<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
NTL INCORPORATED
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(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share, of NTL Incorporated ("NTL
Common Stock").
(2) Aggregate number of securities to which transaction applies:
15,165,825 shares of NTL Common Stock.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. The filing fee has been calculated
in accordance with Rules 14a-6(i)(1) and Rule 0-11(a)(4) and (c) under
the Exchange Act and is equal to 1/50 of 1% of the product of (i) the
average of the high and low prices for a share of NTL Common Stock on
the NASDAQ ($50.563) on December 11, 1998, and (ii) 15,165,825, the
maximum number of shares of NTL Common Stock to which transaction
applies.
(4) Proposed maximum aggregate value of transaction: $766,829,610.
(5) Total fee paid: $153,366.
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
NTL INCORPORATED
110 EAST 59TH STREET
NEW YORK, NEW YORK 10022
JANUARY 29, 1999
Dear Stockholders:
You are cordially invited to attend a Special Meeting of the Stockholders
of NTL Incorporated ("NTL") to be held at 10:30 a.m., local time, on Friday,
March 5, 1999 at the Essex House Hotel, 160 Central Park South, Hyde Park Suite,
New York, New York 10019 (the "Special Meeting").
The purpose of the Special Meeting is to consider a proposal to approve the
issuance of shares (the "Share Issuance") of common stock, par value $.01 per
share, (the "NTL Common Stock") pursuant to a Share Exchange Agreement, dated as
of June 16, 1998, as amended (the "Diamond Agreement"), among NTL and the
shareholders of Diamond Cable Communications Plc ("Diamond"). Subject to the
terms and conditions of the Diamond Agreement, one share of NTL Common Stock
will be exchanged for each deferred share and each four issued and outstanding
ordinary shares of Diamond, subject to certain adjustments, all as more fully
described in the accompanying Proxy Statement. A total of no more than
approximately 15.2 million shares of NTL Common Stock are expected to be issued
in the Share Issuance.
FOR THE REASONS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT, YOUR BOARD
OF DIRECTORS (I) HAS DETERMINED THAT THE SHARE ISSUANCE IS IN THE BEST INTERESTS
OF NTL AND ITS STOCKHOLDERS AND (II) RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
APPROVAL OF THE SHARE ISSUANCE AT THE SPECIAL MEETING.
In determining to recommend approval of the Share Issuance, your Board of
Directors has carefully reviewed and considered a number of factors, including
the legal and financial terms of the relevant agreements and the opinion of
Donaldson, Lufkin & Jenrette Securities Corporation, NTL's financial advisor,
described in the accompanying Proxy Statement. Consummation of the Share
Issuance is subject to certain conditions, including the approval of the
stockholders of NTL and the receipt of certain approvals from governmental and
regulatory authorities.
If you have any questions prior to the Special Meeting or need further
assistance, please call our proxy solicitor, D.F. King & Co., Inc., at (800)
347-4750.
The enclosed Notice and Proxy Statement contain details concerning the
matters described above. We urge you to read and consider these documents
carefully. Whether or not you plan to attend the Special Meeting, please be sure
to sign, date and return the enclosed proxy card in the enclosed, postage-paid
envelope as promptly as possible so that your shares may be represented at the
Special Meeting and voted in accordance with your wishes. It is important that
your shares be represented at the Special Meeting. Your vote is important
regardless of the number of shares you own.
Very truly yours,
GEORGE S. BLUMENTHAL
Chairman of the Board
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NTL INCORPORATED
110 EAST 59TH STREET
NEW YORK, NEW YORK 10022
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, MARCH 5, 1999
------------------------
To the Stockholders of NTL Incorporated:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of NTL
Incorporated, a Delaware corporation ("NTL"), will be held at 10:30 a.m., local
time, on Friday, March 5, 1999, at the Essex House Hotel, 160 Central Park
South, Hyde Park Suite, New York, New York 10019 (the "Special Meeting"), for
the following purposes:
1. To consider and vote upon a proposal to approve the issuance of
shares (the "Share Issuance") of common stock, par value $.01 per share, of
NTL (the "NTL Common Stock") pursuant to a Share Exchange Agreement, dated
as of June 16, 1998, as amended (the "Diamond Agreement"), among NTL and
the shareholders of Diamond Cable Communications Plc ("Diamond"), pursuant
to which one share of NTL Common Stock will be exchanged (the "Share
Exchange") for each four issued and outstanding ordinary shares, par value
2.5p per share, of Diamond, subject to certain adjustments, and for each
deferred share, par value 25p per share, of Diamond. Approval of the Share
Issuance by stockholders of NTL is a condition to the consummation of the
Share Exchange. The Share Issuance and the Share Exchange are more fully
described in the accompanying Proxy Statement, and a copy of the Diamond
Agreement is attached as Annex A thereto.
2. To transact such other business as may properly come before the
Special Meeting.
Approval of the Share Issuance requires the affirmative vote of the holders
of a majority of the votes cast on the Share Issuance at the Special Meeting.
Only stockholders of record at the close of business on Wednesday, January 27,
1999 are entitled to notice of, and to vote at, the Special Meeting. A complete
list of such stockholders will be available for examination by any stockholder
of NTL for any purpose related to the Special Meeting, during normal business
hours at the offices of NTL in New York, New York for ten days prior to the
Special Meeting.
THE BOARD OF DIRECTORS OF NTL UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
IN FAVOR OF THE SHARE ISSUANCE AT THE SPECIAL MEETING.
Whether or not you plan to attend the Special Meeting, you are urged to
mark, date and sign the enclosed proxy and return it promptly so that your vote
can be recorded. If you are present at the meeting and desire to do so, you may
revoke your proxy and vote in person.
By Order of the Board of Directors,
RICHARD J. LUBASCH
Secretary
Dated: January 29, 1999
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN YOUR PROXY IN THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING
PROXY STATEMENT AT ANY TIME BEFORE THE PROXY HAS BEEN VOTED AT THE SPECIAL
MEETING.
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NTL INCORPORATED
110 EAST 59TH STREET
NEW YORK, NEW YORK 10022
------------------------
PROXY STATEMENT
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, MARCH 5, 1999
------------------------
This Proxy Statement is being furnished to the holders of common stock, par
value $.01 per share (the "NTL Common Stock"), of NTL Incorporated, a Delaware
corporation ("NTL"), in connection with the solicitation of proxies by the Board
of Directors of NTL (the "NTL Board") for use at a Special Meeting of
Stockholders of NTL to be held at 10:30 a.m., local time, on Friday, March 5,
1999, at the Essex House Hotel, 160 Central Park South, Hyde Park Suite, New
York, New York 10019, and at any adjournments or postponements thereof (the
"Special Meeting").
This Proxy Statement relates to the Share Exchange Agreement, dated as of
June 16, 1998, as amended (the "Diamond Agreement"), among NTL and the
shareholders of Diamond Cable Communications Plc ("Diamond"). Pursuant to the
Diamond Agreement, one share of NTL Common Stock will be exchanged (the "Share
Exchange") for each four issued and outstanding ordinary shares, par value 2.5p
per share (the "Ordinary Shares"), of Diamond, subject to certain adjustments,
and for each deferred share, par value 25p per share, of Diamond (the "deferred
shares" and, together with the Ordinary Shares, the "Diamond Shares"). Cash will
be paid in lieu of any fractional share of NTL Common Stock. See "THE DIAMOND
AGREEMENT -- Consideration for Shares." The consummation of the Share Exchange
is subject to, among other things, (i) the approval of the issuance of shares of
NTL Common Stock in accordance with the terms of the Diamond Agreement (the
"Share Issuance") by the affirmative vote of the holders of a majority of the
votes cast on the Share Issuance at the Special Meeting and (ii) receipt of
certain governmental and regulatory approvals. A copy of the Diamond Agreement
is attached hereto as Annex A.
It is anticipated that no more than approximately 15.2 million shares of
NTL Common Stock will be issued in the Share Issuance, representing
approximately 20% of the shares of NTL Common Stock expected to be outstanding
after giving effect to the consummation of the Share Exchange. The shares of NTL
Common Stock to be issued in connection with the Share Exchange are not being
registered under the Securities Act of 1933, as amended (the "Securities Act").
See "CERTAIN AGREEMENTS RELATED TO THE SHARE EXCHANGE -- The Registration Rights
Agreement." The consummation of the Share Exchange requires no separate vote of
the shareholders of Diamond and, accordingly, this Proxy Statement is not being
furnished to such shareholders.
The NTL Common Stock is quoted and traded on the Nasdaq National Market
(the "NASDAQ") under the symbol "NTLI." There is no established public trading
market for the Diamond Shares.
This Proxy Statement and the accompanying form of proxy are first being
sent to stockholders of NTL on or about January 29, 1999.
In reviewing this Proxy Statement, stockholders of NTL should carefully
consider the matters described under the heading "RISK FACTORS" on page 19.
------------------------
The date of this Proxy Statement is January 29, 1999.
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No person has been authorized to give any information or to make any
representations with respect to matters described in this Proxy Statement other
than those contained or incorporated by reference herein, and, if given or made,
such information or representations must not be relied upon as having been
authorized by either NTL or Diamond. This Proxy Statement does not constitute
the solicitation of a proxy in any jurisdiction to or from any person to whom or
from whom it is unlawful to make any such offer or solicitation in such
jurisdiction. The delivery of this Proxy Statement shall not, under any
circumstances, create any implication that there has been no change in the
information set forth herein or in the affairs of NTL or Diamond since the date
hereof.
As used in this Proxy Statement, unless the context otherwise requires, the
term "NTL" refers to NTL Incorporated and its consolidated subsidiaries and
partnership, and the term "Diamond" refers to Diamond Cable Communications Plc
and its subsidiaries, including as of September 27, 1995, LCL (as defined
herein). All information regarding NTL and its subsidiaries in this Proxy
Statement has been supplied by NTL.
AVAILABLE INFORMATION
NTL and Diamond are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional Offices
of the SEC: 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may also be obtained at prescribed rates from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
The SEC also maintains a World Wide Web site at http://www.sec.gov which
contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the SEC. In addition,
materials filed by NTL with the NASDAQ may be inspected at the offices of the
NASDAQ at 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
NTL incorporates by reference herein the following documents heretofore
filed by it with the SEC pursuant to the Exchange Act:
1. NTL's Annual Report on Form 10-K for the year ended December 31, 1997,
dated March 30, 1998, as amended by Form 10-K/A-1, dated October 12,
1998, as amended by Form 10-K/A-2, dated November 6, 1998;
2. NTL's Current Reports on Form 8-K, dated February 5, 1998 (filed on
February 6, 1998), March 6, 1998 (filed on March 9, 1998), March 18,
1998 (filed on March 20, 1998), May 29, 1998 (filed on June 2, 1998),
June 16, 1998 (filed on June 16, 1998), August 14, 1998 (filed on August
18, 1998), October 5, 1998 (filed on October 5, 1998), October 27, 1998
(filed on October 28, 1998), October 29, 1998 (filed on November 4,
1998), December 16, 1998 (filed on December 17, 1998), December 21, 1998
(filed on December 22, 1998), December 22, 1998 (filed on December 23,
1998), and January 25, 1999 (filed on January 25, 1999); and
3. NTL's Quarterly Report on Form 10-Q for the quarters ended March 31,
1998, dated May 14, 1998, June 30, 1998, dated August 14, 1998, and
September 30, 1998, dated November 12, 1998.
All reports and other documents filed by NTL pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference herein and to be a part hereof from the dates of
filing of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained herein, or in any other subsequently filed document
which also is incorporated or deemed to be incorporated by reference herein,
modifies or supersedes the earlier statement.
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Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
THIS PROXY STATEMENT INCORPORATES BY REFERENCE OR MAKES REFERENCE TO
CERTAIN DOCUMENTS THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF
SUCH DOCUMENTS (OTHER THAN EXHIBITS THERETO WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT IS SENT, UPON
WRITTEN OR ORAL REQUEST TO, IN THE CASE OF DOCUMENTS RELATING TO NTL, NTL
INCORPORATED, 110 EAST 59TH STREET, NEW YORK, NEW YORK 10022, ATTENTION: RICHARD
J. LUBASCH, TELEPHONE (212) 906-8440 AND, IN THE CASE OF DOCUMENTS RELATING TO
DIAMOND, DIAMOND CABLE COMMUNICATIONS PLC, DIAMOND PLAZA, DALESIDE ROAD,
NOTTINGHAM NG2 3GG, ENGLAND, ATTENTION: FINANCE DIRECTOR, TELEPHONE
44-115-912-2217. IN ORDER TO ENSURE DELIVERY OF DOCUMENTS PRIOR TO THE SPECIAL
MEETING, ANY SUCH REQUEST SHOULD BE MADE NOT LATER THAN FEBRUARY 23, 1999.
------------------------
FORWARD-LOOKING STATEMENTS
When used in this Proxy Statement or in documents incorporated by reference
herein with respect to NTL and Diamond, the words "estimate," "project,"
"intend," "expect" and similar expressions are intended to identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this Proxy
Statement or as of the date of such other documents. Actual results may differ
materially from those contemplated in such projections and forward-looking
statements. Important assumptions and factors that could cause actual results to
differ materially from those contemplated or projected, forecast, estimated or
budgeted in or expressed or implied by such projections and forward-looking
statements include: (i) those specified in the "RISK FACTORS" section; (ii)
industry trends; (iii) the ability 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; (iv) assumptions about customer acceptance,
churn rates, overall market penetration and competition from providers of
alternative services, and availability, terms and deployment of capital; (v)
general economic and business conditions in the United States and the United
Kingdom (the "UK"); and (vi) the ability to integrate and successfully operate
acquired businesses. Other factors and assumptions not identified above were
also involved in the derivation of these forward-looking statements, and the
failure of such other assumptions to be realized, as well as other factors, may
also cause actual results to differ materially from those projected. Neither NTL
nor Diamond assumes any obligation to update such forward-looking statements to
reflect actual results, changes in assumptions or changes in other factors
affecting such forward-looking statements.
3
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TABLE OF CONTENTS
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AVAILABLE INFORMATION....................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 2
FORWARD-LOOKING STATEMENTS.................................. 3
GLOSSARY OF DEFINED TERMS................................... 6
SUMMARY..................................................... 9
The Companies............................................. 9
The Special Meeting....................................... 10
The Share Exchange and the Diamond Agreement.............. 10
Certain Agreements Related to the Share Exchange.......... 13
Recent Developments....................................... 13
Summary Historical Financial Data of NTL.................. 15
Summary Historical Financial Data of Diamond.............. 16
Summary Pro Forma Financial Data.......................... 17
Summary Pro Forma Per Share and Other Data................ 18
RISK FACTORS................................................ 19
Fixed Ratios Despite Change in Relative Stock Prices...... 19
Risks Related to Diamond Indentures....................... 19
Adverse Consequences of Leverage.......................... 20
Network Construction Costs................................ 21
Need for Additional Financing............................. 21
Acquisition Risks......................................... 21
Holding Company Structure; Dependence Upon Cash Flow from
Subsidiaries........................................... 22
Losses and Negative Cash Flows............................ 23
Requirement to Meet Build Milestones...................... 23
Uncertainty of Construction Progress and Costs............ 24
Significant Competition................................... 24
Limited Access to Programming............................. 26
Possible Changes in Government Regulation................. 26
Management of Growth and Expansion........................ 26
Dependence Upon Key Personnel............................. 27
Risks of Rapid Technological Changes...................... 27
Currency Risk............................................. 27
Risks of Limited Insurance Coverage....................... 27
SELECTED HISTORICAL FINANCIAL DATA OF NTL................... 28
SELECTED HISTORICAL FINANCIAL DATA OF DIAMOND............... 29
UNAUDITED PRO FORMA FINANCIAL DATA.......................... 30
THE SPECIAL MEETING......................................... 38
Purpose, Time and Place................................... 38
Record Date; Voting Rights................................ 38
Quorum.................................................... 38
Required Vote............................................. 38
Proxies................................................... 38
THE SHARE EXCHANGE.......................................... 40
General................................................... 40
Background of the Share Exchange.......................... 40
NTL's Reasons for the Share Exchange; Recommendation of
the NTL Board.......................................... 41
Opinion of NTL's Financial Advisor........................ 42
Accounting Treatment...................................... 46
Governmental and Regulatory Approvals..................... 46
Restrictions on Transferability of Shares................. 47
Stock Exchange Listing.................................... 47
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THE DIAMOND AGREEMENT....................................... 48
Consideration for Diamond Shares.......................... 48
No Fractional Shares...................................... 48
Representations and Warranties............................ 48
Conduct of Business Pending the Share Exchange............ 49
Stock Options and Stock Appreciation Rights............... 50
Fees and Expenses......................................... 51
Conditions Precedent to the Share Exchange................ 51
Additional Agreements..................................... 52
Termination............................................... 53
Amendment................................................. 54
Extension; Waiver......................................... 54
CERTAIN AGREEMENTS RELATED TO THE SHARE
EXCHANGE.................................................. 55
The Registration Rights Agreement......................... 55
The Supplemental Option Agreement......................... 55
DESCRIPTION OF NTL CAPITAL STOCK............................ 56
General................................................... 56
NTL Common Stock.......................................... 56
NTL Preferred Stock....................................... 56
Certain Special Charter Provisions........................ 59
Section 203 of the DGCL................................... 60
Transfer Agent and Registrar.............................. 61
NTL Rights Agreement...................................... 61
BUSINESS OF NTL............................................. 63
Residential Telecoms and Television Services.............. 63
National Telecoms Services................................ 65
Broadcast Services........................................ 65
BUSINESS OF DIAMOND......................................... 67
General................................................... 67
Certain Operating Data.................................... 67
Business Telecommunications and Residential Telephone..... 70
Cable Television.......................................... 70
RECENT DEVELOPMENTS......................................... 71
Strategic Partnership with Microsoft...................... 71
Eastern Group Acquisition................................. 71
Newcastle United Share Acquisition........................ 71
Offering of 7% Notes...................................... 71
Offerings of 11 1/2% Notes and 12 3/8% Notes.............. 72
Partners Acquisition...................................... 72
ComTel Acquisition........................................ 72
Redemption of 10 7/8% Notes............................... 73
INDEPENDENT AUDITORS........................................ 73
STOCKHOLDER PROPOSALS....................................... 74
INDEX TO FINANCIAL STATEMENTS............................... F-1
ANNEX A DIAMOND AGREEMENT................................... A-1
ANNEX B AMENDMENT NO. 1 TO DIAMOND AGREEMENT................ B-1
ANNEX C OPINION OF DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION............................................... C-1
ANNEX D FORM OF REGISTRATION RIGHTS AGREEMENT............... D-1
ANNEX E SUPPLEMENTAL OPTION AGREEMENT....................... E-1
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GLOSSARY OF DEFINED TERMS
"Acquiring Person" shall mean, for purposes of the Rights Agreement, a
person or group of affiliated or associated persons who has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of NTL Common Stock.
"Amalgamated Company" shall mean the company resulting from the
Amalgamation.
"Amalgamation" shall mean the amalgamation under Bermuda law of Sub with
Partners.
"Amalgamation Agreement" shall mean the Agreement and Plan of Amalgamation,
dated as of February 4, 1998, as amended, among NTL, Sub and Partners.
"BBC" shall mean the British Broadcasting Corporation.
"Birmingham Cable" shall mean Birmingham Cable Corporation Limited.
"Birmingham Cable Equity Interest" shall mean Partners' 27.5% interest in
Birmingham Cable.
"BSkyB" shall mean British Sky Broadcasting Limited, the largest provider
of multichannel programming in the UK.
"BT" shall mean British Telecommunications plc, the largest national
provider of telecommunications services in the UK.
"Cable London" shall mean Cable London PLC.
"Cable London Equity Interest" shall mean Partners' 50% interest in Cable
London.
"Cambridge Cable" shall mean Cambridge Holding Company Limited.
"CATV" shall mean cable television.
"CGT" shall mean CGT Family Corporation.
"CGT Options" shall mean the options to acquire 654,000 Ordinary Shares
which were granted by Diamond to CGT pursuant to the Option Agreement.
"Charter" shall mean NTL's Restated Certificate of Incorporation, as
amended.
"Chase" shall mean The Chase Manhattan Bank.
"CHD" shall mean Cameron Hall Developments Limited, the majority
shareholder in Newcastle United.
"Closing Date" shall mean the closing date of the Share Exchange.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"ComTel Acquisition" shall mean the acquisition by NTL of ComTel pursuant
to the ComTel Agreement with Vision Networks III B.V., a wholly-owned subsidiary
of Royal PTT Nederland NV (KPN).
"ComTel" shall mean the collective operations of ComTel Limited and
Telecential Communications.
"ComTel Agreement" shall mean the acquisition agreement, dated June 16,
1998, between NTL and Vision Networks III B.V., a wholly-owned subsidiary of
Royal PTT Nederland NV (KPN), for the acquisition of ComTel.
"D.F. King" shall mean D.F. King & Co., Inc., NTL's proxy solicitor.
"DGCL" shall mean the Delaware General Corporation Law.
"Diamond" shall mean Diamond Cable Communications Plc.
"Diamond Agreement" shall mean the Share Exchange Agreement, dated as of
June 16, 1998, as amended, among NTL and the shareholders of Diamond set forth
therein.
"Diamond Shares" shall mean all of the Ordinary Shares and deferred shares
of Diamond.
"DLJ" shall mean Donaldson, Lufkin & Jenrette Securities Corporation.
"DLJ Opinion" shall mean the written opinion of DLJ, dated as of June 16,
1998, to the NTL Board in connection with the Share Exchange.
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"DTH" shall mean direct-to-home.
"DTT" shall mean digital terrestrial television.
"Eastern Group" shall mean Eastern Group Telecoms Limited.
"EC" shall mean the European Commission.
"11 1/2% Notes" shall mean NTL's 11 1/2% Senior Notes Due 2008.
"EMCG" shall mean East Midlands Cable Group Limited.
"End Date" shall mean April 30, 1999.
"Energis" shall mean Energis Communications Limited, a subsidiary of the
National Grid Company plc.
"Equity Interests" shall mean the Cable London Equity Interest and the
Birmingham Cable Equity Interest.
"European Cable" shall mean European Cable Capital Partners, L.P.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"EU" shall mean the European Union.
"5 1/4% Preferred Stock" shall mean the 5 1/4% Convertible Preferred Stock
of NTL.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"ITC" shall mean the Independent Television Commission the regulatory body
which oversees and licenses all types of broadcasting in the UK.
"ITV" shall mean Independent Television.
"LCL" shall mean EMCG, East Midlands Cable Communications Limited and East
Midlands Cable Holdings Limited.
"LCL Cable" shall mean LCL Cable Communications Limited (now Diamond
(Leicester) Limited).
"Majority Transferors" shall mean the Transferors holding two-thirds or
more of the aggregate number of Diamond Shares.
"Maximum Average Stock Price" shall mean, for purposes of the Diamond
Agreement, $52.00 which is subject to certain adjustments, as set forth in the
Diamond Agreement.
"Microsoft" shall mean Microsoft Corporation.
"NASDAQ" shall mean the Nasdaq National Market.
"New Credit Facility" shall mean the eight-year term loan facility, dated
October 17, 1997, and amended as of June 16, 1998, between Chase and NTL (UK)
Group, Inc.
"Newcastle United" shall mean Newcastle United PLC.
"9.9% Preferred Stock, Series A" shall mean the 9.9% Nonvoting Mandatorily
Redeemable Preferred Stock, Series A, of NTL.
"9.9% Preferred Stock, Series B" shall mean the 9.9% Nonvoting Mandatorily
Redeemable Preferred Stock, Series B, of NTL.
"NTL" shall mean NTL Incorporated.
"NTL Board" shall mean the Board of Directors of NTL.
"NTL By-laws" shall mean the By-laws of NTL.
"NTL Common Stock" shall mean the common stock, par value $.01 per share,
of NTL.
"NTL Preferred Stock" shall mean the preferred stock, par value $.01 per
share, of NTL.
"OFTEL" shall mean the Office of Telecommunications.
"Option Agreement" shall mean the Option Agreement, dated January 5, 1995,
among Diamond, European Cable and CGT.
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"Ordinary Shares" shall mean the ordinary shares, par value 2.5p per share,
in Diamond.
"Partners" shall mean Comcast UK Cable Partners Limited.
"Partners Common Shares" shall mean the Class A Common Shares and the Class
B Common Shares of Partners.
"Premium TV" shall mean Premium TV Limited, a wholly-owned subsidiary of
NTL.
"PTO" shall mean public telephone operator.
"Record Date" shall mean the close of business on Wednesday, January 27,
1999.
"Registration Rights Agreement" shall mean the registration rights
agreement between NTL and each of the Transferors.
"Required British Approvals" shall mean the approvals of certain British
governmental entities which are a condition to the consummation of the Share
Exchange.
"Required Consents" shall mean the consents from certain third parties
which are a condition to the consummation of the Share Exchange.
"Restraints" shall mean any judgment, order, decree, statute, law,
ordinance, rule or regulation, entered or enacted, promulgated, enforced or
issued by any court or other governmental entity of competent jurisdiction or
other legal restraint or prohibition which prevents the consummation of the
transactions contemplated by the Diamond Agreement or which otherwise is
reasonably likely to have a material adverse effect on NTL or Diamond.
"Rights Agreement" shall mean the Rights Agreement, dated as of October 13,
1993, between NTL and Continental Stock Transfer & Trust Company.
"Rights Preferred Stock" shall mean NTL's Series A Junior Participating
Preferred Stock.
"RGU" shall mean revenue generating unit.
"SARs" shall mean the stock appreciation rights outstanding under the
Partners SAR Plan.
"SDH" synchronous digital hierarchy.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"7% Notes" shall mean NTL's 7% Convertible Subordinated Notes Due 2008.
"Share Exchange" shall mean the exchange of shares of NTL Common Stock for
issued and outstanding Ordinary Shares and deferred shares of Diamond in
accordance with the terms of the Diamond Agreement.
"Share Issuance" shall mean the issuance of shares of NTL Common Stock
pursuant to the Diamond Agreement.
"Special Meeting" shall mean the Special Meeting of Stockholders of NTL to
be held at 10:30 a.m., local time, on Friday, March 5, 1999, at the Essex House
Hotel, 160 Central Park South, Hyde Park Suite, New York, New York 10019, and
any adjournments or postponements thereof.
"Stockholder Approval" shall be shall mean the required affirmative vote of
the holders of a majority of the votes cast on the Share Issuance at the Special
Meeting.
"Supplemental Option Agreement" shall mean the Supplemental Option
Agreement, dated June 15, 1998, with respect to the Option Agreement.
"10 7/8% Notes" shall mean NTL's 10 7/8% Senior Deferred Coupon Notes Due
2003.
"13% Preferred Stock" shall mean NTL's 13% Senior Redeemable Exchangeable
Preferred Stock.
"Transferors" shall mean the shareholders of Diamond set forth in the
Diamond Agreement with whom NTL entered into the Diamond Agreement.
"Transferors' Representative" shall mean European Cable Capital Partners,
L.P., as representative of the Transferors.
"12 3/8% Notes" shall mean NTL's 12 3/8% Senior Deferred Coupon Notes Due
2008.
"UK" shall mean the United Kingdom.
8
<PAGE> 12
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. It is not, and is not intended to be, complete in itself.
Reference is made to, and this summary is qualified in its entirety by, the more
detailed information contained elsewhere in this Proxy Statement, including the
Annexes hereto which are a part of this Proxy Statement. Stockholders of NTL are
encouraged to read carefully all of the information contained in this Proxy
Statement.
STOCKHOLDERS OF NTL SHOULD CONSIDER CAREFULLY THE INFORMATION SET FORTH
HEREIN UNDER THE HEADING "RISK FACTORS" IN ADDITION TO THE OTHER INFORMATION
PRESENTED HEREIN.
THE COMPANIES
NTL. NTL is a leading communications company in the UK, providing
residential, business and wholesale customers with the following services: (i)
Residential Telecoms and Televisions Services, including residential telephony,
cable television ("CATV") and Internet access services; (ii) National Telecoms
Services, including national business telecoms, national and international
carrier telecommunications, and satellite and radio communications services; and
(iii) Broadcast Services, including digital and analog television and radio
broadcast transmission services.
NTL provides its broad range of services over local, national and
international network infrastructure. NTL operates (i) advanced local broadband
networks serving entire communities throughout NTL's regional franchise areas,
(ii) the UK's first synchronous digital hierarchy ("SDH") backbone
telecommunications network, as well as satellite earth stations and radio
communications facilities from NTL's tower sites across the UK and (iii) a
broadcast transmission network which provides national, regional and local
analog and digital transmission services to customers throughout the UK.
In March 1997, NTL changed its name from International CableTel
Incorporated ("ICTI") to NTL Incorporated to reflect the integration of the
services provided by NTL following its acquisition of NTL Group Limited in 1996,
and to capitalize on NTL Group Limited's 30-year history in the UK as a provider
of reliable communications services.
The mailing address and telephone number of the principal executive offices
of NTL is 110 East 59th Street, New York, New York 10022 and (212) 906-8440. NTL
was incorporated in April 1993 under the laws of the State of Delaware. See
"BUSINESS OF NTL."
Diamond. Diamond is a public limited company incorporated under the laws
of England and Wales and is a holding company which holds all of the shares of
(i) Diamond Cable Communications (UK) Limited (formerly Diamond Cable
(Nottingham) Limited) and its subsidiaries and (ii) a group of companies
comprising East Midlands Cable Group Limited ("EMCG"), East Midlands Cable
Communications Limited and East Midlands Cable Holdings Limited (collectively,
"LCL"), in both cases through intermediate holding companies, Diamond Holdings
plc and Jewel Holdings Limited.
Diamond operates a telecommunications and cable television business focused
on the East Midlands area of England and is currently constructing a broadband
fiber-optic network to serve approximately 1.2 million homes and an estimated
60,600 businesses within its contiguous franchise areas. As of September 30,
1998, Diamond's cable television and telecommunications network had passed by
civils construction approximately 666,400 homes and an estimated 29,700
businesses, of which portions of the network passing approximately 644,700 homes
and an estimated 29,000 businesses had been activated. As of such date, Diamond
also had approximately 214,600 residential telephone lines, 106,700 cable
television subscribers and 36,200 business telephone lines. Through such date,
L531 million had been invested (at original cost) in the construction of the
network and related systems.
The mailing address and telephone number of the principal executive offices
of Diamond is Diamond Plaza, Daleside Road, Nottingham NG2 3GG, England and
44-115-912-2217. See "BUSINESS OF DIAMOND."
9
<PAGE> 13
THE SPECIAL MEETING
Purpose, Time and Place. The Special Meeting will be held at 10:30 a.m.,
local time, on Friday, March 5, 1999, at the Essex House Hotel, 160 Central Park
South, Hyde Park Suite, New York, New York 10019, to consider and vote upon a
proposal to approve the Share Issuance (defined above as the issuance of shares
of NTL Common Stock pursuant to the Diamond Agreement). Holders of NTL Common
Stock will also consider and vote upon all other matters as may properly be
brought before the Special Meeting. See "THE SPECIAL MEETING -- Purpose, Time
and Place."
Record Date. Only holders of record of NTL Common Stock at the close of
business on Wednesday, January 27, 1999 (the "Record Date") will be entitled to
notice of, and to vote at, the Special Meeting. On such date, there were
approximately 60.5 million outstanding shares of NTL Common Stock, held by 585
holders of record. Each such share entitles the registered holder thereof to one
vote. See "THE SPECIAL MEETING -- Record Date; Voting Rights."
Quorum. The holders of a majority of the shares of NTL Common Stock
outstanding and entitled to vote must be present in person or by proxy at the
Special Meeting in order for a quorum to be present. Abstentions and broker
non-votes will be treated as shares of NTL Common Stock that are present and
entitled to vote for purposes of determining the presence of a quorum at the
Special Meeting. See "THE SPECIAL MEETING -- Quorum."
Required Vote. Approval of the Share Issuance at the Special Meeting
requires the affirmative vote of the holders of a majority of the votes cast on
the Share Issuance (the "Stockholder Approval"). Under applicable Delaware law,
in determining whether the Share Issuance has received the requisite number of
affirmative votes, abstentions and broker non-votes will be disregarded and will
have no effect on the outcome of the vote. As of the Record Date, directors and
executive officers of NTL and their affiliates were the beneficial owners of an
aggregate of approximately 3.4 million (approximately 5.6%) of the shares of NTL
Common Stock then outstanding and eligible to vote. It is expected that all of
such shares will be voted for approval of the Share Issuance. Consummation of
the Share Exchange requires no vote of the shareholders of Diamond. See "THE
SPECIAL MEETING -- Required Vote."
Proxies. Any stockholder of NTL who executes and returns a proxy may
revoke it at any time before it is voted at the Special Meeting by (i)
delivering to the Secretary of NTL, prior to the Special Meeting, a written
notice of revocation bearing a later date or time than the date or time of the
proxy being revoked, (ii) submitting a duly executed proxy bearing a later date
or time than the date or time of the proxy being revoked or (iii) voting in
person at the Special Meeting. A stockholder's attendance at the Special Meeting
will not by itself revoke a proxy given by such stockholder. See "THE SPECIAL
MEETING -- Proxies."
THE SHARE EXCHANGE AND THE DIAMOND AGREEMENT
General. Upon the terms and subject to the conditions contained in the
Diamond Agreement, on the closing date of the Share Exchange (the "Closing
Date"), each shareholder of Diamond (each, a "Transferor") will exchange,
convey, transfer, assign and deliver to NTL with full title guarantee, and NTL
will acquire, all of the Diamond Shares set forth opposite such Transferor's
name in the Diamond Agreement. NTL is not obligated to complete the acquisition
of any of the Diamond Shares unless the acquisition of all the Diamond Shares is
completed simultaneously. The Closing Date will occur on the third business day
following the satisfaction or waiver of the conditions set forth in the Diamond
Agreement, unless another time or date is agreed to by NTL and European Cable
Capital Partners, L.P. ("European Cable"), as representative of the Transferors
(the "Transferors' Representative"). Deferred shares of Diamond entitle holders
thereof to receive upon liquidation their nominal value of 25p per share only
after holders of the Ordinary Shares have received a liquidation payment of
L100,000 for each such share. See "THE SHARE EXCHANGE -- General."
Consideration for Diamond Shares. Upon the terms and subject to the
conditions contained in the Diamond Agreement, on the Closing Date, NTL will
transfer to each Transferor consideration consisting of one share of NTL Common
Stock for (i) each deferred share and (ii) each four Ordinary Shares; provided,
however, that the consideration for each four Ordinary Shares will be adjusted
as follows: (A) if the Closing
10
<PAGE> 14
Date occurs within four months of the date of the Diamond Agreement, and the
average sales price of the NTL Common Stock, as calculated pursuant to the
Diamond Agreement, is $52.00 or more, the number of shares of NTL Common Stock
to be transferred for each four Ordinary Shares will be decreased such that the
value of such consideration will not exceed $52.00 (the "Maximum Average Stock
Price"); (B) if the Closing Date occurs after October 16, 1998 and prior to
February 1, 1999, the Maximum Average Stock Price will increase by $.50 on
October 16, 1998, and on each subsequent monthly anniversary date thereof until
the Closing Date; and (C) if the Closing Date occurs on February 1, 1999 or
thereafter, the Maximum Average Stock Price will be $65.00. Because more than
four months have passed since June 16, 1998, the date of the Diamond Agreement,
and the Closing Date will not occur prior to February 1, 1999, subparagraphs (A)
and (B) above are no longer applicable adjustment mechanisms with respect to
determining the Maximum Average Stock Price.
There are currently approximately 60.7 million fully diluted Ordinary
Shares of Diamond outstanding which are held by 14 shareholders. It is
anticipated that no more than approximately 15.2 million shares of NTL Common
Stock will be issued in connection with the Share Exchange. On June 15, 1998,
the last trading day prior to the public announcement of the execution of the
Diamond Agreement, the composite closing price of the NTL Common Stock, as
reported on the NASDAQ, was $41.50 per share. There is no established public
trading market for the Diamond Shares. See "THE SHARE EXCHANGE -- Consideration
for Diamond Shares."
No Fractional Shares. No fractional shares of NTL Common Stock will be
issued in the Share Exchange. The Transferors will be paid cash in lieu of such
fractional shares. See "THE DIAMOND AGREEMENT -- No Fractional Shares."
Recommendation of the NTL Board. The NTL Board has unanimously determined
that the Share Issuance is in the best interests of NTL and its stockholders and
has approved the Diamond Agreement. THE NTL BOARD UNANIMOUSLY RECOMMENDS THAT
THE STOCKHOLDERS OF NTL VOTE IN FAVOR OF THE SHARE ISSUANCE AT THE SPECIAL
MEETING. The NTL Board's recommendation is based upon a number of factors
described in this Proxy Statement. See "THE SHARE EXCHANGE -- NTL's Reasons for
the Share Exchange; Recommendation of the NTL Board."
Opinion of NTL's Financial Advisor. Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") has acted as financial advisor to NTL in
connection with the Share Exchange and has delivered its written opinion, dated
as of June 16, 1998 (the "DLJ Opinion"), to the NTL Board to the effect that, as
of such date, and based upon and subject to the assumptions, limitations and
qualifications set forth in such opinion, the consideration to be paid to the
Transferors in connection with the Share Exchange was fair to NTL from a
financial point of view. The full text of the DLJ Opinion, which sets forth a
description of the procedures followed, assumptions made, matters considered and
limitations on the review undertaken in connection with such opinion, is
attached hereto as Annex C and should be read carefully in its entirety. The DLJ
Opinion was prepared for the NTL Board and addresses only the fairness to NTL
from a financial point of view of the consideration to be paid to the
Transferors in connection with the Share Exchange, does not address any other
aspect of the Share Exchange or any related matters and does not constitute a
recommendation to any stockholder as to how such stockholder should vote at the
Special Meeting. See "THE SHARE EXCHANGE -- Opinion of NTL's Financial Advisor."
Accounting Treatment. The Share Exchange will be accounted for by NTL
under the purchase method of accounting in accordance with Accounting Principles
Board Opinion No. 16, "Business Combinations," as amended. Under this method of
accounting, the purchase price will be allocated to assets acquired and
liabilities assumed based on their estimated fair values. See "THE SHARE
EXCHANGE -- Accounting Treatment."
Conditions Precedent to the Share Exchange. The obligations of NTL and
each of the Transferors to effect the Share Exchange are subject to, among other
things, the satisfaction or waiver on or prior to the Closing Date of certain
conditions, including without limitation, (i) the obtaining of the Stockholder
Approval; (ii) the obtaining of the Required British Approvals (as defined
herein); (iii) the obtaining of all other governmental and regulatory approvals
required to be obtained by Diamond, NTL or any of their
11
<PAGE> 15
subsidiaries, except where the failure to obtain such approvals is not
reasonably expected to have a material adverse effect (as defined in the Diamond
Agreement) on NTL or Diamond or which will not result in a material violation of
any laws; (iv) the absence of any Restraint (as defined herein) in effect which
prevents the consummation of the transactions contemplated by the Diamond
Agreement or which is reasonably likely to have a material adverse effect on
Diamond or NTL; (v) the quotation on the NASDAQ, subject only to official notice
of issuance, of the shares of NTL Common Stock constituting the Share Issuance
and the shares of NTL Common Stock issuable upon exercise of the adjusted Stock
Options (as defined herein); and (vi) the obtaining of all required consents
(the "Required Consents") from certain third parties.
The obligation of NTL to effect the Share Exchange is also subject to the
satisfaction or waiver of certain additional conditions, including with respect
to the accuracy of the representations and warranties of the Transferors and the
performance in all material respects of the obligations of the Transferors under
the Diamond Agreement.
The obligation of the Transferors to effect the Share Exchange is also
subject to the satisfaction or waiver of certain additional conditions,
including with respect to the accuracy of the representations and warranties of
NTL, the performance in all material respects of the obligations of NTL under
the Diamond Agreement, NTL's entrance into a registration rights agreement (the
"Registration Rights Agreement") with each of the Transferors and the receipt by
the Transferors of an opinion of Sullivan & Cromwell, counsel to Diamond,
relating to certain tax matters. See "THE DIAMOND AGREEMENT -- Conditions
Precedent to the Share Exchange."
Termination of the Diamond Agreement; Fees and Expenses. The Diamond
Agreement may be terminated at any time prior to the Closing Date:
(i) by mutual written consent of NTL and the Transferors holding two-thirds
or more of the aggregate number of Diamond Shares (the "Majority Transferors");
(ii) by either NTL or the Majority Transferors if (A) the Closing Date has
not occurred by April 30, 1999 (the "End Date"), except if such failure is due
to a material breach of the Diamond Agreement by the party seeking to terminate,
(B) the Stockholder Approval has not been obtained or (C) any Restraint which
prevents the consummation of the Share Exchange or which otherwise is reasonably
likely to have a material adverse effect on Diamond or NTL is in effect and has
become final and nonappealable;
(iii) by either NTL or the Transferors if the other party has breached or
failed to perform in any material respect any of their respective
representations or warranties, covenants or other agreements contained in the
Diamond Agreement, which breach or failure to perform would give rise to the
failure of a condition set forth in the Diamond Agreement, and such condition is
incapable of being satisfied by the End Date; and
(iv) by the Majority Transferors if (A) as of a date not more than three
business days before the expected Closing Date, the NTL Average Stock Price
determined as of such date is less than $36.00, (B) notice has been provided to
NTL under the Diamond Agreement of an intent to terminate and (C) within one
business day of receipt of such notice, NTL has not offered (by notice to the
Majority Transferors) to increase the consideration payable per each four
Ordinary Shares such that the value of such consideration shall be $36.00 per
four Ordinary Shares or more at such time.
See "THE DIAMOND AGREEMENT -- Termination." The Diamond Agreement provides
that all fees and expenses incurred in connection with the Share Exchange, the
Diamond Agreement and the transactions contemplated by the Diamond Agreement
will be paid by the party incurring such fees and expenses, whether or not the
Share Exchange is consummated. The Transferors have represented and warranted
that no such fees and expenses have been or will be borne by Diamond or any of
its subsidiaries. See "THE DIAMOND AGREEMENT -- Fees and Expenses."
Governmental and Regulatory Approvals. The consummation of the Share
Exchange is conditioned upon certain regulatory approvals, including the
Required British Approvals. All of the Required British Approvals have already
been obtained. Under the Diamond Agreement, NTL and the Transferors have agreed
to use reasonable best efforts to obtain all necessary actions or nonactions,
waivers, consents and approvals
12
<PAGE> 16
from governmental entities and to make all necessary registrations and filings
with any governmental entity in order to consummate the Share Exchange. It is a
condition to the parties' respective obligations to consummate the Share
Exchange that all necessary consents, approvals and actions of, and filings with
and notices to any governmental entity be obtained. See "THE SHARE
EXCHANGE -- Governmental and Regulatory Approvals."
Risk Factors. For a description of certain significant considerations in
connection with the Share Exchange and related matters described in this Proxy
Statement, see "RISK FACTORS."
CERTAIN AGREEMENTS RELATED TO THE SHARE EXCHANGE
The Registration Rights Agreement. The Diamond Agreement requires that, on
or prior to the Closing Date, NTL will enter into the Registration Rights
Agreement with each of the Transferors, pursuant to which NTL will be obligated
to register for resale the shares of NTL Common Stock issued to each of the
Transferors as consideration in connection with the Share Exchange. See "CERTAIN
AGREEMENTS RELATED TO THE SHARE EXCHANGE -- The Registration Rights Agreement."
The Supplemental Option Agreement. Pursuant to the Diamond Agreement, NTL,
Diamond, European Cable and CGT Family Corporation ("CGT") have entered into a
Supplemental Option Agreement, dated June 15, 1998 (the "Supplemental Option
Agreement"), with respect to the Option Agreement, dated January 5, 1995 (the
"Option Agreement"), among Diamond, European Cable and CGT pursuant to which
Diamond granted to CGT options to acquire 654,000 Ordinary Shares (the "CGT
Options"). The Supplemental Option Agreement provides, among other things, that
CGT will, prior to but conditional upon the closing of the Share Exchange, (i)
exercise in full the CGT Options or (ii) release in full the CGT Options in
return for shares of NTL Common Stock as contemplated by the Diamond Agreement.
See "THE DIAMOND AGREEMENT -- Stock Options and Stock Appreciation Rights" and
"CERTAIN AGREEMENTS RELATED TO THE SHARE EXCHANGE -- The Supplemental Option
Agreement."
RECENT DEVELOPMENTS
Strategic Partnership with Microsoft. On January 25, 1999, Microsoft
Corporation ("Microsoft") and NTL agreed to jointly develop new, broadband
services for delivery to customers in the UK and Ireland. In addition, on
January 28, 1999, Microsoft purchased $500 million in NTL Preferred Stock. See
"RECENT DEVELOPMENTS -- Strategic Partnership with Microsoft."
Eastern Group Acquisition. On December 22, 1998, NTL acquired Eastern
Group Telecoms Limited ("Eastern Group") from Eastern Group plc for L60 million
in cash and L31 million in NTL Preferred Stock. See "RECENT
DEVELOPMENTS -- Eastern Group Acquisition."
Newcastle United Share Acquisition. On December 17, 1998, Premium TV
Limited ("Premium TV"), a wholly-owned subsidiary of NTL, acquired 9,000,000
shares, or 6.3%, of Newcastle United PLC ("Newcastle United") from Cameron Hall
Developments Limited ("CHD"), the majority shareholder in Newcastle United, at a
price of 111.7p per share. See "RECENT DEVELOPMENTS -- Newcastle United Share
Acquisition."
Offering of 7% Notes. On December 16, 1998, NTL issued and sold $600
million aggregate principal amount of its 7% Convertible Subordinated Notes Due
2008 (the "7% Notes") in transactions exempt from the registration requirements
of the Securities Act. Cash interest is payable semiannually on June 15 and
December 15 of each year, commencing June 15, 1999. The 7% Notes mature on
December 15, 2008. The 7% Notes are convertible at the option of the holder
thereof at any time after 90 days following the date of original issuance,
unless previously redeemed, into shares of NTL Common Stock at a conversion
price of $61.25 per share, subject to adjustment in certain circumstances. The
7% Notes are redeemable, in whole or in part, at NTL's option, at any time on or
after December 15, 2001, at the redemption prices set forth in the indenture
governing such 7% Notes. See "RECENT DEVELOPMENTS -- Offering of 7% Notes."
Offerings of 11 1/2% Notes and 12 3/8% Notes. On November 2, 1998, NTL
issued and sold $625 million aggregate principal amount of its 11 1/2% Senior
Notes Due 2008 (the "11 1/2% Notes"). The 11 1/2% Notes carry
13
<PAGE> 17
a cash-pay current coupon. NTL used the net proceeds of the 11 1/2% Notes to
partially repay indebtedness outstanding under the New Credit Facility (as
hereinafter defined). The 11 1/2% Notes were offered in transactions exempt
from, or not subject to, the registration requirements of the Securities Act.
On November 6, 1998, NTL issued and sold $450 million in aggregate
principal amount at maturity of 12 3/8% Senior Deferred Coupon Notes Due 2008
(the "12 3/8% Notes"). Cash interest will not accrue on the 12 3/8% Notes prior
to October 1, 2003. NTL used a portion of the net proceeds of the 12 3/8% Notes
to repay the indebtedness remaining under the New Credit Facility after
application of a portion of the net proceeds from the offering of the 11 1/2%
Notes. The 12 3/8% Notes were offered in transactions exempt from, or not
subject to, the registration requirements of the Securities Act. See "RECENT
DEVELOPMENTS -- Offerings of 11 1/2% Notes and 12 3/8% Notes."
Partners Acquisition. On October 29, 1998, NTL acquired Comcast UK Cable
Partners Limited, a Bermuda corporation ("Partners"), pursuant to an Agreement
and Plan of Amalgamation, dated February 4, 1998, as amended (the "Amalgamation
Agreement"), among NTL, a subsidiary of NTL ("Sub") and Partners, pursuant to
which, among other things, Sub was amalgamated with Partners (the
"Amalgamation"), and the separate existence of Sub and Partners continue in the
form of the company resulting from the Amalgamation. Under the terms of the
Amalgamation Agreement, shareholders of Partners received .3745 shares of NTL
Common Stock for each of the issued and outstanding Class A Common Shares, par
value L.01 per share, and Class B Common Shares, par value L.01 per share, of
Partners (collectively, the "Partners Common Shares"), an aggregate of
approximately 18,764,000 shares of NTL Common Stock. See "RECENT
DEVELOPMENTS -- Partners Acquisition."
ComTel Acquisition. Pursuant to an acquisition agreement (the "ComTel
Agreement"), dated June 16, 1998, with Vision Networks III B.V., a wholly-owned
subsidiary of Royal PTT Nederland NV (KPN), NTL acquired the operations of
ComTel Limited and Telecential Communications (collectively, "ComTel") for a
total of approximately L550 million in two stages (the "ComTel Acquisition"). In
the first stage, NTL acquired certain of the ComTel properties for L275 million
in cash. In the second stage, which was completed on September 22, 1998, NTL
acquired the remaining ComTel properties for L200 million in cash and L75
million in NTL Preferred Stock. See "RECENT DEVELOPMENTS -- ComTel Acquisition."
Redemption of 10 7/8% Notes. On June 10, 1998, NTL provided to the trustee
of NTL's 10 7/8% Senior Deferred Coupon Notes due 2003 (the "10 7/8% Notes") a
notice that NTL would redeem such 10 7/8% Notes on October 15, 1998. NTL used
cash on hand to deposit in trust with such trustee an amount equal to
approximately $218.6 million (103.107% of accreted value) to pay the redemption
price (including principal) on such 10 7/8% Notes, thereby defeasing certain of
its obligations under the indenture governing such 10 7/8% Notes. In July 1998,
using funds so deposited with the trustee, NTL purchased from one holder for $65
million a portion of the 10 7/8% Notes with an accreted value of $62.2 million.
On October 15, 1998, all of the remaining outstanding 10 7/8% Notes were
redeemed. See "RECENT DEVELOPMENTS -- Redemption of 10 7/8% Notes."
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<PAGE> 18
SUMMARY HISTORICAL FINANCIAL DATA OF NTL
The following table sets forth summary financial data for the nine months
ended September 30, 1998 and 1997 and for each of the five years in the period
ended December 31, 1997. This information has been derived from, and should be
read in conjunction with, the consolidated financial statements and notes
thereto included herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------------------------
1998 1997 1997 1996(1) 1995 1994 1993
--------- --------- --------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues........... $ 484,590 $ 348,373 $ 491,775 $ 228,343 $ 33,741 $ 13,745 $ 10,078
(Loss) before extraordinary
item...................... (331,866) (256,792) (328,557) (254,454) (90,785) (29,573) (11,076)
Net (loss)................... (336,105) (256,792) (333,057) (254,454) (90,785) (29,573) (11,076)
Basic and diluted net (loss)
per common share:
(Loss) before extraordinary
item(2)................... (9.17) (8.26) (10.60) (8.20) (3.01) (.98) (.83)
Net (loss) per common
share(2).................. (9.29) (8.26) (10.74) (8.20) (3.01) (.98) (.83)
Weighted average number of
common shares used in the
computation of basic and
diluted net loss per
common share(2)........... 37,436 32,101 32,117 31,041 30,190 30,175 13,327
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------------
1998 1997 1996(1) 1995 1994 1993
------------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)........ $ 350,878 $ (52,344) $ 242,102 $ 76,128 $251,544 $410,421
Fixed assets, net................... 3,134,655 1,756,985 1,459,528 639,674 191,725 36,422
Total assets........................ 4,622,238 2,421,639 2,454,611 1,010,669 664,366 594,976
Long-term debt...................... 3,885,489 2,015,057 1,732,168 513,026 143,488 130,553
Senior Redeemable Exchangeable
Preferred Stock.................. 120,044 108,534 -- -- -- --
Shareholders' equity (deficiency)... (24,259) (61,668) 328,114 339,257 436,534 452,402
</TABLE>
- ---------------
(1) In May 1996, NTL purchased NTL Group Limited for an aggregate purchase
price of approximately $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.
(2) After giving retroactive effect to the four-for-three stock split by way of
stock dividend paid in August 1995, NTL did not declare or pay any cash
dividends during the years indicated.
