
13,000
<COMMON> 1,324,000
<OTHER-SE> 2,135,555,000
<TOTAL-LIABILITY-AND-EQUITY> 12,211,566,000
<SALES> 0
<TOTAL-REVENUES> 1,584,134,000
<CGS> 0
<TOTAL-COSTS> 799,756,000
<OTHER-EXPENSES> 573,460,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 680,728,000
<INCOME-PRETAX> (768,030,000)
<INCOME-TAX> 35,347,000
<INCOME-CONTINUING> (732,683,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,034,000)
<CHANGES> 0
<NET-INCOME> (735,717,000)
<EPS-BASIC> (6.78)
<EPS-DILUTED> (6.78)
</TABLE>