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<PAGE> 19
SUMMARY HISTORICAL FINANCIAL DATA OF DIAMOND
The following table sets forth summary financial data for the nine months
ended September 30, 1998 and 1997 and for each of the five years in the period
ended December 31, 1997. This information has been derived from, and should be
read in conjunction with, the consolidated financial statements and notes
thereto included herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1993 1994 1995(1) 1996 1997 1997(2)
------- -------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Business telecommunications........ L 1,237 L 3,402 L 5,852 L 9,763 L 14,208 $ 24,146
Residential telephone.............. 1,251 2,545 6,662 17,723 29,495 50,127
Cable television................... 719 1,324 3,479 10,091 16,602 28,215
Other revenues..................... 20 35 -- -- -- --
------- -------- --------- --------- --------- ---------
Total revenues..................... L 3,227 L 7,306 L 15,993 L 37,577 L 60,305 $ 102,488
======= ======== ========= ========= ========= =========
Operating costs and expenses:
Telephone.......................... (1,097) (3,067) (5,454) (9,776) (12,088) (20,544)
Programming........................ (324) (701) (1,844) (6,041) (9,749) (16,568)
Selling, general and
administrative................... (1,632) (4,562) (13,020) (22,391) (27,192) (46,213)
Depreciation and amortization...... (2,520) (4,038) (8,867) (21,380) (27,620) (46,940)
------- -------- --------- --------- --------- ---------
Total operating costs and
expenses......................... (5,573) (12,368) (29,185) (59,588) (76,649) (130,265)
------- -------- --------- --------- --------- ---------
Operating loss..................... (2,346) (5,062) (13,192) (22,011) (16,344) (27,777)
Interest income.................... -- 1,415 3,887 3,441 6,440 10,945
Interest expense, and amortization
of debt discount and expenses.... (231) (3,836) (17,118) (40,334) (66,367) (112,791)
Foreign exchange gains/(losses)
net.............................. (221) (1,196) 925 31,018 (12,555) (21,337)
Unrealized gains/(losses) on
derivative financial
instruments...................... -- -- (868) (7,944) 669 1,137
Other expenses..................... -- -- (1,241) -- -- --
Realized gains on derivative
financial instrument............. -- -- -- -- 11,553 19,634
------- -------- --------- --------- --------- ---------
Loss before income taxes........... (2,798) (8,679) (27,607) (35,830) (76,604) (130,189)
Income taxes....................... -- -- -- -- -- --
------- -------- --------- --------- --------- ---------
Net loss........................... L(2,798) L (8,679) L (27,607) L (35,830) L (76,604) $(130,189)
======= ======== ========= ========= ========= =========
BALANCE SHEET DATA:
Property and equipment, net........ L18,021 L 35,127 L 163,721 L 277,301 L 365,636 $ 621,398
Total assets....................... 19,882 138,606 374,172 416,819 556,357 945,529
Total debt(3)...................... 21,889 103,068 319,492 325,041 545,325 926,780
Shareholders' equity(4)............ (5,660) 26,092 25,133 54,100 (22,511) (38,257)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1997 1998 1998(2)
-------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Business telecommunications........ L 10,217 L 13,650 $ 23,198
Residential telephone.............. 20,450 32,806 55,754
Cable television................... 11,884 17,466 29,683
Other revenues..................... -- -- --
-------- --------- ----------
Total revenues..................... L 42,551 L 63,922 $ 108,635
======== ========= ==========
Operating costs and expenses:
Telephone.......................... (8,710) (12,390) (21,057)
Programming........................ (6,918) (9,450) (16,060)
Selling, general and
administrative................... (19,694) (27,430) (46,617)
Depreciation and amortization...... (20,057) (30,501) (51,836)
-------- --------- ----------
Total operating costs and
expenses......................... (55,379) (79,771) (135,570)
-------- --------- ----------
Operating loss..................... (12,828) (15,849) (26,935)
Interest income.................... 4,837 10,264 17,444
Interest expense, and amortization
of debt discount and expenses.... (43,075) (61,984) (105,342)
Foreign exchange gains/(losses)
net.............................. (22,180) 21,071 35,810
Unrealized gains/(losses) on
derivative financial
instruments...................... 2,904 -- --
Other expenses..................... -- -- --
Realized gains on derivative
financial instrument............. 11,553 412 700
-------- --------- ----------
Loss before income taxes........... (58,789) (46,086) (78,323)
Income taxes....................... -- -- --
-------- --------- ----------
Net loss........................... L(58,789) L (46,086) $ (78,323)
======== ========= ==========
BALANCE SHEET DATA:
Property and equipment, net........ L337,913 L 442,330 $ 751,740
Total assets....................... 570,775 744,411 1,265,126
Total debt(3)...................... 540,403 772,505 1,312,872
Shareholders' equity(4)............ (5,189) (71,420) (121,378)
</TABLE>
- ---------------
(1) The 1995 Group financial data includes the financial results of LCL from
October 1, 1995.
(2) Translated, solely for the convenience of the reader, at a rate of $1.6995 =
L1.00, the Noon Buying Rate on September 30, 1998.
(3) Total debt at December 31, 1994 consisted of the accreted value of Diamond's
13 1/4% Senior Discount Notes Due September 30, 2000 (the "1994 Notes") and
capital lease obligations. Total debt at December 31, 1995 and 1996
consisted of the accreted value of the 1994 Notes, the accreted value of
Diamond's 11 3/4% Senior Discount Notes Due December 15, 2005 (the "1995
Notes") and capital lease obligations and the mortgage loan. Total debt at
September 30, 1997 and December 31, 1997 included, in addition to such
indebtedness, the accreted value of Diamond's 10 3/4% Senior Discount Notes
Due February 15, 2007 (the "1997 Notes"). Total debt at September 30, 1998
included all such indebtedness and the principal amount of Diamond's 10%
Senior Notes Due February 1, 2008, and 9 1/8% Senior Notes Due February 1,
2008 (collectively, the "1998 Notes").
(4) The Group raised additional equity financing of L40.4 million, L27.0 million
and L64.6 million in the years ended December 31, 1994, 1995 and 1996,
respectively.
16
<PAGE> 20
SUMMARY PRO FORMA FINANCIAL DATA
The acquisition of Diamond requires, among other things, the approval of
the stockholders of NTL, as described in this Proxy Statement. Therefore, the
following pro forma financial data gives effect to the acquisition of Diamond,
as well as the ComTel Acquisition and the Amalgamation which were recently
completed.
The following table sets forth pro forma financial data for the nine months
ended September 30, 1998 and for the year ended December 31, 1997, after giving
effect to the acquisitions of Diamond, ComTel and Partners. This information
should be read in conjunction with the pro forma condensed combined financial
data included herein. See "UNAUDITED PRO FORMA FINANCIAL DATA."
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
INCOME STATEMENT DATA:
Operating revenues....................................... $ 779,537 $ 766,314
Net (loss)............................................... (688,372) (852,809)
BASIC AND DILUTED NET (LOSS) PER COMMON SHARE:
Net (loss) per common share.............................. (9.64) (12.91)
Weighted average number of common shares used in the
computation of basic and diluted net loss per common
share................................................. 71,377 66,058
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1998
------------------
<S> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 806,776
Fixed assets, net......................................... 4,640,171
Total assets.............................................. 8,136,552
Long-term debt............................................ 5,678,111
Shareholders' equity...................................... 1,196,562
</TABLE>
17
<PAGE> 21
SUMMARY PRO FORMA PER SHARE AND OTHER DATA
The following table presents the net loss and book value per share of NTL
and Diamond, on a pro forma basis for NTL and an equivalent pro forma basis for
Diamond. Pro forma data for NTL was derived by combining the historical
financial statements of NTL, ComTel, Partners and Diamond's historical financial
information, giving effect to the acquisitions using the purchase method of
accounting. Equivalent pro forma information for Diamond is presented on an
equivalent share basis, which reflects NTL's pro forma amounts multiplied by the
exchange ratio of shares of NTL Common Stock for each Diamond Share, based on
the closing price of NTL Common Stock on June 15, 1998 of $41.50 per share. See
the footnotes to "UNAUDITED PRO FORMA FINANCIAL DATA" for assumptions used.
Pro forma income statement-related per share amounts have been prepared as
if the acquisitions of Diamond, ComTel and Partners had occurred at the
beginning of the earliest period presented. Pro forma book value per share
amounts give effect to the Share Exchange as though it had been consummated on
the date indicated.
The information set forth below should be read in conjunction with the
"UNAUDITED PRO FORMA FINANCIAL DATA" included herein and the respective audited
consolidated financial statements and notes thereto of NTL, Partners, ComTel and
Diamond which are also included herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------- -------------------------
1998 1997 1996 1995
------------- ------- ------ ------
<S> <C> <C> <C> <C>
HISTORICAL:
NTL COMMON STOCK
Net loss per share
Historical............................................ $(9.29) $(10.74) $(8.20) $(3.01)
Book value per share (at end of period)
Historical............................................ (0.59) (1.91) 10.23 11.24
DIAMOND SHARES
Net loss per share
Historical............................................ (1.29) (2.12) (1.09) (1.15)
Book value/(deficiency) per share (at end of period)
Historical............................................ (2.05) (0.62) 1.57 0.89
PRO FORMA COMTEL, PARTNERS AND DIAMOND:
NTL COMMON STOCK
Net loss per share
Pro forma............................................. (9.64) (12.91)
Book value per share (at end of period)
Pro forma............................................. 21.15
DIAMOND SHARES
Net loss per share
Equivalent Pro forma.................................. (2.41) (3.23)
Book value per share (at end of period)
Equivalent Pro forma.................................. 5.29
</TABLE>
18
<PAGE> 22
RISK FACTORS
In considering whether to approve the Share Issuance, stockholders of NTL
should consider carefully, among other things, the following discussion of
risks.
FIXED RATIOS DESPITE CHANGE IN RELATIVE STOCK PRICES
The consideration to be paid to the Transferors in connection with the
Share Exchange is expressed in the Diamond Agreement as a fixed ratio of shares
of NTL Common Stock to Diamond Shares. However, the Diamond Agreement provides
for adjustment of the consideration for each four Ordinary Shares as follows:
(i) if the Closing Date occurs within four months of the date of the Diamond
Agreement, and the average sales price of the NTL Common Stock, as calculated
pursuant to the Diamond Agreement, is $52.00 or more, the number of shares of
NTL Common Stock to be transferred for each four Ordinary Shares will be
decreased such that the value of such consideration will not exceed the Maximum
Average Stock Price ($52.00); (ii) if the Closing Date occurs after October 16,
1998 and prior to February 1, 1999, the Maximum Average Stock Price will
increase by $.50 on October 16, 1998, and on each subsequent monthly anniversary
date thereof until the Closing Date; and (iii) if the Closing Date occurs on
February 1, 1999 or thereafter, the Maximum Average Stock Price will be $65.00.
Because more than four months have passed since June 16, 1998, the date of the
Diamond Agreement, and the Closing Date will not occur prior to February 1,
1999, subparagraphs (i) and (ii) above are no longer an applicable adjustment
mechanisms with respect to determining the Maximum Average Stock Price.
Moreover, the Majority Transferors may terminate the Diamond Agreement at
any time prior to the Closing Date if, as of a date not more than three business
days before the expected Closing Date, the purchase price per four Ordinary
Shares falls below $36.00, subject to NTL's right to adjust the consideration
payable per each four Ordinary Shares such that the Transferors would receive an
amount of NTL Common Stock having a value of $36.00 or more per four Ordinary
Shares. On January 27, 1999, the composite closing price of the NTL Common Stock
was $77.00 per share. However, the price of NTL Common Stock at the Closing Date
will vary from its price at the date of this Proxy Statement and at the date of
the Special Meeting. Such variations may be the result of changes in business,
operations or prospects of NTL or Diamond, market assessments of the likelihood
that the Share Exchange will be consummated and the timing thereof, regulatory
considerations, general market and economic conditions and other factors.
Because the Closing Date will occur at a date later than the Special Meeting,
there can be no assurance that the price of NTL Common Stock on the date of the
Special Meeting will be indicative of its price at the Closing Date. The Closing
Date will occur on the third business day after the day in which all of the
conditions set forth in the Diamond Agreement have been satisfied or waived,
unless NTL and the Transferors' Representative otherwise agree. Stockholders of
NTL are urged to obtain current market quotations for the NTL Common Stock. See
"THE DIAMOND AGREEMENT -- Consideration for Diamond Shares" and
"-- Termination."
RISKS RELATED TO DIAMOND INDENTURES
Under the terms of the indentures (the "Diamond Indentures") governing the
terms of Diamond's 10% Senior Notes Due 2008, 9 1/8% Senior Notes Due 2008,
10 3/4% Senior Discount Notes Due 2007, 11 3/4% Senior Discount Notes Due 2005
and 13 1/4% Senior Discount Notes Due 2004 (collectively, the "Diamond Notes"),
the Share Exchange will constitute a "Change of Control." In general, upon the
occurrence of a Change of Control, each holder of the Diamond Notes would have
the right to require Diamond to repurchase the Diamond Notes in cash at a
purchase price equal to 101% of the Accreted Value (as defined in the applicable
Diamond Indenture) thereof to the date of purchase if such purchase is on or
prior to the Cash Interest Date (as defined in the applicable Diamond
Indenture), or 101% of the principal amount at maturity thereof, plus accrued
and unpaid interest thereon, if any, to the date of purchase if such purchase is
after such Cash Interest Date.
If a Change of Control occurs in connection with the Share Exchange,
Diamond (which would then be a subsidiary of NTL) would be required to make an
offer to repurchase the Diamond Notes at an approximate purchase price of $1.3
billion, based on the Accreted Value as of March 5, 1999. Given prevailing
market
19
<PAGE> 23
prices, NTL does not anticipate that holders of the Diamond Notes will exercise
their right to require a repurchase of their Diamond Notes by NTL in accordance
with the Diamond Indentures. However, there can be no assurance that some or all
of such holders will not require such repurchase in the event of a change in
market prices.
ADVERSE CONSEQUENCES OF LEVERAGE
NTL is, and for the foreseeable future will remain, highly leveraged. At
September 30, 1998, after giving effect to the offering of the 7% Notes, the
Amalgamation, the redemption of the 10 7/8% Notes, the offerings of the 11 1/2%
Notes and the 12 3/8% Notes and the use of proceeds therefrom, the accreted
value of NTL's total long-term indebtedness (including NTL's 13% Senior
Redeemable Exchangeable Preferred Stock (the "13% Preferred Stock")) was
approximately $5.0 billion. This debt represents approximately 90% of NTL's
total capitalization. At September 30, 1998, the accreted value of Diamond's
total long-term indebtedness was L773 million ($1.3 billion).
In connection with the ComTel Acquisition, NTL borrowed L275 million under
its credit facility from The Chase Manhattan Bank ("Chase"), dated October 17,
1997, as amended, between Chase and NTL (UK) Group, Inc. (the "New Credit
Facility") in June 1998, and NTL borrowed an additional L200 million under the
New Credit Facility to complete such acquisition. The total amount borrowed of
L475 million was repaid by NTL in November 1998, out of the net proceeds of the
offerings of the 11 1/2% Notes and the 12 3/8% Notes.
NTL's ability to make scheduled payments under present and future
indebtedness will depend upon, among other things, its ability to:
- complete the build-out of the franchises on a timely and cost effective
basis,
- access the earnings of its subsidiaries (which may be subject to
significant contractual and legal limitations),
- NTL's future operating performance, and
- NTL's ability to refinance its indebtedness when necessary.
Future agreements and debt instruments may:
- require NTL to maintain certain financial ratios,
- prohibit the payment of dividends and other distributions to NTL by its
subsidiaries, or
- restrict asset sales and dictate the use of proceeds from the assets.
In complying with these restrictions while servicing its debt, NTL may
limit its ability to respond to market conditions or meet extraordinary capital
needs.
NTL cannot be certain that any such restrictions will permit it to engage
in business activities, such as acquisitions, which would generate revenue and
facilitate NTL's service and repayment of its debt. Additionally, such
restrictions may affect NTL's ability to finance its future operations or
capital needs.
The amount of indebtedness could have important consequences to
stockholders, including the following:
- increasing NTL's vulnerability to adverse changes in general economic
conditions or increases in prevailing interest rates,
- limiting NTL's ability to obtain additional financing for working
capital, capital expenditures, acquisitions and general corporate
purposes, including the build-out of the networks in the franchises and
the development and expansion of NTL's business,
- requiring a substantial portion of NTL's cash flow and its subsidiaries'
cash flow from operations to be dedicated to debt service requirements,
which would reduce funds available for dividends, operations and future
business opportunities, and
20
<PAGE> 24
- increasing NTL's exposure to interest rate increases with respect to its
borrowings which are tied to variable interest rates.
Additionally, in some circumstances NTL may be required to offer to
repurchase some of its indebtedness before maturity. NTL cannot be certain that
it will have the financial resources necessary to repurchase those securities in
those circumstances.
NETWORK CONSTRUCTION COSTS
Following NTL's recent and proposed acquisitions, NTL's capital expenses
and cost of operations for the development, construction and operation of its
combined telecommunications networks will significantly increase. NTL intends to
fund a portion of these costs with cash, cash equivalents and marketable
securities and funds generated by the operations of its subsidiaries. However,
given its most recent acquisitions, NTL estimates that significant amounts of
additional funding will be necessary to meet these capital expenditure
requirements.
NTL cannot be certain that:
- It will be able to obtain additional financing with acceptable terms,
- actual construction costs will meet its expectations,
- It will satisfy conditions precedent to advances under future credit
facilities,
- It will not acquire additional businesses that require additional
capital,
- It will be able to generate sufficient cash from operations to meet
capital requirements, debt service and other obligations when required,
or
- its subsidiaries will withstand exposure to exchange and interest rate
fluctuations.
NTL does not have any firm additional financing plans to address the
factors enumerated above, except in relation to the New Credit Facility.
NEED FOR ADDITIONAL FINANCING
It is anticipated that NTL and its subsidiaries will not generate
sufficient cash flow from operations to repay at maturity the entire principal
amount of NTL's outstanding indebtedness. Some of the measures NTL may take to
refinance its debt include:
- refinancing all or portions of such indebtedness,
- seeking modifications to the terms of such indebtedness,
- seeking additional debt financing (which may require NTL to obtain the
consent of some of its lenders), and
- seeking additional equity financing.
NTL cannot be certain that it will succeed in executing any of these
measures.
ACQUISITION RISKS
NTL will continue to consider strategic acquisitions and combinations that
involve operators or owners of licenses to operate cable, telephone, television
or telecommunications systems or services and related businesses that operate
principally in the UK. If consummated, some of these transactions would
significantly alter NTL's holdings and might require NTL to incur substantial
indebtedness or raise additional equity. NTL
21
<PAGE> 25
cannot assure you that, with respect to the recent acquisitions of Partners and
ComTel and the proposed Diamond acquisition, as well as future acquisitions,
that NTL:
- will realize any anticipated benefits,
- will successfully integrate the businesses with NTL's operations, or
- will manage such integration without adversely affecting NTL.
The indentures governing NTL's existing indebtedness permit NTL to assume
additional debt in order to finance the acquisition of either tangible or
intangible assets, licenses and computer software that are used in connection
with a cable business, as well as certain entities that are directly or
indirectly engaged in a cable business.
HOLDING COMPANY STRUCTURE; DEPENDENCE UPON CASH FLOW FROM SUBSIDIARIES
NTL and Diamond are holding companies that conduct their operations through
direct and indirect wholly-owned subsidiaries and affiliated joint ventures.
Consequently, prior to and following the Share Exchange, NTL will hold no
significant assets other than its investments in and advances to its
subsidiaries and affiliated joint ventures. NTL depends upon the receipt of
sufficient funds from its subsidiaries and affiliated joint ventures to meet its
obligations. Additionally, NTL's claim to any distribution of assets following
liquidation of any subsidiary or joint venture is subordinate to the prior
senior claims of any other creditors or direct or indirect owners of those
subsidiaries and joint ventures. The obligations of NTL's subsidiaries which are
payable to NTL are also subordinate to the claims of the lenders under the New
Credit Facility.
Additionally, the terms of the New Credit Facility, when renegotiated, and
the terms of existing and future indebtedness of our subsidiaries may limit the
payment of dividends, loans or other distributions to NTL. In the absence of a
default, NTL anticipates that the New Credit Facility, when renegotiated, will
generally permit payments to NTL to pay the interest and principal of existing
indebtedness.
Each of NTL's subsidiaries that is a Delaware corporation may pay dividends
under the Delaware General Corporation Law (the "DGCL") only out of its surplus
or, in the event that it has no surplus, out of its net profits for that fiscal
year or the immediately preceding fiscal year in which the subsidiary declares
the dividend. Each of NTL's subsidiaries that is a UK corporation may pay
dividends under UK law only out of distributable profits. Under UK law such
distributable profits consist of accumulated, realized profits less previous
distributions and capitalization, as well as realized losses that have not been
written off in a reduction or reorganization of capital. Other statutory and
general English law obligations also affect the abilities of NTL's subsidiaries
to declare dividends and to make payments to NTL in compliance with inter
company loans. In addition, the UK may impose a withholding tax on payments of
interest and advance corporation tax on distributions (of interest, dividends or
otherwise) by NTL's UK subsidiaries. Each of NTL's subsidiaries that is a
Bermuda corporation may pay dividends subject to the satisfaction of statutory
solvency tests.
As of September 30, 1998, the total liabilities of NTL's subsidiaries,
after giving effect to the Amalgamation and the repayment of the New Credit
Facility, were approximately $967 million (L569 million). In addition,
subsidiaries of NTL may incur additional indebtedness to finance the
construction, capital expenditure and working capital needs of a cable business
and the acquisition of cable assets or the acquisitions of certain entities,
directly or indirectly, engaged in a cable business, if such entities meet
certain qualifying criteria. In light of NTL's strategy of continued growth, in
part through acquisitions, NTL and its subsidiaries may incur substantial
indebtedness in the future. Borrowings under the New Credit Facility are, and a
substantial portion of NTL's and its subsidiaries' future indebtedness is
expected to be, secured by liens and other security interests over the assets of
NTL's subsidiaries and NTL's equity interests in NTL's subsidiaries. In
addition, the ability of NTL and, therefore, the stockholders of NTL, to benefit
from distributions of assets of NTL's subsidiaries may be limited to the extent
that the outstanding shares of any of its subsidiaries and such subsidiary's
assets are pledged to secure other debt of NTL or its subsidiaries.
22
<PAGE> 26
Any right of NTL to receive assets of any subsidiary upon such subsidiary's
liquidation or reorganization will be structurally subordinated to the claims of
that subsidiary's creditors, except to the extent the NTL is itself recognized
as an unsubordinated creditor of such subsidiary. However, to the extent that
NTL is so recognized, the claims of NTL would still be subject to any security
interests in the assets of such subsidiary and any liabilities of such
subsidiary senior to those held by NTL and may otherwise be challenged by third
parties in a liquidation or reorganization proceeding. In addition, the New
Credit Facility requires NTL to subordinate its right to repayment of
indebtedness outstanding between it and the borrower under such agreement or any
other subsidiary of NTL to the rights of the lenders under the agreement. In
particular the rights of NTL and other subsidiaries to repayment of principal
and interest lent by them to the borrower or other subsidiaries under the New
Credit Facility have been and will be subordinated to the rights of the lenders
under the New Credit Facility pursuant to subordination agreements with such
lenders.
NTL's principal fixed assets are cable headends, cable televisions and
telecommunications distribution equipment, telecommunications switches and
customer equipment, transmission towers, masts and antennas and the sites on
which they are located. These assets are highly specialized and, individually,
may have limited marketability. If secured creditors seize the assets that
secure NTL's debt, these creditors would likely seek to sell the business as a
going concern.
LOSSES AND NEGATIVE CASH FLOWS
NTL had net losses for:
- - the nine months ended September 30, 1998 of $(336.1 million) and
- - the nine months ended September 30, 1997 of $(256.8 million)
and for the years ended December 31,
- - 1997: $(333.1 million)
- - 1996: $(254.5 million)
- - 1995: $(90.8 million)
- - 1994: $(29.6 million)
- - 1993: $(11.1 million).
As of September 30, 1998, NTL's accumulated deficit was $(1.1 billion).
Diamond had net (loss) for the nine months ended September 30, 1998 and
1997 and for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 of
L(46.1 million), L(58.8 million), L(76.6 million), L(35.8 million), L(27.6
million), L(8.7 million) and L(2.8 million), respectively. As of September 30,
1998, Diamond's accumulated deficit was L(204.3) million.
Construction and operating expenditures have resulted in negative cash
flow, which NTL expects will continue at least until NTL establishes an adequate
customer base. NTL also expects to incur substantial additional losses. NTL
cannot be certain that NTL will achieve or sustain profitability in the future.
Failure to achieve profitability could diminish its ability to sustain
operations and obtain additional required funds. In addition, such a failure
would adversely affect its ability to make required payments on its indebtedness
and its preferred stock.
REQUIREMENT TO MEET BUILD MILESTONES
NTL holds licenses under the Telecommunications Act 1984 and the
Broadcasting Act 1990 which grant exclusive rights to convey and provide CATV
services for the relevant areas, subject to certain obligations as to the number
of premises to which, and the timetable within which, such services must be made
available. The aggregate requirement is to pass approximately four million
premises (excluding Cable London and Diamond) over the period up to 2005. This
position is currently under review by the regulatory authorities in
23
<PAGE> 27
view of the UK government's announcement in 1998 that all exclusive franchising
would come to an end by January 1, 2001.
NTL believes that it has the necessary resources to satisfy the obligations
of its build program between now and January 1, 2001, but NTL cannot be certain
that such obligations will be met.
Failure to meet the license milestones requirements or to modify such
requirements may result in revocation of the relevant licenses.
UNCERTAINTY OF CONSTRUCTION PROGRESS AND COSTS
At September 30, 1998, construction of NTL's network had passed in excess
of 57% of its final milestone requirements for all its franchises, and
construction of Diamond's network had passed over 66% of its final regulatory
milestone requirements. Successful construction and development of the combined
network will depend on, among other things, NTL'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. NTL cannot be certain that the actual costs of network construction
will remain as budgeted.
NTL's licenses generally require underground construction of its network
through a procedure that is significantly more expensive and time consuming than
the aerial alternative. Underground construction is more expensive because
mechanized installment methods conflict with underground utility infrastructure.
Additionally, NTL must incur the cost of restoring the surface area subsequent
to construction. Thus far NTL has succeeded in negotiating favorable
construction contracts, but construction costs could increase significantly over
the next few years as existing contracts expire and as demand for cable
construction services grows. NTL cannot be certain that it will be able to
construct its network in a timely manner or at a reasonable cost.
SIGNIFICANT COMPETITION
NTL and Diamond face significant competition from established and new
competitors in the areas of residential telephony, business telecoms services
and cable television. NTL believes that competition will intensify in each of
these business areas, particularly business telecommunications.
Residential Telephony. NTL and Diamond compete primarily with British
Telecommunications plc ("BT") in providing telephone services to residential
customers. BT, formerly the only major national public telephone operator
("PTO") in the UK, occupies an established market position and manages fully
built networks with resources that are substantially greater than those of NTL.
According to OFTEL, at March 31, 1997, BT serviced nearly 90% of UK residential
telephone exchange line customers. NTL's growth in telecommunications services
depends upon its ability to appropriate BT's customers.
In NTL's view, value-for-money is currently one of the more important
influences on UK customers. NTL's goal to remain competitive with BT's
residential telephony service rates may cause a decline in NTL's average
per-line residential telecommunications revenues, and NTL may not achieve
desired penetration rates. Consequently, NTL may experience a decline in total
revenues.
On February 8, 1996, the DTI awarded to BT and RadioTEL Systems licences
that authorize those companies to operate radio fixed access services in the 2
GHz band in Scotland, Wales and Northern Ireland. These licensees create
additional competition for NTL's residential telephony services in certain
remote rural areas of its franchise in Northern Ireland. NTL also competes with
mobile networks, which is a technology that may grow to be competitive with
NTL's other networks, particularly if call charges are reduced further on the
mobile networks. NTL's Radio Communications group may enable NTL to benefit from
growth in the
24
<PAGE> 28
mobile networks technology. NTL cannot assure you that it will be able to
compete successfully with BT or any other telecommunication operations.
NTL believes that it has a competitive advantage in the residential market
because it offers integrated telephone, CATV, telecommunication services
(including interactive and on-line services) and dual product packages that are
designed to encourage customers to subscribe to multiple services. NTL cannot be
certain that this perceived competitive advantage will continue. Indeed, the UK
recently announced that BT and all other operators would be permitted to provide
and convey CATV services throughout the UK 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 ("BSkyB") 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 has proposed a joint
venture with BT, Midland Bank and Matsushita that is known as British
Interactive Broadcasting ("BiB"). If BiB's bid to enter the interactive digital
services market passes review by the competition directorate of the European
Commission, NTL believes that the resulting combination would provide
significant competition.
Business Telecommunications. BT is also NTL's principal competitor in
providing business telecommunications services. Additionally, NTL competes with
C&WC, Energis Communications Limited, a subsidiary of the National Grid Company
plc, Scottish Telecom in Scotland and with other companies that have been
granted telecommunications licenses such as WorldCom and Colt, and the new
non-network based resellers, such as Citibell. In the future, NTL may compete
with additional entrants to the business telecommunications market, such as AT&T
U.K. Competition is based on price range and quality of services, and NTL
expects price competition to intensify if existing and new market entrants
compete aggressively.
CATV. NTL's CATV systems compete with direct reception over-the-air
broadcast television, direct-to-home ("DTH") satellite services and satellite
master antenna systems. In addition, pay television and pay-per-view services
offered by NTL 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.
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 public
telephone operators ("PTOs") may provide "video-on-demand" services under their
existing licenses. NTL expects that, in the future, it may face competition from
programming provided by video-on-demand services, including those provided by
PTOs with national licenses, as well as (after 2001) from companies which seek
to provide CATV services in NTL's franchises under the recently announced change
of government policy.
The Broadcasting Act of 1996 provides for the regulation of digital
terrestrial television ("DTT") that will initially provide an additional 18 or
more new terrestrial channels serving between 60% and 90% of the UK's
population. Some of the channels are reserved for digital simultaneous
broadcasting by the existing terrestrial broadcasters. The introduction of DTT,
as well as digital satellite television, will provide both additional
programming sources as well as increased competition for NTL and its
subsidiaries. There can be no assurance that satisfactory (or any) terms of
carriage will be obtained by NTL for digital satellite programs or channels.
The full extent to which existing or future competitors using existing or
developing media will compete with cable television systems may not be known for
several years. There can be no assurance, however, that existing, proposed or as
yet undeveloped technologies will not become dominant in the future and render
cable television systems less profitable or even obsolete.
Broadcast Services. In February 1997, the UK Government sold the Home
Service and World Service transmission businesses of the British Broadcasting
Corporation to a consortium led by Castle Tower Corporation. NTL may encounter
significant competition from this consortium following the expiration of NTL's
current contracts with the Independent Television contractors and Channel 4 and
the Welsh Fourth Channel ("SC4") for the provision of transmission services.
25
<PAGE> 29
LIMITED ACCESS TO PROGRAMMING
The competitiveness of the cable television services of NTL and Diamond
depends on the companies' access to programming at a reasonable cost. While
various sources of programming are available to cable system operators in the
UK, BSkyB is currently the most important supplier of cable programming and the
exclusive supplier of certain programming. BSkyB provides the industry with a
range of programming, including the most popular mainstream premium movie
channels available in the UK and, currently, exclusive English premier league
soccer games. BSkyB also competes with NTL by operating a DTH satellite service
that provides programming, including programming that is also offered by NTL, to
approximately 4 million subscribers in the UK. BSkyB's programming is crucial in
attracting and retaining cable television subscribers and, in the absence of
more alternative programming sources, BSkyB may raise prices for its programming
without significant competitive pricing pressure.
Like many other cable operators, NTL obtains most of its programming
through unofficial arrangements with BSkyB and other programming suppliers. To
date, NTL has not had a formal contract with BSkyB, although NTL has discussed
entering into such an agreement for some time. NTL cannot be certain that it
will reach a definitive agreement with BSkyB, that the terms of such agreement
will improve its current arrangement, or that BSkyB will continue to supply
programming to NTL on reasonable commercial terms. Moreover, NTL has not, to
date, entered into written contracts with many of its other program suppliers.
The loss of BSkyB or other programming, a deterioration in the perceived quality
of BSkyB or other programming, or a material increase in the price that NTL or
Diamond must pay for BSkyB or other programming could have a material adverse
effect on NTL.
POSSIBLE CHANGES IN GOVERNMENT REGULATION
The principal business activities of NTL and Diamond in the UK are
regulated and supervised by various governmental bodies that include the ITC,
the Department of Culture, Media and Sport, the Radio Communications Agency, the
Radio Authority and OFTEL under the directions of the Director General and the
DTI on behalf of The Secretary of State for Trade and Industry. Changes in laws,
regulations or governmental policy or the interpretations of such laws or
regulations affecting the activities of NTL and those of its competitors, such
as licensing requirements, changes in price regulation and deregulation of
interconnection arrangements, could have a material adverse effect on NTL and
Diamond.
Specifically, the prices that NTL may charge the ITV companies, Channel 4
and S4C, for television transmission services are subject to price controls
imposed by the OFTEL. On December 24, 1996, the Director General of OFTEL issued
a formal modification to NTL's Telecommunications Act License to address the new
price control for the television transmission services that NTL provides to the
ITV companies, Channel 4 and S4C. Under the new arrangements, NTL's total
revenues receivable for such services (excluding certain insignificant items)
can not exceed L53.15 million in 1997 and, thereafter through 2002, they will be
adjusted annually by the Retail Prices Index minus 4%. These price controls may
be reviewed again prior to 2002 and price controls for the year following
December 31, 2002 may have a material adverse effect on the revenues receivable
from the ITV companies, Channel 4 and S4C.
As UK businesses, NTL and Diamond are subject to regulatory initiatives of
the European Commission. Changes promulgated in EU Directives, particularly
television "production" and "programming" quotas, may reduce the range of
programing and increase the costs of purchasing television programming. In
addition, EU Directives may introduce provisions that require NTL and Diamond to
provide access to their cable network infrastructure to other service providers.
MANAGEMENT OF GROWTH AND EXPANSION
NTL has experienced rapid growth and development in a relatively short
period, and NTL plans further rapid growth to meet its strategic objectives and
regulatory milestones. Management of such growth will require, among other
things, stringent control of construction and other costs, continued development
of NTL's financial and management controls, increased marketing activities and
the training of new personnel.
26
<PAGE> 30
Failure to manage NTL's rapid growth and development successfully could have a
material adverse effect on NTL.
DEPENDENCE UPON KEY PERSONNEL
A small number of key executive officers manage NTL's businesses, and the
loss of one or more of them could have a material adverse effect on NTL. NTL
believes that its future success will depend in large part on its continued
ability to attract and retain highly skilled and qualified personnel. NTL has
not entered into written employment contracts or non-compete agreements with,
nor has NTL obtained life insurance policies covering, such key executive
officers. Certain senior managers of NTL also serve as members of senior
management of other companies in the telecommunications industry.
RISKS OF RAPID TECHNOLOGICAL CHANGES
The telecommunications industry is subject to rapid and significant changes
in technology and the effect of technological changes on the businesses of NTL
and Diamond cannot be predicted. However, the cost of implementing emerging and
future technologies could be significant, and NTL's ability to fund such
implementation will depend on its ability to obtain additional financing.
CURRENCY RISK
To the extent that NTL obtains financing in United States dollars and
incurs construction and operating expenses in British pounds sterling, it will
encounter currency exchange rate risks. In addition, NTL generates revenues
primarily in British pounds sterling while it pays interest and principal
obligations with respect to most of its existing indebtedness in United States
dollars. NTL has entered into an option agreement to hedge some of the risk of
exchange rate fluctuations related to debt service and corporate expenses. While
NTL may consider entering into additional transactions to hedge the risk of
exchange rate fluctuations, NTL cannot be certain that it will engage in such
transactions; or, if it does, that those transactions will be successful and
that shifts in the currency exchange rates will not have a material adverse
effect on NTL.
RISKS OF LIMITED INSURANCE COVERAGE
NTL and Diamond obtain insurance of the type and in the amounts that they
believe are customary in the UK for similar companies. Consistent with this
practice, they do not insure the underground portion of their cable network. Any
catastrophe that affects a significant portion of a system's underground cable
network could result in substantial uninsured losses.
27
<PAGE> 31
SELECTED HISTORICAL FINANCIAL DATA OF NTL
The following table sets forth selected financial data for the nine months
ended September 30, 1998 and 1997 and for each of the five years in the period
ended December 31, 1997. This information has been derived from, and should be
read in conjunction with, the consolidated financial statements and notes
thereto included or incorporated by reference herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------------------------
1998 1997 1997 1996(1) 1995 1994 1993
--------- --------- --------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues... $ 484,590 $ 348,373 $ 491,775 $ 228,343 $ 33,741 $ 13,745 $ 10,078
(Loss) before
extraordinary
item............... (331,866) (256,792) (328,557) (254,454) (90,785) (29,573) (11,076)
Net (loss)........... (336,105) (256,792) (333,057) (254,454) (90,785) (29,573) (11,076)
Basic and diluted net
(loss) per common
share:
(Loss) before
extraordinary
item(2)............ (9.17) (8.26) (10.60) (8.20) (3.01) (.98) (.83)
Net (loss) per common
share(2)........... (9.29) (8.26) (10.74) (8.20) (3.01) (.98) (.83)
Weighted average
number of common
shares used in the
computation of
basic and diluted
net loss per common
share(2)........... 37,436 32,101 32,117 31,041 30,190 30,175 13,327
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, AS OF DECEMBER 31,
------------- ----------------------------------------------------------
1998 1997 1996(1) 1995 1994 1993
------------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficiency).............. $ 350,878 $ (52,344) $ 242,102 $ 76,128 $251,544 $410,421
Fixed assets, net............ 3,134,655 1,756,985 1,459,528 639,674 191,725 36,422
Total assets................. 4,622,238 2,421,639 2,454,611 1,010,669 664,366 594,976
Long-term debt............... 3,885,489 2,015,057 1,732,168 513,026 143,488 130,553
Senior Redeemable
Exchangeable
Preferred Stock........... 120,044 108,534 -- -- -- --
Shareholders' equity
(deficiency).............. (24,259) (61,668) 328,114 339,257 436,534 452,402
</TABLE>
- ---------------
(1) In May 1996, NTL purchased NTL Group Limited for an aggregate purchase
price of approximately $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.
(2) After giving retroactive effect to the four-for-three stock split by way of
stock dividend paid in August 1995. NTL did not declare or pay any cash
dividends during the years indicated.
28
<PAGE> 32
SELECTED HISTORICAL FINANCIAL DATA OF DIAMOND
The following table sets forth summary financial data for the nine months
ended September 30, 1998 and 1997 and for each of the five years in the period
ended December 31, 1997. This information has been derived from, and should be
read in conjunction with, the consolidated financial statements and notes
thereto included or incorporated by reference herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1993 1994 1995(1) 1996 1997 1997(2)
------- -------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Business telecommunications........ L 1,237 L 3,402 L 5,852 L 9,763 L 14,208 $ 24,126
Residential telephone.............. 1,251 2,545 6,662 17,723 29,495 50,127
Cable television................... 719 1,324 3,479 10,091 16,602 28,215
Other revenues..................... 20 35 -- -- -- --
------- -------- --------- --------- --------- ---------
Total revenues..................... L 3,227 L 7,306 L 15,993 L 37,577 L 60,305 $ 102,488
======= ======== ========= ========= ========= =========
Operating costs and expenses:
Telephone.......................... (1,097) (3,067) (5,454) (9,776) (12,088) (20,544)
Programming........................ (324) (701) (1,844) (6,041) (9,749) (16,568)
Selling, general and
administrative................... (1,632) (4,562) (13,020) (22,391) (27,192) (46,213)
Depreciation and amortization...... (2,520) (4,038) (8,867) (21,380) (27,620) (46,940)
------- -------- --------- --------- --------- ---------
Total operating costs and
expenses......................... (5,573) (12,368) (29,185) (59,588) (76,649) (130,265)
------- -------- --------- --------- --------- ---------
Operating loss..................... (2,346) (5,062) (13,192) (22,011) (16,344) (27,777)
Interest income.................... -- 1,415 3,887 3,441 6,440 10,945
Interest expense, and amortization
of debt discount and expenses.... (231) (3,836) (17,118) (40,334) (66,367) (112,791)
Foreign exchange gains/(losses)
net.............................. (221) (1,196) 925 31,018 (12,555) (21,337)
Unrealized gains/(losses) on
derivative financial
instruments...................... -- -- (868) (7,944) 669 1,137
Other expenses..................... -- -- (1,241) -- -- --
Realized gains on derivative
financial instrument............. -- -- -- -- 11,553 19,634
------- -------- --------- --------- --------- ---------
Loss before income taxes........... (2,798) (8,679) (27,607) (35,830) (76,604) (130,189)
Income taxes....................... -- -- -- -- -- --
------- -------- --------- --------- --------- ---------
Net loss........................... L(2,798) L (8,679) L (27,607) L (35,830) L (76,604) $(130,189)
======= ======== ========= ========= ========= =========
BALANCE SHEET DATA:
Property and equipment, net........ L18,021 L 35,127 L 163,721 L 277,301 L 365,636 $ 621,398
Total assets....................... 19,882 138,606 374,172 416,819 556,357 945,529
Total debt(3)...................... 21,889 103,068 319,492 325,041 545,325 926,780
Shareholders' equity(4)............ (5,660) 26,092 25,133 54,100 (22,511) (38,257)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1997 1998 1998(2)
-------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Business telecommunications........ L 10,217 L 13,650 $ 23,198
Residential telephone.............. 20,450 32,806 55,754
Cable television................... 11,884 17,466 29,683
Other revenues..................... -- -- --
-------- --------- ----------
Total revenues..................... L 42,551 L 63,922 $ 108,635
======== ========= ==========
Operating costs and expenses:
Telephone.......................... (8,710) (12,390) (21,057)
Programming........................ (6,918) (9,450) (16,060)
Selling, general and
administrative................... (19,694) (27,430) (46,617)
Depreciation and amortization...... (20,057) (30,501) (51,836)
-------- --------- ----------
Total operating costs and
expenses......................... (55,379) (79,771) (135,570)
-------- --------- ----------
Operating loss..................... (12,828) (15,849) (26,935)
Interest income.................... 4,837 10,264 17,444
Interest expense, and amortization
of debt discount and expenses.... (43,075) (61,984) (105,342)
Foreign exchange gains/(losses)
net.............................. (22,180) 21,071 35,810
Unrealized gains/(losses) on
derivative financial
instruments...................... 2,904 -- --
Other expenses..................... -- -- --
Realized gains on derivative
financial instrument............. 11,553 412 700
-------- --------- ----------
Loss before income taxes........... (58,789) (46,086) (78,323)
Income taxes....................... -- -- --
-------- --------- ----------
Net loss........................... L(58,789) L (46,086) $ (78,323)
======== ========= ==========
BALANCE SHEET DATA:
Property and equipment, net........ L337,913 L 442,330 $ 751,740
Total assets....................... 570,775 744,411 1,265,126
Total debt(3)...................... 540,403 772,505 1,312,872
Shareholders' equity(4)............ (5,189) (71,420) (121,378)
</TABLE>
- ---------------
(1) The 1995 Group financial data includes the financial results of LCL from
October 1, 1995.
(2) Translated, solely for the convenience of the reader, at a rate of $1.6995 =
L1.00, the Noon Buying Rate on September 30, 1998.
(3) Total debt at December 31, 1994 consisted of the accreted value of the 1994
Notes and capital lease obligations. Total debt at December 31, 1995 and
1996 consisted of the accreted value of the 1994 Notes, the accreted value
of the 1995 Notes and capital lease obligations and the mortgage loan. Total
debt at September 30, 1998 and December 31, 1997 included, in addition to
such indebtedness, the accreted value of the 1997 Notes. Total debt at
September 30, 1998 included all such indebtedness and the principal amount
of the 1998 Notes.
(4) The Group raised additional equity financing of L40.4 million, L27.0 million
and L64.6 million in the years ended December 31, 1994, 1995 and 1996,
respectively.
29
<PAGE> 33
UNAUDITED PRO FORMA FINANCIAL DATA
In June 1998, NTL agreed to acquire Diamond under the terms of the Diamond
Agreement. The closing of such transaction requires, among other things, the
approval of the stockholders of NTL. In October 1998, NTL completed the
Amalgamation whereby it acquired Partners. On June 16, 1998, NTL agreed to
acquire substantially all of the operations of ComTel in a two-part transaction
that was completed in September 1998 in exchange for approximately L550 million.
The cash portion of the purchase price was financed using funds available under
the New Credit Facility. The amounts borrowed under the New Credit Facility were
repaid with most of the proceeds from the issuance of the 11 1/2% Notes and the
12 3/8% Notes in October 1998.
The unaudited pro forma financial data presented herein give effect to the
already completed acquisitions of Partners and ComTel and further to the
proposed acquisition of Diamond. The pro forma financial data is based on the
historical financial statements of Partners, ComTel and NTL. The balance sheet
data reflects the translation of all UKL denominated amounts at the September
30, 1998 rate of $1.699 = L1.00. The statements of operations data reflects the
translation of all UKL denominated amounts at the average rate for the nine
months ended September 30, 1998 and the year ended December 31, 1997 of
$1.651 = L1.00 and $1.638 = L1.00, respectively.
The acquisitions have been accounted for in the pro forma financial data
using the purchase method of accounting. Accordingly, the assets acquired and
liabilities assumed have been recorded at their estimated fair values, which are
subject to further adjustment based upon appraisals and other analyses.
Management of NTL does not currently expect future adjustments from these
analyses, if any, to be material to the unaudited pro forma financial
statements.
The pro forma financial statements do not give effect to the following
financing transactions:
(i) In June 1998, NTL provided to the trustee of the 10 7/8% Notes a
notice that NTL will redeem such 10 7/8% Notes on October 15, 1998.
Pending such redemption, NTL deposited in trust with such trustee the
cash required to pay the redemption price for such 10 7/8% Notes on
October 15, 1998; and
(ii) The sale in December 1998 of $600 million of the 7% Notes.
Under the terms the Diamond Indentures governing the terms of the Diamond
Notes, the Share Exchange will constitute a "Change of Control". In general,
upon the occurrence of a Change of Control, each holder of the Diamond Notes
would have the right to require Diamond to repurchase the Diamond Notes in cash
at a purchase price equal to 101% of the Accreted Value (as defined in the
applicable Diamond Indenture). The proforma financial statements do not give
effect to the repurchase, if any, of the Diamond Notes.
The unaudited pro forma condensed combined statements of operations for the
nine months ended September 30, 1998 and for the year ended December 31, 1997
give effect to the acquisitions as if they had been consummated on January 1,
1997. The unaudited pro forma condensed combined balance sheet as of September
30, 1998 gives effect to the acquisitions of Partners and Diamond as if they had
been consummated on September 30, 1998.
Partners owned a 27.5% interest (the "Birmingham Cable Equity Interest") in
Birmingham Cable Corporation Limited ("Birmingham Cable") and currently owns a
50% interest (the "Cable London Equity Interest" and, together with the
Birmingham Cable Equity Interest, the "Equity Interests") in Cable London PLC
("Cable London"). Partners accounts for the Equity Interests using the equity
method. The following pro forma financial data gives effect to the issuance of
.3745 shares of NTL Common Stock for each Partners Common Share and the sale of
the Birmingham Cable Equity Interest to TeleWest Communications plc ("TeleWest")
prior to the Amalgamation.
The TeleWest Agreement (as defined herein) provides that at any time during
the Shoot-out Period (as defined in the TeleWest Agreement), Partners may give
notice to TeleWest of an offer to sell to TeleWest the Cable London Equity
Interest and related assets for the cash Sum (as defined in the TeleWest
Agreement) specified in the Offer Notice (as defined in the TeleWest Agreement).
If Partners fails to give the Offer
30
<PAGE> 34
Notice prior to the end of the Shoot-out Period, Partners will be deemed to have
delivered an Offer Notice for a Sum equal to L100 million.
TeleWest will have 30 days in which to accept or decline the Offer (as
defined in the TeleWest Agreement). If TeleWest accepts the Offer, Partners will
sell to TeleWest the Cable London Equity Interest and related assets at the Sum
specified in the Offer Notice. If TeleWest declines the Offer, TeleWest will
sell to Partners all of the shares in the capital of Cable London owned by
TeleWest at the Sum specified in the Offer Notice.
The pro forma financial statements do not give effect to the sale of the
Cable London Equity Interest to TeleWest or Partners' purchase of TeleWest's
shares in the capital of Cable London, as management is currently unable to
determine the probable outcome of the "Shoot-out" procedure. The effect of the
sale or purchase of an interest in Cable London would not be material to the Pro
Forma Condensed Combined Statements of Operations. The effect of the sale of the
Cable London Equity Interest by Partners would be to reduce Partners' investment
in Cable London and increase cash by the amount of the proceeds. The effect of
Partners' purchase of all of TeleWest's shares in the capital of Cable London
would be to reduce Partners' cash and increase the amount of Partners'
investment in Cable London.
The pro forma adjustments are based upon available information and
assumptions that the management of NTL believes are reasonable at the time made.
The unaudited pro forma condensed combined financial statements do not purport
to present the financial position or results of operations of NTL had the
acquisitions occurred on the dates specified, nor are they necessarily
indicative of the financial position or results of operations that may be
achieved in the future. The unaudited pro forma condensed combined statements of
operations do not reflect any adjustments for synergies that NTL expects to
realize commencing upon consummation of the acquisitions. No assurances can be
made as to the amount of cost savings or revenue enhancements, if any, that may
be realized.
The unaudited pro forma financial statements should be read in conjunction
with the consolidated financial statements and notes of NTL, Partners, ComTel
and Diamond appearing elsewhere in this Proxy Statement.
31
<PAGE> 35
NTL INCORPORATED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
NTL COMTEL(1) PARTNERS FOR COMPLETED DIAMOND
(HISTORICAL) (HISTORICAL) (HISTORICAL) ADJUSTMENTS ACQUISITIONS (HISTORICAL) ADJUSTMENTS
------------ ------------ ------------ ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES................... $ 484,590 $ 96,864 $ 93,334 $ (786)D $ 674,002 $ 105,535 $
COSTS AND EXPENSES
Operating expenses......... 243,476 62,163 29,961 335,600 36,058
Selling, general and
administrative
expenses................. 192,070 32,166 43,073 267,309 45,287
Franchise fees............. 18,729 18,729
Corporate expenses......... 11,797 11,797
Management fees............ 3,589 3,589
Depreciation and
amortization............. 156,785 40,884 37,894 24,040C 259,603 50,357 59,743C
--------- -------- -------- -------- --------- --------- --------
622,857 135,213 114,517 24,040 896,627 131,702 59,743
--------- -------- -------- -------- --------- --------- --------
Operating loss............. (138,267) (38,349) (21,183) (24,826) (222,625) (26,167) (59,743)
OTHER INCOME (EXPENSE)
Interest and other
income................... 39,796 474 11,148 51,418 16,946
Interest expense........... (226,422) (7,431) (44,166) (62,417)F (340,436) (102,336)
Other...................... (6,973) 6,997 24 35,468
Equity in net losses of
affiliates............... (26,277) 11,574E (14,703)
--------- -------- -------- -------- --------- --------- --------
Loss before extraordinary
item..................... (331,866) (45,306) (73,481) (75,669) (526,322) (76,089) (59,743)
Extraordinary item......... (4,239) (4,239)
--------- -------- -------- -------- --------- --------- --------
Net loss................... (336,105) (45,306) (73,481) (75,669) (530,561) (76,089) (59,743)
Preferred stock
dividends................ (11,587) (10,392)G (21,979)
--------- -------- -------- -------- --------- --------- --------
Net loss available to
common shareholders...... $(347,692) $(45,306) $(73,481) $(86,061) $(552,540) $ (76,089) $(59,743)
========= ======== ======== ======== ========= ========= ========
Net loss per common share--
basic and fully
diluted.................. $ (9.29) $ (9.83)
========= =========
Weighted average shares
outstanding.............. 37,436 18,764B 56,200 15,177B
========= ======== ========= ========
<CAPTION>
PRO FORMA
----------
<S> <C>
REVENUES................... $ 779,537
COSTS AND EXPENSES
Operating expenses......... 371,658
Selling, general and
administrative
expenses................. 312,596
Franchise fees............. 18,729
Corporate expenses......... 11,797
Management fees............ 3,589
Depreciation and
amortization............. 369,703
----------
1,088,072
----------
Operating loss............. (308,535)
OTHER INCOME (EXPENSE)
Interest and other
income................... 68,364
Interest expense........... (442,772)
Other...................... 35,492
Equity in net losses of
affiliates............... (14,703)
----------
Loss before extraordinary
item..................... (662,154)
Extraordinary item......... (4,239)
----------
Net loss................... 666,393
Preferred stock
dividends................ (21,979)
----------
Net loss available to
common shareholders...... $ (688,372)
==========
Net loss per common share--
basic and fully
diluted.................. $ (9.64)
==========
Weighted average shares
outstanding.............. 71,377
==========
</TABLE>
- ---------------
(1) For the period from January 1, 1998 until acquired by NTL
32
<PAGE> 36
NTL INCORPORATED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
NTL COMTEL PARTNERS FOR COMPLETED DIAMOND
(HISTORICAL) (HISTORICAL) (HISTORICAL) ADJUSTMENTS ACQUISITIONS (HISTORICAL)
------------ ------------ ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES..................... $ 491,775 $ 84,010 $ 92,812 $ (1,063)D $ 667,534 $ 98,780
COSTS AND EXPENSES
Operating expenses........... 301,644 36,349 32,144 370,137 35,769
Selling, general and
administrative expenses.... 169,133 55,546 50,532 275,211 44,540
Franchise fees............... 23,587 23,587
Corporate expenses........... 18,324 18,324
Nonrecurring charges......... 20,642 20,642
Management fees.............. 5,248 5,248
Depreciation and
amortization............... 150,509 53,405 41,913 28,829C 274,656 45,242
--------- --------- --------- -------- --------- ---------
683,839 145,300 129,837 28,829 987,805 125,551
--------- --------- --------- -------- --------- ---------
Operating loss............... (192,064) (61,290) (37,025) (29,892) (320,271) (26,771)
OTHER INCOME (EXPENSE)
Interest and other income.... 28,415 3,343 11,890 43,648 10,549
Interest expense............. (202,570) (44,298) (41,348) (62,130)F (350,346) (108,709)
Other........................ 22,071 10,727 (8,860) 23,938 (545)
Equity in net losses of
affiliates................. (10,033) (34,986) 14,113E (30,906)
--------- --------- --------- -------- --------- ---------
Loss before income taxes..... (344,148) (101,551) (110,329) (77,909) (633,937) (125,476)
Income tax
benefit.................... 15,591 (164) 15,427
--------- --------- --------- -------- --------- ---------
Loss before extraordinary
item....................... (328,557) (101,715) (110,329) (77,909) (618,510) (125,476)
Loss from early
extinguishment of debt..... (4,500) (4,500)
--------- ---------
Net loss..................... (333,057) (101,715) (110,329) (77,909) (623,010) (125,476)
Preferred stock dividends.... (11,978) (12,621)G (24,599)
--------- --------- --------- -------- --------- ---------
Net loss available to common
shareholders............... $(345,035) $(101,715) $(110,329) $(90,530) $(647,609) $(125,476)
========= ========= ========= ======== ========= =========
Net loss per common
shares -- basic and fully
diluted.................... $ (10.74) $ (12.73)
========= =========
Weighted average shares
outstanding................ 32,117 18,764B 50,881
========= ======== =========
<CAPTION>
ADJUSTMENTS PRO FORMA
----------- ---------
<S> <C> <C>
REVENUES..................... $ $ 766,314
COSTS AND EXPENSES
Operating expenses........... 405,906
Selling, general and
administrative expenses.... 319,751
Franchise fees............... 23,587
Corporate expenses........... 18,324
Nonrecurring charges......... 20,642
Management fees.............. 5,248
Depreciation and
amortization............... 79,724C 399,622
-------- ---------
79,724 1,193,080
-------- ---------
Operating loss............... (79,724) (426,766)
OTHER INCOME (EXPENSE)
Interest and other income.... 54,197
Interest expense............. (459,055)
Other........................ 23,393
Equity in net losses of
affiliates................. (30,906)
-------- ---------
Loss before income taxes..... (79,724) (839,137)
Income tax
benefit.................... 15,427
-------- ---------
Loss before extraordinary
item....................... (79,724) (823,710)
Loss from early
extinguishment of debt..... (4,500)
---------
Net loss..................... (79,724) (828,210)
Preferred stock dividends.... (24,599)
-------- ---------
Net loss available to common
shareholders............... $(79,724) $(852,809)
======== =========
Net loss per common
shares -- basic and fully
diluted.................... $ (12.91)
=========
Weighted average shares
outstanding................ 15,177B 66,058
======== =========
</TABLE>
33
<PAGE> 37
NTL INCORPORATED
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
NTL PARTNERS FOR COMPLETED DIAMOND
(HISTORICAL) (HISTORICAL) ADJUSTMENTS ACQUISITIONS (HISTORICAL) ADJUSTMENTS
------------ ------------ ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash, cash equivalents
and marketable
securities............ $ 597,769 $146,765 $ 101,068A,B,H $ 845,602 $ 316,411 $
Other current assets.... 322,012 17,006 339,018 20,682
----------- -------- --------- ----------- ---------- ----------
Total current assets...... 919,781 163,771 101,068 1,184,620 337,093
Investment in
affiliates.............. 85,492 (32,961)B 52,531
Fixed assets, net......... 3,134,655 532,742 87,018B 3,754,415 751,696 134,060B
Intangible assets, net.... 456,304 75,110 176,589B 708,003 140,729 887,637B
Other assets, net......... 111,498 10,003 28,733A,H 150,234 35,534
----------- -------- --------- ----------- ---------- ----------
Total assets............ $ 4,622,238 $867,118 $ 360,447 $ 5,849,803 $1,265,052 $1,021,697
=========== ======== ========= =========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Other current
liabilities........... $ 420,122 $ 45,651 $ $ 465,773 $ 73,628 $ 3,000B
Current portion of
long-term debt and
capital leases........ 148,781 161,343 (158,044)B 152,080
Due to affiliates....... 20,456 20,456
----------- -------- --------- ----------- ---------- ----------
Total current
liabilities......... 568,903 227,450 (158,044) 638,309 73,628 3,000
Long-term debt............ 3,885,489 419,203 76,396H 4,381,088 1,297,023
Other..................... 4,354 4,354 15,772
Deferred income taxes..... 72,061 67,231B 139,292 267,480B
Senior redeemable
exchangeable preferred
stock................... 120,044 120,044
Shareholders' equity:
Preferred stock......... 1 1
Common stock and
additional paid-in
capital............... 844,782 610,528A,B 1,455,310 629,846B
Acquired company
equity................ 216,111 (216,111) (121,371) 121,371
Accumulated other
comprehensive
income................ 184,115 184,115
Deficit................. (1,053,157) (19,553)H (1,072,710)
----------- -------- --------- ----------- ---------- ----------
(24,259) 216,111 374,864 566,716 (121,371) 751,217
----------- -------- --------- ----------- ---------- ----------
Total liabilities and
shareholders' equity.... $ 4,622,238 $867,118 $ 360,447 $ 5,849,803 $1,265,052 $1,021,697
=========== ======== ========= =========== ========== ==========
<CAPTION>
PRO FORMA
-----------
<S> <C>
ASSETS:
Current assets:
Cash, cash equivalents
and marketable
securities............ $ 1,162,013
Other current assets.... 359,700
-----------
Total current assets...... 1,521,713
Investment in
affiliates.............. 52,531
Fixed assets, net......... 4,640,171
Intangible assets, net.... 1,736,369
Other assets, net......... 185,768
-----------
Total assets............ $ 8,136,552
===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Other current
liabilities........... $ 542,401
Current portion of
long-term debt and
capital leases........ 152,080
Due to affiliates....... 20,456
-----------
Total current
liabilities......... 714,937
Long-term debt............ 5,678,111
Other..................... 20,126
Deferred income taxes..... 406,772
Senior redeemable
exchangeable preferred
stock................... 120,044
Shareholders' equity:
Preferred stock......... 1
Common stock and
additional paid-in
capital............... 2,085,156
Acquired company
equity................
Accumulated other
comprehensive
income................ 184,115
Deficit................. (1,072,710)
-----------
1,196,562
-----------
Total liabilities and
shareholders' equity.... $ 8,136,552
===========
</TABLE>
34
<PAGE> 38
NTL INCORPORATED
PRO FORMA ADJUSTMENTS
(IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
A CONSENT PAYMENTS
Cash paid.......................................... $11,333
Value of warrants issued........................... 10,080
-------
Total increase in other assets................ $21,413
=======
</TABLE>
<TABLE>
<CAPTION>
PARTNERS DIAMOND
--------- ----------
<S> <C> <C>
B PURCHASE PRICE AND ALLOCATION
PURCHASE PRICE
Partners series A shares outstanding........................ 37,232 60,708
Partners series B shares outstanding........................ 12,873 --
--------- ----------
Total shares outstanding............................... 50,105 60,708
Exchange ratio.............................................. 0.3745 0.2500
--------- ----------
NTL Shares to be issued................................ 18,764 15,177
NTL closing price on date prior to
announcement.............................................. $ 32.00 $ 41.50
--------- ----------
Subtotal.................................................... 600,448 629,846
Fees........................................................ -- 3,000
--------- ----------
Purchase Price.............................................. 600,448 632,846
(Net assets) Deficiency at September 30, 1998............... (216,111) 121,371
Intangibles at September 30, 1998........................... 75,110 140,729
Investment in Birmingham.................................... 32,961 --
Proceeds from sale of Birmingham(1)......................... (220,922)
--------- ----------
Excess of Purchase Price over net tangible assets
acquired.................................................. $ 271,486 $ 894,946
========= ==========
ALLOCATED TO
Fixed assets................................................ $ 87,018 $ 134,060
Intangible assets(2)........................................ 251,699 1,028,366
Deferred taxes.............................................. (67,231) (267,480)
--------- ----------
$ 271,486 $ 894,946
========= ==========
</TABLE>
- ---------------
(1) Used to repay Partners Bank Loan at September 30, 1998 of $158,044.
(2) The intangible assets arising from the Amalgamation include customer lists,
the excess of the fair value over historical cost of investment in Cable
London, and license acquisition costs. The amount of each individual
intangible is not currently determinable. The amounts of each intangible
will be determined based on appraisals and other analyses. The amortization
period for each may vary, although it is assumed in Pro Forma Adjustment C
following that 15 years is a representative blended amortization period.
35
<PAGE> 39
NTL INCORPORATED
PRO FORMA ADJUSTMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS' COMTEL DIAMOND
--------- -------- -------
<S> <C> <C> <C>
C AMORTIZATION AND DEPRECIATION
For the nine months ended September 30, 1998:
Depreciation of fixed asset allocation (over 7 years)..... $ 9,323 $ 12,968 $14,363
Amortization of intangibles (over 15 years)............... 12,585 5,467 51,419
Historical amortization of intangibles.................... (5,027) (11,276) (6,039)
------- -------- -------
$16,881 $ 7,159 $59,743
======= ======== =======
For the year ended December 31, 1997:
Depreciation of fixed asset allocation (over 7 years)..... $12,431 $ 16,805 $19,151
Amortization of intangibles (over 15 years)............... 16,780 7,092 68,558
Historical amortization of intangibles.................... (9,244) (15,035) (7,985)
------- -------- -------
$19,967 $ 8,862 $79,724
======= ======== =======
D CONSULTING REVENUE
Partners' consulting fee income earned under consulting
agreement with Birmingham which ceased upon the sale of
Birmingham
For the nine months ended September 30, 1998................ $ 786
For the year ended December 31, 1997........................ $ 1,063
E EQUITY IN NET LOSS
Partner's equity in the net loss of Birmingham that will no
longer be recorded after the sale of Birmingham.
For the nine months ended September 30, 1998................ $11,574
For the year ended December 31, 1997........................ $14,113
</TABLE>
36
<PAGE> 40
NTL INCORPORATED
PRO FORMA ADJUSTMENTS
(IN THOUSANDS)
<TABLE>
F INTEREST EXPENSE
<S> <C> <C> <C>
Interest on ComTel Debt Not Assumed
For the nine months ended September 30, 1998.............. $ (7,431)
========
For the year ended December 31, 1997...................... $(44,298)
========
Interest on the borrowings utilized to acquire ComTel(1)
For the nine months ended September 30, 1998.............. $ 77,567
========
For the year ended December 31, 1997...................... $103,741
========
Amortization of fees on borrowings recorded as deferred
financing costs
For the nine months ended September 30, 1998.............. $ 2,015
========
For the year ended December 31, 1997...................... $ 2,687
========
Historical interest expense on Partners' Credit Facility(2)
For the nine months ended September 30, 1998.............. $ (9,734)
========
For the year ended December 31, 1997...................... $ --
========
Net Statement of Operations Impact
For the nine months ended September 30, 1998.............. $ 62,417
========
For the year ended December 31, 1997...................... $ 62,130
========
G PREFERRED STOCK DIVIDEND
Dividends at 9.9% on the preferred stock issued in the
ComTel acquisition
For the nine months ended September 30, 1998.............. $ 10,392
========
For the year ended December 31, 1997...................... $ 12,621
========
H ISSUANCE OF THE 11 1/2% NOTES AND 12 3/8% NOTES
Proceeds from the 11 1/2% Notes............................. $249,773
Proceeds from the 12 3/8% Notes............................. 625,000
Offering expenses recorded as Deferred Financing Costs...... (26,873)
Balance of New Credit Facility at September 30, 1998........ (798,377)
--------
Net increase in cash...................................... $ 49,523
========
Extraordinary loss on the early extinguishment of the New
Credit Facility(1)........................................ $(19,553)
========
Net increase in other assets................................ $ 7,320
========
</TABLE>
- ---------------
(1) On June 16, 1998, NTL agreed to acquire substantially all of the operations
of ComTel in a two-part transaction in exchange for approximately L550
million. A portion of the purchase price (L475 million) was financed using
funds available under the New Credit Facility. The New Credit Facility bore
interest at LIBOR plus 3% per annum increasing by .25% per annum each month
beginning three months after the first drawdown to a maximum of 4% per
annum. In November 1998, the New Credit Facility was repaid using most of
the proceeds from the issuance of the 11 1/2% Notes and the 12 3/8% Notes.
(2) This facility was repaid by Partners with the proceeds from the sale of the
Birmingham Cable Equity Interest.
37
<PAGE> 41
THE SPECIAL MEETING
PURPOSE, TIME AND PLACE
This Proxy Statement is being furnished to holders of NTL Common Stock in
connection with the solicitation of proxies by the NTL Board for use at the
Special Meeting to be held at 10:30 a.m., local time, on Friday, March 5, 1999,
at the Essex House Hotel, 160 Central Park South, Hyde Park Suite, New York, New
York 10019, and any adjournment or postponement thereof.
At the Special Meeting, the stockholders of NTL will consider and vote upon
a proposal to approve the Share Issuance. Holders of NTL Common Stock will also
be asked to consider and vote upon such other business as may properly come
before the Special Meeting.
The NTL Board has unanimously determined that the Share Exchange and the
Share Issuance are in the best interests of NTL and its stockholders and has
approved the Diamond Agreement. THE NTL BOARD UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF NTL VOTE IN FAVOR OF THE SHARE ISSUANCE AT THE SPECIAL MEETING.
See "THE SHARE EXCHANGE -- NTL's Reasons for the Share Exchange; Recommendation
of the NTL Board."
RECORD DATE; VOTING RIGHTS
Only holders of record of NTL Common Stock at the close of business on the
Record Date, Wednesday, January 27, 1999, are entitled to receive notice of, and
to vote at, the Special Meeting. On the Record Date, there were approximately
60.5 million shares of NTL Common Stock outstanding and entitled to vote. Each
such share entitles the registered holder thereof to one vote.
QUORUM
The holders of a majority of the shares of NTL Common Stock outstanding and
entitled to vote must be present in person or represented by proxy at the
Special Meeting in order for a quorum to be present. Abstentions and broker
non-votes will be treated as shares of NTL Common Stock that are present and
entitled to vote for purposes of determining the presence of a quorum at the
Special Meeting.
REQUIRED VOTE
Approval of the Share Issuance requires the affirmative vote of the holders
of a majority of the votes cast with respect to the Share Issuance at the
Special Meeting. Under applicable Delaware law, in determining whether the Share
Issuance has received the requisite number of affirmative votes, abstentions and
broker non-votes will be disregarded and will have no effect on the outcome of
the vote.
As of the Record Date, directors and executive officers of NTL and their
affiliates were the beneficial owners of an aggregate of approximately 3.4
million (approximately 5.6%) of the shares of NTL Common Stock then outstanding
and eligible to vote. All such directors and executive officers of NTL are
expected to vote for approval of the Share Issuance.
PROXIES
All shares of NTL Common Stock represented by properly executed proxies
that are received in time for the Special Meeting and which have not been
revoked will be voted in accordance with the instructions indicated in such
proxies. If no instructions are indicated, such shares will be voted in favor of
the Share Issuance. In addition, the persons designated in such proxies will
have the discretion to vote on matters incident to the conduct of the Special
Meeting. If NTL proposes to adjourn the Special Meeting, the persons named in
the enclosed proxy card will vote all shares for which they have authority
(other than those that have been voted against the Share Issuance) in favor of
such adjournment.
The grant of a proxy on the enclosed NTL proxy card does not preclude a
stockholder from voting in person at the Special Meeting. A stockholder may
revoke a proxy at any time prior to its exercise by
38
<PAGE> 42
(i) delivering to the Secretary of NTL, prior to the Special Meeting, a written
notice of revocation bearing a later date or time than the proxy, (ii)
delivering to the Secretary of NTL a duly executed proxy bearing a later date or
time than the revoked proxy or (iii) attending the Special Meeting and voting in
person. Attendance at the Special Meeting will not in and of itself constitute
the revocation of a proxy.
NTL will bear the cost of solicitation of proxies from its stockholders. In
addition to solicitation by mail, the directors, officers and employees of NTL
and its subsidiaries may solicit proxies from stockholders of NTL by telephone,
telegram or in person. Arrangements will also be made with brokerage houses and
other custodians, nominees and fiduciaries for the forwarding of solicitation
material to the beneficial owners of stock held of record by such persons, and
NTL will reimburse such custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in connection therewith.
In addition, NTL has retained D.F. King & Co., Inc. ("D.F. King") to assist
NTL in the solicitation of proxies from stockholders in connection with the
Special Meeting. D.F. King will receive a fee of $5,000 as compensation for its
services and reimbursement of its out-of-pocket expenses in connection
therewith. NTL has agreed to indemnify D.F. King against certain liabilities
arising out of or in connection with its engagement.
39
<PAGE> 43
THE SHARE EXCHANGE
The Diamond Agreement is included in its entirety in this Proxy Statement
as Annex A and is incorporated herein by reference. We urge stockholders of NTL
to read such document.
GENERAL
Upon the terms and subject to the conditions contained in the Diamond
Agreement, on the Closing Date, each Transferor will exchange, convey, transfer,
assign and deliver to NTL with full title guarantee, and NTL will acquire, all
of the Diamond Shares set forth opposite such Transferor's name in the Diamond
Agreement. NTL is not obliged to complete the acquisition of any of the Diamond
Shares unless the acquisition of all the Diamond Shares is completed
simultaneously. As consideration for the acquisition of such Diamond Shares, on
the Closing Date, NTL will transfer to each Transferor consideration consisting
of one share of NTL Common Stock for each four Ordinary Shares, subject to
certain adjustments, and for each deferred share of Diamond. Cash will be paid
in lieu of any fractional shares of NTL Common Stock. See "THE DIAMOND
AGREEMENT -- Consideration for Diamond Shares." The Closing Date will occur on
the third business day following the satisfaction or waiver of the conditions
set forth in the Diamond Agreement, unless another time or date is agreed to by
NTL and the Transferors' Representative.
BACKGROUND OF THE SHARE EXCHANGE
During late 1997 and early 1998, as evidenced by various transactions in
the UK, senior management of NTL recognized that the UK telecommunications
industry has been actively consolidating and began to review opportunities for
strategic acquisitions and combinations with businesses operating, or owning
licenses to operate, cable, telephone, television or telecommunications systems
or services and related businesses in the UK in order to create long-term value
for stockholders of NTL.
At various times in the early part of 1998, J. Barclay Knapp, President and
Chief Executive Officer of NTL, spoke with Robert T. Goad, Chief Executive
Officer of Diamond, to discuss such consolidation trends and explore the
possible advantages of a potential business combination involving NTL and
Diamond. In May 1998, NTL and Diamond entered into a confidentiality agreement
and retained legal and financial advisors to explore a possible transaction.
On April 30, 1998, Mr. Goad met with Mr. Knapp to further review the
potential synergies and overall business rationale for a combination of NTL and
Diamond. As a result of such meeting and various subsequent telephone
conversations, the parties and their legal and financial advisors undertook
their due diligence reviews and negotiated the terms and conditions of the
proposed share exchange. On June 8, 1998, subject to certain unresolved issues
that the parties did not finally resolve until June 16, 1998, drafts of the
Diamond Agreement were delivered to the NTL Board. See "THE DIAMOND AGREEMENT."
The NTL Board held a special meeting on June 8, 1998 to discuss the
proposed transaction. At the meeting, the management of NTL reviewed the status
of the transaction; the results of NTL's due diligence review; representatives
of DLJ, NTL's financial advisor, presented an analysis of the financial terms of
the proposed transaction; and NTL's general counsel outlined the terms of the
proposed transaction and the NTL Board's legal duties and responsibilities. At
the conclusion of the meeting, the NTL Board unanimously approved and adopted
the Diamond Agreement and the consummation of the transactions that were
described in the drafts of the Diamond Agreement that were presented to the NTL
Board, subject to the finalization of certain unresolved issues with Diamond.
After further discussions with Diamond and its counsel, the Diamond
Agreement was executed and delivered by all the parties thereto. A press release
announcing the proposed Share Exchange was issued on June 16, 1998.
On June 8, 1998, the date on which the NTL Board approved the Diamond
Agreement, the composite closing price of the NTL Common Stock, as reported on
the NASDAQ, was $43.50 per share. On June 16, 1998, the date on which the
Diamond Agreement was executed, the composite closing price of the NTL
40
<PAGE> 44
Common Stock, as reported on the NASDAQ, was $43.00 per share. There is no
established public trading market for the Diamond Shares.
On December 21, 1998, NTL and the Transferors amended the Diamond Agreement
to, among other things, (i) extend the deadline for the consummation of the
Share Exchange from January 31, 1999 to April 30, 1999, and (ii) revise the
adjustment mechanisms with respect to the consideration for each four Ordinary
Shares such that (A) if the Closing Date occurs within four months of the date
of the Diamond Agreement, and the average sales price of the NTL Common Stock,
as calculated pursuant to the Diamond Agreement, is $52.00 or more, the number
of shares of NTL Common Stock to be transferred for each four Ordinary Shares
will be decreased such that the value of such consideration will not exceed the
Maximum Average Stock Price ($52.00); (B) if the Closing Date occurs after
October 16, 1998 and prior to February 1, 1999, the Maximum Average Stock Price
will increase by $.50 on October 16, 1998 and on each subsequent monthly
anniversary date thereof until the Closing Date; and (C) if the Closing Date
occurs on February 1, 1999 or thereafter, the Maximum Average Stock Price will
be $65.00. A copy of such amendment to the Diamond Agreement is attached hereto
as Annex B.
NTL'S REASONS FOR THE SHARE EXCHANGE; RECOMMENDATION OF THE NTL BOARD
THE NTL BOARD HAS UNANIMOUSLY DETERMINED THAT THE SHARE EXCHANGE AND THE
SHARE ISSUANCE ARE IN THE BEST INTERESTS OF NTL AND ITS STOCKHOLDERS AND HAS
APPROVED THE DIAMOND AGREEMENT. THE NTL BOARD UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF NTL VOTE IN FAVOR OF THE SHARE ISSUANCE AT THE SPECIAL MEETING.
In reaching its determination with respect to the Share Exchange and the
Share Issuance, the NTL Board consulted with management, as well as its
advisors, and considered the following principal factors:
(i) the judgment, advice and analyses of its management with respect
to the strategic, financial and operational benefits of the acquisition of
Diamond, based in part on the business, financial, accounting and legal due
diligence investigations performed with respect to Diamond;
(ii) information concerning the financial condition, results of
operations, prospects, and businesses of NTL and Diamond, as well as the
stock price performance of NTL;
(iii) current industry, economic and market conditions;
(iv) the potential synergies, efficiencies and cost-savings as a
result of the combination of NTL's and Diamond's operations, including the
elimination of redundant costs at the corporate level;
(v) the significant potential enhancement of the strategic and market
position of the combined entity beyond that achievable by NTL alone,
including the addition of approximately 575,000 homes, approximately
178,000 residential telephony subscribers, 90,000 cable television
subscribers and 6,200 business telephony subscribers;
(vi) the express terms and conditions of the Diamond Agreement, which
are viewed as providing an equitable basis for the Share Exchange from the
standpoint of NTL;
(vii) the DLJ Opinion (see "-- Opinion of NTL's Financial Advisor");
(viii) historical market prices and trading information with respect
to the NTL Common Stock; and
(ix) the opportunity, with a larger platform, for continued growth
through strategic acquisitions.
The NTL Board also considered a number of potentially negative factors,
including: (i) the inherent challenges to effecting the Share Exchange and the
attendant risk that management resources may be diverted from other strategic
opportunities and from operational matters for an extended period of time; (ii)
the likelihood of obtaining the Required British Approvals and the Required
Consents; (iii) the risk that the Share Exchange would not be consummated; (iv)
the impact of the Share Exchange on the customers and employees of each company;
and (v) the risk that the market's perception of the combined company may not
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be as favorable as anticipated. In the NTL Board's view, these considerations
were not sufficient, either individually or collectively, to outweigh the
benefits of the proposed combination of the businesses of NTL and Diamond.
The foregoing discussion of the information and factors considered and
given weight by the NTL Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Share
Exchange, the NTL Board did not find it practicable to and did not quantify or
otherwise assign relative weights to the specific factors considered in reaching
its determination. In addition, individual members of the NTL Board may have
given different weights to different factors.
OPINION OF NTL'S FINANCIAL ADVISOR
NTL engaged DLJ to act as financial advisor to NTL and to provide a
fairness opinion in connection with the transactions contemplated by the Diamond
Agreement based upon DLJ's qualifications, expertise and reputation, as well as
DLJ's prior investment banking relationship and familiarity with NTL. DLJ
delivered its written opinion to the NTL Board as of June 16, 1998, to the
effect that, as of such date, and based upon and subject to the assumptions,
limitations and qualifications set forth in such opinion, the ratio of the
number of shares of NTL Common Stock issuable pursuant to the Diamond Agreement
for each deferred share and each four Ordinary Shares of Diamond (the "Exchange
Ratio") was fair to NTL from a financial point of view.
THE FULL TEXT OF THE DLJ OPINION IS SET FORTH AS ANNEX C HERETO AND SHOULD
BE READ CAREFULLY IN ITS ENTIRETY FOR ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY DLJ.
THE DLJ OPINION WAS PREPARED FOR THE NTL BOARD AND ADDRESSES ONLY THE
FAIRNESS OF THE EXCHANGE RATIO TO NTL FROM A FINANCIAL POINT OF VIEW AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF NTL AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE SPECIAL MEETING. THE DLJ OPINION DOES NOT
CONSTITUTE AN OPINION AS TO THE PRICE AT WHICH THE NTL COMMON STOCK WILL
ACTUALLY TRADE AT ANY TIME. EXCEPT AS EXPRESSLY PROVIDED BELOW, THE DLJ OPINION
DOES NOT ADDRESS THE RELATIVE MERITS OF THE SHARE EXCHANGE AND THE OTHER
BUSINESS STRATEGIES BEING CONSIDERED BY THE NTL BOARD, NOR DOES IT ADDRESS THE
NTL BOARD'S DECISION TO PROCEED WITH THE SHARE EXCHANGE.
DLJ was selected to render an opinion in connection with the Share Exchange
based upon DLJ's qualifications, expertise and reputation, including the fact
that DLJ, as part of its investment banking business, is regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
The type and amount of consideration was determined in arm's length
negotiations between NTL and Diamond. Except as set forth herein, no
restrictions or limitations were imposed upon DLJ with respect to the
investigations made or the procedures followed by DLJ in rendering the DLJ
Opinion.
The Board of Directors of NTL had asked DLJ to confine its analysis and
opinion to the acquisition of Diamond, both assuming consummation of the
Amalgamation and assuming that the Amalgamation would not be consummated as
further described below. With the consent of NTL, DLJ assumed the exercise of
certain purchase rights of TeleWest, a co-owner with Partners of interests in
Cable London and Birmingham Cable, to acquire either or both of the Equity
Interests as a result of the Amalgamation. DLJ did not reflect the ComTel
Acquisition in the analyses presented below, as consummation of the ComTel
Acquisition at the time DLJ rendered its opinion was uncertain.
In arriving at the DLJ Opinion, DLJ reviewed the Diamond Agreement,
including the exhibits thereto, as well as financial and other information that
was publicly available or furnished to DLJ by NTL and Diamond, including
information provided during discussions with NTL's management. Included in the
information
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provided during discussions with NTL's management were certain financial
projections for NTL and Diamond prepared by the management of NTL and certain
financial projections for Partners which were also supplied by the management of
NTL. In addition, DLJ compared certain financial and securities data of NTL,
Partners and Diamond with that of various other companies whose securities are
traded in public markets, reviewed the historical stock price of the NTL Common
Stock, reviewed prices and premiums paid in certain other business combinations
and conducted such other financial studies, analyses and investigations as DLJ
deemed appropriate for purposes of rendering the DLJ Opinion.
In rendering the DLJ Opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to or discussed with it by NTL or
NTL's representatives or that was otherwise reviewed by DLJ. DLJ relied upon the
estimates of the management of NTL of the operating improvements achievable as a
result of the Share Exchange and upon its discussion of such improvements with
the management of NTL. DLJ also assumed that the financial projections supplied
to DLJ were reasonably prepared and reflected the best currently available
estimates and judgments of the management of NTL as to the future operating and
financial performance of NTL, Diamond and Partners, respectively. In rendering
the DLJ Opinion, DLJ did not assume any responsibility for making any
independent valuation of any assets or liabilities of NTL, Diamond or Partners,
or for making any independent verification of any of the information reviewed by
DLJ. In addition, DLJ relied as to certain legal matters on advice of counsel to
NTL. With the consent of NTL, DLJ assumed that the Exchange Ratio would be 0.25.
The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on information made available to DLJ as
of, the date thereof. DLJ does not have any obligation to update, revise or
reaffirm the DLJ Opinion.
The following is a summary of the written analyses presented by DLJ to the
NTL Board. All analyses discussed below, unless otherwise indicated, (i) assume
the Exchange Ratio is calculated using a per share NTL Common Stock price of
$41.94, based on the closing price of the NTL Common Stock on June 5, 1998, (ii)
assume consummation of the Amalgamation at an exchange ratio of .3745, (iii)
include potential cost savings that may be achievable as a result of the Share
Exchange and the Amalgamation and (iv) assume an exchange rate of 1.637 U.S.
dollars per U.K. pound.
Comparison to Publicly Traded Comparables. To provide contextual data and
comparative market information, DLJ analyzed the operating performance of
Diamond at the Exchange Ratio relative to NTL, Partners, NTL pro forma for the
Amalgamation, TeleWest and General Cable PLC ("General Cable") (collectively,
the "Comparable Companies"). Historical financial information used in connection
with the ratios provided below with respect to Diamond and the Comparable
Companies is as of December 31, 1997, the most recent financial statements
publicly available for each company as of the date of the DLJ Opinion. DLJ
examined certain publicly available financial data, including (a) "Adjusted
Enterprise Value" (defined as market value of common equity less proportionate
cash, plus book value of proportionate debt, plus, in the case of NTL,
proportionate interest in certain license fees to be paid, less option proceeds
and, in the case of NTL, less the value of non-cable businesses) per "Equity
Home" (defined as the number of homes in the franchise areas) and (b) "Franchise
Value" (defined as Adjusted Enterprise Value less gross property, plant and
equipment invested) per Equity Home. DLJ noted that as of June 5, 1998, the
Comparable Companies were trading at (i) a range of $1,122 to $1,360 Adjusted
Enterprise Value per Equity Home, compared with Diamond which, at the Exchange
Ratio, would be valued at $1,196 Adjusted Enterprise Value per Equity Home and
(ii) a range of $301 to $707 Franchise Value per Equity Home, compared with
Diamond which, at the Exchange Ratio, would be valued at a Franchise Value per
Equity Home of $591.
No company utilized in the comparable company analysis is identical to
Diamond. Accordingly, an analysis of the results of the foregoing necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the Comparable Companies and Diamond
and other factors that could affect the public trading value of the Comparable
Companies. Mathematical analysis such as determining the average may not in
itself be a meaningful method of using comparable company data.
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Analysis of Purchase Price Multiples. DLJ calculated the current equity
market capitalizations of NTL (based on the market price of NTL Common Stock as
of June 5, 1998), Diamond (based on the market price of the NTL Common Stock
exchangeable for Diamond Shares in the Share Exchange) and Partners (based on
the market price of the Partners Common Shares as of June 5, 1998). DLJ then
compared the projected purchase price multiples for Diamond, NTL, Partners and a
combined NTL/Partners for 2000, 2001, 2002 and 2003, in each case calculated by
adding current equity market capitalization to projected net debt and dividing
the result by projected EBITDA. Based on this analysis, the NTL purchase price
for Diamond represents a 15.3x multiple of 2000 EBITDA, a 10.2x multiple of 2001
EBITDA, a 7.1x multiple of 2002 EBITDA and a 5.7x multiple of 2003 EBITDA, as
compared with EBITDA multiples for the corresponding periods of 12.1x, 8.4x,
5.9x and 4.3x for NTL standalone and 13.7x, 10.7x, 8.3x and 6.5x for Partners
standalone. The multiples for Diamond do not give effect to any cost savings in
connection with the acquisition of Diamond.
Contribution Analysis. DLJ analyzed the relative contributions of NTL and
Diamond to the revenues and EBITDA of the pro forma combined entity for the
projected calendar years 1998, 2000, 2002 and 2004, including any potential cost
savings that may be achievable as a result of the Share Exchange. Based on the
projected financial information for these calendar years and assuming
consummation of the Amalgamation, Diamond's revenues in each of these years
would represent 15.0%, 18.0%, 19.0% and 18.0%, respectively, of the pro forma
combined entity, and Diamond EBITDA in each of these years would represent
26.0%, 19.0%, 21.0% and 19.0%, respectively, of the pro forma combined entity.
The shares of NTL Common Stock to be issued to the holders of Diamond Shares on
a fully diluted basis would represent approximately 16.1% of the outstanding
shares of NTL Common Stock after giving effect to the Share Exchange at the
Exchange Ratio and assuming the consummation of the Amalgamation.
DLJ also compared the implied per share valuations in 2004 of NTL on a
stand-alone basis to NTL pro forma for the Share Exchange, based on the
projections provided by NTL management and using an EBITDA multiple of 11.5x.
This analysis yields an increase in NTL's share price of 6.1% assuming
consummation of the Amalgamation, or 7.7% assuming no consummation of the
Amalgamation, in each case compared to NTL's implied share price on a
stand-alone basis.
Discounted Cash Flow Analysis. In addition, DLJ performed a discounted
cash flow ("DCF") analysis for the period commencing January 1, 1998 and ending
December 31, 2005 based on the stand-alone unlevered free cash flows of Diamond,
giving effect to the potential cost savings that may be achievable as a result
of the Share Exchange. Unlevered free cash flows were calculated as the
after-tax operating earnings of Diamond, plus depreciation and amortization and
other non-cash items, plus (or minus) net changes in working capital, minus
projected capital expenditures. DLJ calculated terminal values by applying a
range of estimated multiples of EBITDA of 9.5x to 14.5x to the projected EBITDA
of Diamond in 2005. The unlevered free cash flows and terminal values were then
discounted to the present using a range of discount rates of 12.5% to 15.0%
representing an estimated range of the weighted average cost of capital of
Diamond.
DLJ calculated an equity value of Diamond on a standalone basis ranging
from $716 to $1,116 million using an EBITDA multiple of 11.5x. In addition, the
combined DCF, which assumes the consummation of both the Share Exchange and the
Amalgamation, yields a per share value of $59.71 to $82.71 for NTL, which
represents a 4.1% to 4.9% premium to the DCF value of $57.34 to $78.82 per share
of NTL combined with Partners only, in each case, using an EBITDA multiple of
11.5x. Assuming no consummation of the Amalgamation, the combined DCF of Diamond
and NTL yields a per share value of $65.84 to $91.17 for NTL, which represents a
2.4% to 3.4% premium to NTL's stand-alone DCF value of $64.27 to $88.19 per
share, in each case, using an EBITDA multiple of 11.5x.
Comparison to Other Acquisitions. DLJ compared the Enterprise Value per
Equity Home and the Franchise Value per Equity Home of the Share Exchange to
those reflected in two pending transactions: (a) the recently-announced
acquisition by NTL of Partners and (b) the recently-announced acquisition by
TeleWest of General Cable. In addition, DLJ included analyses of the 1995
acquisition by Partners of SingTel's 50% ownership interest in certain UK cable
properties and the 1996 roll-up of four entities into Cable and Wireless
Communications PLC, although for various reasons DLJ did not believe these
latter
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transactions to be perfect comparables. The analysis revealed that the
Enterprise Value per Equity Home reflected in the Share Exchange is within the
range of those of comparable transactions.
The summary set forth above does not purport to be a complete description
of the analyses performed by DLJ, but describes, in summary form, the principal
elements of the analyses contained in the materials presented by DLJ to the NTL
Board in connection with DLJ rendering the DLJ Opinion. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Each of the analyses conducted by DLJ was
carried out in order to provide a different perspective on the transaction and
add to the total mix of information available. DLJ did not form a conclusion as
to whether any individual analysis, considered in isolation, supported or failed
to support an opinion as to fairness from a financial point of view. Rather, in
reaching its conclusion, DLJ considered the results of the analyses in light of
each other and ultimately reached its opinion based on the results of the
analyses taken as a whole. DLJ did not place particular reliance or weight on
any individual factor, but instead concluded that its analyses, taken as a
whole, supported its determination. Accordingly, notwithstanding the separate
factors summarized above, DLJ believes that its analyses must be considered as a
whole and that selecting portions of its analysis and the factors considered by
it, without considering all analyses and factors, could create an incomplete or
misleading view of the evaluation process underlying its opinion. In performing
its analyses, DLJ made numerous assumptions with respect to industry
performance, business, regulatory and economic conditions and other matters. In
addition, DLJ assumed the absence of any material change in the UK
telecommunication or cable industries or UK economic conditions, generally. The
analyses performed by DLJ are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses.
Pursuant to a letter agreement between NTL and DLJ dated June 8, 1998 (the
"DLJ Engagement Letter"), NTL has agreed to pay DLJ (i) a retainer fee of
$250,000 payable upon execution of the DLJ Engagement Letter, and (ii) a fee of
L1 million payable at the time DLJ notified NTL that it was prepared to deliver
the DLJ Opinion, irrespective of the conclusion reached therein. In addition,
NTL has agreed to reimburse DLJ for all out-of-pocket expenses (including the
reasonable fees and expenses of its counsel) incurred by DLJ in connection with
its engagement, whether or not the Share Exchange is consummated, and to
indemnify DLJ for certain liabilities and expenses arising out of the Share
Exchange or the transactions in connection therewith, including liabilities
under federal securities laws. The terms of the fee arrangement with DLJ were
negotiated at arm's length between NTL and DLJ, and the NTL Board was aware of
such arrangement.
DLJ provides a full range of financial, advisory and brokerage services and
in the course of its normal trading activities may from time to time effect
transactions and hold positions in the securities of, or options on the
securities of, Diamond or its affiliates and/or NTL for its own account and for
the account of its customers.
DLJ, as part of its investment banking services, is regularly engaged in
the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
DLJ has performed investment banking and other services for NTL, Diamond and
their affiliates in the past and has been compensated for such services,
including (i) acting as (a) lead manager for the offering in 1996 of
approximately $600 million of Senior Deferred Coupon Notes by International
CableTel Incorporated ("ICTI"), NTL's predecessor, (b) ICTI's financial advisor
and agent in the 1996 consent solicitation for approximately $489 million of
Senior Deferred Coupon Notes issued by ICTI, (c) lead manager for the offering
in 1996 of approximately $275 million of Subordinated Convertible Notes by ICTI,
(d) lead manager for the offering in 1997 of approximately $400 million of
Senior Notes by ICTI, (e) lead manager for the offering in 1997 of approximately
$100 million of Senior Redeemable Exchangeable Preferred Stock by ICTI, (f)
acting as NTL's financial advisor in connection with the Amalgamation with
Partners and (g) lead manager for the offering in 1998 of $600 million of
Convertible Subordinated Notes, and (ii) acting as co-manager for Diamond's
offering in 1995 of approximately $531 million in principal amount at maturity
of the 1995 Notes.
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ACCOUNTING TREATMENT
The Share Exchange will be accounted for by NTL under the purchase method
of accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations," as amended. Under this method of accounting, the
purchase price will be allocated to assets acquired and liabilities assumed
based on their estimated fair values at the Closing Date. Such allocations will
be based upon valuations that have not been finalized. The excess of such
purchase price over the amounts so allocated will be recorded as goodwill.
GOVERNMENTAL AND REGULATORY APPROVALS
The consummation of the Share Exchange is conditioned upon certain filings
with, notices to and consents, approvals and actions of, various governmental
entities with respect to the transactions contemplated by the Diamond Agreement
being made and received prior to the Closing Date unless the failure to obtain
such approvals would not have a material adverse effect on NTL or Diamond or
would not result in a material violation of any laws. Certain of those approvals
are summarized below.
The Diamond Agreement requires that the following (collectively, the
"Required British Approvals") will have occurred: (i) NTL will have received a
written indication from the DTI, the ITC and the Radio Communications Agency
(the "RCA") to the effect that the Share Exchange will not lead to the
revocation of any licenses issued pursuant to the Cable and Broadcasting Act
1984 or the Broadcasting Act 1990 (as amended) or the revocation of any of the
telecommunications or wireless telegraphy licenses or RCA licenses (issued by
the DTI or by the RCA acting for the DTI pursuant to the Telecommunications Act
1984 or the Wireless Telegraphy Act 1949) which are held by Diamond or any of
its subsidiaries, except for any licenses the loss of which would not have a
material adverse effect on Diamond; (ii) NTL will have received written
confirmation from OFTEL that the Director General has not after the date of the
Diamond Agreement (A) issued any directions to Diamond or any of its
subsidiaries in connection with their telecommunications licenses issued
pursuant to the Telecommunications Act 1984 or their wireless telegraphy
licenses issued pursuant to the Wireless Telegraphy Act 1949, (B) given notice
to Diamond or any of its subsidiaries of its intention to make modifications to
such licenses (other than modifications which are to be made to all or
substantially all of the licenses issued pursuant to the Telecommunications Act
1984 or the Wireless Telegraphy Act 1949, as appropriate), or (C) taken or has
no intention to take any steps pursuant to Section 16, 17 or 18 of the
Telecommunications Act 1984 or the Wireless Telegraphy Act 1949 in relation to
enforcement of any such licenses, except for, in the case of clause (A), such
directions, in the case of clause (B), such modifications, or, in the case of
clause (C), such enforcement steps as would not have a material adverse effect
on Diamond; (iii) NTL will have received written confirmation from the ITC that
the ITC has not after the date of the Diamond Agreement (A) issued any
directions to Diamond or any of its subsidiaries in connection with any license
issued pursuant to the Cable and Broadcasting Act 1984 or the Broadcasting Act
1990 (as amended) or the Broadcasting Act 1996, (B) given notice to Diamond or
any of its subsidiaries of its intention to make modifications to any such
license (other than modifications which are to be made to all or substantially
all licenses issued pursuant to the Cable and Broadcasting Act 1984 or the
Broadcasting Act 1990 (as amended) or the Broadcasting Act 1996, as the case may
be), or (C) taken and has no intention to take any steps in relation to
enforcement of any such license, except for, in the case of clause (A), such
directions, in the case of clause (B), such modifications, or, in the case of
clause (C), such enforcement steps as would not have a material adverse effect
on Diamond; and (iv) the Office of Fair Trading will have indicated to NTL
either that the transactions contemplated by the Diamond Agreement do not
qualify for investigation by the Monopolies and Mergers Commission pursuant to
the Fair Trading Act 1973 or that The Secretary of State for Trade and Industry
has decided not to refer the transactions contemplated by the Diamond Agreement
to the Monopolies and Mergers Commission.
The Required British Approvals from the DTI, OFTEL and ITC referred to in
subsection (i) of the preceding paragraph have been obtained. Neither Diamond
nor any of its subsidiaries hold licences under the Wireless Telegraphy Act 1949
and therefore no consent was necessary from the RCA. Confirmation has also been
obtained from OFTEL as of October 28, 1998 and from the ITC as of October 13,
1998 in the terms contemplated by the Required British Approvals referred to in
subsections (ii) and (iii) of the preceding paragraph, respectively. On June 17,
1998 The Secretary of State for Trade and Industry issued her decision
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not to refer the Share Exchange to the Monopolies and Mergers Commission as
referred to in subsection (iv) of the preceding paragraph. Accordingly, all of
the Required British Approvals have been obtained.
Each of the parties to the Diamond Agreement has agreed to use reasonable
best efforts to obtain all necessary actions or nonactions, waivers, consents
and approvals from governmental entities and to make all necessary registrations
and filings with any governmental entity in order to consummate the transactions
contemplated by the Diamond Agreement. NTL and the Transferors have also agreed
to (i) take all action necessary to ensure that no takeover statute or similar
statute or regulation is or becomes applicable to the Diamond Agreement or any
transaction contemplated thereby and (ii) if any takeover statute or similar
statute or regulation becomes applicable to the Diamond Agreement or any
transaction contemplated thereby, take all action necessary to ensure that the
transactions contemplated by the Diamond Agreement may be consummated as
promptly as practicable on the terms contemplated by the Diamond Agreement and
otherwise to minimize the effect of such statute or regulation on the
transactions contemplated by the Diamond Agreement. While NTL believes that it
will receive all requisite regulatory approvals for the transactions
contemplated by the Diamond Agreement, there can be no assurance as to the
timing of such approvals or the ability of NTL or the Transferors to obtain such
approvals on satisfactory terms or otherwise. It is a condition to the parties'
respective obligations to effect the Closing of the Share Exchange that all
necessary consents, approvals and actions of, filings with and notices to any
governmental entity be obtained.
RESTRICTIONS ON TRANSFERABILITY OF SHARES
No shares of NTL Common Stock constituting the Share Issuance will be
registered under the Securities Act or registered or qualified under any state
securities law in reliance on specific exemptions therefrom. Accordingly, such
shares may not be resold except in compliance with the Securities Act or
pursuant to an available exemption thereunder. Each Transferor has agreed that
it is acquiring the NTL Common Stock pursuant to the Share Exchange solely for
investment for its own account and not with a view to, or for resale in
connection with, any "distribution" thereof within the meaning of the Securities
Act.
The obligation of each Transferor to effect the Share Exchange is subject,
among other things, to NTL having entered into the Registration Rights Agreement
with each such Transferor. See "CERTAIN AGREEMENTS RELATED TO THE SHARE
EXCHANGE -- The Registration Rights Agreement."
STOCK EXCHANGE LISTING
It is a condition to the consummation of the Share Exchange that the shares
of NTL Common Stock issuable to the Transferors pursuant to the Diamond
Agreement and the shares of NTL Common Stock issuable upon exercise of Adjusted
Options be approved for quotation on the NASDAQ, subject to official notice of
issuance.
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THE DIAMOND AGREEMENT
The Diamond Agreement is included in its entirety in this Proxy Statement
as Annex A and is incorporated herein by reference. We urge stockholders of NTL
to read such document.
CONSIDERATION FOR DIAMOND SHARES
Upon the terms and subject to the conditions contained in the Diamond
Agreement, as consideration for the acquisition of the Diamond Shares, on the
Closing Date, NTL will transfer to each Transferor consideration consisting of
one share of NTL Common Stock for (i) each deferred share and (ii) each four
Ordinary Shares; provided, however, that the consideration for each four
Ordinary Shares will be adjusted as follows: (A) if the Closing Date occurs
within four months of the date of the Diamond Agreement, and the average sales
price of the NTL Common Stock, as calculated pursuant to the Diamond Agreement,
is $52.00 or more, the number of shares of NTL Common Stock to be transferred
for each four Ordinary Shares will be decreased such that the value of such
consideration will not exceed the Maximum Average Stock Price ($52.00); (B) if
the Closing Date occurs after October 16, 1998 and prior to February 1, 1999,
the Maximum Average Stock Price will increase by $.50 on October 16, 1998, and
on each subsequent monthly anniversary date thereof until the Closing Date; and
(C) if the Closing Date occurs on February 1, 1999 or thereafter, the Maximum
Average Stock Price will be $65.00. Because more than four months have passed
since June 16, 1998, the date of the Diamond Agreement, and the Closing Date
will not occur prior to February 1, 1999, subparagraphs (A) and (B) above are no
longer applicable adjustment mechanisms.
NO FRACTIONAL SHARES
No fractional shares of NTL Common Stock will be issued pursuant to the
Diamond Agreement. All fractional shares of NTL Common Stock that a Transferor
would otherwise be entitled to receive as a result of the Share Exchange will be
aggregated and if a fractional share results from such aggregation, such
Transferor will be entitled to receive, in lieu thereof, an amount in cash
determined by multiplying the closing sale price of the NTL Common Stock on the
NASDAQ on the trading day immediately preceding the Closing Date by the fraction
of a share of NTL Common Stock to which such Transferor would otherwise have
been entitled.
REPRESENTATIONS AND WARRANTIES
The Diamond Agreement contains various representations and warranties of
NTL and the Transferors (relating to Diamond and in their own individual
capacity) customary for transactions of this nature. These include, among other
things, representations and warranties of NTL as to (i) its due organization,
existence, good standing, organizational documents and similar corporate
matters; (ii) its subsidiaries; (iii) its capitalization; (iv) its
authorization, execution, delivery and performance and the enforceability of the
Diamond Agreement and related matters; (v) consents and approvals necessary for
consummation of the Share Exchange and the absence of conflicts, violations,
breaches or defaults which result from compliance by NTL with the provisions of
the Diamond Agreement; (vi) the documents and reports filed with the SEC and the
accuracy and completeness of the information contained therein; (vii) the
absence of undisclosed liabilities; (viii) the absence of certain material
changes or events since December 31, 1997; (ix) compliance with laws, ordinances
and regulations; (x) litigation; (xi) certain employee benefit and ERISA
matters; (xii) tax matters; and (xiii) brokers.
Pursuant to the Diamond Agreement, each Transferor, severally and not
jointly, represents and warrants as to Diamond as follows: (i) due organization,
existence, good standing, organizational documents and similar corporate
matters; (ii) subsidiaries; (iii) capitalization; (iv) authorization, execution,
delivery and performance and the enforceability of the Diamond Agreement and
related matters; (v) consents and approvals necessary for consummation of the
Share Exchange and the absence of conflicts, violations, breaches or defaults
which result from compliance with the provisions of the Diamond Agreement; (vi)
the documents and reports filed with the SEC and the accuracy and completeness
of the information contained therein; (vii) the absence of undisclosed
liabilities; (viii) financial statements; (ix) the absence of certain material
changes or events since December 31, 1997; (x) compliance with laws, ordinances
and regulations;
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(xi) litigation; (xii) employee benefit matters; (xiii) tax matters; (xiv)
certain material contracts; (xv) brokers; (xvi) employee matters; (xvii)
intellectual property matters; and (xviii) insolvency.
In addition, each Transferor, severally and not jointly, represents and
warrants as to itself only as follows: (i) except for a Transferor that is an
individual, its due organization, existence and good standing; (ii) its
authorization, execution, delivery and performance and the enforceability of the
Diamond Agreement and related matters; (iii) consents and approvals necessary
for consummation of the Share Exchange and the absence of conflicts, violations,
breaches or defaults which result from compliance with the provisions of the
Diamond Agreement; (iv) title and absence of liens; (v) brokers; and (vi)
investment intent and private placement. See "THE SHARE EXCHANGE -- Restrictions
on Transferability of Shares."
CONDUCT OF BUSINESS PENDING THE SHARE EXCHANGE
Pursuant to the Diamond Agreement, the Transferors have agreed that during
the period from the date of the Diamond Agreement to the Closing Date, except as
otherwise consented to by NTL or permitted by the Diamond Agreement, the
Transferors will cause Diamond and its subsidiaries to carry on their respective
businesses in the ordinary course consistent with past practice and, to the
extent consistent therewith, to use all reasonable efforts to preserve intact
their current business organizations, use reasonable efforts to keep available
the services of their current officers and other key employees and preserve
their relationships with those persons having business dealings with them.
Without limiting the generality of the foregoing, and except as otherwise
consented to by NTL or permitted by the Diamond Agreement, the Transferors have
agreed that they will not permit Diamond or any of its subsidiaries to:
(i) other than dividends and distributions by a direct or indirect
wholly-owned subsidiary of Diamond to its parent, or by a subsidiary that
is partially owned by Diamond or any of its subsidiaries, provided that
Diamond or any such subsidiary receives or is to receive its proportionate
share thereof, (A) declare, set aside or pay any dividends on, make any
other distributions in respect of, or enter into any agreement with respect
to the voting of, any of its shares, (B) split, combine, reclassify or vary
any class rights attached to any of its shares or issue or create or
authorize the issuance of any shares or other securities or loan capital,
(C) capitalize any amount standing to the credit of any reserve or
purchase, redeem or otherwise acquire any shares or other securities or
loan capital of Diamond or any of its subsidiaries or any rights, warrants
or options to acquire any such shares or other securities or loan capital
or otherwise reorganize its share capital or (D) grant any option over any
shares or other securities or loan capital or uncalled capital or issue any
securities convertible into shares or other securities or loan capital;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to
any lien any shares or any other securities or loan capital or any rights,
warrants or options to acquire, any such shares or other securities or loan
capital (other than the issuance of Ordinary Shares upon the exercise of
Stock Options outstanding as of the date hereof in accordance with their
present terms or pursuant to the CGT Option Agreement in accordance with
its present terms);
(iii) amend its memorandum or articles of association or other
comparable organizational documents;
(iv) acquire or agree to acquire the shares or stock or other
securities of any other body corporate or any portion of the assets of any
business or any person;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any lien or otherwise dispose of any of its properties or assets (including
securitizations) other than (A) in the ordinary course of trading
consistent with past practice or (B) the sale, lease, license or other
disposition of up to L750,000 of such assets, in the aggregate;
(vi) incur any indebtedness for borrowed money, other than pursuant to
agreements or arrangements in effect as of the date of the Diamond
Agreement, or issue any debt securities or assume, guarantee or
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endorse, or otherwise as an accommodation become responsible for the
obligations of any person for borrowed money in an amount that exceeds
individually or in the aggregate L500,000;
(vii) enter into any joint venture, partnership or European Economic
Interest Grouping;
(viii) enter into any contract or commitment or any transaction
otherwise than (A) in the ordinary and usual course of business and (B) at
arms' length and for full value;
(ix) enter into any contract, commitment or arrangement with the
Transferors or any of their affiliates or vary, supplement or amend such
existing contract, commitment or arrangement (other than on terms no less
favorable than would be obtained from unaffiliated third parties, and as
approved by a resolution of the Board of Directors of Diamond that contains
such a conclusion);
(x) engage any employees or consultants having an annual salary in
excess of L100,000 or make a material change in the terms and conditions of
employment or engagement or pension benefits of any employees or
consultants;
(xi) enter into any contract or commitment which either individually
or in the aggregate may result in expenditure in excess of L250,000 per
month;
(xii) enter into any material agreement, arrangement or understanding
with respect to programming, software, the provisioning of cable modem
internet services, billing, the provisioning of digital CATV services
and/or the acquisition of set top boxes, switching equipment or other
computer and/or telecommunications equipment with a value in excess of L1
million;
(xiii) make or change any material tax election or method of
accounting or settle any material tax dispute or controversy; or
(xiv) authorize, or commit or agree to take, any of the foregoing
actions;
provided, that the limitations set forth in subparagraphs (i) through (xiv)
above (other than subparagraph (iii)) will not apply to any transaction between
Diamond and any wholly-owned subsidiary or between any wholly-owned subsidiaries
of Diamond.
In addition, the Transferors have agreed that they will ensure that Diamond
and its subsidiaries will not, and NTL has agreed that it will not and will not
permit any of its subsidiaries to, voluntarily take any action that would, or
that could reasonably be expected to, result in (i) any of the representations
and warranties of such party set forth in the Diamond Agreement that are
qualified as to materiality becoming untrue at the Closing Date, (ii) any of
such representations and warranties that are not so qualified becoming untrue in
any material respect at the Closing Date or (iii) any of the conditions to the
Share Exchange set forth in the Diamond Agreement not being satisfied.
Each Transferor (through the Transferors' Representative) and NTL has
agreed to promptly advise the Transferors' Representative or NTL, as the case
may be, orally and in writing, to the extent that it has knowledge of (i) any
representation or warranty contained in the Diamond Agreement that is qualified
as to materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) any failure to comply in any material
respect with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied under the Diamond Agreement and (iii)
any change or event having, or which, insofar as can reasonably be foreseen,
could reasonably be expected to have a material adverse effect on the truth of
any of the representations and warranties or the ability of the conditions set
forth in the Diamond Agreement to be satisfied; provided, however, that no such
notification will affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto) or the conditions
to the obligations of the parties under the Diamond Agreement.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
With respect to all outstanding share options or other rights to purchase
or receive Diamond Shares (collectively, the "Stock Options") granted under the
Senior Management Option Scheme (the "Stock
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Plan"), dated October 29, 1994, as amended, NTL will permit each holder thereof
to receive, at such holder's option, upon release of such holder's Stock Option
that either is exercisable or not or will become, upon the Closing Date,
exercisable under the Stock Plan, either (i) an option (the "NTL Option") to
acquire, except as provided in the next paragraph, on the same terms and
conditions as were applicable under such Stock Option, one share of NTL Common
Stock for each four Ordinary Shares subject to the Stock Option (to be adjusted
in the same manner as provided for in "-- Consideration for Diamond Shares"
above) at an exercise price per share of NTL Common Stock (rounded to the
nearest whole cent) equal to (A) the aggregate exercise price for the Ordinary
Shares subject of such Stock Option divided by (B) the aggregate number of whole
shares of NTL Common Stock deemed to be subject to such Stock Option in
accordance with the foregoing or (ii) that number of shares of NTL Common Stock
(rounded down to the nearest whole number) as is equal to one share of NTL
Common Stock for each four Ordinary Shares subject to the Stock Option (to be
adjusted in the same manner as provided for in "-- Consideration for Diamond
Shares" above) less that number of shares of NTL Common Stock (rounded to the
nearest whole number) as is equal in value to (A) the aggregate exercise price
for the Ordinary Shares subject to the Stock Option divided by (B) the NTL
Average Stock Price on the Closing Date.
With respect to the NTL Options issued as contemplated in the preceding
paragraph, 100% of each holder's NTL Options will be exercisable from the
Closing Date, provided that such NTL Options will not be exercisable in the
event that the holder of a Stock Option is dismissed as an employee or director
of any company in the NTL or Diamond group as a result of his or her gross
misconduct in circumstances entitling the NTL or Diamond group summarily to
dismiss the employee without prior notice under such employee's or director's
service agreement and applicable law.
As soon as practicable after the date of the Diamond Agreement, NTL (and,
if appropriate, the Transferors will ensure that Diamond, jointly with NTL) will
deliver to holders of Stock Options appropriate notices setting forth such
holders' rights pursuant to the Stock Plan and the alternatives offered to them
in accordance with the Diamond Agreement, together with any form of release
required to be executed by such holders.
NTL has agreed that no later than the Closing Date, it will prepare and
file with the SEC a registration statement on Form S-8 (or another appropriate
form) registering a number of shares of NTL Common Stock issuable in accordance
with this section. Such registration statement will be kept effective (and the
current status of the prospectus or prospectuses required thereby will be
maintained) at least for so long as NTL Options remain outstanding and until
such time as the shares of NTL Common Stock subject to such NTL Options are no
longer subject to resale restrictions under the Securities Act.
FEES AND EXPENSES
All fees and expenses incurred in connection with the Diamond Agreement and
the transactions contemplated by the Diamond Agreement will be paid by the party
incurring such fees or expenses, whether or not the transactions contemplated by
the Diamond Agreement are consummated. The Transferors have represented and
undertaken that no such fees and expenses have been or will be borne by Diamond
or any of its subsidiaries.
CONDITIONS PRECEDENT TO THE SHARE EXCHANGE
The respective obligation of each of NTL and the Transferors to effect the
Share Exchange is subject to the satisfaction or waiver on or prior to the
Closing Date of the following conditions: (i) the obtaining of the Stockholder
Approval; (ii) the obtaining of the Required British Approvals; (iii) the
obtaining of all other approvals required to be obtained by Diamond, NTL or any
of their subsidiaries, except where the failure to obtain such approvals is not
reasonably expected to have a material adverse effect on NTL or Diamond or which
will not result in a material violation of any laws; (iv) the absence of any
judgment, order, decree, statute, law, ordinance, rule or regulation, entered,
enacted, promulgated, enforced or issued by any court or other governmental
entity of competent jurisdiction or other legal restraint or prohibition
(collectively, the "Restraints") which prevents the consummation of the
transactions contemplated by the Diamond Agree-
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ment or which otherwise is reasonably likely to have a material adverse effect
on NTL or Diamond; (v) the quotation on the NASDAQ, subject only to official
notice of issuance, of the shares of NTL Common Stock constituting the Share
Issuance; and (vi) the obtaining of the Required Consents.
The obligation of NTL to effect the transactions contemplated by the
Diamond Agreement is also subject to the satisfaction or waiver of, among other
things, the following conditions: (i) the representations and warranties of the
Transferors set forth in the Diamond Agreement being true and correct both when
made and at and as of the Closing Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case as of
such date), except where the failure of such representations and warranties to
be so true and correct (without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein) does not have, and
is not likely to have, individually or in the aggregate, a material adverse
effect on NTL (assuming the consummation of the transactions contemplated by the
Diamond Agreement) or Diamond; (ii) the Transferors having performed in all
material respects all obligations required by the Diamond Agreement to be
performed by them at or prior to the Closing Date; and (iii) there having not
occurred, as of the Closing Date, any material adverse change relating to
Diamond from the date of the Diamond Agreement.
The obligation of the Transferors to effect the transactions contemplated
by the Diamond Agreement is also subject to the satisfaction or waiver of the
following conditions: (i) the representations and warranties of NTL set forth in
the Diamond Agreement being true and correct both when made and at and as of the
Closing Date, as if made at and as of such time (except to the extent expressly
made as of an earlier date, in which case as of such date), except where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "material
adverse effect" set forth therein) does not have, and is not likely to have,
individually or in the aggregate, a material adverse effect on NTL; (ii) NTL
having performed in all material respects all obligations required by the
Diamond Agreement to be performed by it at or prior to the Closing Date; (iii)
there having not occurred, as of the Closing Date, any material adverse change
relating to NTL since the date of the Diamond Agreement; (iv) NTL having entered
into the Registration Rights Agreement with the Transferors; (v) the Transferors
having received an opinion, dated the Closing Date, from Sullivan & Cromwell,
counsel to Diamond, to the effect that for federal income tax purposes the Share
Exchange will constitute a "reorganization" within the meaning of Section 368(a)
of the Code, and NTL and Diamond will each be a party to such reorganization
within the meaning of Section 368(b) of the Code.
None of NTL nor the Transferors may rely on the failure of any applicable
condition to be satisfied if such failure was caused by such party's failure to
use best efforts to consummate the Share Exchange and the other transactions
contemplated by the Diamond Agreement.
ADDITIONAL AGREEMENTS
NASDAQ Quotation. NTL has agreed to use reasonable best efforts to cause
the NTL Common Stock issuable under the Diamond Agreement and upon exercise of
NTL Options to be approved for quotation on the NASDAQ, subject to official
notice of issuance, as promptly as practicable after the date of the Diamond
Agreement, and in any event prior to the Closing Date.
The Amalgamation. Each of the Transferors has agreed that it will, and
will cause its affiliates to, vote any voting securities of NTL which they are
entitled to vote to approve the matters with respect to the Amalgamation that
will be presented to stockholders of NTL at the Special Meeting.
The Special Meeting. NTL has agreed to take all necessary actions to
convene as promptly as practicable after the date of the Diamond Agreement a
special meeting of its stockholders to authorize the transactions contemplated
by the Diamond Agreement.
Standstill Agreements; Confidentiality Agreements. The Transferors have
agreed to procure that, during the period from the date of the Diamond Agreement
through the Closing Date, neither Diamond nor any of its subsidiaries will
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which it is a party. During such period, the Transferors
have also agreed to procure that Diamond and its
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subsidiaries will enforce, to the fullest extent permitted under applicable law,
the provisions of any such agreement, including by obtaining injunctions to
prevent any breaches of such agreements and to enforce specifically the terms
and provisions thereof in any court having jurisdiction.
Debt Offers. Each of NTL and the Transferors have agreed to use its
respective reasonable best efforts to obtain, upon terms and conditions which
are reasonably satisfactory to NTL, any required consents of the holders of the
various debt securities of NTL and Diamond in order to permit the transactions
contemplated by the Diamond Agreement. The costs, fees and expenses payable by
Diamond in connection with such consents, if required, shall be subject to the
reasonable approval of NTL.
Bring-Along for Optionholder Shares. The Transferors have agreed that
insofar as the holders of Stock Options, including CGT (the "Option
Shareholders"), validly exercise their Stock Options in accordance with the
rules of the Stock Plan after the date of the Diamond Agreement to acquire
Ordinary Shares (the "Option Shares"), then the Transferors will, in accordance
with the rules of the Stock Plan require the Option Shareholders to sell all of
the Option Shares to NTL on the same terms and conditions as contained in the
Diamond Agreement.
Tag-Along for Optionholders Shares. Without prejudice to the obligations
of the Transferors as set forth in the preceding paragraph, NTL has agreed that
in the event that any holders of Stock Options, including CGT, validly exercise
their Stock Options as described in the preceding paragraph, then NTL will offer
to purchase from the Option Shareholders all of the Option Shares on the same
terms and conditions contained in the Diamond Agreement and that such offer will
remain capable for acceptance for a period of 14 days from the date on which it
is made.
No Change to Stock Options. The Transferors have agreed to procure that
Diamond will not, except as specifically contemplated in the Diamond Agreement
or with the prior consent of NTL, (i) amend the rules of the Stock Plan or the
Option Agreement (whether or not with the prior consent of the holders of Stock
Options) or (ii) approach, or dispatch any document to, the holders of Stock
Options.
Indemnification; Directors and Officers Insurance. NTL has agreed to
maintain for the benefit of Diamond's past and present directors and officers
indemnification arrangements pursuant to Diamond's memorandum and articles of
association and indemnification agreements in existence on the date of the
Diamond Agreement covering acts or omissions occurring at or prior to the
Closing Date to the same extent as are in place at the date of the Diamond
Agreement. NTL has also agreed to provide, for not less than six years from the
Closing Date, Diamond's current directors and officers with a directors' and
officers' liability insurance policy that provides coverage for events occurring
prior to the Closing Date that is no less favorable than Diamond's existing
policy.
TERMINATION
The Diamond Agreement may be terminated at any time prior to the Closing
Date:
(i) by mutual written consent of NTL and the Majority Transferors;
(ii) by either NTL or the Majority Transferors: (A) if the Share
Exchange has not been consummated by the End Date, except if such failure
is due to a material breach of the Diamond Agreement by the party seeking
to terminate; (B) if any Restraint which prevents the consummation of the
Share Exchange or which otherwise is reasonably likely to have a material
adverse effect on Diamond or NTL is in effect and has become final and
nonappealable, provided, that the party seeking to terminate the Diamond
Agreement must have used its best efforts to prevent the entry of and to
remove such Restraint; or (C) if so required, NTL fails to acquire the
authorization of its stockholders as contemplated by the Diamond Agreement;
(iii) by either NTL or the Transferors if the other party has breached
or failed to perform in any material respect any of its representations,
warranties, covenants or other agreements contained in the Diamond
Agreement, which breach or failure to perform would give rise to the
failure of certain
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conditions set forth in the Diamond Agreement, and such condition is
incapable of being satisfied by the End Date; and
(iv) by the Majority Transferors if (A) as of a date not more than
three business days before the expected Closing Date, the NTL Average Stock
Price determined as of such date is less than $36.00, (B) notice has been
provided to NTL under the Diamond Agreement of an intent to terminate and
(C) within one business day of receipt of such notice, NTL has not offered
to increase the consideration payable per four Ordinary Shares such that
the value of such consideration shall be $36.00 per four Ordinary Shares or
more at such time.
In the event of termination of the Diamond Agreement by either NTL or the
Transferors as described above, the Diamond Agreement will become void and have
no effect, without any liability or obligation on the part of NTL or
Transferors, except for, among other things, certain specified obligations
including, without limitation, those relating to financial advisory and
brokerage fees and expenses of the Share Exchange, and except to the extent that
such termination results from the willful and material breach by a party of any
of its representations, warranties, covenants or agreements set forth in the
Diamond Agreement.
AMENDMENT
The Diamond Agreement may be amended in writing by each of the parties,
provided that each of the Transferors agrees to be bound by any amendment
approved by and entered into by the Majority Transferors; provided, however,
that any amendment that has or could reasonably be expected to have a
disproportionate adverse effect on one Transferor but that does not similarly
affect all Transferors will also require the approval of the affected
Transferor.
EXTENSION; WAIVER
At any time prior to the Closing Date, NTL or Transferors' Representative
may (i) extend the time for the performance of any of the obligations or other
acts of the other party, (ii) waive any inaccuracies in the representations and
warranties of the other party contained in the Diamond Agreement or in any
document delivered pursuant to the Diamond Agreement or (iii) waive compliance
by the other party with any of the agreements or conditions contained in the
Diamond Agreement. Any agreement on the part of NTL or the Transferors'
Representative to any such extension or waiver will be valid only if set forth
in an instrument in writing signed on behalf of such party. The failure of NTL
or the Transferors' Representative to assert any of its rights under the Diamond
Agreement or otherwise shall not constitute a waiver of such rights.
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CERTAIN AGREEMENTS RELATED TO THE SHARE EXCHANGE
THE REGISTRATION RIGHTS AGREEMENT
The Diamond Agreement requires NTL to enter into the Registration Rights
Agreement with each of the Transferors (the "Holders") on or prior to the
Closing Date. Subject to certain limitations and conditions, the Registration
Rights Agreement obligates NTL to file a registration statement with the SEC at
any time, and from time to time, during the period beginning on the six month
anniversary date of the Closing Date and ending five years thereafter upon
written notice by a Holder or group of Holders who hold and propose to sell NTL
Common Stock received in connection with the Share Exchange with an aggregate
value of at least $50 million or, in the case of certain Holders, $25 million.
In addition, NTL is obligated to file with the SEC one or more "shelf"
registration statements providing for the registration, and the sale on a
continuous or delayed basis in secondary "market-making" transactions by
Goldman, Sachs & Co., of outstanding publicly traded debt and equity securities
of NTL. NTL will not be required to effect more than one demand registration in
any six-month period or more than seven demand registrations in total. Each
Holder will have the right to participate in a demand of another Holder or group
of other Holders.
Pursuant to the Registration Rights Agreement, each Holder will have the
right to "piggyback" on registrations filed by NTL subject to customary terms,
except where such right would violate the registration rights agreement in
connection with the Amalgamation.
NTL is required to bear the expenses of the registration of the shares of
NTL Common Stock received by Holders pursuant to the Share Exchange. Holders are
responsible for paying all underwriting discounts and broker's commissions
incurred in connection with the sale or other disposition of the NTL Common
Stock received in connection with the Share Exchange, as well as any fees and
expenses of legal counsel and other advisors separately engaged by them.
The foregoing summary of the Registration Rights Agreement is qualified in
its entirety by the text of the form of Registration Rights Agreement which is
attached as Annex D hereto and which is incorporated herein by reference.
THE SUPPLEMENTAL OPTION AGREEMENT
Pursuant to the Diamond Agreement, NTL, Diamond, European Cable and CGT
have entered into the Supplemental Option Agreement with respect to the Option
Agreement pursuant to which Diamond granted to CGT the CGT Options to acquire
654,000 Ordinary Shares. The Supplemental Option Agreement provides, among other
things, that CGT will, prior to but conditional upon the closing of the Share
Exchange, (i) exercise in full the CGT Options or (ii) release in full the CGT
Options in return for shares of NTL Common Stock as contemplated by the Diamond
Agreement. See "THE DIAMOND AGREEMENT -- Stock Options and Stock Appreciation
Rights."
The foregoing summary of the Supplemental Option Agreement is qualified in
its entirety by the text of the Supplemental Option Agreement which is attached
as Annex E hereto and which is incorporated herein by reference.
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DESCRIPTION OF NTL CAPITAL STOCK
GENERAL
The authorized capital stock of NTL consists of 400,000,000 shares of NTL
Common Stock, par value $.01 per share, and 10,000,000 shares of preferred
stock, par value $.01 per share (the "NTL Preferred Stock"). At the close of
business on January 28, 1999: (i) approximately 60,470,000 shares of NTL Common
Stock were issued and outstanding; (ii) no shares of NTL Common Stock were held
by NTL in its treasury; (iii) approximately 125,000 shares of the 13% Preferred
Stock were issued and outstanding; (iv) 1,000,000 shares of Series A Junior
Participating Preferred Stock (the "Rights Preferred Stock") were reserved for
issuance pursuant to the Rights Agreement; (v) approximately 17,057,000 shares
of NTL Common Stock were reserved for issuance pursuant to the conversion of the
7% Convertible Notes; (vi) approximately 2,880,000 shares of NTL Common Stock
were reserved for issuance upon the exercise of certain warrants; (vii)
approximately 16,144,000 shares of NTL Common Stock were reserved for issuance
pursuant to various NTL employee and director stock options; (viii) 125,280
shares of 9.9% Non-Voting Mandatorily Redeemable Preferred Stock, Series A (the
"9.9% Preferred Stock, Series A") were issued and outstanding; (ix) 52,217
shares of 9.9% Non-Voting Mandatorily Redeemable Preferred Stock, Series B (the
"9.9% Preferred Stock, Series B") were issued and outstanding; and (x) 500,000
shares of 5 1/4% Convertible Preferred Stock, Series A (the "5 1/4% Preferred
Stock") were issued and outstanding.
NTL COMMON STOCK
The holders of NTL Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders of NTL and
do not have cumulative voting rights in the election of directors. Holders of
NTL Common Stock are entitled to receive ratably such dividends as may from time
to time be declared by the NTL Board out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of NTL, holders of NTL
Common Stock would be entitled to share ratably in all assets of NTL available
for distribution to holders of NTL Common Stock remaining after payment of
liabilities and liquidation preference of any outstanding NTL Preferred Stock.
Holders of NTL Common Stock have no preemptive rights and have no rights to
convert their NTL Common Stock into any other securities, and there are no
redemption provisions with respect to such shares. All of the outstanding shares
of NTL Common Stock are fully paid and nonassessable.
NTL PREFERRED STOCK
The NTL Board has the authority to issue NTL Preferred Stock in one or more
series and to fix as to any such series the designation, title, voting powers
and any other preferences, and relative, participating, optional or other
special rights and qualifications, limitations or restrictions, without any
further vote or action by the stockholders of NTL.
13% Preferred Stock. The 13% Preferred Stock ranks prior to the NTL Common
Stock, Rights Preferred Stock, 9.9% Preferred Stock, Series A, 9.9% Preferred
Stock, Series B, and 5 1/4% Preferred Stock, with respect to dividend rights and
rights on liquidation, winding up and dissolution, and each share of 13%
Preferred Stock has a liquidation preference of $1,000. Holders of shares of 13%
Preferred Stock are entitled to receive, when, as and if declared by the NTL
Board, quarterly dividends per share at a rate of 13% per annum. Dividends
accruing on or prior to February 15, 2004 may, at NTL's option, be paid in cash,
by issuing additional shares of 13% Preferred Stock having an aggregate
liquidation preference equal to the amount of such dividends, or in any
combination of the foregoing. Dividends accruing after February 15, 2004 must be
paid in cash. NTL may redeem any or all of the 13% Preferred Stock on or after
February 15, 2002 at declining redemption prices as set forth in the certificate
of designation with respect to the 13% Preferred Stock, plus accrued and unpaid
dividends to the date of redemption. NTL must redeem all outstanding shares of
13% Preferred Stock on February 15, 2009 at a price equal to 100% of the
liquidation preference thereof, plus accrued and unpaid dividends to the date of
redemption.
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Holders of 13% Preferred Stock have no general voting rights, except as
otherwise required under Delaware law and except in certain circumstances as set
forth in the certificate of designation with respect to the 13% Preferred Stock
including (i) amending certain rights of the holders of the 13% Preferred Stock
and (ii) the issuance of any class of equity securities that ranks on a parity
with or senior to the 13% Preferred Stock, other than additional shares of the
13% Preferred Stock issued in lieu of cash dividends or parity securities issued
to finance the redemption by NTL of the 13% Preferred Stock. In addition, if (i)
dividends are in arrears for six quarterly periods (whether or not consecutive)
or (ii) NTL fails to make a mandatory redemption or an offer to purchase all of
the outstanding shares of 13% Preferred Stock following a Change of Control
Triggering Event (as defined in the certificate of designation with respect to
the 13% Preferred Stock) as required or fails to pay pursuant to such redemption
or offer, holders of a majority of the outstanding shares of 13% Preferred
Stock, voting as a class, will be entitled to elect two directors to the NTL
Board. In the event of a Change of Control Triggering Event, NTL will, subject
to certain conditions, offer to purchase all outstanding shares of 13% Preferred
Stock at a purchase price equal to 101% of the liquidation preference thereof,
plus accrued and unpaid dividends to the date of purchase. Moreover, in the
event of a Change of Control Call Event (as defined in the certificate of
designation with respect to the 13% Preferred Stock), NTL will have the option
to redeem all of the outstanding shares of 13% Preferred Stock at a redemption
price equal to 100% of the liquidation preference thereof plus the applicable
premium and accrued and unpaid dividends to the date of repurchase.
On any scheduled dividend payment date, NTL may, at its option, exchange
all, but not less than all, of the shares of 13% Preferred Stock then
outstanding into NTL's 13% Series B Subordinated Exchange Debentures Due 2009.
9.9% Preferred Stock, Series A. The 9.9% Preferred Stock, Series A ranks
prior to the NTL Common Stock and Rights Preferred Stock with respect to
dividend rights and rights on liquidation, winding up and dissolution, and each
share of 9.9% Preferred Stock, Series A has a liquidation preference of $1,000
per share. Holders of shares of 9.9% Preferred Stock, Series A are entitled to
receive, when, as and if declared by NTL's Board of Directors cumulative
dividends at a rate of 9.9% per annum of the Stated Value of $1,000. Dividends
are payable on the 9.9% Preferred Stock, Series A on the date that the 9.9%
Preferred Stock, Series A is redeemed. Dividends may, at NTL's option, be paid
in cash, by issuing shares of NTL Common Stock or by issuing shares of
Convertible Preferred Stock, or in any combination of the foregoing. NTL may
redeem any or all of the 9.9% Preferred Stock, Series A at any time at a
redemption price equal to $1,000 per share, plus accrued and unpaid dividends to
the date of redemption. NTL must redeem all outstanding shares of 9.9% Preferred
Stock, Series A on September 21, 2008 at a redemption price equal to $1,000 per
share, plus accrued and unpaid dividends to the date of redemption. If NTL has
not exercised its right to optionally redeem the 9.9% Preferred Stock, Series A
by December 22, 1999, it shall mandatorily redeem all of the outstanding shares
of 9.9% Preferred Stock, Series A at a redemption price equal to $1,000 per
share plus accrued and unpaid dividends to the date of redemption. NTL, at its
option, may effect the mandatory redemption of the 9.9% Preferred Stock, Series
A in cash, in exchange for shares of NTL Common Stock, in exchange for shares of
Convertible Preferred Stock or in any combination of the foregoing.
Holders of the 9.9% Preferred Stock, Series A have no general voting
rights, except as otherwise required under the DGCL and except in certain
circumstances as set forth in the certificate of designation with respect to the
9.9% Preferred Stock, Series A including amending certain rights of the holders
of the 9.9% Preferred Stock, Series A. No approval is required of the holders of
the 9.9% Preferred Stock, Series A for the issuance of any other class of equity
securities.
Convertible Preferred Stock. The Convertible Preferred Stock, par value
$.01 per share (the "Convertible Preferred Stock"), may be issued, at the option
of NTL, in redemption of the 9.9% Preferred Stock, Series A. The Convertible
Preferred Stock, if issued, will rank prior to the NTL Common Stock, the Rights
Preferred Stock and any other class of capital stock or series of preferred
stock that by its terms ranks junior to the Convertible Preferred Stock
(collectively "Junior Stock") with respect to dividend rights and rights on
liquidation, winding up and dissolution. Each share of Convertible Preferred
Stock will have a liquidation preference of $1,000. Holders of Convertible
Preferred Shares will be entitled to receive, when as and if declared by NTL's
Board of Directors, cumulative dividends from the date that the Convertible
Preferred
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Stock is issued in accordance to the following terms (i) dividends will be
declared in preference to dividends on any Junior Stock; (ii) dividends will be
paid at a rate determined at the time of issuance of the Convertible Preferred
Stock, and (iii) dividends may be paid, in the sole discretion of NTL, in cash,
by issuing shares of NTL Common Stock or by issuing additional shares of
Convertible Preferred Stock or any combination of the foregoing. Dividends will
accrue semi-annually from the second anniversary of the issuance of the
Convertible Preferred Stock.
The Convertible Preferred Shares will be redeemable at any time, in whole
or in part, at the option of NTL, for $1,000 in cash per share. After the third
anniversary of their issuance, the Convertible Preferred Stock may be redeemed,
at the option of NTL, for shares of NTL Common Stock. The Convertible Preferred
Stock is mandatorily redeemable on the tenth anniversary of its issuance at a
redemption price of $1,000 per share in cash or for shares of NTL Common Stock.
The Convertible Preferred Stock will be convertible at the option of the holders
thereof at any time into an amount of shares of NTL Common Stock determined in
accordance with a formula set forth in the certificate of designation relating
thereto, subject to adjustment in certain circumstances.
The holders of Convertible Preferred Stock will have no voting rights,
except as required by law and as provided in the certificate of designations
relating thereto. Convertible Preferred Stock holders may elect two new members
of the NTL Board if the accumulation of accrued and unpaid dividends on the
outstanding Convertible Preferred Stock constitutes an amount equal to three
semi-annual dividends.
9.9% Preferred Stock, Series B. The 9.9% Preferred Stock, Series B ranks
prior to the NTL Common Stock and the Rights Preferred Stock with respect to
dividend rights and rights on liquidation, winding up and dissolution, and each
share of 9.9% Preferred Stock, Series B has a liquidation preference of $1,000
per share. Holders of shares of 9.9% Preferred Stock, Series B are entitled to
receive, when, as and if declared by NTL's Board of Directors dividends at a
rate of 9.9% per annum of the Stated Value of $1,000. Dividends are payable on
the 9.9% Preferred Stock, Series B on the date that the 9.9% Preferred Stock,
Series B is redeemed. Dividends may, at NTL's option, be paid in cash, by
issuing shares of NTL Common Stock, or in any combination of the foregoing. NTL
may redeem any or all of the 9.9% Preferred Stock, Series B at any time at a
redemption price equal to $1,000 per share, plus accrued and unpaid dividends to
the date of redemption. NTL must redeem all outstanding shares of 9.9% Preferred
Stock, Series B on December 21, 2008 at a redemption price equal to $1,000 per
share, plus accrued and unpaid dividends to the date of redemption. If NTL has
not exercised its right to optionally redeem the 9.9% Preferred Stock, Series B
by June 15, 2000, it shall mandatorily redeem all of the outstanding shares of
9.9% Preferred Stock, Series B at a redemption price equal to $1,000 per share
plus accrued and unpaid dividends to the date of redemption. NTL must also
redeem all outstanding shares of 9.9% Preferred Stock, Series B in the event of
a Reorganization (as defined in the certificate of designation with respect to
the 9.9% Preferred Stock, Series B), subject to certain exceptions. NTL, at its
option, may effect the mandatory redemption of the 9.9% Preferred Stock, Series
B in cash, in exchange for shares of NTL Common Stock, or in any combination of
the foregoing.
Holders of the 9.9% Preferred Stock, Series B have no general voting
rights, except as otherwise required under the DGCL and except in certain
circumstances as set forth in the certificate of designation with respect to the
9.9% Preferred Stock, Series B, including amending certain rights of the holders
of the 9.9% Preferred Stock, Series B.
5 1/4% Convertible Preferred Stock, Series A. The 5 1/4% Preferred Stock
ranks prior to the NTL Common Stock, the Rights Preferred Stock, the 9.9%
Preferred Stock, Series A, and the 9.9% Preferred Stock, Series B, and junior
only to the 13% Preferred Stock, with respect to dividend rights and rights on
liquidation, winding up and dissolution, and each share of 5 1/4% Preferred
Stock has a liquidation preference of $1,000, plus any accrued and unpaid
dividends. Holders of shares of 5 1/4% Preferred Stock are entitled to receive,
when, as and if declared by the NTL Board quarterly dividends per share at a
rate of 5 1/4% per annum. Dividends may be paid, at NTL's option, either in (i)
cash, (ii) NTL Common Stock or (iii) additional shares of NTL Preferred Stock
having terms substantially similar to the 5 1/4% Preferred Stock ("Additional
Preferred"), except that the conversion rate and value of the shares of such
Additional Preferred shall be
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increased for each dividend payment date after the first dividend payment date
by a compounding factor set forth in the certificate of designations with
respect to the 5 1/4% Preferred Stock.
NTL may redeem any or all of the 5 1/4% Preferred Stock on the earlier of
(i) seven years from the issue date and (ii) that date when the NTL Common Stock
has for a period of over 25 trading days traded at a value over $120 per share,
at NTL's option, for either (A) cash in an amount of $1,000 per share of 5 1/4%
Preferred Stock, plus accrued and unpaid dividends, (B) NTL Common Stock valued
at $1,025 per share of 5 1/4% Preferred Stock, plus accrued and unpaid
dividends, in the case of a redemption occurring at least seven years from the
issue date, (C) NTL Common Stock valued at $1,000 per share of 5 1/4% Preferred
Stock, plus accrued and unpaid dividends, in the case of a redemption due to the
trading value of the NTL Common Stock over a 25-day period, or (D) any
combination of cash and NTL Common Stock at a redemption price based on the
respective combination of the consideration. Holders of shares of 5 1/4%
Preferred Stock have the option to require NTL to redeem all outstanding shares
of 5 1/4% Preferred Stock on and after January 28, 2009, at a price equal to
100% of the liquidation preference thereof, payable in cash, NTL Common Stock,
or any combination thereof. NTL must redeem all shares of 5 1/4% Preferred Stock
that remain outstanding on the twentieth anniversary of the issue date at a
redemption price equal to $1,000 per share, payable at NTL's option in cash, NTL
Common Stock or any combination thereof, plus accrued and unpaid dividends.
Holders of shares of 5 1/4% Preferred Stock have no general voting rights,
except as otherwise required by law and except in certain circumstances as set
forth in the certificate of designations with respect to the 5 1/4% Preferred
Stock, including (i) if dividends are in arrears for six quarterly periods
(whether or not consecutive), (ii) for purposes of amending certain rights of
the holders of shares of the 5 1/4% Preferred Stock or (iii) to approve the
issuance of any equity securities that rank on a parity with or senior to the
5 1/4% Preferred Stock or the increase of the authorized amounts of any such
other class or series, other than shares of Additional Preferred or shares of
securities that rank on a parity with or senior to the 5 1/4% Preferred Stock
issued in order to refinance, redeem or refund the 13% Preferred Stock, provided
the maximum accrual value of such securities may not exceed the maximum accrual
value of the 13% Preferred Stock.
Holders of shares of 5 1/4% Preferred Stock have the right, at any time and
from time to time, to convert any or all outstanding shares of 5 1/4% Preferred
Stock held by them (but not any fractional shares) into NTL Common Stock, such
that each share of the 5 1/4% Preferred Stock is convertible into 10 shares of
NTL Common Stock, subject to adjustment in accordance with the certificate of
designations; provided, that the number of shares of NTL Common Stock
deliverable upon conversion of the 5 1/4% Preferred Stock (together with the
conversion of any shares of Additional Preferred) shall not exceed 7,590,994,
subject to adjustment in accordance with the certificate of designations.
CERTAIN SPECIAL CHARTER PROVISIONS
NTL's Restated Certificate of Incorporation, as amended (the "Charter"),
contains the provisions described below. Such charter provisions may have the
effect, alone or in combination with each other or with the existence of
authorized but unissued NTL Common Stock and any series of NTL Preferred Stock,
of precluding or rendering more difficult a hostile takeover making it more
difficult to remove or change the composition of NTL's incumbent board of
directors and its officers, being adverse to stockholders who desire to
participate in a tender offer and depriving stockholders of possible
opportunities to sell their shares at temporarily higher prices.
Classified Board and Filling of Vacancies on the Board of Directors. The
Charter provides that the directors shall be divided into three classes, each of
which shall serve a staggered three-year term, and that vacancies on the Board
of Directors that may occur between annual meetings may be filled by the Board
of Directors. In addition, this provision specifies that any director elected to
fill a vacancy on the Board will serve for the balance of the term of the
replaced director.
Removal of Directors. The Charter provides that directors can be removed
only by the stockholders for cause and then only by the affirmative vote of the
holders of not less than two-thirds of the combined voting power of NTL.
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Voting Requirement for Certain Business Combinations. The Charter also
provides that, in addition to any affirmative vote required by law, the
affirmative vote of holders of two-thirds of the voting power of NTL shall be
necessary to approve any "Business Combination" (as hereinafter defined)
proposed by an "Interested Stockholder" (as hereinafter defined). The additional
voting requirements will not apply, however, if: (i) the Business Combination
was approved by not less than a majority of the Continuing Directors or (ii) a
series of conditions are satisfied requiring, in summary, the following: (A)
that the consideration to be paid to NTL's stockholders in the Business
Combination must be at least equal to the higher of (x) the highest per-share
price paid by the Interested Stockholder in acquiring any shares of NTL Common
Stock during the two years prior to the announcement date of the Business
Combination or in the transaction in which it became an Interested Stockholder
(the "Determination Date"), whichever is higher or (y) the fair market value per
share of NTL Common Stock on the announcement date or Determination Date,
whichever is higher, in either case appropriately adjusted for any stock
dividend, stock split, combination of shares or similar event (non-cash
consideration is treated similarly) and (B) certain "procedural" requirements
are complied with, such as the Consent Solicitation of proxies pursuant to the
rules of the SEC and no decrease in regular dividends (if any) after the
Interested Stockholder became an Interested Stockholder (except as approved by a
majority of the Continuing Directors).
An "Interested Stockholder" is defined as anyone who is the beneficial
owner of more than 15% of the voting power of the voting stock, other than NTL
and any employee stock plans sponsored by NTL, and includes any person who is an
assignee of or has succeeded to any shares of voting stock in a transaction not
involving a public offering that were at any time within the prior two-year
period beneficially owned by an Interested Stockholder. The term "beneficial
owner" includes persons directly and indirectly owning or having the right to
acquire or vote the stock. Interested Stockholders participate fully in all
stockholder voting.
A "Business Combination" includes the following transactions: (i) merger or
consolidation of NTL on any subsidiary with an Interested Stockholder or with
any other corporation or entity which is, or after such merger or consolidation
would be, an affiliate of an Interested Stockholder; (ii) the sale or other
disposition by NTL or a subsidiary of assets having a fair market value of
$5,000,000 or more if an Interested Stockholder (or an affiliate thereof) is a
party to the transaction; (iii) the adoption of any plan or proposal for the
liquidation or dissolution of NTL proposed by or on behalf of an Interested
Stockholder (or an affiliate thereof); or (iv) any reclassification of
securities, recapitalization, merger with a subsidiary, or other transaction
which has the effect, directly or indirectly, of increasing the proportionate
share of any class of the outstanding stock (or securities convertible into
stock) of NTL or a subsidiary owned by an Interested Stockholder (or an
affiliate thereof). Determinations of the fair market value of non-cash
consideration are made by a majority of the Continuing Directors.
The term "Continuing Directors" means any member of the NTL Board, while
such person is a member of the NTL Board, who is not an Affiliate or Associate
or representative of the Interested Stockholder and was a member of the NTL
Board prior to the time that the Interested Stockholder became an Interested
Stockholder, and any successor of a Continuing Director while such successor is
a member of the NTL Board, who is not an Affiliate or Associate or
representative of the Interested Stockholder and is recommended or elected to
succeed the Continuing Director by a majority of Continuing Directors.
Voting Requirements for Certain Amendments to the Charter. The Charter
provides that the provisions set forth in this section under the heading
"Certain Special Charter Provisions" may not be repealed or amended in any
respect, unless such action is approved by the affirmative vote of the holders
or not less than two-thirds of the voting power of NTL. The requirement of an
increased stockholder vote is designed to prevent a stockholder who controls a
majority of the voting power of NTL from avoiding the requirements of the
provisions discussed above by simply amending or repealing such provisions.
SECTION 203 OF THE DGCL
Generally, Section 203 of the DGCL prohibits a publicly held Delaware
corporation from engaging in any Business Combination (as defined herein) with
an Interested Stockholder (as defined herein) for a period of three years
following the time that such stockholder becomes an Interested Stockholder,
unless (i) prior to
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such time either the Business Combination or the transaction which resulted in
the stockholder becoming an Interested Stockholder is approved by the board of
directors of the corporation, (ii) upon consummation of the transaction which
resulted in the stockholder becoming an Interested Stockholder, the Interested
Stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding, for purposes of
determining the number of shares outstanding, those shares held by persons who
are both directors and officers and certain employee stock plans or (iii) at or
after such time the Business Combination is approved by the board and authorized
at an annual or special meeting of stockholders, and not by written consent, by
the affirmative vote of at least two-thirds of the outstanding voting stock
which is not owned by the Interested Stockholder. A Business Combination
includes certain mergers, consolidations, asset sales, transfers and other
transactions resulting in a financial benefit to the Interested Stockholder. An
Interested Stockholder is a person who, together with affiliates and associates,
owns (or within the preceding three years, did own) 15% or more the
corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the NTL Common Stock is Continental
Stock Transfer & Trust Company.
NTL RIGHTS AGREEMENT
On August 27, 1993, the NTL Board adopted the Rights Agreement. The Rights
Agreement provides that one Right will be issued with each share of NTL Common
Stock issued (whether originally issued or from NTL's treasury) on or after
October 13, 1993 and prior to the Rights Distribution Date (as defined herein).
The Rights are not exercisable until the Rights Distribution Date and will
expire at the close of business on October 13, 2003 unless previously redeemed
by NTL as described below. When exercisable, each Right entitles the owner to
purchase from NTL one one-hundredth of a share of Rights Preferred Stock at a
purchase price of $100.00.
Except as described below, the Rights will be evidenced by the NTL Common
Stock certificates. The Rights will separate from the NTL Common Stock and a
"Rights Distribution Date" will occur upon the earlier of (i) 10 days following
a public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of the NTL Common
Stock (the "Stock Acquisition Date") and (ii) 10 business days following the
commencement of a tender offer or exchange offer that would result in a person
or group becoming an Acquiring Person.
After the Rights Distribution Date, Rights certificates will be mailed to
holders of record of the NTL Common Stock as of the Rights Distribution Date and
thereafter the separate Rights certificates alone will represent the Rights.
The Rights Preferred Stock issuable upon exercise of the Rights will be
entitled to a minimum preferential quarterly dividend payment of $.01 per share
and will be entitled to an aggregate dividend of 100 times the dividend, if any,
declared per share of NTL Common Stock other than one payable in NTL Common
Stock. In the event of liquidation, the holders of the Rights Preferred Stock
will be entitled to a minimum preferential liquidation payment of $1.00 per
share plus accrued and unpaid dividends and will be entitled to an aggregate
payment of 100 times the payment made per share of the NTL Common Stock. Each
share of Rights Preferred Stock will have 100 votes and will vote together with
the NTL Common Stock. In the event of any merger, consolidation or other
transaction in which shares of the NTL Common Stock are changed or exchanged,
each share of Rights Preferred Stock will be entitled to receive 100 times the
amount received per share of the NTL Common Stock. These rights are protected by
customary antidilution provisions. Because of the nature of the Rights Preferred
Stock's dividend, liquidation and voting rights, the value of one one-hundredth
of a share of Rights Preferred Stock purchasable upon exercise of each Right
should approximate the value of one share of the NTL Common Stock.
In the event that a person becomes an Acquiring Person (except pursuant to
a tender offer or an exchange offer for all outstanding shares of NTL Common
Stock at a price and on terms determined by at
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least a majority of the members of the NTL Board who are not officers of NTL and
who are not representatives, nominees, affiliates or associates of an Acquiring
Person, to be fair to the stockholders of NTL and otherwise in the best
interests of NTL and its stockholders (a "Qualifying Offer")), each holder of a
Right will thereafter have the right to receive, upon the exercise thereof at
the then current exercise price, the NTL Common Stock (or, in certain
circumstances, cash, property or other securities of NTL) having a value equal
to two times the exercise price of the Right. Notwithstanding any of the
foregoing, following the occurrence of any such event, all Rights that are or
(under certain circumstances specified in the Rights Agreement) were
beneficially owned by any Acquiring Person (or certain related parties) will be
null and void. However, Rights are not exercisable following the occurrence of
the event set forth above until such time as the Rights are no longer redeemable
by NTL as set forth below.
In the event that, at any time following the Stock Acquisition Date, (i)
NTL is acquired in a merger or other business combination transaction in which
NTL is not the surviving corporation or the NTL Common Stock is changed or
exchanged (other than a merger which follows a Qualifying Offer and satisfies
certain other requirements) or (ii) 50% or more of NTL's assets, cash flow or
earning power is sold or transferred, each holder of a Right (except Rights
which previously have been voided as set forth above) shall thereafter have the
right to receive, upon the exercise thereof at the then current exercise price,
common stock of the acquiring company having a value equal to two times the
exercise price of the Right.
At any time until 10 days following the Stock Acquisition Date, NTL may
redeem the Right in whole, but not in part, at a price of $.01 per Right.
Immediately upon the action of the NTL Board ordering redemption of the Rights,
the Rights will terminate and the only right of the holders of the Rights will
be to receive the $.01 redemption price.
Until a Right is exercised, the holder thereof, as such, shall have no
rights as a stockholder of NTL, including without limitation, the right to vote
or to receive dividends. While the distribution of the Rights will not be
taxable to stockholders or to NTL, stockholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for the NTL Common Stock (or other consideration) or for common
stock of the acquiring company as set forth above.
Other than those provisions relating to the principal terms of the Rights,
any of the provisions of the Rights Agreement may be amended by the NTL Board
prior to the Rights Distribution Date. After the Rights Distribution Date, the
provisions of the Rights Agreement may be amended by the NTL Board in order to
cure any ambiguity, to make changes which do not adversely affect the interests
of holders of rights (excluding the interests of any Acquiring Person) or to
shorten or lengthen any time period under the Rights Agreement, provided that no
amendment to adjust the time period governing redemption shall be made at such
time as the Rights are not redeemable.
The Rights have certain anti-takeover effects as they will cause
substantial dilution to a person or group that acquires a substantial interest
in NTL without the prior approval of the NTL Board. The effect of the Rights may
be to inhibit a change in control of NTL (including through a third party tender
offer at a price which reflects a premium to then prevailing trading prices)
that may be beneficial to the NTL stockholders.
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BUSINESS OF NTL
NTL is a leading communications company in the UK, providing residential,
business and wholesale customers with the following services: (i) Residential
Telecoms and Televisions Services, including residential telephony, CATV and
Internet access services; (ii) National Telecoms Services, including national
business telecoms, national and international carrier telecommunications, and
satellite and radio communications services; and (iii) Broadcast Services,
including digital and analog television and radio broadcast transmission
services.
NTL provides its broad range of services over local, national and
international network infrastructure. NTL operates: (i) advanced local broadband
networks serving entire communities throughout NTL's regional franchise areas;
(ii) the UK's first SDH backbone telecommunications network, as well as
satellite earth stations and radio communications facilities from NTL's tower
sites across the UK; and (iii) a broadcast transmission network which provides
national, regional and local analog and digital transmission services to
customers throughout the UK.
In March 1997, NTL changed its name from International CableTel
Incorporated to NTL Incorporated to reflect the integration of the services
provided by NTL following its acquisition of NTL Group Limited in 1996, and to
capitalize on NTL Group Limited's 30-year history in the UK as a provider of
reliable communications services.
NTL, a Delaware corporation, was incorporated on April 2, 1993. NTL is a
holding company and conducts its operations through direct and indirect
wholly-owned subsidiaries. NTL is not a subsidiary of any other company. 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.
RESIDENTIAL TELECOMS AND TELEVISION SERVICES
NTL is the third largest operator of local broadband communications systems
in the UK as measured by the number of homes in its franchise areas, and has
achieved the highest customer penetration and lowest churn rates of any
multisystem operator in the UK. NTL is presently the sole provider of broadband
services in its franchise areas, offering residential telephony, cable
television and Internet access services to customers connected to its networks.
As of September 30, 1998, NTL had more than 429,000 residential customers,
approximately 92% of which subscribed to both telephony and television services.
As of September 30, 1998, NTL had a total of approximately 823,400 Revenue
Generating Units ("RGUs") resulting in 40.1% telephony penetration, 40.6% cable
penetration and 80.7% RGU penetration of homes marketed. As of September 30,
1998, after giving pro forma effect to the Amalgamation (but excluding Cable
London) and the proposed acquisition of Diamond, NTL had approximately 1.1
million residential customers, approximately 61% of which subscribed to both
telephony and television services. As of September 30, 1998, after giving
similar pro forma effect, NTL had approximately 1.8 million RGUs resulting in
35.3% telephony penetration, 28% cable penetration and 61.6% RGU penetration of
homes marketed. By comparison, based on published statistics of the ITC dated
March 9, 1998, as of January 1, 1998, UK cable customer penetration averaged
approximately 28% for telephony and approximately 22.2% for cable television. As
of January 1, 1998, the UK telephony/cable industry had connected approximately
3.4 million telephone lines and approximately 2.4 million broadband cable
customers.
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The following table illustrates operating statistics for NTL's newly
constructed network:
<TABLE>
<CAPTION>
PRO FORMA(1)
-------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
------------- ------------- ---------------------------------------
1998 1998(6) 1997 1996 1995 1994
------------- ------------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Homes passed(2)............. 3,378,500 1,197,000 1,007,000 779,100 463,000 144,000
Homes marketed.............. 2,907,800(3) 1,020,000 810,000 467,300 176,200 7,200
Homes marketed (as % of
homes passed)............. 86% 85% 80% 60% 38% 5%
Total customers............. 1,111,300 429,600 321,300 168,200 57,700 2,280
Total RGUs(4)............... 1,792,000 823,400 608,500 302,000 102,330 3,960
Customer penetration........ 38% 42% 40% 36% 33% 32%
RGU penetration(5).......... 62% 81% 75% 65% 58% 55%
Annualized churn............ NA 14% 11% 10% NM NM
</TABLE>
- ---------------
(1) Pro forma operating statistics for NTL's newly constructed network giving
effect to the Amalgamation (but excluding Cable London), the ComTel
Acquisition and the pending acquisition of Diamond.
(2) "Homes passed" is the expression in common usage in the cable industry as
the measurement of the size of a cabled area, meaning the total number of
residential premises which have the potential to be connected to NTL's
network.
(3) Represents only those homes marketed for CATV. As of September 30, 1998, on
a pro forma basis, 2,776,000 homes were marketed for telephone.
(4) An RGU (revenue generating unit) is one telephone account or one CATV
account; a dual customer represents two RGUs.
(5) RGU penetration is the number of RGUs per 100 homes marketed. As defined,
maximum RGU penetration is 200%.
(6) Does not include operating data related to ComTel.
NA Not available.
NM Not meaningful due to the limited customer base and recent commencement of
services.
NTL's customer base and RGUs both increased by nearly 100% in 1997 compared
to year-end 1996. NTL believes that much of its success during this period has
been due to its marketing strategies and the introduction of innovative
residential services packages which bundle telephone and a small selection of
CATV channels within a single product offering. NTL also gives customers the
opportunity to purchase additional channel packages and premium channels.
Consistent with NTL's objectives, the high penetration rates generated by this
strategy have led to increased levels of gross profit contribution per home
passed.
NTL believes it has also maintained high levels of customer satisfaction as
indicated by NTL's low rates of churn. During 1997, NTL maintained an annualized
churn rate of less than 11%, a rate which is significantly lower than the
published churn rates of all other UK telephony/cable operators. In a recent
survey of a sample of its customers, NTL found that 89% of its customers would
recommend the service to a friend or relative, and that only 15% had ever
considered changing their telephone service back to BT.
NTL's local franchise areas cover approximately 2.1 million homes, spanning
a broad geographic area across England, Scotland, Wales and Northern Ireland. As
of September 30, 1998, NTL's integrated full-service network had been
constructed past over 1.2 million (or approximately 57%) of its homes under
franchise. NTL's local broadband networks use advanced high capacity SDH fiber
rings which serve entire communities, bringing fiber connections directly to
businesses and "Siamese" coaxial/copper connections to residences. NTL's local
networks cover approximately 2,500 route miles of fiber backbone network, with
approximately 175,000 fiber miles, and an estimated 5,000 route miles of
"Siamese" coaxial/copper connections.
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NATIONAL TELECOMS SERVICES
NTL's objective in National Telecoms Services is to successfully integrate
its strategies for developing, operating and marketing local telephony/cable
systems with its national network to provide high quality voice, data and video
communications services throughout the UK. NTL has constructed a national SDH
fiber telecoms network, which is one of only five national telecoms networks in
the UK. The NTL national network currently covers approximately 1,500 route
miles and 40,000 fiber miles throughout England, Scotland and Wales. During
1998, NTL extended the network to include the first resilient fiber connection
between Northern Ireland, the Republic of Ireland and England.
The integration of its local networks with the national telecoms network
creates strategic advantages for NTL's telephony business. The national network
allows NTL to carry telecommunications traffic between each of its franchise
areas and throughout the UK and, therefore, achieve significant savings on the
interconnection fees it pays to other carriers. In addition, using the national
telecoms network gives NTL greater pricing flexibility and will enable NTL to
design and offer new telephony services packages to its customers, which
management believes should have a positive effect on NTL's penetration rates.
Capitalizing on the extended reach of its national network, NTL is
competing for a share of the approximately L21 billion UK telecoms market on a
national basis. In the business telecoms market, NTL has been increasingly
successful in obtaining telecoms contracts from businesses located within its
franchise areas. As of September 30, 1998, NTL had a total of approximately
11,300 business customers and 44,200 business telephony lines, which represented
growth in the first nine months of 1998 of more than 70% for both customers and
lines. NTL's current business customers include major international
corporations, universities, local governmental authorities, and small and
medium-sized businesses. NTL believes that it can build on the strengths gained
in its local franchise areas to approach targeted business users located in
other areas of the UK. To connect the "last mile" to the customers' premises
from the national network, NTL has a variety of options, including building
fiber where justified, using microwave links from the NTL tower infrastructure,
or leasing circuits from other local operators. NTL launched its national
business telecoms service in November 1997 and its strategy is to target medium
to large-sized businesses, beginning with those located near the major urban
areas currently served by the NTL national network.
NTL also offers a variety of other telecommunications services from its
national fiber network and microwave transmission facilities. NTL competes in
the growing market for bandwidth and leased line services as a national and
international wholesale telecommunications carrier. NTL's international
facilities license allows it to carry international traffic, and NTL has
recently entered into an agreement for a 25-year lease of international
telecommunications capacity on a new transatlantic fiber optic cable connecting
The Netherlands, Germany, the UK and the United States. NTL is also expanding
its product portfolio to include virtual private networks, managed data
networks, ATM and frame relay services and multi-media services.
In addition to business and carrier telecoms, NTL provides the following
telecom services: (i) a full range of services in the design, building and
operation of radio based networks, and the provision of infrastructure and
support services to customers in the emergency services sector, (ii) global
satellite connectivity for clients requiring video, digital audio and data
services, and (iii) residential, wholesale and business Internet access and
support services, consulting and systems integration services, and Intranet
design and implementation.
BROADCAST SERVICES
NTL's Broadcast Services group includes the original core business of NTL
Group Limited which has been providing television and radio broadcasters with
broadcast transmission services for more than 30 years.
NTL transmits television and radio broadcast signals for the UK's main
commercial television channels and independent radio stations from a national
infrastructure of over 1,200 owned and shared transmission sites across the UK.
Current customers include the ITV companies, Channel 4/S4C, and Channel 5. The
Broadcast Services group provides NTL with a stable contracted revenue stream
from a variety of customers, through long-term contracts generally with eight to
ten-year terms. In addition to transmission services, the Broadcast Services
group markets value added services to its existing television customers. This
group also
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designs, installs, operates and maintains new transmitter networks and has a
spectrum planning service to plan the coverage of television and radio networks.
Two of the four recipients of the DTT multiplexes awarded to date have
selected NTL as the preferred supplier of transmission services. The
introduction of DTT broadcasting in the UK will significantly expand NTL's
broadcasting transmission services business.
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BUSINESS OF DIAMOND
GENERAL
Diamond operates a telecommunications and cable television business focused
on the East Midlands area of England and is currently constructing a broadband
fiber-optic network to serve the approximately 1.2 million homes and an
estimated 60,600 businesses within its contiguous franchise areas. As of
September 30, 1998, Diamond's cable television and telecommunications network
had passed by civils construction approximately 666,400 homes and an estimated
29,700 businesses, of which portions of the network passing approximately
644,700 homes and an estimated 29,000 businesses had been activated. As of such
date, Diamond also had approximately 214,600 residential telephone lines,
106,700 cable television subscribers and 36,200 business telephone lines.
Through such date, L531 million had been invested (at original cost) in the
construction of the network and related systems.
Diamond offers three basic services over its network infrastructure: (i)
residential telephone services allowing customers to place and receive local,
national and international calls and to use additional services such as
three-way conference calling, voicemail, call waiting, call forward, call
barring and Internet access, (ii) business telecommunications services which
include services similar to those provided to residential customers as well as
advanced telecommunications services such as Centrex (which provides businesses,
including those with multiple sites, with virtual PABX and network services),
direct dialing inward (DDI), high speed data services and private circuits, and
(iii) cable television services offering more than 50 channels, including
movies, sports, news and information, music, children's programming and general
entertainment.
Diamond is a public limited company incorporated under the laws of England
and Wales. Diamond is a holding company which holds all of the shares of (i)
Diamond Cable Communications (UK) Limited (formerly Diamond Cable (Nottingham)
Limited) and its subsidiaries and (ii) a group of companies comprising EMCG and
LCL, in both cases through intermediate holding companies, Diamond Holdings plc
and Jewel Holdings Limited.
On September 27, 1995, Diamond acquired substantially all of the share
capital of LCL, and on October 4, 1995, Diamond acquired the remaining share
capital (less than 1%) of LCL. For financial accounting purposes, the
acquisition was given effect as of September 30, 1995. At and prior to September
30, 1995, substantially all of LCL's operating activities were carried out
through LCL Cable (now Diamond Cable (Leicester) Limited). On April 26, 1995,
LCL Cable became the principal operating subsidiary of EMCG. As of March 31,
1996, the business of LCL Cable (except for its telecommunications license) was
transferred to Diamond Cable Communications (UK) Ltd, the principal operating
subsidiary of Diamond.
CERTAIN OPERATING DATA
The following table sets forth certain data concerning Diamond's franchises
at and for the years ended December 31, 1996 and 1997 and at and for the
six-month period ended June 30, 1998 and the nine-month period ended September
30, 1998.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
-------------------- -------- -------------
1996 1997 1998 1998
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
Homes passed by civils construction(1)....... 453,496 536,110 616,110 666,416
Homes activated(2)........................... 347,246 508,801 601,082 644,679
Homes marketed(3)............................ 252,601 405,787 504,049 549,605
Student services rooms marketed(4)........... -- 1,805 7,086 8,126
</TABLE>
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<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
-------------------- -------- -------------
1996 1997 1998 1998
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
BUSINESS TELECOMMUNICATIONS
Business customers accounts.................. 3,935 5,723 6,671 7,176
Business lines connected..................... 18,932 27,124 33,947 36,241
Private circuits(5).......................... 226 258 304 310
Average lines per business(6)................ 4.8 4.7 5.1 5.1
Average monthly revenue per line(7)(8)....... L 50.17 L 46.26 L 44.50 L 43.05
Pro-forma average monthly revenue per
line(8).................................... L 51.25 L 46.26 L 44.50 L 43.05
RESIDENTIAL TELEPHONE(4)
Residential lines connected.................. 104,460 157,171 197,369 214,630
Penetration rate of homes marketed(9)........ 41.4% 38.6% 38.6% 38.5%
Average monthly revenue per line(8)(10)...... L 18.40 L 18.75 L 18.77 L 18.77
Pro-forma average monthly revenue per
line(8).................................... L 18.64 L 18.75 L 18.77 L 18.77
Churn(11)(12)................................ 20.6% 16.3% 14.2% 13.7%
CABLE TELEVISION
Basic service subscribers.................... 59,242 83,793 98,694 106,761
Penetration rate of homes marketed(13)....... 23.5% 20.6% 19.6% 19.4%
Average monthly revenue per subscriber(14)... L 18.03 L 19.84 L 19.88 L 19.59
Churn(11)(12)................................ 40.9% 32.7% 26.3% 24.2%
</TABLE>
- ---------------
(1) Home passed by civils is the number of homes (excluding student services
rooms) that have had ducting buried outside.
(2) Homes activated is the number of homes (excluding student services rooms)
that are capable of receiving cable service without further extension of
transmission lines, apart from the final connection to the home.
(3) Homes marketed is the number of homes activated (excluding student services
rooms) for which the initial marketing phase (including door-to-door direct
marketing) has been completed.
(4) During 1997, Diamond began to provide telephone services and internet
access to students at a number of large educational establishments in its
franchise area. Academic terms make this business seasonal in nature. In
order to fairly present the results, Diamond has adopted the following
policy: (i) rental revenue is recognized evenly over a full twelve month
period (or the balance of the period to the start of the next academic year
if shorter), (ii) call revenue is recognized in the month in which it is
earned and is incorporated in residential telephone average monthly revenue
per line, (iii) a student services line is recognized as the equivalent of
3/4 of a residential line, (iv) each student room at which service is
available is treated as a home marketed and incorporated in the calculation
of residential telephone penetration and (v) any net decrease in the number
of students taking the service between one academic year and another is
ignored for the purposes of calculating residential telephone churn.
(5) Private circuits are point-to-point customer specific connections for which
a fixed annual rental charge is made.
(6) Average lines per business account is calculated by dividing the number of
business lines connected on the given date by the number of business
customer accounts on such date.
(7) The average monthly business telecommunications revenue per line is
calculated by dividing (i) business telecommunications line and equipment
rental, outgoing call charges and incoming call charges (including revenue
from private circuits) for the period by (ii) the average number of
business telecommunications lines and private circuits (calculated as a
simple average of the number of subscribed lines and private circuits at
the end of each month during the period) and dividing that
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<PAGE> 72
amount by 12 (for the years ended December 31, 1996 and 1997), by six (for
the six months ended June 30, 1998) or by nine (for the nine months ended
September 30, 1998).
(8) The calculation of the average monthly revenue per line (for both
residential telephone and business telecommunication revenues) for the year
to December 31, 1996 reflects the reduction in revenues stemming from
rebates to BT on incoming termination revenues relating in part to 1995 but
recorded in full against revenues in 1996. The rebates were calculated in
accordance with revised interconnect agreements with BT that were made
effective retroactively from April 1995. The pro-forma average monthly
revenue per line (for both residential telephone and business
telecommunications revenues) gives effect to the revised interconnect
agreements as if they had been in effect from April 1995 and allocates to
each period the portion of the rebates that relates to such period.
(9) Penetration rate of homes marketed is calculated by dividing the number of
residential lines, including student services lines recognized at the
equivalent of 3/4 of a residential line connected on the given date by the
total number of homes marketed and student services rooms marketed as of
such date, expressed as a percentage.
(10) The average monthly revenue per residential telephone line is calculated by
dividing (i) line and equipment rental, outgoing call charges and incoming
call charges for the period by (ii) the average number of residential
telephone lines (calculated as a simple average of the number of subscribed
lines at the end of each month during the period) and dividing that amount
by 12 (for the years ended December 31, 1996 and 1997), by six (for the six
months ended June 30, 1998) or by nine (for the nine months ended September
30, 1998). Call revenue from student services lines is recognized in the
month in which it is earned and is incorporated in residential telephone
average monthly revenue per line, with each student services line
recognized as the equivalent of 3/4 of a residential line.
(11) Churn is calculated by dividing net disconnections (total disconnections
less the number of disconnected accounts for which service is later
restored) in a period by the average number of subscribers in the period
(calculated as a simple average of the number of subscribers at the end of
each month during the period). Churn for the six months ended June 30, 1998
is annualized by multiplying the amount as calculated above by two. Churn
for the nine months ended September 30, 1998 is annualized by multiplying
the amount as calculated above by 1 1/3.
(12) Since the beginning of 1997, Diamond's reported churn has excluded from net
disconnected accounts subscribers who disconnect from the service when
moving residence and reconnect to the service in their new residence.
Previously, those subscribers were not identified under Diamond's
information system and were therefore included in the churn calculation as
disconnected accounts. If churn for 1997 and the six months to June 30,
1998 were calculated on the basis used in periods prior to 1997, annualized
churn would have been 36.9% and 31.2% for cable television and 21.3% and
19.8% for residential telephone, respectively. If churn for the nine months
to September 30, 1998 were calculated on the basis used in periods prior to
1997, annualized churn would have been 30.6% for cable television and 19.7%
for residential telephone. The difference between churn on the new and
prior bases is not necessarily indicative of the adjustment that would
arise if churn for prior periods were restated.
(13) Penetration rate of homes marketed is calculated by dividing the number of
homes receiving basic cable television on the given date by the total
number of homes marketed as of such date, expressed as a percentage.
(14) The average monthly revenue per cable television subscriber is calculated
by dividing total cable television subscriber revenues (excluding
installation revenues) for the period by the average number of cable
television subscribers (calculated as a simple average of the number of
basic service subscribers at the end of each month during the period) and
dividing that amount by 12 (for the years ended December 31, 1996 and
1997), by six (for the six months ended June 30, 1998) or by nine (for the
nine months ended September 30, 1998).
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BUSINESS TELECOMMUNICATIONS AND RESIDENTIAL TELEPHONE
General. Diamond derives its business telecommunications and residential
telephone revenues from connection charges, monthly line rental charges, call
charges, special residential service charges, special business service charges
(e.g., private business circuits) and interconnection fees payable to Diamond.
In the UK, the historical practice has been that all calls, local or national,
are charged by time and distance. Switching its own traffic enables Diamond to
offer a wider range of services than would otherwise be possible, to monitor
usage and manage doubtful accounts, to gather information about customer calling
patterns and use such information in its marketing programs, and to structure
rates and discount programs accordingly.
Business Telecommunications. Diamond has achieved its share of the
business telecommunications market in the areas which its network has passed by
providing high-quality services at competitive prices. The focus of the business
marketing effort in Diamond's franchise areas has been to attract large and
medium-sized corporate and governmental customers, which generate high volumes
of traffic and revenue. At September 30, 1998, Diamond provided 36,241 business
lines to its 7,176 business accounts, giving Diamond an average of approximately
5.1 lines per business account. Diamond's favorable penetration in the business
telecommunications market is also a result of Diamond's fiber-optic network
infrastructure which provides customers with several advantages including
superior service reliability, greater system capacity and the ability to provide
an extensive range of digital services.
Residential Telephone. Diamond had residential telephone line penetration
of 38.5% of homes marketed at September 30, 1998, which Diamond believes is a
result of (i) Diamond's well-known brand name and (ii) Diamond's competitive
rates (including free voice calls between Diamond's residential customers in the
same local and adjacent calling areas during off-peak evening and weekend
hours).
CABLE TELEVISION
Diamond currently offers a wide range of cable television programming,
including satellite and broadcast channels, tape delivered channels and FM
radio. Such range includes more than 50 television channels, many of which are
available 24 hours a day. Local programming is provided only on a limited basis
and may be offered on a larger scale in the future. In addition, Diamond has
carried pay-per-view events and launched in March 1998, together with several
partners, including NTL, the Front Row four channel movie pay-per-view service.
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RECENT DEVELOPMENTS
STRATEGIC PARTNERSHIP WITH MICROSOFT
On January 25, 1999, Microsoft and NTL agreed to jointly develop new
broadband services for delivery to customers in the UK and Ireland. In addition,
on January 28, 1999, Microsoft purchased $500 million in 5 1/4% Preferred Stock.
Such 5 1/4% Preferred Stock is convertible into NTL Common Stock at a conversion
price of $100 per share, is redeemable in 10 years for cash or NTL Common Stock
and may be redeemed by NTL on the earlier of 7 years or the date on which NTL
Common Stock has traded above $120 for 25 consecutive days.
Microsoft and NTL have agreed to work closely together with respect to the
development of new digital services and intend to enter into additional
agreements throughout 1999 regarding software and services. In addition, on
January 28, 1999, Microsoft received 1.2 million five-year warrants to purchase
NTL Common Stock at an exercise price of $84 per share.
EASTERN GROUP ACQUISITION
On December 22, 1998, NTL acquired Eastern Group from Eastern Group plc for
L60 million in cash and L31 million in 9.9% Preferred Stock, Series B. Such 9.9%
Preferred Stock, Series B has a pay-in-kind coupon of 9.9%, will mature in 2008
and is redeemable within 18 months for, at NTL's option, cash or NTL Common
Stock.
Eastern Group is headquartered in Ipswich, England, and is comprised of two
business divisions. The telcoms division utilizes a 1,800 km SDH fiber-optic
network across the southeast and east of England, and the radio sites division,
consisting of 121 radio masts across East Anglia, serves the UK's major mobile
phone network operators.
NEWCASTLE UNITED SHARE ACQUISITION
On December 17, 1998, Premium TV, a wholly-owned subsidiary of NTL,
acquired 9,000,000 shares, or 6.3%, of Newcastle United from CHD, the majority
shareholder of Newcastle United, for approximately L10 million in cash.
In conjunction with the sale of such shares, CHD also entered into an
irrevocable commitment to Premium TV which provides that if Premium TV makes a
general offer for all of the issued share capital of Newcastle United, CHD will
accept such offer in respect of the remaining balance of its shares in Newcastle
United, representing 50.8% of the issued share capital of Newcastle United. If
made, any such offer would be at a price of 111.7p per share in cash and may, if
Premium TV so decides, carry a full zero coupon loan note alternative.
Premium TV's decision regarding whether to make such an offer may be
influenced by, among other things, the substance of the report by the Monopolies
and Mergers Commission on the proposed offer for Manchester United Football Club
by BSkyB. The irrevocable commitment given by CHD is binding until 12 weeks
following the publication of such report, subject to extension in certain
circumstances.
OFFERING OF 7% NOTES
On December 16, 1998, NTL issued and sold $600 million aggregate principal
amount of its 7% Notes in transactions exempt from the registration requirements
of the Securities Act. Cash interest is payable semiannually on June 15 and
December 15 of each year, commencing June 15, 1999. The 7% Notes mature on
December 15, 2008. The 7% Notes are convertible at the option of the holder
thereof at any time after 90 days following the date of original issuance,
unless previously redeemed, into shares of NTL Common Stock at a conversion
price of $61.25 per share, subject to adjustment in certain circumstances. The
7% Notes are redeemable, in whole or in part, at NTL's option, at any time on or
after December 15, 2001, at the redemption prices set forth in the indenture
governing such 7% Notes.
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<PAGE> 75
OFFERINGS OF 11 1/2% NOTES AND 12 3/8% NOTES
In November 1998, NTL issued $625 million aggregate principal amount of the
11 1/2% Notes and $450 million aggregate principal amount at maturity of the
12 3/8% Notes. The 11 1/2% Notes and the 12 3/8% Notes were issued at 100%, or
$625 million, and 55.505%, or approximately $249.8 million, respectively. NTL
received net proceeds of approximately $607 million and approximately $242
million after discounts and commissions, from the issuance of the 11 1/2% Notes
and the 12 3/8% Notes, respectively. The proceeds from such notes were used to
repay the bank loan and the remaining $50 million was added to short-term
investments.
The 11 1/2% Notes accrue interest at 11 1/2% per annum, payable
semiannually beginning on April 1, 1999. The 11 1/2% Notes may be redeemed, at
NTL's option, in whole or in part, at any time on or after October 1, 2003 at a
redemption price of 105.75% that declines annually to 100% in 2006, in each case
together with accrued and unpaid interest to the date of redemption.
The original issue discount on the 12 3/8% Notes accretes at a rate of
12 3/8%, compounded semiannually, to an aggregate principal amount of $450
million by October 1, 2003. Interest will thereafter accrue at 12 3/8% per
annum, payable semiannually beginning on April 1, 2004. The 12 3/8% Notes may be
redeemed, at NTL's option, in whole or in part, at any time on or after October
1, 2003 at a redemption price of 106.188% that declines annually to 100% in
2006, in each case together with accrued and unpaid interest to the date of
redemption.
PARTNERS ACQUISITION
On February 4, 1998, NTL and Sub entered into the Amalgamation Agreement
with Partners which provided for the amalgamation of Sub with Partners, with the
separate existence of Sub and Partners continuing in the form of the company
resulting from the Amalgamation (the "Amalgamated Company"). At special meetings
of shareholders of NTL and of Partners held on October 29, 1998, the
Amalgamation was approved by the shareholders of NTL and of Partners,
respectively. The Amalgamation closed on the same day following receipt of such
approvals. Shareholders of Partners received .3745 shares of NTL Common Stock
for each Partners Common Share, an aggregate of approximately 18,764,000 shares
of NTL Common Stock.
Partners was formed to develop, construct, manage and operate the interests
of Comcast Corporation in the UK cable and telecommunications industry. As of
September 30, 1998, Partners had interests in four operations: Birmingham Cable,
in which Partners owned the Birmingham Cable Equity Interest (a 27.5% interest),
Cable London, in which Partners currently owns the Cable London Equity Interest
(a 50% interest), Cambridge Holding Company Limited in which Partners currently
owns a 100% interest, and two companies holding the franchises for Darlington
and Teesside, England, in which Partners currently owns a 100% interest. As a
result of the execution of the Amalgamation Agreement, TeleWest, which at that
time owned a 27.5% interest in Birmingham Cable and a 50% interest in Cable
London, had certain rights to acquire the Equity Interests. Pursuant to an
Agreement in Respect of the Rights of First Refusal Relating to Birmingham Cable
and Cable London, dated August 14, 1998 (the "TeleWest Agreement"), between NTL,
Partners, TeleWest and TeleWest Communications Holdings Limited, the Birmingham
Cable Equity Interest was sold to TeleWest immediately prior to the consummation
of the Amalgamation for approximately L130 million in cash. Pursuant to the
TeleWest Agreement, TeleWest and Partners passed a special resolution to Cable
London's articles of association which, for purposes of the Amalgamation,
effectively eliminated the rights of TeleWest to acquire the Cable London Equity
Interest. However, the TeleWest Agreement generally provides that, at any time
during the period beginning April 29, 1999 and ending July 29, 1999, Partners
will either sell the Cable London Equity Interest to TeleWest or purchase
TeleWest's 50% ownership interest in Cable London.
COMTEL ACQUISITION
On June 16, 1998, NTL entered into the ComTel Agreement with Vision
Networks III B.V., a wholly-owned subsidiary of Royal PTT Nederland NV (KPN),
for the acquisition of the operations of ComTel.
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ComTel operates telephony/cable networks in the UK, and its franchises cover
approximately 1.1 million homes and are located in the Midlands and South East
England regions, covering areas including Oxford, Swindon, Coventry and
Stratford.
Pursuant to the ComTel Agreement, NTL acquired ComTel for a total of L550
million in two stages. In the first stage, which was completed on June 16, 1998,
NTL acquired certain of the ComTel properties for L275 million in cash. In the
second stage, which was completed on September 22, 1998, NTL acquired the
remaining ComTel properties for L200 million in cash and L75 million in 9.9%
Preferred Stock, Series A. Such 9.9% Preferred Stock, Series A has a pay-in-kind
coupon of 9.9%, will mature in 2008 and is redeemable within 15 months for NTL
Common Stock valued at market, new NTL convertible preferred securities or cash.
NTL financed the acquisition of ComTel through a bank loan, completed through an
amendment to the New Credit Facility. The ComTel Acquisition has been accounted
for as a purchase by NTL for accounting and financial reporting purposes.
REDEMPTION OF 10 7/8% NOTES
On June 10, 1998, NTL provided to the trustee of the 10 7/8% Notes a notice
that NTL would redeem such Notes on October 15, 1998. NTL used cash on hand to
deposit in trust with such trustee an amount equal to approximately $218.6
million (103.107% of accreted value) to pay the redemption price (including
principal) on such 10 7/8% Notes, thereby defeasing certain of its obligations
under the indenture governing such 10 7/8% Notes. In July 1998, using funds so
deposited with the trustees, NTL purchased from one holder for $65 million a
portion of the 10 7/8% Notes with an accreted value of $62.2 million. On October
15, 1998, all of the remaining outstanding 10 7/8% Notes were redeemed.
INDEPENDENT AUDITORS
The consolidated financial statements of NTL included herein have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included herein.
The consolidated financial statements as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997 of Comcast UK
Cable Partners Limited and subsidiaries included herein have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports, which
are also included herein.
The consolidated financial statements as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997 of Birmingham
Cable Corporation Limited and Cable London PLC included herein have been audited
by Deloitte & Touche, independent auditors, as stated in their reports, which
are also included herein.
The combined financial statements of ComTel UK Finance, B.V. and its
subsidiaries as of and for the year ended December 31, 1997, and the combined
financial statements of Telecential as of and for the 16 months ended December
31, 1996, included herein have been audited by Deloitte & Touche, independent
auditors, as stated in their reports, which are also included herein.
The combined financial statements as of and for the year ended December 31,
1996 of ComTel UK Finance B.V. included herein have been included in reliance on
the report of Coopers & Lybrand, independent Chartered Accountants.
The consolidated financial statements of Diamond Cable Communications Plc
as of December 31, 1996 and 1997 and for each of the years in the three-year
period ended December 31, 1997 included herein have been audited by KPMG,
independent auditors, to the extent and for the periods indicated in their
reports thereon. Such financial statements have been included in reliance upon
the reports of KPMG.
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STOCKHOLDER PROPOSALS
NTL
Any proposal of stockholders of NTL intended to be presented at NTL's 1999
Annual Meeting must have been received by NTL for inclusion in the proxy
statement and form of proxy relating to that meeting on or before December 29,
1998.
Pursuant to the NTL By-laws, in order for any matter to be properly before
the 1999 Annual Meeting, notice must be given to the Secretary of NTL at 110
East 59th Street, New York, New York 10022, not less than 75 days nor more than
90 days prior to the meeting; provided, however, that in the event that less
than 90 days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the fifteenth day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs. Such stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the meeting (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(ii) the name and record address of the stockholder proposing such business,
(iii) the class, series and number of shares of capital stock of NTL which are
beneficially owned by the stockholder and (iv) any material interest of the
stockholder in such business. Insofar as the Special Meeting is concerned, such
notice must be received by the Secretary of NTL at the above address no later
than January 13, 1999.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NTL INCORPORATED AND SUBSIDIARIES
Report of Independent Auditors.............................. F-4
Consolidated Balance Sheets as of December 31, 1997 and
December 31, 1996......................................... F-5
Consolidated Statements of Operations for the Years Ended
December 31, 1997, December 31, 1996 and December 31,
1995...................................................... F-6
Consolidated Statement of Shareholders' Equity (Deficiency)
for the Years Ended December 31, 1997, December 31, 1996
and December 31, 1995..................................... F-7
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, December 31, 1996 and December 31,
1995...................................................... F-8
Notes to Consolidated Financial Statements.................. F-9
Condensed Consolidated Balance Sheet as of September 30,
1998 (Unaudited).......................................... F-29
Condensed Consolidated Statements of Operations for the Nine
Months Ended September 30, 1998 and 1997 (Unaudited)...... F-30
Condensed Consolidated Statement of Shareholders'
(Deficiency) for the Nine Months Ended September 30, 1998
(Unaudited)............................................... F-31
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997 (Unaudited)...... F-32
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-33
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
Independent Auditors' Report................................ F-41
Consolidated Balance Sheet as of December 31, 1997 and
December 31, 1996......................................... F-42
Consolidated Statement of Operations for the Years Ended
December 31, 1997, December 31, 1996 and December 31,
1995...................................................... F-43
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, December 31, 1996 and December 31,
1995...................................................... F-44
Consolidated Statement of Shareholders' Equity for the Years
Ended December 31, 1997, December 31, 1996 and December
31, 1995.................................................. F-45
Notes to Consolidated Financial Statements.................. F-46
NTL (BERMUDA) LIMITED (FORMERLY COMCAST UK CABLE PARTNERS
LIMITED) AND SUBSIDIARIES
Condensed Consolidated Balance Sheet as of September 30,
1998 (Unaudited).......................................... F-60
Condensed Consolidated Statement of Operations and
Accumulated Deficit for the Nine Months Ended September
30, 1998 and 1997 (Unaudited)............................. F-61
Condensed Consolidated Statement of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997 (Unaudited)...... F-62
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-63
BIRMINGHAM CABLE CORPORATION LIMITED AND SUBSIDIARIES
Independent Auditors' Report................................ F-69
Consolidated Balance Sheet as of December 31, 1997 and
December 31, 1996......................................... F-70
Consolidated Statement of Operations for the Years Ended
December 31, 1997, December 31, 1996 and December 31,
1995...................................................... F-71
</TABLE>
F-1
<PAGE> 79
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, December 31, 1996 and December 31,
1995...................................................... F-72
Consolidated Statement of Shareholders' Equity for the Years
Ended December 31, 1997, December 31, 1996 and December
31, 1995.................................................. F-73
Notes to Consolidated Financial Statements.................. F-74
CABLE LONDON PLC AND SUBSIDIARIES
Independent Auditors' Report................................ F-81
Consolidated Balance Sheet as of December 31, 1997 and
December 31, 1996......................................... F-82
Consolidated Statement of Operations for the Years Ended
December 31, 1997, December 31, 1996 and December 31,
1995...................................................... F-83
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, December 31, 1996 and December 31,
1995...................................................... F-84
Consolidated Statement of Shareholders' (Deficiency) Equity
for the Years Ended December 31, 1997, December 31, 1996
and December 31, 1995..................................... F-85
Notes to Consolidated Financial Statements.................. F-86
COMTEL UK FINANCE B.V.
AUDITED COMBINED FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-93
Report of Independent Accountants........................... F-94
Combined Statements of Operations for each of the years in
the two year period ended December 31, 1997............... F-95
Combined Balance Sheets as of December 31, 1996 and 1997.... F-96
Combined Statements of Shareholders' Equity for each of the
years in the two year period ended December 31, 1997...... F-97
Combined Statements of Cash Flows for each of the years in
the two year period ended December 31, 1997............... F-98
Notes to the Combined Financial Statements.................. F-99
COMBINED FINANCIAL STATEMENTS
Combined Statements of Operations for each of the six month
periods ended June 30, 1997 and June 30, 1998............. F-106
Combined Balance Sheets as of June 30, 1998................. F-107
Combined Statement of Shareholders' Equity for the six month
period ended June 30, 1998................................ F-108
Combined Statements of Cash Flows for each of the six month
periods ended June 30, 1997 and June 30, 1998............. F-109
Notes to the Unaudited Combined Financial Statements........ F-110
TELECENTIAL COMMUNICATIONS (CANADA) LIMITED
TELECENTIAL COMMUNICATIONS (UK) LIMITED
AUDITED COMBINED FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-112
Combined Statement of Operations for the sixteen month
period ended December 31, 1996............................ F-113
</TABLE>
F-2
<PAGE> 80
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Combined Balance Sheet as of December 31, 1996.............. F-114
Combined Statement of Shareholders' Equity for the sixteen
month period ended December 31, 1996...................... F-115
Combined Statement of Cash Flows for the sixteen month
period ended December 31, 1996............................ F-116
Notes to the Combined Financial Statements.................. F-117
DIAMOND CABLE COMMUNICATIONS PLC:
Independent Auditors' Report................................ F-124
Consolidated Statements of Operations for each of the years
in the three year period ended December 31, 1997.......... F-125
Consolidated Balance Sheets at December 31, 1996 and 1997... F-126
Consolidated Statements of Shareholders' Equity/(Deficit)
for each of the years in the three year period ended
December 31, 1997......................................... F-127
Consolidated Statements of Cash Flows for each of the years
in the three year period ended December 31, 1997.......... F-128
Notes to the Consolidated Financial Statements.............. F-129
Unaudited condensed consolidated statements of
operations -- Nine months ended September 30, 1998 and
1997...................................................... F-148
Unaudited condensed consolidated balance sheets -- September
30, 1998.................................................. F-149
Unaudited condensed consolidated statement of shareholders'
equity -- Nine months ended September 30, 1998............ F-150
Unaudited condensed consolidated statements of cash
flows -- Nine months ended September 30, 1998 and 1997.... F-151
Notes to the unaudited condensed consolidated financial
statements................................................ F-152
</TABLE>
F-3
<PAGE> 81
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, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity (deficiency) and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 20, 1998
F-4
<PAGE> 82
NTL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 98,902,000 $ 445,884,000
Marketable securities..................................... 4,998,000 --
Accounts receivable -- trade, less allowance for doubtful
accounts of $8,056,000 (1997) and $3,870,000 (1996).... 66,022,000 28,340,000
Other..................................................... 67,232,000 66,817,000
-------------- --------------
Total current assets................................... 237,154,000 541,041,000
Fixed assets, net........................................... 1,756,985,000 1,459,528,000
Intangible assets, net...................................... 364,479,000 392,933,000
Other assets, net of accumulated amortization of $25,889,000
(1997) and $21,789,000 (1996)............................. 63,021,000 61,109,000
-------------- --------------
Total assets........................................... $2,421,639,000 $2,454,611,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.......................................... $ 45,475,000 $ 57,960,000
Accrued expenses and other................................ 181,605,000 101,228,000
Accrued construction costs................................ 26,930,000 62,723,000
Deferred revenue.......................................... 35,060,000 16,491,000
Deferred purchase price................................... -- 60,537,000
-------------- --------------
Total current liabilities.............................. 289,070,000 298,939,000
Long-term debt.............................................. 2,015,057,000 1,732,168,000
Other....................................................... 428,000 459,000
Commitments and contingent liabilities
Deferred income taxes....................................... 70,218,000 94,931,000
Senior redeemable exchangeable preferred stock, $.01 par
value, plus accreted dividends; liquidation preference
$107,000,000; less unamortized discount of $3,444,000
(1997); issued and outstanding 110,000 shares (1997) and
none (1996)............................................... 108,534,000 --
Shareholders' equity (deficiency):
Series preferred stock -- $.01 par value; authorized
2,500,000 shares; liquidation preference $78,000,000;
issued and outstanding 780 shares (1997 and 1996)...... -- --
Common stock -- $.01 par value; authorized 100,000,000
shares; issued and outstanding 32,210,000 (1997) and
32,066,000 (1996) shares............................... 322,000 321,000
Additional paid-in capital................................ 538,054,000 548,647,000
Cumulative translation adjustment......................... 117,008,000 163,141,000
(Deficit)................................................. (717,052,000) (383,995,000)
-------------- --------------
(61,668,000) 328,114,000
-------------- --------------
Total liabilities and shareholders' equity
(deficiency)......................................... $2,421,639,000 $2,454,611,000
============== ==============
</TABLE>
See accompanying notes.
F-5
<PAGE> 83
NTL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Local telecommunications and television..... $ 189,407,000 $ 89,209,000 $ 24,804,000
National and international
telecommunications....................... 162,738,000 45,430,000 --
Broadcast transmission and other............ 130,799,000 83,618,000 --
Other telecommunications.................... 8,831,000 10,086,000 8,937,000
------------- ------------- -------------
491,775,000 228,343,000 33,741,000
Costs and expenses
Operating expenses.......................... 301,644,000 144,315,000 24,415,000
Selling, general and administrative
expenses................................. 169,133,000 114,992,000 57,932,000
Franchise fees.............................. 23,587,000 13,117,000 --
Corporate expenses.......................... 18,324,000 14,899,000 14,697,000
Nonrecurring charges........................ 20,642,000 -- --
Depreciation and amortization............... 150,509,000 98,653,000 29,823,000
------------- ------------- -------------
683,839,000 385,976,000 126,867,000
------------- ------------- -------------
Operating (loss)......................... (192,064,000) (157,633,000) (93,126,000)
Other income (expense)
Interest and other income................... 28,415,000 33,634,000 21,185,000
Interest expense............................ (202,570,000) (137,032,000) (28,379,000)
Other gains................................. 21,497,000 -- --
Foreign currency transaction gains.......... 574,000 2,408,000 84,000
------------- ------------- -------------
(Loss) before income taxes, minority
interests and extraordinary item......... (344,148,000) (258,623,000) (100,236,000)
Income tax benefit (provision).............. 15,591,000 (7,653,000) 2,477,000
------------- ------------- -------------
(Loss) before minority interests and
extraordinary item....................... (328,557,000) (266,276,000) (97,759,000)
Minority interests.......................... -- 11,822,000 6,974,000
------------- ------------- -------------
(Loss) before extraordinary item............ (328,557,000) (254,454,000) (90,785,000)
Loss from early extinguishment of debt...... (4,500,000) -- --
------------- ------------- -------------
Net (loss)............................... $(333,057,000) $(254,454,000) $ (90,785,000)
============= ============= =============
Basic and diluted net (loss) per common share:
(Loss) before extraordinary item............ $ (10.60) $ (8.20) $ (3.01)
Extraordinary item.......................... (.14) -- --
------------- ------------- -------------
Net (loss) per common share.............. $ (10.74) $ (8.20) $ (3.01)
============= ============= =============
</TABLE>
See accompanying notes.
F-6
<PAGE> 84
NTL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
SERIES COMMON STOCK --
PREFERRED STOCK $.01 PAR VALUE ADDITIONAL CUMULATIVE
--------------- --------------------- PAID-IN TRANSLATION
SHARES PAR SHARES PAR CAPITAL ADJUSTMENT (DEFICIT)
------- ----- ---------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994............ 22,635,000 $226,000 $462,197,000 $ 12,867,000 $ (38,756,000)
Exercise of stock options............. 20,000 1,000 101,000
Stock split........................... 7,547,000 75,000 (75,000)
Net loss for the year ended December
31, 1995............................ (90,785,000)
Currency translation adjustment....... (6,594,000)
---------- -------- ------------ ------------ -------------
Balance, December 31, 1995............ 30,202,000 302,000 462,223,000 6,273,000 (129,541,000)
Exercise of stock options............. 396,000 4,000 1,362,000
Exercise of warrants.................. 53,000 1,000 298,000
Issuance of warrants in connection
with consent solicitations.......... 1,641,000
Shares issued for acquisitions........ 780 $ -- 1,415,000 14,000 83,123,000
Net loss for the year ended December
31, 1996............................ (254,454,000)
Currency translation adjustment....... 156,868,000
--- ---- ---------- -------- ------------ ------------ -------------
Balance, December 31, 1996............ 780 -- 32,066,000 321,000 548,647,000 163,141,000 (383,995,000)
Exercise of stock options............. 119,000 1,000 1,532,000
Exercise of warrants.................. 25,000 138,000
Accreted dividends on senior
redeemable exchangeable preferred
stock............................... (11,978,000)
Accretion of discount on senior
redeemable exchangeable preferred
stock............................... (285,000)
Net loss for the year ended December
31, 1997............................ (333,057,000)
Currency translation adjustment....... (46,133,000)
--- ---- ---------- -------- ------------ ------------ -------------
Balance, December 31, 1997............ 780 $ -- 32,210,000 $322,000 $538,054,000 $117,008,000 $(717,052,000)
=== ==== ========== ======== ============ ============ =============
</TABLE>
See accompanying notes.
F-7
<PAGE> 85
NTL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------
1997 1996 1995
------------- -------------- -------------
<S> <C> <C> <C>
Operating activities
Net loss.................................................. $(333,057,000) $ (254,454,000) $ (90,785,000)
Adjustment to reconcile net loss to net cash (used in)
operating activities:
Depreciation and amortization........................... 150,509,000 98,653,000 29,823,000
Loss from early extinguishment of debt.................. 4,500,000 -- --
Amortization of noncompetition agreements............... 1,852,000 2,906,000 3,256,000
Provision for losses on accounts receivable............. 6,891,000 2,597,000 709,000
Minority interests...................................... -- (11,822,000) (6,974,000)
Deferred income taxes................................... (16,852,000) 5,063,000 --
Amortization of original issue discount................. 122,639,000 104,264,000 29,379,000
Other................................................... (8,148,000) 8,578,000 6,229,000
Changes in operating assets and liabilities, net of
effect from business acquisitions:
Accounts receivable................................... (30,430,000) 10,050,000 (6,496,000)
Other current assets.................................. (6,563,000) (20,316,000) (6,749,000)
Other assets.......................................... 2,303,000 (24,000) (123,000)
Accounts payable...................................... (4,615,000) (2,869,000) 20,583,000
Accrued expenses and other............................ 74,706,000 35,691,000 9,926,000
Deferred revenue...................................... 18,994,000 278,000 1,075,000
------------- -------------- -------------
Net cash (used in) operating activities............ (17,271,000) (21,405,000) (10,147,000)
Investing activities
Purchase of fixed assets.................................. (503,656,000) (505,664,000) (445,550,000)
Payment of deferred purchase price........................ (57,330,000) -- --
Increase in other assets.................................. (4,322,000) (6,013,000) (3,361,000)
Acquisitions of subsidiaries and minority interests, net
of cash acquired........................................ -- (332,693,000) (12,412,000)
Purchase of marketable securities......................... (145,939,000) -- --
Proceeds from sales of marketable securities.............. 142,596,000 -- --
------------- -------------- -------------
Net cash (used in) investing activities............ (568,651,000) (844,370,000) (461,323,000)
Financing activities
Proceeds from borrowings and sale of preferred stock, net
of financing costs...................................... 490,302,000 1,146,190,000 326,166,000
Principal payments........................................ (242,424,000) (95,283,000) (9,963,000)
Cash released from escrow................................. -- 1,600,000 2,810,000
Capital contribution from minority partner................ -- -- 12,626,000
Proceeds from borrowings from minority partner............ -- 31,232,000 19,065,000
Proceeds from exercise of stock options and warrants...... 1,671,000 1,665,000 102,000
------------- -------------- -------------
Net cash provided by financing activities.......... 249,549,000 1,085,404,000 350,806,000
Effect of exchange rate changes on cash..................... (10,609,000) 50,972,000 1,345,000
------------- -------------- -------------
Increase (decrease) in cash and cash equivalents............ (346,982,000) 270,601,000 (119,319,000)
Cash and cash equivalents at beginning of year.............. 445,884,000 175,283,000 294,602,000
------------- -------------- -------------
Cash and cash equivalents at end of year.................... $ 98,902,000 $ 445,884,000 $ 175,283,000
============= ============== =============
Supplemental disclosure of cash flow information
Cash paid during the period for interest exclusive of
amounts capitalized..................................... $ 72,047,000 $ 27,595,000 $ 1,735,000
Income taxes paid......................................... 1,107,000 367,000 1,695,000
Supplemental schedule of noncash financing activities
Accretion of dividends and discount on senior redeemable
exchangeable preferred stock............................ $ 12,263,000 $ -- $ --
Warrants issued in connection with consent
solicitations........................................... -- 1,641,000 --
Common stock issued for acquisition....................... -- 34,137,000 --
Preferred stock issued for acquisition of minority
interest, including notes payable to minority partner... -- 49,000,000 --
Liabilities incurred in connection with acquisitions...... -- 81,906,000 --
</TABLE>
See accompanying notes.
F-8
<PAGE> 86
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
NTL Incorporated (the "Company"), through its subsidiaries and joint
ventures, owns and operates television and radio broadcasting, cable television,
telephone and telecommunications systems in the United Kingdom and provides
long-distance telephone service in the United States. Based on revenues and
identifiable assets, the Company's predominant lines of business are television
and radio broadcasting, cable television, telephone and telecommunications
services in the United Kingdom.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards ("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
separately as a component of shareholders' equity (deficiency).
Cash Equivalents
Cash equivalents are short-term highly liquid investments purchased with a
maturity of three months or less. Cash equivalents were $55,894,000 and
$339,249,000 at December 31, 1997 and 1996, respectively, which consisted
primarily of repurchase agreements and corporate commercial paper. At December
31, 1997 and 1996, none and $238,862,000, respectively, of such cash equivalents
were denominated in British pounds sterling.
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 separate component of shareholders' equity (deficiency).
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, 1997 consist of federal agency notes.
During the year ended December 31, 1997, there were no realized gains or losses
on sales of securities. All of the marketable securities as of December 31, 1997
had a contractual maturity of less than one year.
F-9
<PAGE> 87
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 22.5 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.
Intangible Assets
Intangible assets include goodwill and license acquisition costs. 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, principally 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 life of the license as follows: cable television license -- 7 to 12
years and telecommunications license -- 23 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.
Other Assets
Other assets consist primarily of noncompetition agreements obtained in
exchange for the issuance of warrants to purchase an aggregate of 899,000 shares
of common stock and deferred financing costs. The noncompetition agreements were
valued at the difference between the fair market value of the common stock on
the date of grant and the exercise price of the warrants. The noncompetition
agreements are being expensed on a straight-line basis over the noncompetition
period of primarily five years. Deferred financing costs were 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 1997, 1996 and 1995, interest of $6,770,000, $10,294,000 and
$12,183,000, respectively, was capitalized.
Revenue Recognition
Revenues are recognized at the time the service is provided to the
customer.
Cable Television System Costs, Expenses and Revenues
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its cable television, telephone and
telecommunications systems in accordance with SFAS No. 51, "Financial Reporting
by Cable Television Companies."
Advertising Expense
The Company expenses the cost of advertising as incurred. Advertising costs
were $31,003,000, $22,727,000 and $10,370,000 in 1997, 1996 and 1995,
respectively.
F-10
<PAGE> 88
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net (Loss) Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share". SFAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. The Company adopted SFAS No. 128 for each of the three years
in the period ended December 31, 1997.
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.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
3. RECENT ACCOUNTING PRONOUNCEMENTS
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. The Company will adopt SFAS No. 130 in the first interim
period for its fiscal year ending December 31, 1998.
Segment Reporting
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997. The Company will adopt SFAS No. 131 for its fiscal year
ending December 31, 1998. The Company is currently evaluating the effect that
the adoption will have on its financial statements.
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.
Requirements to Meet Build Milestones
The telecommunications license for each United Kingdom franchise contains
specific construction milestones. Based on current network construction
scheduling, the Company believes it will be able to satisfy its milestones in
the future, but there can be no assurance that such milestones will be met. If
the Company is unable to meet the construction milestones required by any of its
licenses and is unable to obtain modifications to the milestones, the relevant
licenses could be revoked.
F-11
<PAGE> 89
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Limited Access to Programming
The Company's ability to make a competitive offering of cable television
services is dependent on the Company's ability to obtain access to programming
at a reasonable cost. There can be no assurance that the Company's current
programming will continue to be available on acceptable commercial terms or at
all.
Currency Risk
To the extent that the Company obtains financing in United States dollars
and incurs construction and operating costs in British pounds sterling, it will
encounter currency exchange rate risks. In addition, the Company's revenues are
generated primarily in British pounds sterling while its interest and principal
obligations with respect to most of the Company's existing indebtedness are
payable in United States dollars. The Company has entered into an option
agreement to hedge some of the risk of exchange rate fluctuations related to
interest payments on United States dollar denominated debt.
5. FIXED ASSETS
Fixed assets consists of:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Operating equipment.................................. $1,612,440,000 $1,080,135,000
Other equipment...................................... 225,514,000 197,368,000
Construction-in-progress............................. 134,795,000 305,372,000
-------------- --------------
1,972,749,000 1,582,875,000
Accumulated depreciation............................. (215,764,000) (123,347,000)
-------------- --------------
$1,756,985,000 $1,459,528,000
============== ==============
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consists of:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
License acquisition costs, net of accumulated
amortization of $46,620,000 (1997) and $34,894,000
(1996)................................................ $123,116,000 $134,909,000
Goodwill, net of accumulated amortization of $13,449,000
(1997) and $5,986,000 (1996).......................... 241,363,000 258,024,000
------------ ------------
$364,479,000 $392,933,000
============ ============
</TABLE>
In October 1996, the Company acquired the remaining 40% interest it did not
already own in CableTel Newport in exchange for 780 shares of the Company's
Series A Preferred Stock. CableTel Newport owns and operates cable television,
telephone and telecommunications franchises in South Wales. The Series A
Preferred Stock was valued at $49,000,000, based on an appraisal as of the date
of issuance. The fair value of
F-12
<PAGE> 90
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the net tangible assets acquired of $67,710,000 exceeded the aggregate purchase
price of $49,062,000 (including costs incurred of $62,000) by $18,648,000, which
is classified as a reduction to license acquisition costs.
In September 1996, the Company acquired the remaining 30% minority interest
of English Cable Enterprises, Inc. ("ECE") that the Company did not own, in
exchange for 1,415,000 shares of its common stock. ECE, through its
subsidiaries, owns four cable television, telephone and telecommunications
licenses in the northern suburbs of London. The value of the shares, based on
the market price on the date of issuance, of $34,137,000 plus costs incurred of
$204,000 exceeded the fair value of the net tangible assets acquired by
$28,649,000, which is classified as license acquisition costs.
In May 1996, an indirect wholly-owned subsidiary of the Company, NTL
Investment Holdings Limited ("NTLIH"), acquired NTL Group Limited for payments
of approximately L204,000,000 at closing, L17,100,000 in October 1996 and
L35,000,000 in May 1997. NTL Group Limited provides television and radio
transmission services and a range of other services in the broadcasting and
telecommunications industries. This acquisition has been accounted for as a
purchase, and, accordingly, the net assets and results of operations of NTL
Group Limited have been included in the consolidated financial statements from
the date of acquisition. The aggregate purchase price of L256,100,000
($439,000,000) plus costs incurred of $3,700,000 exceeded the fair value of the
net tangible assets acquired by $263,000,000, which is classified as goodwill.
The pro forma unaudited consolidated results of operations for the year
ended December 31, 1996 assuming consummation of the above mentioned
transactions as of January 1, 1996 is as follows:
<TABLE>
<S> <C>
Total revenue................................. $ 289,638,000
Net loss...................................... (265,180,000)
Basic and diluted net loss per share.......... (8.31)
</TABLE>
In October 1995, CableTel South Wales Limited, a wholly-owned subsidiary of
CableTel Newport, acquired the cable television business of Metro Cable TV
Limited in South Wales ("Metro Wales"), and CableTel Central Hertfordshire
Limited, a wholly-owned subsidiary of ECE, acquired the cable television
business of Metro Cable TV Limited in Hertfordshire ("Metro Herts"), for an
aggregate consideration of $12,125,000. These acquisitions have been accounted
for as purchases, and, accordingly, the net assets and results of operations of
Metro Wales and Metro Herts have been included in the consolidated financial
statements from the date of acquisition. The aggregate purchase price exceeded
the fair value of the net tangible assets acquired by $10,167,000, which is
classified as license acquisition costs. In 1996, the Metro Wales license
acquisition costs were reduced by $565,000.
F-13
<PAGE> 91
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
10 7/8% Senior Deferred Coupon Notes ("10 7/8%
Notes")(a)......................................... $ 194,959,000 $ 175,368,000
12 3/4% Series A Senior Deferred Coupon Notes
("12 3/4% Notes")(b)............................... 209,387,000 185,043,000
11 1/2% Series B Senior Deferred Coupon Notes
("11 1/2% Notes")(c)............................... 743,961,000 665,257,000
10% Series B Senior Notes ("10% Notes")(d)........... 400,000,000 --
7 1/4% Convertible Subordinated Notes ("7 1/4%
Convertible Notes")(e)............................. 191,750,000 191,750,000
7% Convertible Subordinated Notes ("7% Convertible
Notes")(f)......................................... 275,000,000 275,000,000
Term Loan and Revolving Facility(g).................. -- 239,750,000
-------------- --------------
$2,015,057,000 $1,732,168,000
============== ==============
</TABLE>
- ---------------
(a) In October 1993, the Company issued $212,000,000 aggregate principal amount
of 10 7/8% Senior Deferred Coupon Notes due 2003. The 10 7/8% Notes were
issued at a price to the public of 58.873% or $124,811,000. The Company
incurred $5,019,000 in fees and expenses which is included in deferred
financing costs. The original issue discount on the 10 7/8% Notes accretes
at a rate of 10 7/8%, compounded semiannually, to an aggregate principal
amount of $212,000,000 by October 15, 1998. Interest will thereafter accrue
at 10 7/8% per annum, payable semiannually beginning on April 15, 1999.
During 1997, 1996 and 1995, the Company recognized $19,591,000, $17,620,000
and $15,851,000, respectively, of the original issue discount as interest
expense.
The 10 7/8% Notes are effectively subordinated to all existing and future
indebtedness and other liabilities and commitments of the Company's
subsidiaries. The 10 7/8% Notes may be redeemed at the Company's option, in
whole or in part, at any time on or after October 15, 1998 at 103.107% the
first year, 101.554% the second year and 100% thereafter, plus accrued and
unpaid interest to the date of redemption. The indenture governing the
10 7/8% Notes contains 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.
(b) In April 1995, the Company issued $277,803,500 aggregate principal amount of
12 3/4% Senior Deferred Coupon Notes due 2005. The 12 3/4% Notes were issued
at a price to the public of 53.995% or $150,000,000. The Company incurred
$6,192,000 in fees and expenses in connection with the issuance of 12 3/4%
Notes which is included in deferred financing costs. The original issue
discount accretes at a rate of 12 3/4%, compounded semiannually, to an
aggregate principal amount of $277,803,500 by April 15, 2000. Interest will
thereafter accrue at 12 3/4% per annum, payable semiannually beginning on
October 15, 2000. During 1997, 1996 and 1995, the Company recognized
$24,344,000, $21,515,000 and $13,528,000, respectively, of original issue
discount as interest expense.
The 12 3/4% Notes are effectively subordinated to all existing and future
indebtedness and other liabilities and commitments of the Company's
subsidiaries, rank pari passu in right of payment with all senior unsecured
indebtedness and rank senior in right of payment to all subordinated
indebtedness of the Company. The 12 3/4% Notes may be redeemed at the
Company's option, in whole or in part, at any time on or after April 15,
2000 at 103.64% the first year, 101.82% the second year and 100% thereafter,
plus accrued and unpaid interest to the date of redemption. The indenture
governing the 12 3/4% Notes contains
F-14
<PAGE> 92
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(c) In January 1996, the Company issued $1,050,000,000 aggregate principal
amount of 11 1/2% Series B Senior Deferred Coupon Notes due 2006. The
11 1/2% Notes were issued at a price to investors of 57.155% of the
aggregate principal amount at maturity or $600,127,500. The Company incurred
$19,273,000 in fees and expenses in connection with the issuance of the
11 1/2% Notes which is included in deferred financing costs. The original
issue discount accretes at a rate of 11 1/2%, compounded semiannually, to an
aggregate principal amount of $1,050,000,000 by February 1, 2001. Interest
will thereafter accrue at 11 1/2% per annum, payable semiannually beginning
on August 1, 2001. During 1997 and 1996, the Company recognized $78,704,000
and $65,129,000 of original issue discount as interest expense.
The 11 1/2% Notes are effectively subordinated to all existing and future
indebtedness and other liabilities and commitments of the Company's
subsidiaries, rank pari passu in right of payment with all senior unsecured
indebtedness and rank senior in right of payment to all subordinated
indebtedness of the Company. The 11 1/2% Notes may be redeemed at the
Company's option, in whole or in part, at any time on or after February 1,
2001 at 105.75% the first year, 102.875% the second year and 100%
thereafter, plus accrued and unpaid interest to the date of redemption. The
indenture governing the 11 1/2% Notes contains 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.
(d) In February 1997, the Company issued $400,000,000 aggregate principal amount
of 10% Senior Notes due 2007. The Company received net proceeds of
$389,000,000 after discounts and commissions from the issuance of the 10%
Notes. Discounts, commissions and other fees incurred of $11,885,000 are
included in deferred financing costs. The 10% Notes accrue interest at 10%
per annum, payable semiannually as of August 15, 1997.
The 10% Notes are effectively subordinated to all existing and future
indebtedness and other liabilities and commitments of the Company's
subsidiaries. The 10% Notes 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 105% that declines annually to 100% in 2005, in each case together
with accrued and unpaid interest to the date of redemption. The indenture
governing the 10% Notes contains restrictions relating to, among other
things: (i) incurrence of additional indebtedness and the issuance of
preferred stock, (ii) dividend and other payment restrictions and (iii)
mergers, consolidations and sales of assets.
(e) In April and May 1995, the Company issued $191,750,000 principal amount of
7 1/4% Convertible Subordinated Notes due 2005. Interest payments began on
October 15, 1995 and interest is payable every six months thereafter. The
7 1/4% Convertible Notes will mature on April 15, 2005. The 7 1/4%
Convertible Notes are unsecured obligations convertible into shares of
common stock prior to maturity at a conversion price of $27.56 per share,
subject to adjustment. There are approximately 6,958,000 shares of common
stock reserved for issuance upon the conversion of the 7 1/4% Convertible
Notes. The 7 1/4% Convertible Notes are redeemable, in whole or in part, at
the option of the Company at any time on or after April 15, 1998, at a
redemption price of 105.08% that declines annually to 100.73% in 2004, in
each case together with accrued interest to the redemption date. The Company
incurred $6,822,000 in fees and expenses in connection with the issuance of
the 7 1/4% Convertible Notes, which is included in deferred financing costs.
In March 1998, the Company announced that it was calling for redemption all
of the 7 1/4% Convertible Notes. The redemption date is April 20, 1998 and
the redemption price is 105.08% of the principal amount, plus accrued and
unpaid interest through the date of redemption.
(f) In June 1996, the Company issued $275,000,000 aggregate principal amount of
7% Convertible Subordinated Notes due 2008. Interest payments began on
December 15, 1996 and interest is payable
F-15
<PAGE> 93
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
every six months thereafter. The 7% Convertible Notes mature on June 15,
2008. The 7% Convertible Notes are unsecured obligations convertible into
shares of common stock prior to maturity at a conversion price of $37.875
per share, subject to adjustment. There are approximately 7,261,000 shares
of common stock reserved for issuance upon conversion of the 7% Convertible
Notes. The 7% Convertible Notes are redeemable, in whole or in part, at the
option of the Company at any time on or after June 15, 1999, at a redemption
price of 104.9% that declines annually to 100% in 2006, in each case
together with accrued and unpaid interest to the redemption date. The
Company incurred $8,616,000 in fees and expenses in connection with the
issuance of the 7% Convertible Notes, which is included in deferred
financing costs.
(g) To finance a substantial portion of the purchase price for NTL Group
Limited, NTLIH obtained from a syndicate of lenders senior secured loan
facilities (the "NTLIH Facility") of a maximum principal amount of
L165,000,000 comprised of: (i) a long-term loan facility of L140,000,000 and
(ii) a revolving credit facility of L25,000,000. One of the Lenders also
made available to NTLIH a secured loan facility of L60,000,000 (the "Bridge
Facility") to finance the remainder of the payment due at closing and
acquisition costs and expenses due at closing. Loans under the NTLIH
Facility incurred interest at an annual rate equal to LIBOR plus a margin
that varied from 0.75% per annum to 1.75% per annum, based on certain
financial ratios of NTLIH and certain of its subsidiaries. Interest was
payable either monthly, quarterly or semiannually, at the option of NTLIH.
The effective interest rate on the NTLIH Facility at December 31, 1996 was
7.972%. The Bridge Facility was repaid in full in August 1996. In October
1997, the principal and accrued interest outstanding under the NTLIH
Facility of L140,138,000 ($231,466,000) was repaid using cash on hand.
In 1997, NTL (UK) Group, Inc., a wholly-owned subsidiary of the Company,
which is the holding company for the United Kingdom operations and the parent
company of NTLIH, and NTLIH entered into an agreement with The Chase Manhattan
Bank pursuant to which Chase has agreed to fully underwrite a L555,000,000,
eight-year term loan facility with an initial four-year revolving period. By
April 14, 1999, Chase's commitment will be reduced to no less than L480,000,000
or such greater amount as is necessary to ensure that the Company's United
Kingdom operations remain fully funded by reference to an agreed business plan.
The facility will be used to finance capital expenditures and working capital
for the Company's United Kingdom operations, including its local broadband,
national telecommunications and national digital television networks. A portion
of the facility (L75,000,000) is conditional upon the execution of contracts to
provide digital television transmission services to certain third parties. Chase
has provided a portion of the L555,000,000 facility in the form of a
L350,000,000 facility to the Company on the same terms as to restrictions,
covenants, guarantees and security as the L555,000,000 facility. As of March 20,
1998, L10,000,000 ($16,517,000) is outstanding under the L350,000,000 facility.
The principal amount outstanding under the L350,000,000 facility is required to
be repaid on December 31, 2005. Interest is payable either monthly, quarterly or
semi-annually, at the option of NTLIH, at LIBOR plus, at a maximum, 2.25% per
annum. The commitment fee is .375% per annum on the unutilized portion of the
L350,000,000 facility and is payable quarterly in arrears. The facility is
secured by first fixed and floating charges over all present and future assets
and undertakings of the United Kingdom group. The facility contains customary
financial covenants, and certain restrictions relating to, among other things:
(i) incurrence of additional indebtedness or guarantees, (ii) investments,
acquisitions and mergers and (iii) dividend and other payment restrictions. In
the absence of a default, the facility generally permits payments to the Company
to pay interest and principal of existing indebtedness of the Company. At
December 31, 1997, restricted net assets were approximately $1,861,000,000.
In March 1998, the Company issued 125,000,000 pounds sterling aggregate
principal amount of 9 1/2% Senior Notes due 2008 (the "Sterling Senior Notes"),
300,000,000 pounds sterling aggregate principal amount of 10 3/4% Senior
Deferred Coupon Notes due 2008 (the "Sterling Deferred Coupon Notes") and
$1,300,000,000 aggregate principal amount of 9 3/4% Senior Deferred Coupon Notes
due 2008 (the "Dollar Deferred Coupon Notes") (together the "New Notes"). The
Sterling Senior Notes, Sterling Deferred
F-16
<PAGE> 94
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Coupon Notes and the Dollar Deferred Coupon Notes were issued at a price to the
public of 99.67% or 124,588,000 pounds sterling, 58.62% or 175,860,000 pounds
sterling and 61.724% or $802,412,000, respectively. The Company received net
proceeds of 121,161,000 pounds sterling, 170,584,000 pounds sterling and
$778,340,000, after discounts and commissions, from the issuance of the Sterling
Senior Notes, the Sterling Deferred Coupon Notes and the Dollar Deferred Coupon
Notes, respectively.
The original issue discount of the Sterling Deferred Coupon Notes accretes
at a rate of 10 3/4%, compounded semiannually, to an aggregate principal amount
of L300,000,000 by April 1, 2003. The original issue discount of the Dollar
Deferred Coupon Notes accretes at a rate of 9 3/4%, compounded semiannually, to
an aggregate principal amount of $1,300,000,000 by April 1, 2003. Interest on
each of the Sterling Deferred Coupon Notes and the Dollar Deferred Coupon Notes
will thereafter accrue at 10 3/4% per annum and 9 3/4% per annum, respectively,
payable semiannually, beginning on October 1, 2003. The Sterling Senior Notes
accrue interest at 9 1/2% per annum, payable semiannually, beginning on October
1, 1998.
The New Notes are effectively subordinated to all existing and future
indebtedness and other liabilities and commitments of the Company's
subsidiaries, rank pari passu in right of payment with each other and with all
senior unsecured indebtedness of the Company and rank senior in right of payment
to all subordinated indebtedness of the Company.
The New Notes may be redeemed at the Company's option, in whole or in part,
at any time on or after April 1, 2003, at a redemption price of 104 3/4% to
105 3/8% that declines annually to 100% in 2006, in each case together with
accrued and unpaid interest to the date of redemption.
The indentures governing the New Notes contain restrictions relating to,
among other things: (i) incurrence of additional indebtedness and the issuance
of preferred stock, (ii) dividend and other payment restrictions and (iii)
mergers, consolidations and sales of assets.
8. REDEEMABLE PREFERRED STOCK
In February 1997, the Company issued $100,000,000 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.
Of the 2,500,000 authorized shares of Series Preferred Stock, 100,000
shares of Redeemable Preferred Stock were issued. Dividends accrue at 13% per
annum ($130 per share) and are payable quarterly in arrears as of May 15, 1997.
Dividends, whether or not earned or declared, will accrue without interest until
declared and paid, which declaration may be for all or part of the accrued
dividends. 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, 1997,
the Company has accrued $11,978,000 for dividends and has issued approximately
10,000 shares for $10,187,000 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
F-17
<PAGE> 95
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
9. NONRECURRING CHARGES INCLUDING RESTRUCTURING CHARGES
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 relate to 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. The Company is consolidating the Customer Operations departments
that serve its three franchise areas in England into one department, and is
consolidating certain operations and management groups within the Broadcast
Services division, as well as certain other consolidations or cessations of
activities. 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, 1997, $5,441,000 of the provision
has been used, including $2,916,000 for severance and related costs, $324,000
for lease exit costs and $2,201,000 for penalties associated with the
cancellation of contractual obligations, and 118 employees had been terminated.
There was no other adjustment to the liability.
10. OTHER GAINS
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.
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1997 1996 1995
------------ ---------- -----------
<S> <C> <C> <C>
Current:
Federal................................... $ -- $ -- $ (181,000)
State and local........................... 1,261,000 344,000 167,000
Foreign................................... -- 2,246,000 (2,463,000)
------------ ---------- -----------
Total current..................... 1,261,000 2,590,000 (2,477,000)
------------ ---------- -----------
Deferred:
Federal................................... -- -- --
State and local........................... -- -- --
Foreign................................... (16,852,000) 5,063,000 --
------------ ---------- -----------
Total deferred.................... (16,852,000) 5,063,000 --
------------ ---------- -----------
$(15,591,000) $7,653,000 $(2,477,000)
============ ========== ===========
</TABLE>
F-18
<PAGE> 96
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets........................................ $ 68,380,000 $ 78,433,000
Depreciation and amortization....................... -- 30,623,000
Other............................................... 4,894,000 6,018,000
------------- -------------
Total deferred tax liabilities.............. 73,274,000 115,074,000
Deferred tax assets:
Net operating losses................................ 107,208,000 99,227,000
Net deferred interest expense....................... 94,689,000 51,770,000
Depreciation and amortization....................... 16,935,000 --
Other............................................... 18,164,000 10,396,000
------------- -------------
Total deferred tax assets................... 236,996,000 161,393,000
Valuation allowance for deferred tax assets........... (233,940,000) (141,250,000)
------------- -------------
Net deferred tax assets............................... 3,056,000 20,143,000
------------- -------------
Net deferred tax liabilities.......................... $ 70,218,000 $ 94,931,000
============= =============
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $56,000,000 for U.S. federal income tax purposes that expire as
follows: $500,000 in 2008, $1,100,000 in 2009, $21,000,000 in 2010, $27,700,000
in 2011 and $5,700,000 in 2012. The Company also has United Kingdom net
operating loss carryforwards of approximately $290,000,000 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 reconciliation of income taxes computed at U.S. federal statutory rates
to income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Provision (benefit) at federal statutory
rate (35%)............................ $(120,452,000) $(90,518,000) $(35,083,000)
Add (deduct):
State and local income tax, net of
federal benefit.................... 820,000 224,000 109,000
Foreign losses with no benefit........ 59,804,000 44,610,000 6,699,000
Amortization of goodwill and license
acquisition costs.................. 3,925,000 4,031,000 3,696,000
U.S. losses with no benefit........... 40,312,000 49,184,000 22,507,000
Other................................. -- 122,000 (405,000)
------------- ------------ ------------
$ (15,591,000) $ 7,653,000 $ (2,477,000)
============= ============ ============
</TABLE>
F-19
<PAGE> 97
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. 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 fair values of the 10 7/8% Notes, the 12 3/4% Notes,
the 11 1/2% Notes, the 10% Notes, the 7 1/4% Convertible Notes and the 7%
Convertible Notes are based on the quoted market price. The fair value of the
Term Loan and Revolving Facility is estimated using discounted cash flow
analysis, based on the Company's incremental borrowing rate for similar types of
borrowing arrangements.
Redeemable Preferred Stock: The fair value is based on the quoted market
price.
The carrying amounts and fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------- ---------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents............. $ 98,902,000 $ 98,902,000 $445,884,000 $445,884,000
Long-term debt:
10 7/8% Notes....................... 194,959,000 199,810,000 175,368,000 179,140,000
12 3/4% Notes....................... 209,387,000 230,577,000 185,043,000 202,797,000
11 1/2% Notes....................... 743,961,000 819,000,000 665,257,000 714,000,000
10% Notes........................... 400,000,000 422,000,000 -- --
7 1/4% Convertible Notes............ 191,750,000 212,843,000 191,750,000 206,611,000
7% Convertible Notes................ 275,000,000 264,688,000 275,000,000 251,625,000
Term Loan and Revolving Facility.... -- -- 239,750,000 239,750,000
Redeemable Preferred Stock.......... 108,534,000 121,846,000 -- --
</TABLE>
13. RELATED PARTY TRANSACTIONS
On July 25, 1990, Cellular Communications, Inc. ("CCI") and AirTouch
Communications, Inc. ("AirTouch") entered into a Merger and Joint Venture
Agreement, as amended as of December 14, 1990. In connection with this
agreement, on July 31, 1991, CCI distributed to its shareholders the stock of
the Company.
Through August 1996, CCI provided management, financial and legal services
to the Company. Amounts charged to the Company included direct costs where
identifiable, and indirect costs allocated utilizing direct labor hours as
reported by the common officers and employees of CCI and the Company. For the
years ended December 31, 1996 and 1995, CCI charged $1,194,000, and $1,644,000,
respectively, which is included in corporate expenses. In August 1996, upon the
merger of CCI with AirTouch, the Company commenced providing management,
financial, legal and technical services to Cellular Communications
International, Inc. ("CCII") and CoreComm Incorporated ("CoreComm"). In 1996,
the Company charged CCII and CoreComm $351,000 and $200,000, respectively, which
included direct costs where identifiable and allocated corporate overhead based
upon the amount of time incurred on CCII and CoreComm business by the common
officers and employees of the Company, CCII and CoreComm. These charges reduced
corporate expenses in 1996.
In January 1997, the Company, CoreComm and CCII agreed to a change in the
Company's fee for the provision of services. In 1997, the Company charged
CoreComm and CCII $1,492,000 and $871,000, respectively, for direct costs where
identifiable and a fixed percentage of its corporate overhead. These charges
F-20
<PAGE> 98
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reduced corporate expenses. In the opinion of management of the Company, the
allocation methods are reasonable.
As of December 31, 1997 and 1996, the Company had receivables of $69,000
and $586,000 from CCII and $71,000 and $102,000 from CoreComm, respectively.
In 1993, the Company entered into a consulting agreement with Insight
Communications Company, L.P. ("Insight U.S."), under which Insight U.S. provided
advice and assistance to the Company with respect to its cable television,
telephone and telecommunications operations in the United Kingdom. Two members
of the Company's Board of Directors are partners in Insight U.S. Pursuant to the
consulting agreement, which had a term of three years, the Company paid Insight
U.S. a fee of $50,000 per month for the first year, $40,000 per month for the
second year and $30,000 per month for the third year. The fees for the years
ended December 31, 1996 and 1995 of $270,000 and $450,000, respectively, are
included in corporate expenses.
14. 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
----------------------------------------------
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
Numerator:
Loss before extraordinary item....... $(328,557,000) $(254,454,000) $(90,785,000)
Preferred stock dividend............. (11,978,000) -- --
------------- ------------- ------------
(340,535,000) (254,454,000) (90,785,000)
Extraordinary item..................... (4,500,000) -- --
------------- ------------- ------------
Loss available to common
shareholders......................... $(345,035,000) $(254,454,000) $(90,785,000)
Denominator for basic net loss per
common share......................... 32,117,000 31,041,000 30,190,000
Effect of dilutive securities..... -- -- --
------------- ------------- ------------
Denominator for diluted net loss per
common share......................... 32,117,000 31,041,000 30,190,000
------------- ------------- ------------
Basic and diluted net loss per common
share:
Loss before extraordinary item....... $ (10.60) $ (8.20) $ (3.01)
Extraordinary item................... (.14) -- --
------------- ------------- ------------
Net (loss)........................ $ (10.74) $ (8.20) $ (3.01)
============= ============= ============
</TABLE>
Stock options, warrants and convertible securities are excluded from the
calculation of net loss per common share as their effect would be antidilutive.
15. SHAREHOLDERS' EQUITY (DEFICIENCY)
Stock Split
On July 25, 1995, the Company declared a 4-for-3 stock split by way of
stock dividend, which was paid on August 11, 1995. All common stock data in the
Consolidated Financial Statements give effect to the stock split.
Series Preferred Stock
In October 1996, the Board of Directors created and authorized for issuance
2,000 shares of 5% Non-Voting Convertible Preferred Stock, Series A ("Series A
Preferred Stock"), of which 780 shares were issued
F-21
<PAGE> 99
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in connection with the CableTel Newport acquisition. Each share of Series A
Preferred Stock has a stated value of $100,000, subject to certain exceptions.
The holders of Series A Preferred Stock are entitled to receive cumulative
dividends beginning in October 2001 at the rate of 5% of the stated value,
payable semi-annually in arrears, subject to certain exceptions. Dividends may
be paid, in the sole discretion of the Board of Directors, in cash, in common
stock or in additional shares of Series A Preferred Stock. The Company has the
right, exercisable at any time, to redeem all or some of the Series A Preferred
Stock at a price equal to the aggregate stated value of the shares to be
redeemed, together with all accrued and unpaid dividends, in cash or in shares
of common stock (based on the average market price of the common stock, as
defined). The holder of Series A Preferred Stock has the right to convert shares
of Series A Preferred Stock into common stock equal to the aggregate stated
value of Series A Preferred Stock divided by the greater of (a) $40.00 or (b)
the average market price of the common stock, as defined. The Series A Preferred
Stock has a liquidation preference equal to the stated value per share plus
accrued and unpaid dividends.
Warrants
In 1993, the Company issued warrants to purchase an aggregate of
approximately 899,000 shares of common stock at an initial exercise price of
$8.35 per share in connection with certain noncompetition agreements. The
exercise price decreased to $6.96 per share in the second year after the grant
and to $5.57 per share thereafter. The warrants were valued at $13,193,000, the
difference between the fair market value of the common stock on the date of
grant and $5.57 per share. The warrants expire in 2000.
In 1996, pursuant to the terms of the consent solicitations to the holders
of the 10 7/8% Notes and to the holders of the 12 3/4% Notes to gain consent to
modify certain indenture provisions, the Company paid an aggregate of $3,592,000
in consent payments and issued warrants to purchase 164,000 shares of common
stock at an exercise price of $23.78 per share in lieu of additional consent
payments of $1,641,000. The warrants expire in 2006.
Shareholder Rights Plan
The Rights Agreement provides that one 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 100 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 100 times the payment made per
share of common stock. Each share of Rights Preferred Stock will have 100 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
100 times the amount received per share of common stock. These rights are
protected by customary antidilution provisions.
There are 2,500,000 authorized shares of Series Preferred Stock of which
1,000,000 shares are designated Rights Preferred Stock.
Stock Options
There are 2,164,000 shares of common stock reserved for issuance under the
OCOM Corporation (a wholly-owned subsidiary of the Company) 1991 Stock Option
Plan. The plan provides that incentive stock
F-22
<PAGE> 100
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options ("ISOs") be granted at the fair market value of OCOM'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 OCOM'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 6,653,000 shares of common stock reserved for issuance under the
NTL Incorporated 1993 Stock Option Plan. The exercise price of an ISO may not be
less than 100% of the fair market value of the Company's common stock on the
date of grant, and the exercise price of a NQSO may not be 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 100,000 shares of common stock reserved for issuance under the
OCOM Corporation Non-Employee Director Stock Option Plan. The plan provides that
all options be granted at the fair market value of OCOM'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 320,000 shares of common stock reserved for issuance under the
NTL Incorporated 1993 Non-Employee Director Stock Option Plan. Under the terms
of this plan, options will be granted to members of the Board of Directors who
are not employees of the Company or any of its affiliates. The plan provides
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.
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 1997, 1996 and 1995: risk-free interest rates of 5.89%, 6.56%
and 6.61%, respectively, dividend yield of 0%, volatility factor of the expected
market price of the Company's common stock of .276, .255 and .255, 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.
F-23
<PAGE> 101
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
----------------------------------------------
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
Pro forma net (loss)................... $(343,850,000) $(261,245,000) $(93,688,000)
Basic and diluted pro forma net (loss)
per share............................ $ (11.08) $ (8.42) $ (3.10)
</TABLE>
A summary of the Company's stock option activity and related information
for the years ended December 31, follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of
year........................ 6,738,000 $14.10 5,934,000 $11.04 4,795,000 $ 8.09
Granted....................... 1,571,000 23.97 1,390,000 25.94 1,164,000 23.07
Exercised..................... (119,000) 12.85 (396,000) 3.44 (21,000) 4.78
Forfeited..................... (33,000) 23.78 (190,000) 27.39 (4,000) 17.50
--------- --------- ---------
Outstanding-end of year....... 8,157,000 $15.98 6,738,000 $14.10 5,934,000 $11.04
========= ========= =========
Exercisable at end of year.... 5,663,000 $12.39 4,258,000 $10.71 3,410,000 $ 8.22
========= ========= =========
</TABLE>
Weighted-average fair value of options, calculated using the Black-Scholes
option pricing model, granted during 1997, 1996 and 1995 is $12.74, $13.98 and
$12.47, respectively.
The following table summarizes the status of the stock options outstanding
and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
-------------------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OF OPTIONS LIFE PRICE OF OPTIONS PRICE
- ------------------------ ---------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$0.19 to $0.56........... 77,000 3.6 Years $ 0.245 77,000 $ 0.245
$0.73 to $1.12........... 150,000 3.6 Years $ 0.745 150,000 $ 0.745
$1.53 to $2.69........... 356,000 3.6 Years $ 2.157 356,000 $ 2.157
$3.09 to $4.50........... 75,000 4.4 Years $ 3.230 75,000 $ 3.230
$8.81 to $14.63.......... 3,312,000 5.4 Years $ 8.873 3,305,000 $ 8.861
$15.19 to $22.88......... 1,498,000 7.4 Years $21.685 882,000 $21.659
$23.06 to $32.38......... 2,689,000 8.9 Years $25.038 818,000 $25.213
--------- ---------
Total............... 8,157,000 5,663,000
========= =========
</TABLE>
The Company has 25,309,000 shares of its common stock reserved for issuance
upon the exercise of warrants and stock options and the conversion of debt and
preferred stock.
16. EMPLOYEE BENEFIT PLANS
Certain subsidiaries of NTL Group Limited operate a defined benefit pension
plan in the United Kingdom. The assets of the Plan are held separately from
those of NTL Group Limited 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 plan necessary to
F-24
<PAGE> 102
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
comply with the funding requirements as prescribed by the laws and regulations
in the United Kingdom. The change in the projected benefit obligation in 1997 is
due to the change in actuarial assumptions used.
The components of net pension costs are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Service cost............................................ $ 10,693,000 $ 7,997,000
Interest cost........................................... 12,765,000 11,679,000
Actual return on plan assets............................ (30,852,000) (16,103,000)
Net amortization and deferral........................... 17,327,000 4,241,000
------------ ------------
$ 9,933,000 $ 7,814,000
============ ============
</TABLE>
The funded status (assets exceed accumulated benefits) of the plan is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Accumulated benefit obligation:
Vested................................................ $178,828,000 $148,809,000
Nonvested............................................. --
--
------------ ------------
$178,828,000 $148,809,000
============ ============
Fair value of plan assets, principally U.K. equity $195,226,000 $166,195,000
securities............................................
Projected benefit obligation............................ 204,340,000 170,795,000
------------ ------------
Excess of projected benefit obligation over (9,114,000) (4,600,000)
assets...........................................
Unrecognized net transition obligation.................. 10,203,000 11,541,000
Unrecognized net gain................................... (1,065,000) (5,098,000)
------------ ------------
Prepaid pension cost............................... $ 24,000 $ 1,843,000
============ ============
Actuarial assumptions:
Weighted average discount rate........................ 7.25% 8.25%
Weighted average rate of compensation increase........ 8.00% 8.00%
Expected long-term rate of return on plan assets...... 9.00% 9.50%
</TABLE>
17. LEASES
Leases for buildings, office space and equipment extend through 2031. Total
rental expense for the years ended December 31, 1997, 1996 and 1995 under
operating leases was $20,674,000, $14,886,000 and $2,607,000, respectively.
F-25
<PAGE> 103
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancellable operating leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
-----------------------
<S> <C>
1998...................................... $ 21,169,000
1999...................................... 20,933,000
2000...................................... 20,572,000
2001...................................... 20,235,000
2002...................................... 16,352,000
Thereafter................................ 82,420,000
------------
$181,681,000
============
</TABLE>
18. COMMITMENTS AND CONTINGENT LIABILITIES
As of December 31, 1997, the Company was committed to pay approximately
$78,000,000 for equipment and services.
The Company has licenses issued by the United Kingdom Department of Trade
and Industry ("DTI") and the United Kingdom Independent Television Commission
("ITC") for its cable television, telephone and telecommunications business. The
initial terms of the Company's licenses was 23 years for the DTI licenses and 15
years for the ITC licenses. The Company's licenses expire in 2008 to 2016 for
the DTI licenses and 1999 to 2005 for the ITC licenses. The DTI requires a fixed
annual renewal fee of L2,500 ($4,200) per license. The ITC requires an annual
license fee ranging from L1,300 ($2,200) to L7,900 ($13,100) per license based
on the number of homes in the licensed area, which is subject to adjustment
annually. The Company's license fees in 1997 were $316,000.
In addition, the Company was awarded certain newly issued licenses by the
ITC in 1995. Pursuant to the terms of the local delivery license ("LDL") for
Northern Ireland granted to a wholly-owned subsidiary of the Company, the
Company is required to make annual cash payments to the ITC for fifteen years
commencing in January 1997 in the amount of approximately L14,400,000
($23,800,000) (subject to adjustments for inflation). Such payments are in
addition to the percentages of qualifying revenue already set by the ITC of 0%
for the first ten years and 2% for the last five years of the fifteen year
license. The Company paid $23,587,000 in 1997.
Pursuant to the terms of the LDL for Glamorgan and Gwent, Wales granted to
a wholly-owned subsidiary of the Company, the Company is required to make annual
cash payments to the ITC for fifteen years, commencing in the first full
calendar year after the start of operations, in the amount of L104,188
($172,000). Such payments are in addition to the percentages of qualifying
revenue already set by the ITC of 0% for the first five years, 2% for the second
five years and 4% for the last five years of the fifteen-year license.
A significant portion of NTL Group Limited's revenues is attributable to
the provision of television and radio transmission and distribution services and
the provision of telecommunications services. In the United Kingdom, the
provision of such services is governed by the Telecommunications Act and The
Wireless Telegraphy Act 1949. NTL Group Limited holds five licenses under the
Telecommunications Act. The initial terms of these licenses were 10 or 25 years.
These licenses expire in 2002 to 2021. NTL Group Limited holds a number of
Wireless Telegraphy Act licenses which continue in force primarily from year to
year unless revoked or unless any of the license fees are not paid. The Company
paid $3,447,000 in 1997 in connection with these licenses.
F-26
<PAGE> 104
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is involved in, or has been involved in, certain disputes and
litigation arising in the ordinary course of its business, including claims
involving contractual disputes and claims for damages to property and personal
injury resulting from the construction of the Company's networks and the
maintenance and servicing of the Company's transmission masts. None of these
matters are expected to have a material adverse effect on the Company's
financial position, results of operations or cash flows.
19. INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS
The Company operates its long distance telephone and microwave transmission
business in the United States and its television and radio broadcasting, cable
television, telephone and telecommunications businesses in the United Kingdom.
The Company acquired its national and international telecom segment and its
broadcast transmission and other segment in 1996. Identifiable corporate assets
consist primarily of cash and cash equivalents. The industry segments and
geographic area information as of and for the years ended December 31, 1997,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
LONG
DISTANCE
TELEPHONE LOCAL NATIONAL BROADCAST
AND TELECOM AND TRANSMISSION
MICROWAVE AND INTERNATIONAL AND
TRANSMISSION TELEVISION TELECOM OTHER CORPORATE CONSOLIDATED
------------ ---------- ------------- ------------ --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Total revenues............ $ 8,831 $ 189,407 $162,738 $130,799 $ -- $ 491,775
Operating income (loss)... (1,207) (208,815) (5,327) 42,652 (19,367) (192,064)
Depreciation and
amortization........... 2,368 103,704 17,454 20,328 6,655 150,509
Identifiable assets....... 27,623 1,579,044 350,704 358,302 105,966 2,421,639
Fixed asset additions..... 1,541 333,037 101,088 38,984 156 474,806
Year ended December 31, 1996
Total revenues............ $10,086 $ 89,209 $ 45,430 $ 83,618 $ -- $ 228,343
Operating income (loss)... 773 (164,108) (7,774) 26,376 (12,900) (157,633)
Depreciation and
amortization........... 2,744 69,200 8,601 13,152 4,956 98,653
Identifiable assets....... 15,660 1,655,759 220,764 412,989 149,439 2,454,611
Fixed asset additions..... 552 478,761 38,812 26,056 1,894 546,075
Year ended December 31, 1995
Total revenues............ $ 8,937 $ 24,804 $ -- $ -- $ -- $ 33,741
Operating (loss).......... (4,531) (76,161) -- -- (12,434) (93,126)
Depreciation and
amortization........... 2,729 25,650 -- -- 1,444 29,823
Identifiable assets....... 15,774 892,935 -- -- 101,960 1,010,669
Fixed asset additions..... 1,557 473,795 -- -- -- 475,352
</TABLE>
F-27
<PAGE> 105
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. SUBSEQUENT EVENT
In February 1998, the Company entered into an agreement and plan of
amalgamation (the "Agreement") with Comcast UK Cable Partners Limited
("Partners"). Under the Agreement, Partners' shareholders will receive 0.3745
shares of the Company's Common Stock for each share of Partners Common Stock.
Based on the closing price of the Company's Common Stock on the date of the
Agreement, the transaction is valued at approximately $600,000,000. The
Agreement contains provisions such that if the purchase price per Partners share
falls below $10.00, Partners has the right to terminate the transaction, subject
to the Company's right to adjust the exchange ratio such that Partners'
shareholders would receive $10.00 for each Partners share. Under certain
circumstances, the consideration payable to Partners' shareholders may be
adjusted based on the proceeds of the potential exercise of certain rights of
first refusal with respect to Partners' interests in the London and Birmingham
franchises. Completion of the transaction is subject to a number of closing
conditions including regulatory approvals, shareholder approvals and consents
from the holders of the Company's and Partners' debt.
F-28
<PAGE> 106
NTL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
--------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 459,443,000
Marketable securities..................................... 138,326,000
Accounts receivable -- trade, less allowance for doubtful
accounts of $22,193,000................................ 130,958,000
Cash held in escrow....................................... 156,403,000
Other..................................................... 34,651,000
--------------
Total current assets........................................ 919,781,000
Fixed assets, net........................................... 3,134,655,000
Intangible assets, net...................................... 456,304,000
Other assets, net of accumulated amortization of
$32,957,000............................................... 111,498,000
--------------
Total assets................................................ $4,622,238,000
==============
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY)
Current liabilities:
Accounts payable.......................................... $ 125,293,000
Accrued expenses and other................................ 169,127,000
Interest payable.......................................... 10,615,000
Accrued construction costs................................ 62,008,000
Deferred revenue.......................................... 53,079,000
Current portion of long-term debt......................... 148,781,000
--------------
Total current liabilities................................... 568,903,000
Long-term debt.............................................. 3,885,489,000
Commitments and contingent liabilities
Deferred income taxes....................................... 72,061,000
Senior redeemable exchangeable preferred stock -- $0.01 par
value, plus accreted dividends; liquidation preference
$121,000,000; less unamortized discount of $3,211,000;
issued and outstanding 121,000 shares..................... 120,044,000
Shareholders' (deficiency):
Series preferred stock -- $0.01 par value; authorized
10,000,000 shares:
Series A -- liquidation preference $125,590,00; issued and outstanding 125,000 shares... 1,000
Common stock -- $0.01 par value; authorized 400,000,000
shares; issued and outstanding 41,392,000 shares........ 414,000
Additional paid-in capital................................ 844,368,000
Accumulated other comprehensive income.................... 184,115,000
(Deficit)................................................. (1,053,157,000)
--------------
(24,259,000)
--------------
Total liabilities and shareholders' (deficiency)............ $4,622,238,000
==============
</TABLE>
See accompanying notes.
F-29
<PAGE> 107
NTL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
REVENUES
Local telecommunications and television..................... $ 214,545,000 $ 114,593,000
National and international telecommunications............... 166,845,000 130,217,000
Broadcast transmission and other............................ 100,825,000 96,818,000
Other telecommunications.................................... 2,375,000 6,745,000
------------- -------------
484,590,000 348,373,000
COSTS AND EXPENSES
Operating expenses.......................................... 243,476,000 217,087,000
Selling, general and administrative expenses................ 192,070,000 122,934,000
Franchise fees.............................................. 18,729,000 17,608,000
Corporate expenses.......................................... 11,797,000 13,394,000
Nonrecurring charges........................................ -- 20,537,000
Depreciation and amortization............................... 156,785,000 108,254,000
------------- -------------
622,857,000 499,814,000
------------- -------------
Operating (loss)............................................ (138,267,000) (151,441,000)
OTHER INCOME (EXPENSE)
Interest and other income................................... 39,796,000 24,347,000
Interest expense............................................ (226,422,000) (152,095,000)
Foreign currency transaction (losses) gains................. (6,973,000) 912,000
------------- -------------
(Loss) before income taxes and extraordinary item........... (331,866,000) (278,277,000)
Income tax benefit.......................................... -- 21,485,000
------------- -------------
(Loss) before extraordinary item............................ (331,866,000) (256,792,000)
(Loss) from early extinguishment of debt.................... (4,239,000) --
------------- -------------
Net (loss).................................................. $(336,105,000) $(256,792,000)
============= =============
Basic and diluted net (loss) per common share:
(Loss) before extraordinary item.......................... $ (9.17) $ (8.26)
Extraordinary item........................................ (.12) --
------------- -------------
Net (loss)................................................ $ (9.29) $ (8.26)
============= =============
</TABLE>
See accompanying notes.
F-30
<PAGE> 108
NTL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIENCY)
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES SERIES COMMON STOCK --
PREFERRED STOCK PREFERRED STOCK $0.01 PAR VALUE
------------------- ------------------------ ------------------------
SHARES PAR SHARES PAR SHARES PAR
------ -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997........................ 780 $ -- 32,210,000 $322,000
Exercise of stock options......................... 221,000 2,000
Exercise of warrants.............................. 53,000
Accreted dividends on
preferred stock.................................
Accretion of discount on
preferred stock.................................
Conversion of 7 1/4% Convertible
Subordinated Notes.............................. 6,958,000 70,000
Conversion of Series Preferred
Stock........................................... (780) 1,950,000 20,000
Preferred Stock issued for
acquisition..................................... 125,000 $ 1,000
Comprehensive income..............................
Net loss for the nine months
ended September 30, 1998........................
Currency translation adjustment...................
Total.....................................
---- -------- ----------- -------- ----------- --------
Balance, September 30, 1998....................... -- $ -- 125,000 $ 1,000 41,392,000 $414,000
==== ======== =========== ======== =========== ========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PAID-IN COMPREHENSIVE COMPREHENSIVE
CAPITAL INCOME INCOME (DEFICIT)
---------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1997................... $538,054,000 $117,008,000 $ (717,052,000)
Exercise of stock options.................... 4,526,000
Exercise of warrants......................... 410,000
Accreted dividends on
preferred stock............................ (11,587,000)
Accretion of discount on
preferred stock............................ (233,000)
Conversion of 7 1/4% Convertible
Subordinated Notes......................... 186,942,000
Conversion of Series Preferred
Stock...................................... (20,000)
Preferred Stock issued for
acquisition................................ 126,276,000
Comprehensive income.........................
Net loss for the nine months ended September
30, 1998................................... $(336,105,000) (336,105,000)
Currency translation adjustment.............. 67,107,000 67,107,000
------------
Total................................ $(268,998,000)
----------- ============ ----------- ---------------------------
Balance, September 30, 1998.................. $844,368,000 $184,115,000 $ (1,053,157,000)
=========== =========== ===========================
</TABLE>
See accompanying notes.
F-31
<PAGE> 109
NTL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
Net cash (used in) operating activities..................... $ (27,656,000) $ (62,899,000)
INVESTING ACTIVITIES
Acquisition of subsidiary, net of cash acquired............. (829,698,000) --
Purchase of fixed assets.................................... (464,944,000) (354,919,000)
Payment of deferred purchase price.......................... -- (57,064,000)
Increase in other assets.................................... (10,397,000) (2,073,000)
Proceeds from sale of assets................................ 1,312,000 --
Purchase of marketable securities........................... (297,918,000) (459,504,000)
Proceeds from sales of marketable securities................ 168,650,000 423,410,000
-------------- -------------
Net cash (used in) investing activities..................... (1,432,995,000) (450,150,000)
FINANCING ACTIVITIES
Proceeds from borrowings and sale of preferred stock, net of
financing costs........................................... 2,093,602,000 490,556,000
Principal payments.......................................... (66,040,000) (13,043,000)
Cash placed in escrow....................................... (221,427,000) --
Proceeds from exercise of stock options and warrants........ 4,938,000 1,264,000
-------------- -------------
Net cash provided by financing activities................... 1,811,073,000 478,777,000
Effect of exchange rate changes on cash..................... 10,119,000 (21,212,000)
-------------- -------------
Increase in cash and cash equivalents....................... 360,541,000 (55,484,000)
Cash and cash equivalents at beginning of period............ 98,902,000 445,884,000
-------------- -------------
Cash and cash equivalents at end of period.................. $ 459,443,000 $ 390,400,000
============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest exclusive of
amounts capitalized....................................... $ 79,112,000 $ 47,808,000
Income taxes paid........................................... 335,000 31,000
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accretion of dividends and discount on senior redeemable
exchangeable preferred stock.............................. $ 11,820,000 $ 8,660,000
Conversion of Convertible Notes, net of unamortized deferred
financing costs of $4,738,000............................. 187,012,000 --
Preferred stock issued for acquisition...................... 126,277,000 --
</TABLE>
See accompanying notes.
F-32
<PAGE> 110
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine months
ended September 30, 1998 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1998. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
In March 1998, the Company issued debt denominated in British pounds
sterling. Interest expense has been translated using the average exchange rate
for the period and the debt balance has been translated using the current
exchange rate at the balance sheet date. Foreign currency gains and losses
arising from exchange rate fluctuations are included in the results of
operations.
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." Comprehensive loss for the
three months ended September 30, 1998 and 1997 was $(81,135,000) and
$(131,354,000), respectively. Comprehensive loss for the nine months ended
September 30, 1998 and 1997 was $(268,998,000) and $(341,547,000), respectively.
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997. The Company is
assessing whether changes in reporting will be required in adopting this new
standard. The Company will adopt SFAS No. 131 for fiscal year ending December
31, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. Management does not anticipate that the adoption
of SFAS No. 133 will have a significant effect on earnings or the financial
position of the Company.
Certain prior year amounts have been reclassified to conform to the 1998
presentation.
NOTE B -- COMTEL ACQUISITION
Pursuant to an acquisition agreement (the "ComTel Agreement") with Vision
Networks III B.V., a wholly-owned subsidiary of Royal PTT Nederland NV (KPN),
the Company acquired the operations of ComTel Limited and Telecential
Communications (collectively, "ComTel") for a total of 550 million pounds
sterling completed in two stages. In the first stage, in June 1998, the Company
acquired certain of the ComTel properties for 275 million pounds sterling in
cash. In the second stage, in September 1998, the Company acquired the remaining
ComTel properties for 200 million pounds sterling in cash and 75 million pounds
sterling in preferred stock. The Company financed the cash portion of the
transaction through a bank loan, completed through an amendment to the Company's
existing bank facility with The Chase Manhattan Bank.
The ComTel acquisition has been accounted for as a purchase, 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 purchase price of 550 million pounds sterling plus the return
of cash acquired of 31
F-33
<PAGE> 111
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- COMTEL ACQUISITION (CONTINUED)
million pounds sterling and costs incurred of 3 million pounds sterling (an
aggregate of 584 million pounds sterling ($993 million)) exceeded the estimated
fair value of the net tangible assets acquired by 64 million pounds sterling
($109 million), which is classified as license acquisition costs. The assets
acquired and liabilities assumed have been recorded at their estimated fair
values, which are subject to further adjustment based upon appraisals and other
analyses.
The pro forma unaudited consolidated results of operations for the nine
months ended September 30, 1998 and 1997 assuming consummation of the ComTel
acquisition as of January 1, 1997 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Total revenue................................. $ 581,454,000 $ 433,924,000
(Loss) before extraordinary item.............. (379,296,000) (316,572,000)
Net (loss).................................... (383,535,000) (316,572,000)
Basic and diluted net (loss) per common share:
(Loss) before extraordinary item............ (10.44) (10.13)
Net (loss).................................. (10.55) (10.13)
</TABLE>
NOTE C -- AMALGAMATION WITH COMCAST UK CABLE PARTNERS LIMITED
Effective October 29, 1998, the Company, NTL (Bermuda) Limited, a wholly
owned subsidiary of the Company, and Comcast UK Cable Partners Limited
("Partners") consummated a transaction pursuant to the Agreement of Plan of
Amalgamation, dated February 4, 1998, as amended, whereby NTL (Bermuda) Limited
(the "Amalgamated Company") acquired all of the outstanding common stock of
Partners. Shareholders of Partners received 0.3745 shares of common stock of the
Company in consideration for each of their shares of common stock of Partners
(an aggregate of approximately 18,700,000 shares of the Company's common stock).
The Amalgamated Company has executed a First Supplemental Indenture relating to
Partners' 11.20% Senior Discount Debentures due 2007, which provides for the
assumption by the Amalgamated Company of the Debentures. As of September 30,
1998, Partners had 241 million pounds sterling ($409 million) of Debentures
outstanding.
Pursuant to existing arrangements between Partners and Telewest
Communications plc ("Telewest"), a co-owner of interests in Cable London PLC
("Cable London") and Birmingham Cable Corporation Limited ("Birmingham Cable"),
Telewest had certain rights to acquire either or both of Partners' interests in
these systems as a result of the Amalgamation. On August 14, 1998, Partners and
the Company entered into an agreement with Telewest, pursuant to which, Partners
sold its 27.5% ownership interest in Birmingham Cable to Telewest for
125 million pounds sterling, plus 5 million pounds sterling for certain
subordinated debt and fees. In addition, Partners and Telewest agreed within a
certain time period to rationalize their joint ownership of Cable London
pursuant to an agreed procedure (the "Shoot-out"). Between April 29 and July 29,
1999, the Amalgamated Company can notify Telewest of the price at which it is
willing to sell its 50% ownership interest in Cable London to Telewest.
Following such notification, Telewest at its option will be required at that
price to either purchase the Amalgamated Company's 50% ownership interest in
Cable London or sell its 50% ownership interest in Cable London to the
Amalgamated Company. If the Amalgamated Company fails to give notice to Telewest
by July 29, 1999, it will be deemed to have delivered an offer notice for 100
million pounds sterling. The sale or purchase by the Company as per the Cable
London Shoot-out is expected to be completed by November 1999.
F-34
<PAGE> 112
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- AMALGAMATION WITH COMCAST UK CABLE PARTNERS LIMITED (CONTINUED)
The Company required consents from holders of some of its Notes to modify
certain indenture provisions in order to proceed with the Amalgamation. In
October 1998, the Company paid $11,333,000 in consent payments and issued
warrants to purchase 766,000 shares of common stock at an exercise price of
$43.39 per share in lieu of additional consent payments of $10,080,000. The
warrants expire in 2008.
NOTE D -- PROPOSED DIAMOND ACQUISITION
In June 1998, the Company entered into an acquisition agreement (the
"Diamond Agreement") with Diamond Cable Communications, plc ("Diamond").
Pursuant to the Diamond Agreement, Diamond shareholders will receive 0.25 shares
of the Company's common stock for each Diamond ordinary share. Diamond has
approximately 60.7 million fully diluted shares outstanding, and the total
consideration for the transaction will be approximately 15.2 million shares,
subject to adjustment. Based on the closing price of the Company's common stock
on the date of the Diamond Agreement, the purchase price implies a total Diamond
equity value of approximately $630 million. The closing of the Diamond Agreement
is subject to shareholder approval, bond consents and customary closing
conditions.
NOTE E -- FIXED ASSETS
Fixed assets consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
(UNAUDITED)
<S> <C>
Operating equipment......................................... $ 2,667,113,000
Other equipment............................................. 282,678,000
Construction-in-progress.................................... 530,850,000
-------------------------
3,480,641,000
Accumulated depreciation.................................... (345,986,000)
-------------------------
$ 3,134,655,000
=========================
</TABLE>
NOTE F -- INTANGIBLE ASSETS
Intangible assets consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
(UNAUDITED)
<S> <C>
License acquisition costs, net of accumulated amortization
of $60,048,000 (1998)..................................... $219,112,000
Goodwill, net of accumulated amortization of $27,324,000
(1998).................................................... 237,192,000
-----------
$456,304,000
===========
</TABLE>
F-35
<PAGE> 113
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
(UNAUDITED)
<S> <C>
10 7/8% Senior Deferred Coupon Notes........................ $ 148,781,000
12 3/4% Series A Senior Deferred Coupon Notes............... 229,652,000
11 1/2% Series B Senior Deferred Coupon Notes............... 809,150,000
10% Series B Senior Notes................................... 400,000,000
9 1/2% Senior Sterling Notes, less unamortized discount of
$669,000.................................................. 211,693,000
10 3/4% Senior Deferred Coupon Sterling Notes............... 316,445,000
9 3/4% Senior Deferred Coupon Notes......................... 845,172,000
7% Convertible Subordinated Notes........................... 275,000,000
Subsidiary bank loan........................................ 798,377,000
-------------------------
4,034,270,000
Less current portion........................................ 148,781,000
-------------------------
$ 3,885,489,000
=========================
</TABLE>
10 7/8% NOTES REDEMPTION: In June 1998, the Company provided to the
Trustee of its 10 7/8% Senior Deferred Coupon Notes due 2003 a notice that it
would redeem the 10 7/8% Notes on October 15, 1998. Pending such redemption, the
Company deposited in trust with the Trustee $218.6 million to pay the redemption
price (including principal) on the 10 7/8% Notes. In July 1998, the Company
purchased a portion of the 10 7/8% Notes with an accreted value of $62.3 million
for cash of $65 million. The Company recorded an extraordinary loss from the
early extinguishment of this portion of the 10 7/8% Notes of $4,239,000. In
October 1998, the Company redeemed the remainder of the 10 7/8% Notes with an
accreted value of $148,781,000 at September 30, 1998 using cash held in escrow
of $152.6 million. The Company recorded an extraordinary loss from the early
extinguishment of the 10 7/8% Notes of approximately $7.9 million in the fourth
quarter of 1998.
CONVERSION OF 7 1/4% CONVERTIBLE NOTES: In March 1998, the Company called
for redemption all of its $191,750,000 principal amount 7 1/4% Convertible
Subordinated Notes due 2005 (the "7 1/4% Notes"). The redemption date was April
20, 1998, at a redemption price of 105.08% of the principal amount plus accrued
and unpaid interest through the date of redemption. The 7 1/4% Notes were
convertible into the Company's Common Stock at a conversion price of $27.56 per
share. In April 1998, all of the 7 1/4% Notes were converted into approximately
6,958,000 shares of the Company's Common Stock.
ISSUANCE OF NEW NOTES: In March 1998, the Company issued 125 million
pounds sterling aggregate principal amount of 9 1/2% Senior Notes due 2008 (the
"Sterling Senior Notes"), 300 million pounds sterling aggregate principal amount
of 10 3/4% Senior Deferred Coupon Notes due 2008 (the "Sterling Deferred Coupon
Notes") and $1.3 billion aggregate principal amount of 9 3/4% Senior Deferred
Coupon Notes due 2008 (the "Dollar Deferred Coupon Notes") (together the "New
Notes"). The Sterling Senior Notes, Sterling Deferred Coupon Notes and the
Dollar Deferred Coupon Notes were issued at 99.67% or 124.6 million pounds
sterling, 58.62% or 175.9 million pounds sterling and 61.724% or $802.4 million,
respectively. The Company received net proceeds of 121.2 million pounds
sterling, 170.6 million pounds sterling and $778.3 million, after discounts and
commissions, from the issuance of the Sterling Senior Notes, the Sterling
Deferred Coupon Notes and the Dollar Deferred Coupon Notes, respectively. The
aggregate of the discounts, commissions and other fees incurred of $39.5 million
is included in deferred financing costs.
The original issue discount of the Sterling Deferred Coupon Notes accretes
at a rate of 10 3/4%, compounded semiannually, to an aggregate principal amount
of 300 million pounds sterling by April 1, 2003. The original issue discount of
the Dollar Deferred Coupon Notes accretes at a rate of 9 3/4%, compounded
F-36
<PAGE> 114
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- LONG-TERM DEBT (CONTINUED)
semiannually, to an aggregate principal amount of $1.3 billion by April 1, 2003.
Interest on each of the Sterling Deferred Coupon Notes and the Dollar Deferred
Coupon Notes will thereafter accrue at 10 3/4% per annum and 9 3/4% per annum,
respectively, payable semiannually, beginning on October 1, 2003. The Sterling
Senior Notes accrue interest at 9 1/2% per annum, payable on October 1, 1998 and
semiannually thereafter.
The New Notes are effectively subordinated to all existing and future
indebtedness and other liabilities and commitments of the Company's
subsidiaries, rank pari passu in right of payment with each other and with all
senior unsecured indebtedness of the Company and rank senior in right of payment
to all subordinated indebtedness of the Company.
The New Notes may be redeemed at the Company's option, in whole or in part,
at any time on or after April 1, 2003, at a redemption price of 104 3/4% to
105 3/8% that declines annually to 100% in 2006, in each case together with
accrued and unpaid interest to the date of redemption.
The indentures governing the New Notes contain restrictions relating to,
among other things: (i) incurrence of additional indebtedness and the issuance
of preferred stock, (ii) dividend and other payment restrictions and (iii)
mergers, consolidations and sales of assets.
BANK LOAN PAYABLE AND REFINANCING: In connection with the ComTel
acquisition, the Company borrowed an aggregate of 475 million pounds sterling
($798 million) under its credit facility from The Chase Manhattan Bank. The
effective interest rate on the amounts borrowed at September 30, 1998 was
9.776%. The bank loan was due on January 31, 1999, subject to extension to June
30, 1999.
In November 1998, the Company issued $625,000,000 aggregate principal
amount of 11 1/2% Senior Notes due 2008 (the "11 1/2% Notes") and $450,000,000
aggregate principal amount at maturity of 12 3/8% Senior Deferred Coupon Notes
due 2008 (the "12 3/8% Notes"). The 11 1/2% Notes and the 12 3/8% Notes were
issued at 100% or $625,000,000 and 55.505% or $249,773,000, respectively. The
Company received net proceeds of $607,031,000 and $241,967,000 after discounts
and commissions, from the issuance of the 11 1/2% Notes and the 12 3/8% Notes,
respectively. The proceeds from these notes were used to repay the bank loan and
the remaining $50,000,000 was added to short term investments. The Company
recorded an extraordinary loss from the early extinguishment of debt of
approximately $19.5 million in the fourth quarter of 1998 as a result of the
repayment.
The 11 1/2% Notes accrue interest at 11 1/2% per annum, payable
semiannually beginning on April 1, 1999. The 11 1/2% Notes may be redeemed, at
the Company's option, in whole or in part, at any time on or after October 1,
2003 at a redemption price of 105.75% that declines annually to 100% in 2006, in
each case together with accrued and unpaid interest to the date of redemption.
The original issue discount on the 12 3/8% Notes accretes at a rate of
12 3/8%, compounded semiannually, to an aggregate principal amount of
$450,000,000 by October 1, 2003. Interest will thereafter accrue at 12 3/8% per
annum, payable semiannually beginning on April 1, 2004. The 12 3/8% Notes may be
redeemed, at the Company's option, in whole or in part, at any time on or after
October 1, 2003 at a redemption price of 106.188% that declines annually to 100%
in 2006, in each case together with accrued and unpaid interest to the date of
redemption.
NOTE H -- SERIES PREFERRED STOCK
In May 1998, the 780 outstanding shares of 5% Non-Voting Convertible
Preferred Stock, Series A were converted into 1,950,000 shares of Common Stock.
On September 21, 1998, the Company issued 125,280 shares of 9.9% Non-voting
Mandatorily Redeemable Preferred Stock, Series A (the "PIK Preferred Stock") in
connection with the ComTel acquisition. The
F-37
<PAGE> 115
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- SERIES PREFERRED STOCK (CONTINUED)
PIK Preferred Stock was valued at 75,000,000 pounds sterling ($126,277,000), the
fair market value on the date of issuance. Each share of PIK 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, in shares of Convertible Preferred Stock or through any
combination of the foregoing. As of September 30, 1998, accrued and unpaid
dividends were $310,000. On December 22, 1999, all outstanding shares of the PIK
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,
in shares of Convertible Preferred Stock or through any combination of the
foregoing.
NOTE I -- GRANT OF STOCK OPTIONS
In March 1998, options to purchase approximately 7,800,000 shares of Common
Stock were granted to officers, non-employee directors and employees at an
exercise price of $36.50 per share. Officers and senior management employees
were granted options to purchase 3,260,000 shares and 2,765,000 shares,
respectively. These employees will not be granted any further options in 1998 to
2001 inclusive. These options will vest beginning January 1, 1999 through
January 1, 2004. The non-employee directors were granted options to purchase an
aggregate of 450,000 shares which vest on the same schedule. Supervisory
employees were granted options to purchase an aggregate of approximately
1,000,000 shares which are exercisable as to 20% of the shares subject thereto
on the date of grant and an additional 20% each January 1 thereafter, while the
optionee remains an employee of the Company. Finally, each employee who is not
included in the groups described above and who had at least one year of service
as of March 1, 1998 was granted an option to purchase 100 shares which are
exercisable on a 20% per year schedule.
Beginning in March 1998 and in each year thereafter, each employee who is
not otherwise granted options and has completed at least one year of employment
will be granted an option to purchase 100 shares of the Company's Common Stock
each year. The exercise price for these options will be at the fair market value
of the Company's Common Stock on the date of issuance, and these options will
vest on a 20% per year schedule. It is anticipated that approximately 1,850,000
options will be granted each year in 1999, 2000 and 2001 to supervisory and
other employees.
NOTE J -- RESTRUCTURING CHARGES
In September 1997, the Company announced a reorganization of certain of its
operations. Restructuring costs of $15,811,000 were recorded in September 1997
consisting of employee severance and related costs of $6,688,000 for
approximately 280 employees to be terminated, lease exit costs of $6,509,000 and
penalties of $2,614,000 associated with the cancellation of contractual
obligations. As of September 30, 1998, $8,029,000 of the provision has been
used, including $4,493,000 for severance and related costs, $1,400,000 for lease
exit costs and $2,136,000 for penalties associated with the cancellation of
contractual obligations. As of September 30, 1998, 137 employees had been
terminated. There was no other adjustment to the liability through September 30,
1998.
F-38
<PAGE> 116
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- NET LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted net
loss per common share:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Numerator:
Loss before extraordinary item.............................. $(331,866,000) $(256,792,000)
Preferred stock dividend.................................... (11,587,000) (8,453,000)
------------- -------------
(343,453,000) (265,245,000)
Extraordinary item.......................................... (4,239,000) --
------------- -------------
Loss available to common shareholders....................... $(347,692,000) $(265,245,000)
------------- -------------
Denominator for basic net loss per common share............. 37,436,000 32,101,000
Effect of dilutive securities............................... -- --
------------- -------------
Denominator for diluted net loss per common share........... 37,436,000 32,101,000
------------- -------------
Basic and diluted net loss per common share:
Loss before extraordinary item............................ $ (9.17) $ (8.26)
Extraordinary item........................................ (.12) --
------------- -------------
Net loss.................................................. $ (9.29) $ (8.26)
============= =============
</TABLE>
The shares issuable upon the exercise of stock options and warrants and
upon the conversion of convertible securities are excluded from the calculation
of net loss per common share as their effect would be antidilutive.
NOTE L -- COMMITMENTS AND CONTINGENT LIABILITIES
As of September 30, 1998, the Company was committed to pay approximately
$176,300,000 for equipment and services.
The Company has licenses issued by the United Kingdom Department of Trade
and Industry ("DTI") and the United Kingdom Independent Television Commission
("ITC") for its cable television ("CATV"), telephone and telecommunications
business. The initial terms of the Company's licenses was 15 or 23 years for the
DTI licenses and 15 years for the ITC licenses. The Company's licenses expire in
2005 to 2016 for the DTI licenses and 1999 to 2005 for the ITC licenses. The DTI
requires a fixed annual renewal fee of 2,500 pounds sterling ($4,200) per
license. The ITC requires an annual license fee ranging from 1,300 pounds
sterling ($2,200) to 7,900 pounds sterling ($13,400) per license based on the
number of homes in the licensed area, which is subject to adjustment annually.
The provision of the Company's transmission and distribution services is
governed by the Telecommunications Act and the Wireless Telegraphy Act 1949. The
Company holds five licenses under the Telecommunications Act. The initial terms
of these licenses were 10 or 25 years. These licenses expire in 2002 to 2021.
The Company holds a number of Wireless Telegraphy Act licenses which continue in
force primarily from year to year unless revoked or unless any of the license
fees are not paid. The Company's license fees paid in the nine months ended
September 30, 1998 were $1,628,000.
In addition, the Company was awarded certain newly issued licenses by the
ITC in 1995. Pursuant to the terms of the local delivery license ("LDL") for
Northern Ireland granted to a wholly-owned subsidiary of the Company, the
Company is required to make annual cash payments to the ITC for fifteen years
commencing in January 1997 in the amount of approximately 14,400,000 pounds
sterling ($24,500,000) (subject to adjustments for inflation). The fee for 1998
is 14,951,661 pounds sterling. Such payments are in addition to the percentages
of qualifying revenue already set by the ITC of 0% for the first ten years and
2% for the last
F-39
<PAGE> 117
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- COMMITMENTS AND CONTINGENT LIABILITIES -- (CONTINUED)
five years of the fifteen year license. The Company paid approximately
$18,600,000 in license fees in the nine months ended September 30, 1998.
Pursuant to the terms of the LDL for Glamorgan and Gwent, Wales granted to
a wholly-owned subsidiary of the Company, the Company is required to make annual
cash payments to the ITC for fifteen years, commencing in January 1998, in the
amount of 104,188 pounds sterling ($177,000). Such payments are in addition to
the percentages of qualifying revenue already set by the ITC of 0% for the first
five years, 2% for the second five years and 4% for the last five years of the
fifteen year license. The Company paid $129,000 in the nine months ended
September 30, 1998.
The Company is involved in, or has been involved in, certain disputes and
litigation arising in the ordinary course of its business, including claims
involving contractual disputes and claims for damages to property and personal
injury resulting from construction of the Company's networks and the maintenance
and servicing of the Company's transmission masts. None of these matters are
expected to have a material adverse effect on the Company's financial position,
results of operations or cash flows.
F-40
<PAGE> 118
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Comcast UK Cable Partners Limited
We have audited the accompanying consolidated balance sheet of Comcast UK
Cable Partners Limited (a company incorporated in Bermuda) and subsidiaries as
of December 31, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity and of cash flows for each of the three years
in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Comcast UK Cable Partners
Limited and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 27, 1998
F-41
<PAGE> 119
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN L000'S, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. L 37,372 L 63,314
Short-term investments.................................... 61,466
Accounts receivable, less allowance for doubtful accounts
of L2,598 and L1,338................................... 4,255 2,922
Other current assets...................................... 5,419 5,359
--------- ---------
Total current assets................................... 47,046 133,061
--------- ---------
INVESTMENTS IN AFFILIATES................................... 61,363 69,472
--------- ---------
PROPERTY AND EQUIPMENT...................................... 315,702 232,112
Accumulated depreciation.................................. (33,000) (13,765)
--------- ---------
Property and equipment, net............................... 282,702 218,347
--------- ---------
DEFERRED CHARGES............................................ 60,770 60,867
Accumulated amortization.................................. (13,985) (8,379)
--------- ---------
Deferred charges, net..................................... 46,785 52,488
--------- ---------
FOREIGN EXCHANGE PUT OPTIONS AND OTHER, net................. 7,958 11,002
--------- ---------
L 445,854 L 484,370
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses..................... L 23,605 L 23,086
Current portion of long-term debt......................... 1,683 1,463
Foreign exchange call options............................. 4,086
Due to affiliates......................................... 920 676
--------- ---------
Total current liabilities.............................. 26,208 29,311
--------- ---------
LONG-TERM DEBT, less current portion........................ 234,010 202,626
--------- ---------
FOREIGN EXCHANGE CALL OPTIONS............................... 2,688 3,079
--------- ---------
LONG-TERM DEBT, due to shareholder.......................... 11,272 10,322
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred shares, L.01 par value -- authorized, 10,000,000
shares; issued none....................................
Class A common shares, L.01 par value -- authorized,
50,000,000 shares; issued, 37,231,997.................. 372 372
Class B common shares, L.01 par value -- authorized,
50,000,000 shares; issued, 12,872,605.................. 129 129
Additional capital........................................ 358,548 358,548
Accumulated deficit....................................... (187,373) (120,017)
--------- ---------
Total shareholders' equity............................. 171,676 239,032
--------- ---------
L 445,854 L 484,370
========= =========
</TABLE>
See notes to consolidated financial statements.
F-42
<PAGE> 120
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN L000'S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Service income........................................... L 55,603 L 31,358 L 1,530
Consulting fee income.................................... 1,059 1,070 1,313
-------- -------- --------
56,662 32,428 2,843
-------- -------- --------
COSTS AND EXPENSES
Operating................................................ 19,624 12,211 683
Selling, general and administrative...................... 30,850 25,073 7,815
Management fees.......................................... 3,204 2,997 3,105
Depreciation and amortization............................ 25,588 16,700 3,049
-------- -------- --------
79,266 56,981 14,652
-------- -------- --------
OPERATING LOSS............................................. (22,604) (24,553) (11,809)
OTHER (INCOME) EXPENSE
Interest expense......................................... 25,243 23,627 3,539
Investment income........................................ (7,259) (12,555) (11,758)
Equity in net losses of affiliates....................... 21,359 18,432 23,677
Exchange losses (gains) and other........................ 5,409 (13,482) 1,695
-------- -------- --------
44,752 16,022 17,153
-------- -------- --------
NET LOSS................................................... (L67,356) (L40,575) (L28,962)
======== ======== ========
NET LOSS PER SHARE......................................... (L 1.34) (L .84) (L .70)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING....... 50,105 48,216 41,245
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-43
<PAGE> 121
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN L000'S)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. (L67,356) (L40,575) (L28,962)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 25,588 16,700 3,049
Amortization on foreign exchange contracts............. 2,770 2,752 (75)
Non-cash interest expense.............................. 24,684 23,209 3,539
Non-cash investment income............................. (2,521) (2,854) (5,016)
Exchange losses (gains)................................ 2,852 (18,857) 944
Equity in net losses of affiliates..................... 21,359 18,432 23,677
Other.................................................. 991 (199) 619
Increase in accounts receivable, other current assets
and other............................................ (3,447) (1,154) (2,658)
Increase in accounts payable and accrued expenses...... 519 1,045 10,002
Increase (decrease) in due to affiliates............... 244 (1,548) (4,628)
-------- -------- ---------
Net cash provided by (used in) operating
activities........................................ 5,683 (3,049) 491
-------- -------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings............................... 192,542
Repayments of debt..................................... (1,633) (1,711)
Debt acquisition costs................................. (6,089)
Purchase of foreign exchange put options............... (13,855)
Proceeds from sales of foreign exchange call options... 2,125 3,415
Other.................................................. (53)
-------- -------- ---------
Net cash (used in) provided by financing
activities........................................ (1,633) 414 175,960
-------- -------- ---------
INVESTING ACTIVITIES
Acquisition, net of cash acquired...................... (10,373)
Proceeds from sales (purchases) of short-term
investments, net..................................... 61,466 (4,226) (43,141)
Capital contributions and loans to affiliates.......... (8,713) (10,667) (25,829)
Capital expenditures................................... (82,125) (70,624) (45,308)
Additions to deferred charges.......................... (620) (392) (59)
-------- -------- ---------
Net cash used in investing activities............. (29,992) (96,282) (114,337)
-------- -------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............ (25,942) (98,917) 62,114
CASH AND CASH EQUIVALENTS, beginning of year................ 63,314 162,231 100,117
======== ======== =========
CASH AND CASH EQUIVALENTS, end of year...................... L 37,372 L 63,314 L 162,231
======== ======== =========
</TABLE>
See notes to consolidated financial statements.
F-44
<PAGE> 122
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
A COMMON B COMMON
--------------- --------------- ADDITIONAL ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995........... 28,372 L284 12,873 L129 L287,450 (L 50,480) L237,383
Net loss...................... (28,962) (28,962)
Other......................... (53) (53)
------ ---- ------ ---- -------- --------- --------
BALANCE, DECEMBER 31, 1995......... 28,372 284 12,873 129 287,397 (79,442) 208,368
Net loss...................... (40,575) (40,575)
Shares issued in connection
with SingTel Transaction.... 8,860 88 71,151 71,239
------ ---- ------ ---- -------- --------- --------
BALANCE, DECEMBER 31, 1996......... 37,232 372 12,873 129 358,548 (120,017) 239,032
Net loss...................... (67,356) (67,356)
------ ---- ------ ---- -------- --------- --------
BALANCE, DECEMBER 31, 1997......... 37,232 L372 12,873 L129 L358,548 (L187,373) L171,676
====== ==== ====== ==== ======== ========= ========
</TABLE>
See notes to consolidated financial statements.
F-45
<PAGE> 123
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. BUSINESS
Comcast UK Cable Partners Limited and subsidiaries (the "Company"), a
Bermuda company incorporated in 1992, was formed to develop, construct, manage
and operate the interests of Comcast Corporation ("Comcast") in the United
Kingdom ("UK") cable and telecommunications industry. The Company is a
controlled subsidiary of Comcast U.K. Holdings, Inc. ("Holdings"), a Delaware
corporation indirectly wholly owned by Comcast. As of December 31, 1997, the
Company has interests in four operations (the "Partners Operating Companies"):
Birmingham Cable Corporation Limited ("Birmingham Cable"), in which the Company
owns a 27.5% interest, Cable London PLC ("Cable London"), in which the Company
owns a 50.0% interest, Cambridge Holding Company Limited ("Cambridge Cable"), in
which the Company owns a 100% interest and two companies holding the franchises
for Darlington and Teesside, England ("Teesside"), in which the Company owns a
100% interest. The Company also owns a 100% interest in Comcast UK Holdings
Limited ("UK Holdings"), a company incorporated in Bermuda in December 1997.
On February 4, 1998, the Company entered into a definitive agreement to
amalgamate (the "NTL Transaction") with a wholly owned Bermuda subsidiary of NTL
Incorporated ("NTL"). NTL is an alternative telecommunications company in the UK
and is listed on Nasdaq. The NTL Transaction is expected to close in 1998,
subject to, among other things, the receipt of required Bermuda and UK
regulatory approvals, the approval of the Company's and NTL's shareholders, the
consent of the Company's and NTL's bondholders, the consent of certain NTL bank
lenders and other customary closing matters. Comcast, through Holdings, is the
sole holder of the multiple-voting Class B Common Shares of the Company and has
agreed to vote for the transaction, assuring its approval by the Company's
shareholders. Upon consummation of the NTL Transaction, the Company would become
a wholly owned subsidiary of NTL.
Except in the circumstances described below, the Company's shareholders
will receive 0.3745 shares of NTL common stock for each of the Company's Class A
Common Shares or Class B Common Shares. If the average closing price of the NTL
common stock for a specified period of time prior to the Company's shareholders
meeting to approve the NTL Transaction (the "Average Price") is less than
$26.70, the Company will have the option to terminate the NTL Transaction,
subject to the right of NTL to adjust the exchange ratio such that one share of
the Company's Class A Common Shares or Class B Common Shares will be exchanged
for a number of shares of NTL common stock equal to $10.00 (based on the Average
Price).
Pursuant to existing arrangements between the Company and Telewest
Communications plc ("Telewest"), a co-owner of interests in Cable London and
Birmingham Cable, Telewest has certain rights (the "Telewest Rights") to acquire
either or both of the Company's interests in these systems as a result of the
NTL Transaction. However, as described in the following paragraphs, the
consummation of the NTL Transaction is not dependent on the resolution of the
Telewest Rights.
If the Telewest Rights have been exercised prior to the closing of the NTL
Transaction, the Company's shareholders may receive (at the option of NTL), in
lieu of a portion of the consideration allocable to the interest subject to the
exercised Telewest Rights, the per share proceeds from the sale of the interest
to Telewest (net of taxes on gain on sale), payable in cash or shares of NTL
common stock valued at the greater of $30.00 per share or the Average Price at
closing (the "Exercise Consideration").
Similarly, if at closing either of the Telewest Rights have not been
exercised and have not been waived or otherwise expired, the Company's
shareholders may receive (at the option of NTL), shares of a new class of NTL
preferred stock equal to a portion of the consideration allocable to the
interest subject to the unexercised Telewest Rights. Any shares of NTL preferred
stock would have the same voting and dividend rights as shares of NTL common
stock, would be subject to redemption as described below, and would be expected
to be listed for trading on Nasdaq. If following closing the Telewest Rights are
exercised, the NTL preferred stock will be
F-46
<PAGE> 124
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
redeemed for the Exercise Consideration (based on the Average Price at the time
of exercise). If the Telewest Rights are resolved without being exercised, the
NTL preferred stock will be redeemed for NTL common stock on a one-for-one
basis.
Of the consideration to be received by the Company's shareholders in the
NTL Transaction, the parties have allocated 31% to the Company's interest in
Cable London and 17% to the Company's interest in Birmingham Cable. However, if
either or both of the Telewest Rights are exercised, the actual consideration to
be received by the Company's shareholders may be materially different from the
portion of the consideration (the "allocable portion") which has been allocated
by the parties to the Company's respective interests in Cable London and
Birmingham Cable, depending on, among other things, the value of these
interests, as finally determined, whether NTL exercises its option to deliver
the Exercise Consideration in lieu of the allocable portion and, the amount of
any taxes payable by the Company on the sale of these interests.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
Subsidiaries of the Company maintain their books and records in accordance
with accounting principles generally accepted in the UK. The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles as practiced in the United States ("US") and are stated in
UK pounds sterling ("UK Pound"). There were no significant differences between
accounting principles followed for UK purposes and generally accepted accounting
principles practiced in the US. The UK Pound exchange rate as of December 31,
1997 and 1996 was US $1.65 and US $1.71, respectively.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned subsidiaries. All significant intercompany accounts and
transactions among the consolidated entities have been eliminated.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Values
The estimated fair value amounts presented in these notes to consolidated
financial statements have been determined by the Company using available market
information and appropriate methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value. The
estimates presented herein are not necessarily indicative of the amounts that
the Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts. Such fair value estimates are based on
pertinent information available to management as of December 31, 1997 and 1996,
and have not been comprehensively revalued for purposes of these consolidated
financial statements since such dates. The carrying value of the amounts due to
affiliates and long-term debt due to shareholder approximates fair value as of
December 31, 1997 and 1996.
F-47
<PAGE> 125
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Cash Equivalents and Short-term Investments
Cash equivalents consist principally of commercial paper, time deposits and
money market funds with maturities of three months or less when purchased.
Short-term investments as of December 31, 1996 consist principally of commercial
paper and corporate floating rate notes with maturities greater than three
months when purchased. The carrying amounts of the Company's cash equivalents
and short-term investments, classified as available for sale securities,
approximate their fair values.
Investments in Affiliates
Investments in entities in which the Company has the ability to exercise
significant influence over the operating and financial policies of the investee
are 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
differences between the Company's recorded investments and its proportionate
interests in the book value of the investees' net assets are being amortized to
equity in net losses of affiliates over the remaining original lives of the
related franchises of eight years.
Prematurity Period
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its cable telecommunications systems in Teesside
and Cambridge Cable under the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 51, "Financial Reporting by Cable Television Companies."
Under SFAS No. 51, during the period while the systems are partially under
construction and partially in service (the "Prematurity Period"), costs of cable
telecommunications plant, including materials, direct labor and construction
overhead are capitalized. Subscriber-related costs and general and
administrative costs are expensed as incurred. Costs incurred in anticipation of
servicing a fully operating system that will not vary regardless of the number
of subscribers are partially expensed and partially capitalized, based upon the
percentage of average actual or estimated subscribers, whichever is greater, to
the total number of subscribers expected at the end of the Prematurity Period
(the "Fraction").
During the Prematurity Period, depreciation and amortization of system
assets is determined by multiplying the depreciation and amortization of the
total capitalized system assets expected at the end of the Prematurity Period by
the Fraction. At the end of the Prematurity Period, depreciation and
amortization of system assets is based on the remaining undepreciated cost at
that date.
As of December 31, 1997, two of the Company's five franchise areas which
are under construction have completed their Prematurity Period. The remaining
Prematurity Periods are expected to terminate at various dates in 1998 and 1999.
Property and Equipment
Property and equipment, which consists principally of system assets, is
shown at historical cost less accumulated depreciation. Improvements that extend
asset lives are capitalized; other repairs and maintenance charges are expensed
as incurred. The cost and related accumulated depreciation applicable to assets
sold or retired are removed from the accounts and the gain or loss on
disposition is recognized as a component of depreciation expense.
F-48
<PAGE> 126
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
System assets
Prior to the Prematurity Period, no depreciation is provided on system
assets. During the Prematurity Period, depreciation is provided in accordance
with SFAS No. 51.
Depreciation of system assets is provided by the straight-line method over
estimated useful lives as follows:
<TABLE>
<S> <C>
Plant....................................................... 15-40 years
Network..................................................... 15 years
Subscriber equipment........................................ 6-10 years
Switch...................................................... 10 years
Computers................................................... 4 years
</TABLE>
Non-system assets
Depreciation of non-system assets is provided by the straight-line method
over estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings................................................... 40 years
Fixtures, fittings and equipment............................ 5 years
Vehicles.................................................... 4 years
Computers................................................... 4 years
</TABLE>
Leased Assets
Assets held under capital leases are treated as if they had been purchased
outright and the corresponding liability is included in long-term debt. Capital
lease payments include principal and interest, with the interest portion being
expensed. Payments on operating leases are expensed on a straight-line basis
over the lease term.
Deferred Charges
Deferred charges consist primarily of franchise acquisition costs
attributable to obtaining, developing and maintaining the franchise licenses of
Teesside and Cambridge Cable, debt acquisition costs relating to the sale of
approximately $517.3 million principal amount at maturity of the Company's
11.20% Senior Discount Debentures Due 2007 (the "2007 Discount
Debentures" -- see Note 7) and goodwill arising from the SingTel Transaction
(see Note 4). Franchise acquisition costs are being amortized on a straight-line
basis over the remaining original lives of the related franchises of 12 to 15
years. Debt acquisition costs are being amortized on a straight-line basis over
the term of the 2007 Discount Debentures of 12 years. Goodwill is being
amortized on a straight-line basis over the remaining original lives of the
related franchises of 11 years.
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and deferred charges, using objective
methodologies. Such methodologies include evaluations based on the cash flows
generated by the underlying assets or other determinants of fair value.
Revenue Recognition
Service income is recognized as service is provided. Credit risk is managed
by disconnecting services to subscribers who are delinquent.
F-49
<PAGE> 127
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Stock-Based Compensation
Effective January 1, 1996, the Company adopted the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation," which encourages, but does not
require, companies to record compensation cost for stock-based compensation
plans at fair value. The Company has elected to continue to account for stock-
based compensation in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations, as
permitted by SFAS No. 123. Compensation expense for stock options is measured as
the excess, if any, of the quoted market price of the Company's stock at the
date of grant over the amount an employee must pay to acquire the stock.
Compensation expense for stock appreciation rights is recorded annually based on
changes in quoted market prices of the Company's stock or other determinants of
fair value at the end of the year (see Note 8).
Income Taxes
The Company is exempt from US federal, state and local income taxes. At the
present time, no income, profit, capital or capital gains taxes are levied in
Bermuda and, accordingly, no provision for such taxes has been recorded by the
Company. In the event that such taxes are levied, the Company has received an
undertaking from the Bermuda Government exempting it from all such taxes until
March 2016.
The Company's wholly owned subsidiaries recognize deferred tax assets and
liabilities for temporary differences between the financial reporting basis and
the tax basis of their assets and liabilities and expected benefits of utilizing
net operating loss carryforwards. The impact on deferred taxes of changes in tax
rates and laws, if any, applied to the years during which temporary differences
are expected to be settled, are reflected in the financial statements in the
period of enactment.
Derivative Financial Instruments
The Company uses derivative financial instruments, principally foreign
exchange option contracts ("FX Options"), to manage its exposure to fluctuations
in foreign currency exchange rates. Written FX Options are marked-to-market on a
current basis in the Company's consolidated statement of operations (see Note
6).
Those instruments that have been entered into by the Company to hedge
exposure to foreign currency exchange rate risks are periodically examined by
the Company to ensure that the instruments are matched with underlying
liabilities, reduce the Company's risks relating to foreign currency exchange
rates, and, through market value and sensitivity analysis, maintain a high
correlation to the underlying value of the hedged item. For those instruments
that do not meet the above criteria, variations in their fair value are
marked-to-market on a current basis in the Company's consolidated statement of
operations.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments (see Notes 6 and
7). The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although the Company may be exposed to
losses in the event of nonperformance by the counterparties, the Company does
not expect such losses, if any, to be significant.
Net Loss Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share," which was adopted by the Company effective
for the year ended December 31, 1997, as required by the statement. For the
years ended December 31, 1997, 1996 and 1995, the Company's potential common
shares have an antidilutive effect on the loss per share and, therefore, have
not been used in determining the total weighted average number of common shares
outstanding. Diluted loss per share for 1997, 1996 and 1995 is antidilutive and,
therefore, has not been presented.
F-50
<PAGE> 128
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 1997.
3. TEESSIDE ACQUISITION
In June 1994, the Company acquired all of the outstanding shares of two
companies that owned Teesside, which comprise an area containing approximately
254,000 homes. The construction of Teesside's cable telecommunications network
commenced in the third quarter of 1994. Teesside added its initial cable and
telephony subscribers in June 1995.
4. SINGTEL TRANSACTION
In March 1996, the Company completed the acquisition (the "SingTel
Transaction") of Singapore Telecom International Pte. Limited's ("Singapore
Telecom") 50% interest in Cambridge Cable, pursuant to the terms of a Share
Exchange Agreement executed by the parties in December 1995. In exchange for
Singapore Telecom's 50% interest in Cambridge Cable and certain loans made to
Cambridge Cable, with accrued interest thereon, the Company issued approximately
8.9 million of its Class A Common Shares and paid approximately L11.8 million to
Singapore Telecom. The Company accounted for the SingTel Transaction under the
purchase method. As a result of the SingTel Transaction, the Company owns 100%
of Cambridge Cable and Cambridge Cable was consolidated with the Company
effective March 31, 1996.
The following unaudited pro forma information for the years ended December
31, 1996 and 1995 has been presented as if the SingTel Transaction had occurred
on January 1, 1995. This unaudited pro forma information is based on historical
results of operations adjusted for acquisition costs and, in the opinion of
management, is not necessarily indicative of what results would have been had
the Company owned 100% of Cambridge Cable since January 1, 1995 (in thousands,
except per share data).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------
1996 1995
-------- --------
<S> <C> <C>
Revenues.................................................... L 38,651 L 22,859
Net loss.................................................... (42,300) (37,616)
Net loss per share.......................................... (.84) (.75)
</TABLE>
5. INVESTMENTS IN AFFILIATES
The Company has historically invested in three affiliates (the "Equity
Investees," which term excludes Cambridge Cable as of, and subsequent to March
31, 1996 -- see Note 4): Birmingham Cable, Cable London and Cambridge Cable. The
Equity Investees operate integrated cable communications, residential telephony
and business telecommunications systems in their respective major metropolitan
areas under exclusive cable television licenses and non-exclusive
telecommunications licenses. As of December 31, 1997, the Company's ownership
interest in the Equity Investees is as follows:
<TABLE>
<S> <C>
Birmingham Cable............................................ 27.5%
Cable London................................................ 50.0%
</TABLE>
The Company also has a 16.4% interest in Cable Programme Partners-1 Limited
Partnership ("CPP-1") which previously developed and distributed cable
programming in the UK. During 1995, CPP-1 sold its only channel and has wound
down its operations to a minimal level of activity. The carrying value of the
Company's investment in CPP-1 has been reduced to zero and the Company has no
future funding commitments to CPP-1.
F-51
<PAGE> 129
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Included in investments in affiliates as of December 31, 1997 and 1996, are
loans to Cable London of L28.5 million and L22.5 million and accrued interest of
L6.0 million and L3.6 million, respectively. The loans accrue interest at a rate
of 2% above the published base lending rate of Barclays Bank PLC (9.25%
effective rate as of December 31, 1997) and are subordinate to Cable London's
revolving bank credit facility. Of these loans, L21.0 million as of December 31,
1997 and 1996 are convertible into ordinary shares of Cable London at a per
share conversion price of L2.00. Also included in investments in affiliates as
of December 31, 1997 are loans to Birmingham Cable of L1.9 million and accrued
interest of L133,000. The Birmingham Cable loans accrue interest at a fixed rate
of 7.80% and are subordinate to Birmingham Cable's credit facility. Loans to
Cambridge Cable and related accrued interest have been eliminated in
consolidation subsequent to the SingTel Transaction (see Note 4).
In February 1995, a subsidiary of Birmingham Cable issued 175,000
cumulative L1.00 redeemable five year term preference shares for a paid up value
of L175.0 million. Also in February 1995, Birmingham Cable entered into a L175.0
million five year revolving credit facility (the "Birmingham Facility") which
provided for conversion into a five year term loan on March 31, 2000. In March
1997, the terms of the Birmingham Facility were amended to extend the maturity
of the term loan to December 31, 2005 and to amend the required cash flow levels
(as defined) and certain other terms. Interest rates on the Birmingham Facility
are at the London Interbank Offered Rate ("LIBOR") plus 5/8% to 2 1/4%.
In July 1997, the preference shareholder exercised its option to require
Birmingham Cable to purchase its shareholding. Birmingham Cable funded the
redemption of the preference shares with the proceeds from the Birmingham
Facility and restricted cash and settled its five year L175.0 million interest
rate exchange agreement with Barclays Bank PLC. The balance of the Birmingham
Facility will be used, subject to certain restrictions, for capital expenditures
and working capital requirements relating to the build-out of its systems. The
preference shares had an effective dividend rate, including Advanced Corporation
Tax ("ACT"), of 8.00%.
The Birmingham Facility contains restrictive covenants which limit
Birmingham Cable's ability to enter into arrangements for the acquisition and
sale of property and equipment, investments, mergers and the incurrence of
additional debt. Certain of these covenants require that certain minimum build
requirements, financial ratios and cash flow levels be maintained and contain
restrictions on dividend payments. Birmingham Cable's three principal
shareholders' (including the Company) right to receive consulting fee payments
from Birmingham Cable has been subordinated to the banks under the Birmingham
Facility. The payment of consulting fees is restricted until Birmingham Cable
meets certain financial ratio tests under the Birmingham Facility. Birmingham
Cable has pledged the shares of its material subsidiaries to secure the
Birmingham Facility. Upon a change of control, all amounts due under the
Birmingham Facility become immediately due and payable. The consummation of the
NTL Transaction will not result in a change of control as defined in the
Birmingham Facility.
In May 1997, Cable London entered into a L170.0 million revolving credit
facility (the "London Revolver") with various banks, which converts into a five
year term loan on June 30, 2001. Interest rates on the London Revolver are at
LIBOR plus 1/2% to 2 3/8%. In May 1997, Cable London repaid all amounts
outstanding under its existing credit facility with proceeds from borrowings
under the London Revolver. The balance of the London Revolver will be used,
subject to certain restrictions, for capital expenditures and working capital
requirements relating to the build-out of its systems.
The London Revolver contains restrictive covenants which limit Cable
London's ability to enter into arrangements for the acquisition and sale of
property and equipment, investments, mergers and the incurrence of additional
debt. Certain of these covenants require that certain financial ratios and cash
flow levels be maintained and contain certain restrictions on dividend payments.
The Company's right to receive consulting fee payments from Cable London has
been subordinated to the banks under the London Revolver. The
F-52
<PAGE> 130
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
payment of consulting fees is restricted until Cable London meets certain
financial ratio tests under the London Revolver. In addition, the Company's
shares in Cable London have been pledged to secure the London Revolver. Upon a
change of control, all amounts due under the London Revolver become immediately
due and payable. The consummation of the NTL Transaction will not result in a
change of control as defined in the London Revolver.
Although the Company is not contractually committed to make any additional
capital contributions or advances to any of the Equity Investees, it currently
intends to fund its share of the amounts necessary for capital expenditures and
to finance operating deficits. Failure to do so could dilute the Company's
ownership interests in the Equity Investees.
F-53
<PAGE> 131
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Summarized financial information for affiliates accounted for under the
equity method for 1997, 1996 and 1995, is as follows:
<TABLE>
<CAPTION>
BIRMINGHAM CABLE CAMBRIDGE
CABLE LONDON CABLE(1) CPP-1(2) COMBINED
---------- -------- --------- -------- ---------
L000 L000 L000 L000 L000
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Results of operations
Service income........................... L 67,166 L 52,816 L L L 119,982
Operating, selling, general and
administrative expenses............... (56,564) (45,787) (102,351)
Depreciation and amortization............ (26,427) (19,740) (46,167)
Operating loss........................... (15,825) (12,711) (28,536)
Net loss................................. (30,826) (25,168) (55,994)
Company's equity in net loss............. (8,616) (12,743) (21,359)
AT DECEMBER 31, 1997
Financial position
Current assets........................... 11,424 10,340 21,764
Noncurrent assets........................ 248,611 185,353 433,964
Current liabilities...................... 22,293 22,902 45,195
Noncurrent liabilities................... 165,413 173,038 338,451
YEAR ENDED DECEMBER 31, 1996
Results of operations
Service income........................... 52,472 40,091 6,401 98,964
Operating, selling, general and
administrative expenses............... (44,476) (39,135) (6,366) (89,977)
Depreciation and amortization............ (19,690) (14,862) (2,168) (36,720)
Operating loss........................... (11,694) (13,906) (2,133) (27,733)
Net loss................................. (20,378) (21,241) (4,419) (46,038)
Company's equity in net loss............. (5,671) (10,551) (2,210) (18,432)
AT DECEMBER 31, 1996
Financial position
Current assets........................... 70,531 10,217 80,748
Noncurrent assets........................ 255,115 159,906 415,021
Current liabilities...................... 33,628 85,183 118,811
Noncurrent liabilities................... 188,863 60,831 249,694
YEAR ENDED DECEMBER 31, 1995
Results of operations
Service income........................... 39,004 30,277 20,585 1,088 90,954
Operating, selling, general and
administrative expenses............... (35,894) (33,238) (26,273) (5,673) (101,078)
Depreciation and amortization............ (14,455) (10,847) (7,150) (34) (32,486)
Operating loss........................... (11,345) (13,808) (12,838) (4,619) (42,610)
Net loss................................. (14,279) (17,675) (20,398) (5,388) (57,740)
Company's equity in net loss............. (3,922) (8,657) (10,200) (898) (23,677)
</TABLE>
- ---------------
(1) 1996 results of operations information for Cambridge Cable is for the three
months ended March 31, 1996 (see Note 4).
(2) 1995 results of operations information for CPP-1 is for the six months ended
June 30, 1995.
F-54
<PAGE> 132
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
6. FOREIGN CURRENCY RISK MANAGEMENT
The Company is exposed to market risk including changes in foreign currency
exchange rates. To manage the volatility relating to this exposure, the Company
enters into various derivative transactions pursuant to the Company's policies
in areas such as counterparty exposure and hedging practices. Positions are
monitored using techniques including market value and sensitivity analyses.
The Company has entered into certain FX Options as a normal part of its
foreign currency risk management efforts. During 1995, the Company entered into
certain foreign exchange put option contracts ("FX Puts") which may be settled
only on November 16, 2000. These FX Puts are used to limit the Company's
exposure to the risk that the eventual cash outflows related to net monetary
liabilities denominated in currencies other than its functional currency (the UK
Pound) (principally the 2007 Discount Debentures -- see Note 7) are adversely
affected by changes in exchange rates. As of December 31, 1997 and 1996, the
Company had L250.0 million notional amount of FX Puts to purchase US dollars at
an exchange rate of $1.35 per L1.00 (the "Ratio"). The FX Puts provide a hedge,
to the extent the exchange rate falls below the Ratio, against the Company's net
monetary liabilities denominated in US dollars since gains and losses realized
on the FX Puts are offset against foreign exchange gains or losses realized on
the underlying net liabilities. Premiums paid for the FX Puts of L13.9 million
are included in foreign exchange put options and other in the Company's
consolidated balance sheet, net of related amortization. These premiums are
being amortized over the terms of the related contracts of five years. As of
December 31, 1997 and 1996, the FX Puts had carrying values of L8.0 million and
L10.7 million, respectively. The estimated fair value of the FX Puts was L3.2
million as of both December 31, 1997 and 1996. The difference between the
carrying amount and the estimated fair value of the FX Puts was not significant
as of December 31, 1995.
In 1995, in order to reduce hedging costs, the Company sold foreign
exchange call option contracts ("FX Calls") to exchange L250.0 million notional
amount and received L3.4 million. These contracts may only be settled on their
expiration dates. Of these contracts, L200.0 million notional amount, with an
exchange ratio of $1.70 per L1.00, expired unexercised in November 1996 while
the remaining contract, with a L50.0 million notional amount and an exchange
ratio of $1.62 per L1.00, has a settlement date in November 2000. In the fourth
quarter of 1996, in order to continue to reduce hedging costs, the Company sold
additional FX Calls for L2.1 million, to exchange L200.0 million notional amount
at an average exchange ratio of $1.75 per L1.00. These contracts expired
unexercised in the fourth quarter of 1997. The FX Calls are marked-to-market on
a current basis in the Company's consolidated statement of operations.
As of December 31, 1997 and 1996, the estimated fair value of the
liabilities related to the FX Calls, as recorded in the Company's consolidated
balance sheet, was L2.7 million and L7.2 million, respectively. Changes in fair
value between measurement dates relating to the FX Calls resulted in exchange
gains of L4.5 million during the year ended December 31, 1997 and exchange
losses of L1.3 million during the year ended December 31, 1996 in the Company's
consolidated statement of operations. There were not significant exchange gains
or losses relating to these contracts for the year ended December 31, 1995.
7. LONG-TERM DEBT
2007 Discount Debentures
In November 1995, the Company received net proceeds of approximately $291.1
million (L186.9 million) from the sale of its 2007 Discount Debentures in a
public offering ($517.3 million principal at maturity). Interest accretes on the
2007 Discount Debentures at 11.20% per annum compounded semi-annually from
November 15, 1995 to November 15, 2000, after which date interest will be paid
in cash on each May 15 and November 15 through November 15, 2007. The accreted
value of the 2007 Discount Debentures was L229.2 million and L198.1 million as
of December 31, 1997 and 1996, respectively.
F-55
<PAGE> 133
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The 2007 Discount Debentures contain restrictive covenants which limit the
Company's ability to enter into arrangements for the sale of assets, mergers,
the incurrence of additional debt and the payment of dividends. The Company was
in compliance with such restrictive covenants as of December 31, 1997.
Consummation of the NTL Transaction (see Note 1) is subject to consent of the
Company's bondholders.
UK Holdings Credit Facility
On December 23, 1997, UK Holdings entered into a loan agreement (the "UK
Holdings Agreement") with a consortium of banks to provide financing under a
credit facility (the "UK Holdings Credit Facility") up to a maximum of L200.0
million. Under the terms of the UK Holdings Agreement, borrowings under the UK
Holdings Credit Facility are guaranteed by Teesside and Cambridge Cable.
On January 14, 1998, UK Holdings borrowed L75.0 million under Tranche A of
the UK Holdings Credit Facility. Of this initial borrowing, L50.4 million was
paid to the Company as a dividend and L17.8 million was used to fund capital
expenditures and working capital requirements at Cambridge Cable and Teesside.
Amounts available under the UK Holdings Credit Facility will be reduced each
quarter in varying amounts beginning March 31, 2000 and continuing through
December 31, 2000. The UK Holdings Credit Facility bears interest at a rate per
annum equal to LIBOR plus 1/2% to 2 1/4%.
The UK Holdings Credit Facility contains restrictive covenants which limit
UK Holdings' ability to enter into arrangements for the acquisition and sale of
property and equipment, investments, mergers and the incurrence of additional
debt. Certain of these covenants require that certain financial ratios and cash
flow levels be maintained and contain certain restrictions on dividend payments.
The Company's right to receive consulting fee payments from Cambridge Cable and
Teesside has been subordinated to the banks under the UK Holdings Credit
Facility. In addition, the Company's shares in UK Holdings have been pledged to
secure the UK Holdings Credit Facility.
The consummation of the NTL Transaction will result in a change in control,
as defined in the UK Holdings Credit Facility. Upon a change in control, all
amounts outstanding under the UK Holdings Credit Facility will become
immediately due and payable.
Other
As of December 31, 1997 and 1996, Cambridge Cable has two outstanding bank
loans totaling L505,000 and L533,000, respectively, which are included in
long-term debt. These bank loans are secured by Cambridge Cable's land and
buildings in Cambridge and Bishop Stortford and are payable in quarterly
installments through April 2000 and bear interest at a weighted average fixed
rate of 9.35%. Also included in long-term debt are capital lease obligations of
Cambridge Cable and Teesside (see Note 12).
Maturities of long-term debt outstanding, including long-term debt, due to
shareholder (see Note 9), as of December 31, 1997 for the four years after 1998
are as follows (in L000's):
<TABLE>
<S> <C>
1999........................................................ L12,658
2000........................................................ 665
2001........................................................ 528
2002........................................................ 498
</TABLE>
The Company's long-term debt, excluding long-term debt due to shareholder,
had estimated fair values of L259.6 million and L219.7 million as of December
31, 1997 and 1996, respectively. The estimated fair value of the Company's
publicly traded debt is based on quoted market prices for that debt. Interest
rates that are currently available to the Company for issuance of debt with
similar terms and remaining maturities are used to estimate fair value for debt
issues for which quoted market prices are not available.
F-56
<PAGE> 134
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
8. STOCK OPTION/SAR PLANS
The Company implemented a Stock Appreciation Rights ("SARs") plan during
1995 for certain outside directors under which the terms of the SARs granted are
determined by the Compensation Committee of the Board of Directors (the "SAR
Plan"). Under the SAR Plan, eligible participants are entitled to receive a cash
payment from the Company equal to 100% of the excess, if any, of the fair market
value of a share of the Company's Class A Common Shares at the time of exercise
over the fair market value of such a share at the grant date. Under the SAR
Plan, a total of 50,000 SARs may be granted. The SARs have a term of ten years
from the date of grant and are immediately exercisable. No SARs were granted in
1997. A total of 6,000 and 15,000 SARs were granted in 1996 and 1995,
respectively and 14,000 SARs were outstanding at December 31, 1997, all
exercisable. The fair value of the Company's Class A Common Stock at the grant
date of the SARs was $12.63 and $16.25 for 1996 and 1995 grants, respectively.
Compensation expense recorded during the year ended December 31, 1996 was not
significant. No compensation expense was recognized during the years ended
December 31, 1997 and December 31, 1995 as the exercise price of the SARs was
not less then the fair value of a share of the Company's Class A Common Shares.
The Company implemented a qualified stock option plan during 1995 for
certain employees, officers and directors, under which the option prices and
other terms are determined by the Compensation Committee of the Board of
Directors (the "Option Plan"). Under the Option Plan, not more than 250,000 of
the Company's Class A Common Shares may be issued pursuant to the plan upon
exercise of qualified stock options. All options must be granted within ten
years from the date of adoption of the Option Plan, with options becoming
exercisable over four years from the date of grant. A total of 20,250 options,
with an exercise price of $12.63, were granted in 1996 and are outstanding (none
exercisable) at December 31, 1997. No options were granted in 1997 or 1995. No
compensation expense has been recognized under the Option Plan as the exercise
price of the grants was not less than the fair market value of the shares at the
grant date. The fair value of the options granted in 1996 was not significant.
9. RELATED PARTY TRANSACTIONS
Comcast U.K. Consulting, Inc. ("UK Consulting"), a wholly owned subsidiary
of the Company, earns consulting fee income under consulting agreements with the
Equity Investees. The consulting fee income is generally based on a percentage
of gross revenues or a fixed amount per dwelling unit in the Equity Investees'
franchise areas.
The Company's right to receive consulting fee payments from Birmingham
Cable and Cable London has been subordinated to the banks under their credit
facilities. Accordingly, a portion of these fees have been classified as
long-term receivables and are included in investments in affiliates in the
Company's consolidated balance sheet. In addition, the Company's shares in Cable
London have been pledged to secure amounts outstanding under the London
Revolver.
Management fee expense is incurred under agreements between the Company on
the one hand, and Comcast, the Company's controlling shareholder, and Comcast UK
Cable Partners Consulting, Inc. ("Comcast Consulting"), an indirect wholly owned
subsidiary of Comcast, on the other, whereby Comcast and Comcast Consulting
provide consulting services to the Equity Investees on behalf of the Company and
management services to the Company. Such management fees are based on Comcast's
and Comcast Consulting's cost of providing such services. As of December 31,
1997 and 1996, due to affiliates consists primarily of this management fee and
operating expenses paid by Comcast and its affiliates on behalf of the Company.
Investment income includes L2.5 million, L2.9 million and L5.0 million of
interest income in 1997, 1996 and 1995, respectively, relating to the loans to
Birmingham Cable, Cable London and Cambridge Cable described in Note 5.
F-57
<PAGE> 135
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Long-term debt, due to shareholder consists of 9% Subordinated Notes
payable to Holdings (the "Notes") which are due in 1999. During the years ended
December 31, 1997, 1996 and 1995, interest expense on the Notes was L950,000,
L870,000 and L800,000, respectively.
In management's opinion, the foregoing transactions were entered into on
terms no more or less favorable than those with non-affiliated parties.
10. INCOME TAXES
The Company's wholly owned subsidiaries have a deferred tax asset arising
from the carryforward of net operating losses and the differences between the
book and tax basis of property. However, a valuation allowance has been recorded
to fully reserve the deferred tax asset as its realization is uncertain.
Significant components of deferred income taxes are as follows (in L000's):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Net operating loss carryforwards (carried forward
indefinitely)............................................. L 14,382 L 13,485
Differences between book and tax basis of property.......... 7,959 1,024
Other....................................................... 321 170
Less: Valuation allowance................................... (22,662) (14,679)
-------- --------
L -- L --
======== ========
</TABLE>
11. STATEMENT OF CASH FLOWS -- SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of approximately L559,000 and
L418,000 during the years ended December 31, 1997 and 1996, respectively. There
were no cash interest payments made during the year ended December 31, 1995.
The Company's wholly owned subsidiaries incurred capital lease obligations
of L2.1 million, L1.2 million and L490,000 during the years ended December 31,
1997, 1996 and 1995, respectively.
12. COMMITMENTS AND CONTINGENCIES
Certain of the Company's facilities and equipment are held under operating
or capital leases which expire through 2008.
A summary of assets held under capital lease are as follows (in L000's):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- ------
<S> <C> <C>
Land, buildings and equipment............................... L10,735 L8,605
Less: Accumulated depreciation.............................. (3,165) (834)
------- ------
L 7,570 L7,771
======= ======
</TABLE>
F-58
<PAGE> 136
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Future minimum rental payments under lease commitments with an initial or
remaining term of more than one year of December 31, 1997 are as follows (in
L000's):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- ---------
<S> <C> <C>
1998........................................................ L 2,191 L 1,580
1999........................................................ 1,753 969
2000........................................................ 902 283
2001........................................................ 706 63
2002........................................................ 629 63
Thereafter.................................................. 1,731 36
------- -------
Total minimum rental commitments............................ L 7,912 L 2,994
=======
Less: Amount representing interest.......................... (1,874)
-------
Present value of minimum rental commitments................. 6,038
Less: Current portion of capital lease obligations.......... (1,660)
-------
Long-term portion of capital lease obligations.............. L 4,378
=======
</TABLE>
Operating lease expense for the years ended December 31, 1997, 1996 and
1995 was L1.7 million, L1.5 million and L328,000, respectively.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position, results of operations or liquidity of the Company.
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER(1) QUARTER QUARTER(2) YEAR
-------- ---------- -------- ---------- --------
(L000, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1997
Revenues............................ L 12,351 L 13,350 L 14,241 L 16,720 L 56,662
Operating loss...................... (6,543) (6,364) (5,679) (4,018) (22,604)
Equity in net losses of
affiliates........................ (5,152) (5,162) (5,195) (5,850) (21,359)
Net loss............................ (20,540) (13,108) (20,682) (13,026) (67,356)
Net loss per share.................. (.41) (.26) (.41) (.26) (1.34)
1996
Revenues............................ L 2,334 L 9,452 L 10,090 L 10,552 L 32,428
Operating loss...................... (3,765) (6,128) (7,398) (7,262) (24,553)
Equity in net losses of
affiliates........................ (5,698) (3,942) (4,166) (4,626) (18,432)
Net loss............................ (11,987) (11,292) (14,571) (2,725) (40,575)
Net loss per share.................. (.28) (.22) (.30) (.04) (.84)
</TABLE>
- ---------------
(1) The Company began consolidating Cambridge Cable effective March 31, 1996.
(2) The fourth quarter of 1996 net loss includes L12.9 million of foreign
currency exchange rate gains resulting from fluctuations in the foreign
currency exchange rate.
F-59
<PAGE> 137
NTL (BERMUDA) LIMITED (FORMERLY COMCAST UK CABLE PARTNERS LIMITED)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
(UNAUDITED)
(IN L000'S,
EXCEPT SHARE DATA)
<S> <C>
CURRENT ASSETS
Cash and cash equivalents................................. L 86,363
Accounts receivable, less allowance for doubtful accounts
of L3,204.............................................. 4,075
Other current assets...................................... 5,932
---------
Total current assets.............................. 96,370
---------
INVESTMENTS IN AFFILIATES................................... 50,307
---------
PROPERTY AND EQUIPMENT...................................... 364,693
Accumulated depreciation.................................. (51,205)
---------
Property and equipment, net............................... 313,488
---------
DEFERRED CHARGES............................................ 58,785
Accumulated amortization.................................. (14,587)
---------
Deferred charges, net..................................... 44,198
---------
FOREIGN EXCHANGE PUT OPTIONS, net........................... 5,886
---------
L 510,249
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses..................... L 25,783
Accrued interest.......................................... 271
Current portion of long-term debt......................... 94,941
Notes payable to Comcast U.K. Holdings, Inc. ............. 12,037
Other..................................................... 809
---------
Total current liabilities......................... 133,841
---------
LONG-TERM DEBT, less current portion........................ 246,677
---------
FOREIGN EXCHANGE CALL OPTION................................ 2,562
---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred shares, L0.1 par value -- authorized 10,000,000
shares; issued, none................................... --
Class A common shares, L.01 par value -- authorized
50,000,000 shares; issued, 37,231,997.................. 372
Class B common shares, L.01 par value -- authorized
50,000,000 shares; issued, 12,872,605.................. 129
Additional capital........................................ 358,548
Accumulated deficit....................................... (231,880)
---------
Total shareholders' equity........................ 127,169
---------
L 510,249
=========
</TABLE>
See notes to condensed consolidated financial statements.
F-60
<PAGE> 138
NTL (BERMUDA) LIMITED (FORMERLY COMCAST UK CABLE PARTNERS LIMITED)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1998 1997
------------- -------------
(IN L000'S, EXCEPT PER SHARE DATA)
<S> <C> <C>
REVENUES
Service income............................................ L 55,692 L 39,166
Consulting fee income..................................... 840 776
--------- ---------
56,532 39,942
--------- ---------
COSTS AND EXPENSES
Operating................................................. 18,147 14,484
Selling, general and administrative....................... 26,089 22,720
Management fees........................................... 2,174 2,494
Depreciation and amortization............................. 22,952 18,830
--------- ---------
69,362 58,528
--------- ---------
OPERATING LOSS.............................................. (12,830) (18,586)
OTHER (INCOME) EXPENSE
Interest expense.......................................... 26,751 18,706
Investment income......................................... (6,752) (5,807)
Equity in net losses of affiliates........................ 15,916 15,509
Exchange (gains) losses and other......................... (4,238) 7,336
--------- ---------
31,677 35,744
--------- ---------
NET LOSS.................................................... (44,507) (54,330)
ACCUMULATED DEFICIT
Beginning of period.................................... (187,373) (120,017)
--------- ---------
End of period.......................................... L(231,880) L(174,347)
========= =========
NET LOSS PER SHARE.......................................... L (.89) L (1.08)
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING DURING
THE PERIOD................................................ 50,105 50,105
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
F-61
<PAGE> 139
NTL (BERMUDA) LIMITED (FORMERLY COMCAST UK CABLE PARTNERS LIMITED)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
-------- --------
L000 L000
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. (L44,507) (L54,330)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 22,952 18,830
Amortization on foreign exchange contracts............. 2,072 2,072
Non-cash interest expense.............................. 20,168 18,300
Non-cash investment income............................. (2,181) (1,825)
Exchange (gains) losses................................ (7,211) 7,116
Equity in net losses of affiliates..................... 15,916 15,509
(Increase) decrease in account receivable and other
current assets........................................ (333) 150
Increase in accounts payable and accrued expenses and
accrued interest...................................... 2,449 3,177
-------- --------
Net cash provided by operating activities......... 9,325 8,999
-------- --------
FINANCING ACTIVITIES
Repayments of debt........................................ (1,567) (1,111)
Proceeds from borrowings.................................. 93,000
Deferred financing costs.................................. (1,634)
Net transactions with affiliates.......................... (1,020) (1,517)
-------- --------
Net cash provided by (used in) financing
activities...................................... 88,779 (2,628)
-------- --------
INVESTING ACTIVITIES
Proceeds from sales of short-term investments, net........ 45,805
Capital contributions and loans to affiliates............. (1,768) (8,670)
Capital expenditures...................................... (47,012) (59,709)
Deferred charges.......................................... (333) (687)
-------- --------
Net cash used in investing activities............. (49,113) (23,261)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 48,991 (16,890)
CASH AND CASH EQUIVALENTS, beginning of period.............. 37,372 63,314
-------- --------
CASH AND CASH EQUIVALENTS, end of period.................... L 86,363 L 46,424
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-62
<PAGE> 140
NTL (BERMUDA) LIMITED (FORMERLY COMCAST UK CABLE PARTNERS LIMITED)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1997 has been
condensed from the audited consolidated balance sheet as of that date. The
condensed consolidated balance sheet as of September 30, 1998, the condensed
consolidated statement of operations and accumulated deficit for the nine months
ended September 30, 1998 and 1997, and the condensed consolidated statement of
cash flows for the nine months ended September 30, 1998 and 1997 have been
prepared by NTL (Bermuda) Limited (formerly Comcast UK Cable Partners Limited)
(the "Company") and have not been audited by the Company's independent auditors.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows as of September 30, 1998 and for all
periods presented have been made.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's December 31,
1997 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for the periods ended September 30, 1998
are not necessarily indicative of operating results for the full year.
Reclassifications
Certain reclassifications have been made to the prior year condensed
consolidated financial statements to conform to those classifications used in
1998.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires that all items that are required to
be recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The Company has adopted SFAS No. 130, which
had no effect on the consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. The Company is assessing whether changes in reporting will be required
upon the adoption of this new standard. The Company will adopt SFAS No. 131 for
fiscal year ending December 31, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, which establishes
accounting and reporting standards for derivatives and hedging activities, is
effective for fiscal years beginning after June 15, 1999. Upon the adoption of
SFAS No. 133, all derivatives are required to be recognized in the statement of
financial position as either assets or liabilities and measured at fair value.
The Company is currently evaluating the impact the adoption of SFAS No. 133 will
have on its financial position and results of operations.
F-63
<PAGE> 141
NTL (BERMUDA) LIMITED (FORMERLY COMCAST UK CABLE PARTNERS LIMITED)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
3. AMALGAMATION WITH NTL
Effective October 29, 1998, NTL Incorporated ("NTL"), NTL (Bermuda)
Limited, a wholly owned subsidiary of NTL, and Comcast UK Cable Partners Limited
("Partners") consummated a transaction (the "Amalgamation") pursuant to the
Agreement and Plan of Amalgamation, dated February 4, 1998, as amended, among
the same (the "Amalgamation Agreement"), whereby NTL (Bermuda) Limited
amalgamated with Partners, such that the separate existence of NTL (Bermuda)
Limited and Partners continued in the form of the company that resulted from the
Amalgamation and which is a wholly owned subsidiary of NTL (the "Amalgamated
Company"). Under the terms of the Amalgamation Agreement, shareholders of
Partners received 0.3745 shares of common stock of NTL in consideration for each
of their shares of common stock of Partners. Accordingly, as a result of the
Amalgamation, shareholders of Partners received a total of approximately
18,700,000 shares of NTL common stock, representing approximately 31.2% of the
shares of NTL common stock outstanding after giving effect to the consummation
of the Amalgamation.
The Amalgamated Company shall operate under the name "NTL (Bermuda)
Limited". Effective as of the Amalgamation, (i) the memorandum of association of
NTL (Bermuda) Limited shall be the memorandum of the Amalgamated Company until
thereafter changed or amended as provided therein or by applicable law, (ii) the
bye-laws of NTL (Bermuda) Limited, as in effect immediately prior to the
Amalgamation, shall be the bye-laws of the Amalgamated Company until thereafter
changed or amended as provided therein or by applicable law and (iii) the
persons serving as directors and officers of NTL (Bermuda) Limited immediately
prior to the Amalgamation shall be the directors and officers, respectively, of
the Amalgamated Company until their successors shall have been duly elected or
appointed or qualified or until their earlier death, resignation or removal.
Immediately following the Amalgamation, the Amalgamated Company and Bank of
Montreal Trust Company, as trustee, executed a First Supplemental Indenture (the
"First Supplemental Indenture") relating to Partner's 11.20% Senior Discount
Debentures due 2007 (the "Debentures"), which provides for the assumption by the
Amalgamated Company of the liabilities and the obligations of Partners under the
Indenture, dated as of November 15, 1995, governing the Debentures (together
with the First Supplemental Indenture, the "Indenture") and the Debentures
issued pursuant thereto. The First Supplemental Indenture likewise provides that
the Amalgamated Company shall succeed to, and be substituted for, and may
exercise every right and power of, Partners under the Indenture and the
Debentures.
Pursuant to existing arrangements between Partners and Telewest
Communications plc ("Telewest"), a co-owner of interests in Cable London PLC
("Cable London") and Birmingham Cable Corporation Limited ("Birmingham Cable"),
Telewest had certain rights to acquire either or both of Partner's interests in
these systems (see Note 4) as a result of the Amalgamation. On August 14, 1998,
Partners and NTL entered into an agreement (the "Telewest Agreement") with
Telewest relating to Partner's ownership interests in Birmingham Cable,
Partner's and Telewest's respective ownership interests in Cable London and
certain other related matters. Pursuant to the Telewest Agreement, Partners sold
its 27.5% ownership interest in Birmingham Cable to Telewest for L125 million,
plus L5 million for certain subordinated debt and fees. Partners and Telewest
have also agreed within a certain time period to rationalize their joint
ownership of Cable London pursuant to an agreed procedure (the "Shoot-out").
Between April 29 and July 29, 1999, the Amalgamated Company can notify Telewest
of the price at which it is willing to sell its 50% ownership interest in Cable
London to Telewest. Following such notification, Telewest at its option will be
required at that price to either purchase the Amalgamated Company's 50%
ownership interest in Cable London or sell its 50% ownership interest in Cable
London to the Amalgamated Company. If the Amalgamated Company fails to give
notice to Telewest during the Shoot-out period, it will be deemed to have given
a notice to Telewest
F-64
<PAGE> 142
NTL (BERMUDA) LIMITED (FORMERLY COMCAST UK CABLE PARTNERS LIMITED)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
3. AMALGAMATION WITH NTL (CONTINUED)
offering to sell its Cable London interest for L100 million. The sale or
purchase by the Company as per the Cable London Shoot-out is expected to be
completed by November 1999.
4. INVESTMENTS IN AFFILIATES
The Company has invested in two affiliates: Birmingham Cable and Cable
London (together, the "Equity Investees"). The Equity Investees operate
integrated cable communications, residential telephony and business
telecommunications systems in their respective major metropolitan areas under
exclusive cable television licenses and non-exclusive telecommunications
licenses. As of September 30, 1998, the Company's ownership interest in the
Equity Investees is as follows:
<TABLE>
<S> <C>
Birmingham Cable............................................ 27.5%
Cable London................................................ 50.0%
</TABLE>
Included in investments in affiliates as of September 30, 1998 and December
31, 1997, are loans to Cable London of L28.5 million and accrued interest of
L8.0 million and L6.0 million, respectively. The loans accrue interest at a rate
of 2% above the published base lending rate of Barclays Bank plc (9.5% effective
rate as of September 30, 1998) and are subordinate to Cable London's credit
facility. Of these loans, L21.0 million as of September 30, 1998 and December
31, 1997, are convertible into ordinary shares of Cable London at a per share
conversion price of L2.00. Also included in investments in affiliates as of
September 30, 1998 and December 31, 1997, are loans to Birmingham Cable of L3.7
million and L1.9 million and accrued interest of (UK Pound)320,000 and L133,000,
respectively. The Birmingham Cable loans accrue interest at a fixed rate of 7.8%
and are subordinate to Birmingham Cable's credit facility.
As described in Note 3, the Company sold its interest in Birmingham Cable
in October 1998 for L125 million, plus L5 million for certain subordinated debt
and fees. The Company will record a gain on the sale of Birmingham Cable of
approximately L110 million in the fourth quarter of 1998. Also, the Company and
Telewest have agreed to the Cable London Shoot-out pursuant to which the Company
will either sell its interest in Cable London to Telewest or Telewest will sell
its interest in Cable London to the Company. The sale or purchase by the Company
as per the Cable London Shoot-out is expected to be completed by November 1999.
Although the Company is not contractually committed to make any additional
capital contributions or advances to Cable London, it currently intends to fund
its share of the amounts necessary for capital expenditures and to finance
operating deficits. Failure to do so could dilute the Company's ownership
interest in Cable London.
F-65
<PAGE> 143
NTL (BERMUDA) LIMITED (FORMERLY COMCAST UK CABLE PARTNERS LIMITED)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
4. INVESTMENTS IN AFFILIATES (CONTINUED)
Summarized financial information for affiliates accounted for under the equity
method is as follows:
<TABLE>
<CAPTION>
BIRMINGHAM CABLE
CABLE LONDON COMBINED
---------- -------- --------
L000 L000 L000
<S> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1998
Results of operations
Service income.................................. L 57,385 L 48,926 L106,311
Operating, selling, general and administrative
expenses..................................... (43,690) (38,244) (81,934)
Depreciation and amortization................... (20,717) (16,611) (37,328)
Operating loss.................................. (7,022) (5,929) (12,951)
Net loss........................................ (25,067) (17,523) (42,590)
Company's equity in net loss.................... (7,010) (8,906) (15,916)
AT SEPTEMBER 30, 1998
Financial position
Current assets.................................. 14,858 8,774 23,632
Noncurrent assets............................... 244,384 190,803 435,187
Current liabilities............................. 26,570 19,899 46,469
Noncurrent liabilities.......................... 185,410 197,448 382,858
NINE MONTHS ENDED SEPTEMBER 30, 1997
Results of operations
Service income.................................. 49,146 38,162 87,308
Operating, selling, general and administrative
expenses..................................... (42,411) (34,007) (76,418)
Depreciation and amortization................... (18,031) (13,930) (31,961)
Operating loss.................................. (11,296) (9,775) (21,071)
Net loss........................................ (21,715) (18,625) (40,340)
Company's equity in net loss.................... (6,077) (9,432) (15,509)
</TABLE>
5. LONG-TERM DEBT
UK Holdings Credit Facility In December 1997, Comcast UK Holdings Limited
("UK Holdings"), a wholly owned subsidiary of the Company, entered into a loan
agreement (the "UK Holdings Agreement") with a consortium of banks to provide
financing under a credit facility (the "UK Holdings Credit Facility") up to a
maximum of L200.0 million. Under the terms of the UK Holdings Agreement,
borrowings under the UK Holdings Credit Facility are guaranteed by Cambridge
Holding Company Limited ("Cambridge Cable") and two companies holding the
franchises for Darlington and Teesside, England ("Teesside"). Cambridge Cable
and Teesside are wholly owned subsidiaries of the Company.
Final maturity of the UK Holdings Credit Facility is January 31, 2001. The
UK Holdings Credit Facility bears interest at a rate per annum equal to the
London Interbank Offered Rate ("LIBOR") plus 1/2% to 2 1/4%. As of September
30, 1998 the Company's effective weighted average interest rate on the UK
Holdings Credit Facility was 9.33%.
The consummation of the Amalgamation resulted in a change in control, as
defined in the UK Holdings Credit Facility, and all amounts outstanding
thereunder became immediately due and payable. The Company repaid the
approximately L100 million outstanding on October 29, 1998 using proceeds from
the sale of the Birmingham Cable interest. The banks have agreed to suspend the
UK Holdings Credit Facility for 90 days
F-66
<PAGE> 144
NTL (BERMUDA) LIMITED (FORMERLY COMCAST UK CABLE PARTNERS LIMITED)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
5. LONG-TERM DEBT (CONTINUED)
pending the renegotiation of the facility. The amount outstanding under the UK
Holdings Credit Facility of L93 million as of September 30, 1998 is classified
as current on the Company's condensed consolidated balance sheet as of that
date.
6. RELATED PARTY TRANSACTIONS
Comcast U.K. Consulting, Inc., a wholly owned subsidiary of the Company,
earned consulting fee income under consulting agreements with the Equity
Investees. The consulting fee income was generally based on a percentage of
gross revenues or a fixed amount per dwelling unit in the Equity Investees'
franchise areas. The consulting agreements were terminated pursuant to the
Telewest Agreement.
The Company's right to receive consulting fee payments from the Equity
Investees was subordinated to the banks under their credit facilities.
Accordingly, these fees have been classified as long-term receivables and are
included in investments in affiliates in the Company's condensed consolidated
balance sheet. In addition, the Company's shares in Cable London have been
pledged to secure amounts outstanding under Cable London's revolving credit
facility.
Management fee expense was incurred under agreements between the Company on
the one hand, and Comcast Corporation ("Comcast"), the Company's former
controlling shareholder, and Comcast UK Cable Partners Consulting, Inc.
("Comcast Consulting"), an indirect wholly owned subsidiary of Comcast, on the
other, whereby Comcast and Comcast Consulting provided consulting services to
the Equity Investees on behalf of the Company and management services to the
Company. Such management fees were based on Comcast's and Comcast Consulting's
cost of providing such services. As of September 30, 1998 and December 31, 1997,
other current liabilities consists primarily of this management fee and
operating expenses paid by Comcast and its affiliates on behalf of the Company.
For the nine and three months ended September 30, 1998 and 1997, investment
income includes L2.2 million, L1.8 million, L754,000 and L676,000 of interest
income, respectively, relating to the loans to the Equity Investees.
For the nine and three months ended September 30, 1998 and 1997, investment
income includes L2.2 million, L1.8 million, (UK Pound)754,000 and L676,000 of
interest income, respectively, relating to the loans to the Equity Investees.
Long-term debt due to shareholder consists of 9% Subordinated Notes payable
to Comcast U.K. Holdings, Inc. which are due in September 1999. For the nine and
three months ended September 30, 1998 and 1997, the Company recorded L765,000,
L700,000, L262,000 and L239,000, respectively, of interest expense relating to
such notes.
In management's opinion, the foregoing transactions were entered into on
terms no more or less favorable than those with non-affiliated parties.
7. CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position, results of operations or liquidity of the Company.
8. STATEMENT OF CASH FLOWS -- SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of L6.3 million, L406,000, L2.5
million and L136,000 during the nine and three months ended September 30, 1998
and 1997, respectively.
F-67
<PAGE> 145
NTL (BERMUDA) LIMITED (FORMERLY COMCAST UK CABLE PARTNERS LIMITED)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
8. STATEMENT OF CASH FLOWS -- SUPPLEMENTAL INFORMATION (CONTINUED)
The Company's wholly owned subsidiaries incurred capital lease obligations
of L2.2 million, L1.5 million, L486,000 and L852,000 during the nine and three
months ended September 30, 1998 and 1997, respectively.
F-68
<PAGE> 146
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Birmingham Cable Corporation Limited
We have audited the accompanying consolidated balance sheet of Birmingham
Cable Corporation Limited (a company incorporated in the United Kingdom) and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and of cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Birmingham Cable Corporation
Limited and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE
Birmingham, England
February 27, 1998 (March 16, 1998 as to Note 3)
F-69
<PAGE> 147
BIRMINGHAM CABLE CORPORATION LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN L000'S, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. L 2,254 L 7,689
Restricted cash........................................... 53,000
Accounts receivable, less allowance for doubtful accounts
of L4,834 and L2,360................................... 6,326 4,809
Interest receivable....................................... 2,016
Other current assets...................................... 2,844 3,017
-------- --------
Total current assets................................... 11,424 70,531
-------- --------
RESTRICTED CASH............................................. 22,000
-------- --------
PROPERTY AND EQUIPMENT...................................... 310,111 269,665
Accumulated depreciation.................................. (74,214) (49,961)
-------- --------
Property and equipment, net............................... 235,897 219,704
-------- --------
DEFERRED CHARGES............................................ 18,112 16,890
Accumulated amortization.................................. (5,398) (3,479)
-------- --------
Deferred charges, net..................................... 12,714 13,411
-------- --------
L260,035 L325,646
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses..................... L 18,997 L 24,381
Accrued interest.......................................... 1,611 7,398
Current portion of capital lease obligations.............. 1,685 1,849
-------- --------
Total current liabilities.............................. 22,293 33,628
-------- --------
LONG-TERM DEBT.............................................. 140,000
-------- --------
CAPITAL LEASE OBLIGATIONS, less current portion............. 13,539 11,625
-------- --------
LONG-TERM DEBT, due to shareholders......................... 7,492
-------- --------
OTHER LIABILITIES........................................... 4,382 2,238
-------- --------
COMMITMENTS AND CONTINGENCIES
PREFERENCE SHARES........................................... 175,000
-------- --------
SHAREHOLDERS' EQUITY
Ordinary shares, L1.00 par value -- authorized, 60,000,000
shares; issued, 51,073,486............................. 51,073 51,073
Additional capital........................................ 112,399 112,399
Accumulated deficit....................................... (91,143) (60,317)
-------- --------
Total shareholders' equity............................. 72,329 103,155
-------- --------
L260,035 L325,646
======== ========
</TABLE>
See notes to consolidated financial statements.
F-70
<PAGE> 148
BIRMINGHAM CABLE CORPORATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN L000'S)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
SERVICE INCOME.............................................. L 67,166 L 52,472 L 39,004
-------- -------- --------
COSTS AND EXPENSES
Operating................................................. 28,942 20,912 16,358
Selling, general and administrative....................... 27,622 23,564 19,536
Depreciation and amortization............................. 26,427 19,690 14,455
-------- -------- --------
82,991 64,166 50,349
-------- -------- --------
OPERATING LOSS.............................................. (15,825) (11,694) (11,345)
INTEREST EXPENSE............................................ 17,500 17,202 13,993
INVESTMENT INCOME........................................... (2,499) (8,518) (11,059)
-------- -------- --------
NET LOSS.................................................... L(30,826) L(20,378) L(14,279)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-71
<PAGE> 149
BIRMINGHAM CABLE CORPORATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN L000'S)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................... L (30,826) L(20,378) L (14,279)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization....................... 26,427 19,690 14,455
Non-cash interest expense........................... 492
Decrease (increase) in accounts receivable, interest
receivable and other current assets............... 672 4,939 (7,438)
(Decrease) increase in accounts payable and accrued
expenses, accrued interest and other
liabilities....................................... (9,027) 10,559 6,469
--------- -------- ---------
Net cash (used in) provided by operating
activities..................................... (12,262) 14,810 (793)
--------- -------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings............................... 140,000 175,000
Loans from shareholders................................ 7,000
Debt acquisition costs................................. (2,977)
Redemption of preference shares........................ (175,000)
Repayment of capital leases............................ (2,316) (1,161) (220)
--------- -------- ---------
Net cash (used in) provided by financing
activities........................................ (30,316) (1,161) 171,803
--------- -------- ---------
INVESTING ACTIVITIES
Restricted cash........................................ 75,000 39,000 (114,000)
Capital expenditures................................... (36,635) (56,492) (47,999)
Deferred charges....................................... (1,222) (991) (601)
--------- -------- ---------
Net cash provided by (used in) investing
activities..................................... 37,143 (18,483) (162,600)
--------- -------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS......... (5,435) (4,834) 8,410
CASH AND CASH EQUIVALENTS, beginning of year............. 7,689 12,523 4,113
--------- -------- ---------
CASH AND CASH EQUIVALENTS, end of year................... L 2,254 L 7,689 L 12,523
========= ======== =========
</TABLE>
See notes to consolidated financial statements.
F-72
<PAGE> 150
BIRMINGHAM CABLE CORPORATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN L000'S)
<TABLE>
<CAPTION>
ORDINARY ADDITIONAL ACCUMULATED
SHARES CAPITAL DEFICIT TOTAL
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995....................... L51,073 L112,399 L(25,660) L137,812
Net loss..................................... (14,279) (14,279)
------- -------- -------- --------
BALANCE, DECEMBER 31, 1995..................... 51,073 112,399 (39,939) 123,533
Net loss..................................... (20,378) (20,378)
------- -------- -------- --------
BALANCE, DECEMBER 31, 1996..................... 51,073 112,399 (60,317) 103,155
Net loss..................................... (30,826) (30,826)
------- -------- -------- --------
BALANCE, DECEMBER 31, 1997..................... L51,073 L112,399 L(91,143) L 72,329
======= ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-73
<PAGE> 151
BIRMINGHAM CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. BUSINESS
Birmingham Cable Corporation Limited, a company incorporated in the United
Kingdom ("UK"), and subsidiaries (the "Company") is principally engaged in the
development, construction, management and operation of cable telecommunications
systems. The Company holds two franchises in Birmingham/Solihull and Wythall,
England.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company maintains its books and records in accordance with accounting
principles generally accepted in the UK. The consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
as practiced in the United States ("US") and are stated in UK pounds sterling
("UK Pound"). There were no significant differences between accounting
principles followed for UK purposes and generally accepted accounting principles
practiced in the US. The UK Pound exchange rate as of December 31, 1997 and 1996
was US $1.65 and US $1.71, respectively.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned subsidiaries. All significant intercompany accounts and
transactions among the consolidated entities have been eliminated.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Values
The estimated fair value amounts presented in these notes to consolidated
financial statements have been determined by the Company using available market
information and appropriate methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value. The
estimates presented herein are not necessarily indicative of the amounts that
the Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts. Such fair value estimates are based on
pertinent information available to management as of December 31, 1997 and 1996,
and have not been comprehensively revalued for purposes of these consolidated
financial statements since such dates.
Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash as of December 31, 1996 included
cash held on deposit as part of a L175.0 million financing arrangement entered
into by the Company in 1995. In July 1997 this arrangement was restructured and
the restricted cash was used, together with proceeds from the Birmingham
Facility, to redeem the preference shares (see Note 3).
F-74
<PAGE> 152
BIRMINGHAM CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Prematurity Period
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its cable telecommunications systems under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 51,
"Financial Reporting by Cable Television Companies."
Under SFAS No. 51, during the period while the systems are partially under
construction and partially in service (the "Prematurity Period"), costs of cable
telecommunications plant, including materials, direct labor and construction
overhead are capitalized. Subscriber-related costs and general and
administrative costs are expensed as incurred. Costs incurred in anticipation of
servicing a fully operating system that will not vary regardless of the number
of subscribers are partially expensed and partially capitalized, based upon the
percentage of average actual or estimated subscribers, whichever is greater, to
the total number of subscribers expected at the end of the Prematurity Period
(the "Fraction").
During the Prematurity Period, depreciation and amortization of system
assets is determined by multiplying the depreciation and amortization of the
total capitalized system assets expected at the end of the Prematurity Period by
the Fraction. At the end of the Prematurity Period, depreciation and
amortization of system assets is based on the remaining undepreciated cost at
that date.
As of December 31, 1997, all of the Company's seven discrete build areas
have completed their Prematurity Period.
Property and Equipment
Property and equipment, which consists principally of system assets, is
shown at historical cost less accumulated depreciation. Improvements that extend
asset lives are capitalized; other repairs and maintenance charges are expensed
as incurred. The cost and related accumulated depreciation applicable to assets
sold or retired are removed from the accounts and the gain or loss on
disposition is recognized as a component of depreciation expense.
System assets
Prior to the Prematurity Period, no depreciation is provided on system
assets. During the Prematurity Period, depreciation is provided in accordance
with SFAS No. 51.
Depreciation of system assets is provided by the straight-line method over
estimated useful lives as follows:
<TABLE>
<S> <C>
Plant....................................................... 15-40 years
Network..................................................... 15 years
Subscriber equipment........................................ 6-10 years
Switch...................................................... 10 years
Computers................................................... 4 years
</TABLE>
F-75
<PAGE> 153
BIRMINGHAM CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Non-system assets
Depreciation of non-system assets is provided by the straight-line method
over estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings................................................... 40 years
Leasehold buildings......................................... term of lease
Fixtures, fittings and equipment............................ 5 years
Computers................................................... 4 years
Vehicles.................................................... 4 years
</TABLE>
Leased Assets
Assets held under capital leases are treated as if they had been purchased
outright and the corresponding liability is included in capital lease
obligations. Capital lease payments include principal and interest, with the
interest portion being expensed. Payments on operating leases are expensed on a
straight-line basis over the lease term.
Deferred Charges
Deferred charges consist primarily of franchise acquisition and development
costs directly attributable to obtaining, developing and maintaining the
franchise licenses. Franchise acquisition and development costs have been
allocated evenly between each build area and are amortized, by build area, on a
straight-line basis, over the lives of the franchises of 15 to 23 years.
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and deferred charges, using objective
methodologies. Such methodologies include evaluations based on the cash flows
generated by the underlying assets or other determinants of fair value.
Revenue Recognition
Service income is recognized as service is provided. Credit risk is managed
by disconnecting services to subscribers who are delinquent.
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes in tax
rates and laws, if any, applied to the years during which temporary differences
are expected to be settled, are reflected in the financial statements in the
period of enactment.
Derivative Financial Instruments
The Company uses interest rate exchange agreements ("Swaps"), to manage its
exposure to fluctuations in interest rates. Swaps are matched with either fixed
or variable rate debt and periodic cash payments are accrued on a settlement
basis as an adjustment to interest expense.
Those instruments that have been entered into by the Company to hedge
exposure to interest rate risks are periodically examined by the Company to
ensure that the instruments are matched with underlying
F-76
<PAGE> 154
BIRMINGHAM CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
liabilities, reduce the Company's risks relating to interest rates and, through
market value and sensitivity analysis, maintain a high correlation to the
interest expense or underlying value of the hedged item.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to any leveraged instruments (see Note 3).
The credit risks associated with the Company's derivative financial instruments
are controlled through the evaluation and monitoring of the creditworthiness of
the counterparties. Although the Company may be exposed to losses in the event
of nonperformance by the counterparties, the Company does not expect such
losses, if any, to be significant.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 1997.
3. LONG-TERM DEBT AND PREFERENCE SHARES
In February 1995, a subsidiary of the Company issued 175,000 cumulative
L1.00 redeemable five year term preference shares for a paid up value of L175.0
million. Also in February 1995, the Company entered into a L175.0 million five
year revolving credit facility (the "Birmingham Facility") which provided for
conversion into a five year term loan on March 31, 2000. In March 1997, the
terms of the Birmingham Facility were amended to extend the maturity of the term
loan to December 31, 2005 and to amend the required cash flow levels (as
defined) and certain other terms. Interest rates on the Birmingham Facility are
at the London Interbank Offered Rate ("LIBOR") plus 5/8% to 2 1/4%.
In July 1997, the preference shareholder exercised its option to require
the Company to purchase its shareholding. The Company funded the redemption of
the preference shares with the proceeds from the Birmingham Facility and
restricted cash and settled its five year L175.0 million interest rate exchange
agreement with Barclays Bank PLC. The balance of the Birmingham Facility will be
used, subject to certain restrictions, for capital expenditures and working
capital requirements relating to the build-out of its systems. The preference
shares had an effective dividend rate, including Advanced Corporation Tax
("ACT"), of 8.00%.
The Birmingham Facility contains restrictive covenants which limit the
Company's ability to enter into arrangements for the acquisition and sale of
property and equipment, investments, mergers and the incurrence of additional
debt. Certain of these covenants require that certain minimum build
requirements, financial ratios and cash flow levels be maintained and contain
restrictions on dividend payments. The Company's three principal shareholders'
right to receive consulting fee payments from the Company has been subordinated
to the banks under the Birmingham Facility. The payment of consulting fees is
restricted until the Company meets certain financial ratio tests under the
Birmingham Facility. The Company has pledged the shares of its material
subsidiaries to secure the Birmingham Facility. Upon a change of control, all
amounts due under the Birmingham Facility become immediately due and payable. On
February 4, 1998, Comcast UK Cable Partners Limited ("Comcast UK"), one the
Company's principal shareholders, entered into a definitive agreement to
amalgamate (the "NTL Transaction") with a wholly owned subsidiary of NTL
Incorporated. The consummation of the NTL Transaction will not result in a
change of control as defined in the Birmingham Facility.
The Company enters into Swaps as a normal part of its risk management
efforts to limit its exposure to adverse fluctuations in interest rates. Using
Swaps, the Company agrees to exchange, at specified intervals, the difference
between fixed and variable interest amounts calculated by reference to an agreed
upon notional amount. In conjunction with the Birmingham Facility, a subsidiary
of the Company and Barclays Bank PLC entered into a five year L175.0 million
Swap, whereby the subsidiary receives fixed interest at a rate of 8.83%
F-77
<PAGE> 155
BIRMINGHAM CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
and pays floating rate interest at the six month LIBOR. The L175.0 million Swap
was settled in July 1997 along with the redemption of the preference shares (see
above). In addition, a subsidiary of the Company entered into a second series of
five year Swaps with three banks. Under the agreements, the subsidiary pays
fixed rate interest at 9.20% and receives floating rate interest at six month
LIBOR, based upon the outstanding notional amount of the Swaps. As of December
31, 1997 and 1996, the notional amount outstanding on the second series of Swaps
was L149.0 million and L106.0 million, respectively, and increased to L160.0
million on January 2, 1998. The notional amounts of interest rate agreements are
used to measure interest to be paid or received and do not represent the amount
of exposure to credit loss. While Swaps represent an integral part of the
Company's interest rate risk management program, their incremental effect on
interest expense for the years ended December 31, 1997, 1996 and 1995 was not
significant. The estimated amount to settle the Company's Swaps was a liability
of L7.5 million and a receivable of L168,000 as of December 31, 1997 and 1996,
respectively.
On March 16, 1998, the Company's shareholders loaned L7.0 million to the
Company in the form of Junior Subordinated Debt, as defined in the Birmingham
Facility. The proceeds from this borrowing were used to settle the Swaps
described above. Additionally, on March 16, 1998 a subsidiary of the Company
entered into a L160.0 million notional amount two year Swap with three banks.
Under the terms of this Swap, the subsidiary pays fixed rate interest at 7.23%
and receives floating rate interest at six month LIBOR, based upon the notional
amount.
Maturities of long-term debt outstanding as of December 31, 1997 for the
four years after 1998 are as follows (L000's):
<TABLE>
<S> <C>
1999............................................... L
2000............................................... 7,000
2001............................................... 14,000
2002............................................... 21,000
</TABLE>
The differences between the carrying amounts and estimated fair value of
the Company's long-term debt was not significant as of December 31, 1997 and
1996. Interest rates that are currently available to the Company for debt with
similar terms and remaining maturities are used to estimate fair value for debt
issues for which quoted market prices are not available.
4. LONG-TERM DEBT, DUE TO SHAREHOLDERS
As of December 31, 1997, the Company had outstanding loans from
shareholders of L7.0 million and accrued interest thereon of L492,000. The loans
from shareholders bear interest at a fixed rate of 7.8% and are payable on
demand. Under the terms of the Birmingham Facility, however, principal and
interest on the loans from shareholders cannot be paid until the Birmingham
Facility is repaid. Thus, the loans from shareholders and accrued interest
thereon have been classified as long-term in the Company's consolidated balance
sheet. The carrying value of the loans from shareholders approximates fair value
as of December 31, 1997 and 1996.
5. RELATED PARTY TRANSACTIONS
The Company has consulting agreements with Comcast U.K. Consulting, Inc.
("Comcast Consulting") and Telewest Communications Group Ltd., subsidiaries of
two of the Company's principal shareholders, Comcast UK and Telewest
Communications plc ("Telewest"), respectively. The Company also has a consulting
agreement with General Cable, the Company's other principal shareholder. The
Company pays a fee to Telewest each year as a contribution to the operating
expenses and capital expenditures of Telewest's Network Service Center, which
provides telephony support to the Company. The Company has a telephony
F-78
<PAGE> 156
BIRMINGHAM CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
interconnect agreement with Telewest, whereby certain telephony traffic is
routed via Telewest. These interconnect costs are included in "other" below.
A summary of related party charges included in the Company's consolidated
financial statements is as follows (in L000's):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1995 1997
------ ------ ------
<S> <C> <C> <C>
Consulting fees.......................................... L1,511 L1,326 L1,070
Network Service Center fees.............................. 711 814 680
Other.................................................... 1,151 109 6
------ ------ ------
L3,373 L2,249 L1,756
====== ====== ======
</TABLE>
As of December 31, 1997 and 1996, accounts payable and accrued expenses
include L1.4 million and L2.3 million, respectively, payable to the Company's
three principal shareholders, principally for consulting fees and normal
operating expenses paid by the shareholders and their affiliates on behalf of
the Company. As of December 31, 1997 and 1996, other long-term liabilities
includes L3.9 million and L1.3 million, respectively, of consulting fees payable
to the Company's three principal shareholders as payment is restricted under the
Birmingham Facility.
In management's opinion, the foregoing transactions were entered into on
terms no more or less favorable than those with non-affiliated third parties.
6. INCOME TAXES
The Company has a deferred tax asset arising from the carryforward of net
operating losses and the differences between the book and tax basis of property.
However, a valuation allowance has been recorded to fully reserve the deferred
tax asset as its realization is uncertain.
Significant components of the Company's deferred income taxes are as
follows (in L000's):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
-------- --------
<S> <C> <C>
Net operating loss carryforwards (carried forward
indefinitely)............................................. L 3,253 L 3,218
Differences between book and tax basis of property.......... 7,880 6,916
Less: Valuation allowance................................... (11,133) (10,134)
-------- --------
L L
======== ========
</TABLE>
In connection with the Birmingham Facility and the related preference share
arrangement (see Note 3), the Company is obligated to pay ACT on all preference
share dividends. Related ACT for 1997, 1996 and 1995 was L1.4 million, L2.8
million and L2.5 million, respectively, and has been classified as a component
of interest expense in the Company's consolidated statement of operations. ACT
may be carried forward indefinitely to offset potential future tax liabilities
of the Company.
7. STATEMENT OF CASH FLOWS -- SUPPLEMENTAL INFORMATION
The Company made cash payments for interest and preferred stock dividends
of approximately L43.0 million, L31.2 million and L11.3 million during the years
ended December 31, 1997, 1996 and 1995, respectively.
F-79
<PAGE> 157
BIRMINGHAM CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The Company incurred capital lease obligations of L4.1 million, L5.0
million and L4.6 million during the years ended December 31, 1997, 1996 and
1995, respectively.
8. COMMITMENTS AND CONTINGENCIES
Certain of the Company's facilities and equipment are held under operating
or capital leases which expire through 2007.
A summary of assets held under capital leases are as follows (in L000's):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
System, fixtures, fittings, equipment and vehicles.......... L18,991 L14,925
Less: Accumulated depreciation.............................. (5,779) (3,556)
------- -------
L13,212 L11,369
======= =======
</TABLE>
Future minimum rental payments under lease commitments with an initial or
remaining term of more than one year as of December 31, 1997 are as follows (in
L000's):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
1998........................................................ L 2,699 L 156
1999........................................................ 2,801 156
2000........................................................ 2,778 156
2001........................................................ 2,300 157
2002........................................................ 1,719 154
Thereafter.................................................. 7,710 1,805
-------- -------
Total minimum rental commitments............................ 20,007 L 2,584
=======
Less: Amount representing interest.......................... (4,783)
--------
Present value of minimum rental commitments................. 15,224
Less: Current portion of capital lease obligations.......... (1,685)
--------
Long-term portion of capital lease obligations.............. L 13,539
========
</TABLE>
Operating lease expense for the years ended December 31, 1997, 1996 and
1995 was L169,000, L428,000 and L947,000, respectively.
Included within accounts payable and accrued expenses and other long-term
liabilities as of December 31, 1997 and 1996 is L570,000 and L665,000,
respectively, which represents the obligation incurred by the Company in
connection with the termination of a contractual obligation under an agreement
with the local authority to service and maintain the Company's satellite master
antenna television installations in the franchise area. This liability is
noninterest bearing and will be discharged by the payment of L95,000 annually
through 2003. The effect of discounting the liability is not significant to the
Company's financial position or results of operations.
F-80
<PAGE> 158
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Cable London PLC
We have audited the accompanying consolidated balance sheet of Cable London
PLC (a company incorporated in the United Kingdom) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, shareholders' (deficiency) equity and of cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Cable London PLC and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE
London, England
February 27, 1998
F-81
<PAGE> 159
CABLE LONDON PLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN L000'S, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
--------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... L 2,718 L 3,213
Accounts receivable, less allowance for doubtful accounts
of L1,762 and L1,465................................... 4,792 3,670
Other current assets...................................... 2,830 3,334
--------- --------
Total current assets.............................. 10,340 10,217
--------- --------
PROPERTY AND EQUIPMENT...................................... 235,786 192,630
Accumulated depreciation.................................. (55,292) (36,480)
--------- --------
Property and equipment, net............................... 180,494 156,150
--------- --------
DEFERRED CHARGES............................................ 8,073 6,986
Accumulated amortization.................................. (3,214) (3,230)
--------- --------
Deferred charges, net..................................... 4,859 3,756
--------- --------
L 195,693 L170,123
========= ========
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses..................... L 19,972 L 21,705
Other current liabilities................................. 2,172 3,117
Current portion of long-term debt and capital lease
obligations............................................ 758 60,361
--------- --------
Total current liabilities......................... 22,902 85,183
--------- --------
LONG-TERM DEBT, less current portion........................ 89,727 718
--------- --------
CAPITAL LEASE OBLIGATIONS, less current portion............. 11,751 7,869
--------- --------
CONVERTIBLE DEBT AND LOANS FROM SHAREHOLDERS................ 69,017 52,244
--------- --------
OTHER LIABILITIES........................................... 2,543
--------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' (DEFICIENCY) EQUITY
Ordinary shares, L.10 par value--authorized, 100,000,000
shares; issued, 55,572,916 and 55,125,690.............. 5,557 5,513
Additional capital........................................ 97,254 96,486
Accumulated deficit....................................... (103,058) (77,890)
--------- --------
Total shareholders' (deficiency) equity................ (247) 24,109
--------- --------
L 195,693 L170,123
========= ========
</TABLE>
See notes to consolidated financial statements.
F-82
<PAGE> 160
CABLE LONDON PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN L000'S)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
SERVICE INCOME............................................. L 52,816 L 40,091 L 30,277
-------- -------- --------
COSTS AND EXPENSES
Operating................................................ 22,084 17,978 14,622
Selling, general and administrative...................... 23,703 21,157 18,616
Depreciation and amortization............................ 19,740 14,862 10,847
-------- -------- --------
65,527 53,997 44,085
-------- -------- --------
OPERATING LOSS............................................. (12,711) (13,906) (13,808)
INTEREST EXPENSE........................................... 12,692 7,556 4,133
INVESTMENT INCOME.......................................... (235) (221) (266)
-------- -------- --------
NET LOSS................................................... L(25,168) L(21,241) L(17,675)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-83
<PAGE> 161
CABLE LONDON PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN L000'S)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................. L(25,168) L(21,241) L(17,675)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization......................... 19,740 14,862 10,847
Non-cash interest expense............................. 4,773 3,355 3,311
Increase in accounts receivable and other current
assets.............................................. (618) (2,428) (214)
(Decrease) increase in accounts payable and accrued
expenses, other current liabilities and other
liabilities......................................... (135) 7,508 3,992
-------- -------- --------
Net cash (used in) provided by operating
activities....................................... (1,408) 2,056 261
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from borrowings................................. 94,029 40,000 38,000
Debt acquisition costs................................... (1,704) (493)
Loans from shareholders.................................. 12,000 3,000
Repayments of debt....................................... (65,031) (33) (30)
Repayment of capital leases.............................. (537) (21)
Issuances of shares...................................... 812
-------- -------- --------
Net cash provided by financing activities........... 39,569 42,946 37,477
-------- -------- --------
INVESTING ACTIVITIES
Capital expenditures..................................... (38,656) (46,082) (36,780)
Deferred charges and other............................... (834)
-------- -------- --------
Net cash used in investing activities............... (38,656) (46,082) (37,614)
-------- -------- --------
(DECREASE) INCREASE IN CASH................................ (495) (1,080) 124
CASH, beginning of year.................................... 3,213 4,293 4,169
-------- -------- --------
CASH, end of year.......................................... L 2,718 L 3,213 L 4,293
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-84
<PAGE> 162
CABLE LONDON PLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIENCY) EQUITY
(IN L000'S)
<TABLE>
<CAPTION>
ORDINARY ADDITIONAL ACCUMULATED
SHARES CAPITAL DEFICIT TOTAL
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995........................ L5,513 L96,486 L (38,974) L 63,025
Net loss...................................... (17,675) (17,675)
------ ------- --------- --------
BALANCE, DECEMBER 31, 1995...................... 5,513 96,486 (56,649) 45,350
Net loss...................................... (21,241) (21,241)
------ ------- --------- --------
BALANCE, DECEMBER 31, 1996...................... 5,513 96,486 (77,890) 24,109
Shares issued................................. 44 768 812
Net loss...................................... (25,168) (25,168)
------ ------- --------- --------
BALANCE, DECEMBER 31, 1997...................... L5,557 L97,254 L(103,058) L (247)
====== ======= ========= ========
</TABLE>
See notes to consolidated financial statements.
F-85
<PAGE> 163
CABLE LONDON PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. BUSINESS
Cable London PLC, a company incorporated in the United Kingdom ("UK"), and
subsidiaries (the "Company") is principally engaged in the development,
construction, management and operation of cable telecommunications systems. The
Company holds four franchises covering Camden, Haringey, Hackney/ Islington and
Enfield, England.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company maintains its books and records in accordance with accounting
principles generally accepted in the UK. The consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
as practiced in the United States ("US") and are stated in UK pounds sterling
("UK Pound"). There were no significant differences between accounting
principles followed for UK purposes and generally accepted accounting principles
practiced in the US. The UK Pound exchange rate as of December 31, 1997 and 1996
was US $1.65 and US $1.71, respectively.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned subsidiaries. All significant intercompany accounts and
transactions among the consolidated entities have been eliminated.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Values
The estimated fair value amounts presented in these notes to consolidated
financial statements have been determined by the Company using available market
information and appropriate methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value. The
estimates presented herein are not necessarily indicative of the amounts that
the Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts. Such fair value estimates are based on
pertinent information available to management as of December 31, 1997 and 1996,
and have not been comprehensively revalued for purposes of these consolidated
financial statements since such dates.
Prematurity Period
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its cable telecommunications systems under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 51,
"Financial Reporting by Cable Television Companies."
Under SFAS No. 51, during the period while the systems are partially under
construction and partially in service (the "Prematurity Period"), costs of cable
telecommunications plant, including materials, direct labor and construction
overhead are capitalized. Subscriber-related costs and general and
administrative costs are
F-86
<PAGE> 164
CABLE LONDON PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
expensed as incurred. Costs incurred in anticipation of servicing a fully
operating system that will not vary regardless of the number of subscribers are
partially expensed and partially capitalized, based on the percentage of average
actual or estimated subscribers, whichever is greater, to the total number of
subscribers expected at the end of the Prematurity Period (the "Fraction").
During the Prematurity Period, depreciation and amortization of system
assets is determined by multiplying the depreciation and amortization of the
total capitalized system assets expected at the end of the Prematurity Period by
the Fraction. At the end of the Prematurity Period, depreciation and
amortization of system assets is based on the remaining undepreciated cost at
that date.
As of December 31, 1997, three of the Company's four franchise areas have
completed their Prematurity Period. The remaining Prematurity Period is expected
to terminate in 1998.
Property and Equipment
Property and equipment, which consists principally of system assets, is
shown at historical cost less accumulated depreciation. Improvements that extend
asset lives are capitalized; other repairs and maintenance charges are expensed
as incurred. The cost and related accumulated depreciation applicable to assets
sold or retired are removed from the accounts and the gain or loss on
disposition is recognized as a component of depreciation expense.
System assets
- --------------
Prior to the Prematurity Period, no depreciation is provided on system
assets. During the Prematurity Period, depreciation is provided in accordance
with SFAS No. 51.
Depreciation of system assets is provided by the straight-line method over
estimated useful lives as follows:
<TABLE>
<S> <C>
Plant....................................................... 40 years
Network..................................................... 15 years
Subscriber equipment........................................ 6-8 years
Switch...................................................... 10 years
Computers................................................... 4 years
</TABLE>
Non-system assets
- -------------------
Depreciation of non-system assets is provided by the straight-line method
over estimated useful lives as follows:
<TABLE>
<S> <C>
Leased buildings............................................ 40 years
Fixtures, fittings and equipment............................ 5 years
Computers................................................... 4 years
Vehicles.................................................... 3 years
</TABLE>
Leased Assets
Assets held under capital leases are treated as if they had been purchased
outright and the corresponding liability is included in capital lease
obligations. Capital lease payments include principal and interest, with the
interest portion being expensed. Payments on operating leases are expensed on a
straight-line basis over the lease term.
F-87
<PAGE> 165
CABLE LONDON PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Deferred Charges
Deferred charges consist primarily of franchise acquisition and development
costs directly attributable to obtaining, developing and maintaining the
franchise licenses and debt acquisition costs incurred by the Company in
entering into the London Revolver (see Note 3). Franchise acquisition and
development costs are being amortized on a straight-line basis over periods from
two to fifteen years. Debt acquisition costs are being amortized on a
straight-line basis over the term of the London Revolver of nine years.
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and deferred charges, using objective
methodologies. Such methodologies include evaluations based on the cash flows
generated by the underlying assets or other determinants of fair value.
Revenue Recognition
Service income is recognized as service is provided. Credit risk is managed
by disconnecting services to subscribers who are delinquent.
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes in tax
rates and laws, if any, applied to the years during which temporary differences
are expected to be settled, are reflected in the financial statements in the
period of enactment.
Derivative Financial Instruments
The Company uses derivative financial instruments, including interest rate
exchange agreements ("Swaps") and interest rate collar agreements ("Collars"),
to manage its exposure to fluctuations in interest rates.
Swaps and Collars are matched with either fixed or variable rate debt and
periodic cash payments are accrued on a settlement basis as an adjustment to
interest expense.
Those instruments that have been entered into by the Company to hedge
exposure to interest rate risks are periodically examined by the Company to
ensure that the instruments are matched with underlying liabilities, reduce the
Company's risks relating to interest rates and, through market value and
sensitivity analysis, maintain a high correlation to the interest expense or
underlying value of the hedged item.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments (see Note 3). The
credit risks associated with the Company's derivative financial instruments are
controlled through the evaluation and monitoring of the creditworthiness of the
counterparties. Although the Company may be exposed to losses in the event of
nonperformance by the counterparties, the Company does not expect such losses,
if any, to be significant.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 1997.
F-88
<PAGE> 166
CABLE LONDON PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3. LONG-TERM DEBT
In June 1995, the Company entered into a L60.0 million revolving credit
facility (the "London Facility") with various banks. The London Facility had a
two year term and an interest rate at the London Interbank Offered Rate
("LIBOR") plus 2 1/2%. In April 1997, the amount available under the London
Facility was increased to L65.0 million.
In May 1997, the Company entered into a L170.0 million revolving credit
facility (the "London Revolver") with various banks, which converts into a five
year term loan on June 30, 2001. Interest rates on the London Revolver are at
LIBOR plus 1/2% to 2 3/8%. In May 1997, the Company repaid all amounts
outstanding under the London Facility with proceeds from borrowings under the
London Revolver. The balance of the London Revolver will be used, subject to
certain restrictions, for capital expenditures and working capital requirements
relating to the build-out of its systems.
The London Revolver contains restrictive covenants which limit the
Company's ability to enter into arrangements for the acquisition and sale of
property and equipment, investments, mergers and the incurrence of additional
debt. Certain of these covenants require that certain financial ratios and cash
flow levels be maintained and contain certain restrictions on dividend payments.
The Company's two principal shareholders' rights to receive consulting fee
payments from the Company has been subordinated to the banks under the London
Revolver. The payment of consulting fees is restricted until the Company meets
certain financial ratio tests under the London Revolver. In addition, the
Company's two principal shareholders' shares in the Company have been pledged to
secure the London Revolver. Upon a change of control, all amounts due under the
London Revolver become immediately due and payable. On February 4, 1998, Comcast
UK Cable Partners Limited ("Comcast UK"), one the Company's principal
shareholders, entered into a definitive agreement to amalgamate (the "NTL
Transaction") with a wholly owned subsidiary of NTL Incorporated. The
consummation of the NTL Transaction will not result in a change of control as
defined in the London Revolver.
The Company enters into Swaps and Collars as a normal part of its risk
management efforts to limit its exposure to adverse fluctuations in interest
rates. Using Swaps, the Company agrees to exchange, at specified intervals, the
difference between fixed and variable interest amounts calculated by reference
to an agreed upon notional amount. Collars limit the Company's exposure to and
benefits from interest rate fluctuations on variable rate debt to within a
certain range of interest rates. In June 1997, the Company entered into a series
of four year interest Swaps with three banks. Under the agreements, the Company
pays fixed rate interest at 7.34% and receives floating rate interest at three
month LIBOR, based upon the outstanding notional amount of the Swaps. As of
December 31, 1997, the notional amount outstanding on the Swaps was L44.5
million and increased to L49.5 million on January 7, 1998. Also in June 1997,
the Company entered into a Collar which limits the interest rate on the notional
amount to between 6% and 9%. As of December 31, 1997, the notional amount
outstanding on the Collar was L22.3 million and increased to L24.8 million on
January 7, 1998. The notional amounts of interest rate agreements and interest
rate collar agreements are used to measure interest to be paid or received and
do not represent the amount of exposure to credit loss. While Swaps and Collars
represent an integral part of the Company's interest rate risk management
program, their incremental effect on interest expense for the year ended
December 31, 1997 was not significant. The estimated amount to settle the
Company's Swaps and Collar was L1.5 million as of December 31, 1997.
Also included in long-term debt is a mortgage note payable with an
outstanding balance of L753,000 and L755,000 as of December 31, 1997 and 1996,
respectively, payable in monthly installments through 2002 which is secured by
property of the Company. The mortgage note bears interest at a fixed rate of
9.79%.
F-89
<PAGE> 167
CABLE LONDON PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Maturities of long-term debt outstanding as of December 31, 1997 for the
four years after 1998 are as follows (L000's):
<TABLE>
<S> <C>
1999................................................ L
2000................................................
2001................................................ 2,225
2002................................................ 8,900
</TABLE>
The differences between the carrying amounts and estimated fair value of
the Company's long-term debt was not significant as of December 31, 1997 and
1996. Interest rates that are currently available to the Company for debt with
similar terms and remaining maturities are used to estimate fair value for debt
issues for which quoted market prices are not available.
4. CONVERTIBLE DEBT AND LOANS FROM SHAREHOLDERS
As of December 31, 1997 and 1996, the Company had outstanding convertible
debt due to shareholders of L42.0 million and outstanding loans from
shareholders of L15.0 million and L3.0 million, respectively. The convertible
debt and loans from shareholders bear interest at 2% above the base lending rate
of Barclays Bank PLC (9.25% effective rate as of December 31, 1997) and are
payable on demand. Accrued interest on the convertible debt and loans from
shareholders is L12.0 million and L7.2 million as of December 31, 1997 and 1996,
respectively. Under the terms of the London Revolver, principal and interest on
the convertible debt and loans from shareholders cannot be paid until the London
Revolver is repaid. Accordingly, the convertible debt, loans from shareholders
and accrued interest thereon has been classified as long-term convertible debt
and other in the Company's consolidated balance sheet. The convertible debt,
along with accrued interest thereon, is convertible into the Company's ordinary
shares at L2.00 per share. Interest expense on the convertible debt and loans
from shareholders was L4.8 million, L3.3 million and L3.2 million during the
years ended December 31, 1997, 1996 and 1995, respectively. The carrying value
of the convertible debt and loans from shareholders approximates fair value as
of December 31, 1997 and 1996.
5. RELATED PARTY TRANSACTIONS
The Company has consulting agreements with Comcast U.K. Consulting, Inc.
("Comcast Consulting") and Telewest Communications Group Ltd., subsidiaries of
the Company's two principal shareholders, Comcast UK and Telewest Communications
plc ("Telewest"), respectively. The Company pays a fee to Telewest each year as
a contribution to the operating expenses and capital expenditures of Telewest's
Network Service Center, which provides telephony support to the Company.
A summary of related party charges included in the Company's consolidated
financial statements is as follows (in L000's):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Consulting fees.......................................... L1,077 L 790 L 962
Network Service Center fees.............................. 521 639 503
Other.................................................... 355 125 33
------ ------ ------
L1,953 L1,554 L1,498
====== ====== ======
</TABLE>
As of December 31, 1997 and 1996, accounts payable and accrued expenses
include L176,000 million and L1.6 million, respectively, payable to the
Company's two principal shareholders, principally for consulting fees and normal
operating expenses paid by the shareholders and their affiliates on behalf of
the Company. As of
F-90
<PAGE> 168
CABLE LONDON PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
December 31, 1997 other long-term liabilities includes L2.5 million of
consulting fees and interest payable to the Company's two principal shareholders
as payment is restricted under the London Revolver.
In management's opinion, the foregoing transactions were entered into on
terms no more or less favorable than those with non-affiliated third parties.
6. INCOME TAXES
The Company has a deferred tax asset arising from the carryforward of net
operating losses and the differences between the book and tax basis of property.
However, a valuation allowance has been recorded to fully reserve the deferred
tax asset as its realization is uncertain.
Significant components of the Company's deferred income taxes are as
follows (in L000's):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
-------- --------
<S> <C> <C>
Net operating loss carryforwards (carried forward
indefinitely)............................................. L 17,692 L 15,852
Differences between book and tax basis of property.......... 10,426 7,329
Other....................................................... (459) (756)
Less: Valuation allowance................................... (27,659) (22,425)
-------- --------
L L
======== ========
</TABLE>
7. STATEMENT OF CASH FLOWS -- SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of approximately L7.4 million,
L3.7 million and L691,000 during the years ended December 31, 1997, 1996 and
1995, respectively.
The Company incurred capital lease obligations of L4.8 million, L1.5
million and L3.9 million during the years ended December 31, 1997, 1996 and
1995, respectively.
8. COMMITMENTS AND CONTINGENCIES
Certain of the Company's facilities and equipment are held under operating
or capital leases which expire through 2007.
A summary of assets held under capital leases are as follows (in L000's):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1997 1996
------- -------
<S> <C> <C>
System, fixtures, fittings, equipment and vehicles.......... L13,040 L 8,219
Less: Accumulated depreciation.............................. (2,836) (1,523)
------- -------
L10,204 L 6,696
======= =======
</TABLE>
F-91
<PAGE> 169
CABLE LONDON PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Future minimum rental payments under lease commitments with an initial or
remaining term of more than one year as of December 31, 1997 are as follows (in
L000's):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1998........................................................ L 1,550 L 902
1999........................................................ 2,036 496
2000........................................................ 2,078 181
2001........................................................ 2,313 148
2002........................................................ 1,457 146
Thereafter.................................................. 7,727 955
------- ------
Total minimum rental commitments............................ 17,161 L2,828
======
Less: Amount representing interest.......................... (4,678)
-------
Present value of minimum rental commitments................. 12,483
Less: Current portion of capital lease obligations.......... (732)
-------
Long-term portion of capital lease obligations.............. L11,751
=======
</TABLE>
Operating lease expense for the years ended December 31, 1997, 1996 and
1995 was L919,000, L1.2 million and L1.1 million, respectively.
F-92
<PAGE> 170
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
ComTel UK Finance B.V.
We have audited the accompanying combined balance sheet of ComTel UK
Finance B.V. and its subsidiaries ("the Company") as of December 31, 1997 and
the related combined statement of operations, shareholders' equity and cash
flows for the year ended December 31, 1997. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United Kingdom which are similar to those in the United States
of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Company as of
December 31, 1997 and the combined results of its operations and its combined
cash flows for the year ended December 31, 1997 in conformity with generally
accepted accounting principles in the United States of America.
DELOITTE & TOUCHE
Chartered Accountants
Bracknell, England
June 5, 1998
(July 16, 1998 as to Note 10)
F-93
<PAGE> 171
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
ComTel UK Finance B.V.
We have audited the combined balance sheet of ComTel UK Finance B.V. and
its subsidiaries ("the Company") as of December 31, 1996 and the related
combined statement of operations, shareholders' equity and cash flows for the
year ended December 31, 1996. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit. We did not
audit the combined financial statements of Telecential Communications (UK)
Limited and Telecential Communications (Canada) Limited, both 50% owned entities
(collectively "Telecential"). Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for Telecential, is based solely on the report of the other
auditors.
We conducted our audit in accordance with United Kingdom generally accepted
auditing standards which do not differ in any material respect from auditing
standards generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the combined financial position of the Company as of December 31, 1996
and the combined results of its operations and its combined cash flows for the
year ended December 31, 1996 in conformity with generally accepted accounting
principles in the United States of America.
COOPERS & LYBRAND
Chartered Accountants
London, England
June 5, 1998, except as to Note 10, as to
which the date is July 16, 1998
F-94
<PAGE> 172
COMTEL UK FINANCE B.V.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
------------------
1996 1997
L L
------- -------
(IN THOUSANDS)
<S> <C> <C>
REVENUE
Cable television............................................ 5,680 27,192
Residential telephone....................................... 3,247 23,203
Business telecommunications................................. 214 893
------- -------
9,141 51,288
------- -------
OPERATING COSTS AND EXPENSES
Telephone................................................... 1,247 4,461
Programming................................................. 3,659 17,730
Selling, general and administrative......................... 11,501 33,911
Depreciation and amortisation............................... 11,211 32,604
------- -------
27,618 88,706
------- -------
OPERATING LOSS.............................................. (18,477) (37,418)
Interest income............................................. 1,859 2,041
Interest expense............................................ (10,485) (27,044)
Loss from equity investment................................. (15,224) (6,125)
Foreign exchange gain (note 7).............................. 7,456 6,549
------- -------
LOSS BEFORE INCOME TAX EXPENSE.............................. (34,871) (61,997)
Income tax expense (note 3)................................. -- (100)
------- -------
NET LOSS.................................................... (34,871) (62,097)
======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-95
<PAGE> 173
COMTEL UK FINANCE B.V.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1996 1997
L L
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... 9,977 10,119
Trade receivables (net of allowance for doubtful accounts of
L883 and L4,263 at December 31, 1996 and 1997
respectively)............................................. 1,754 5,895
Other assets................................................ 1,290 12,541
Advance to Telecential...................................... 46,563 --
Property, plant and equipment, net (note 4)................. 89,339 425,936
Equity investment in Telecential (note 5)................... 37,338 --
Intangible assets, net (note 6)............................. 120,962 210,573
------- -------
Total assets...................................... 307,223 665,064
======= =======
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
L L
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable............................................ 5,321 20,036
Other liabilities........................................... 13,445 49,532
Debt and capital lease obligations (note 7)................. 182,757 487,749
Loan from Parent (note 7)................................... 51,129 69,141
Shareholders' equity (note 8)............................... 54,571 38,606
------- -------
Total liabilities and shareholders' equity........ 307,223 665,064
======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-96
<PAGE> 174
COMTEL UK FINANCE B.V.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, 1996
AND 1997
L
-------------------
(IN THOUSANDS)
<S> <C>
BALANCE AT DECEMBER 31, 1995................................ (3,570)
Net loss.................................................... (34,871)
Capital contributions from shareholders..................... 93,012
-------
BALANCE AT DECEMBER 31, 1996................................ 54,571
Net loss.................................................... (62,097)
Capital contributions from shareholders..................... 46,132
-------
BALANCE AT DECEMBER 31, 1997................................ 38,606
=======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-97
<PAGE> 175
COMTEL UK FINANCE B.V.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1996 1997
L L
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... (34,871) (62,097)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortisation............................. 11,211 32,604
Loss from equity investment............................... 15,224 6,125
Foreign exchange gain..................................... (7,456) (6,549)
Provision for bad debt.................................... 817 841
Change in operating assets and liabilities:
Change in trade receivables............................... (2,011) (2,458)
Change in other assets.................................... 2,273 58
Change in accounts payable................................ (2,609) 3,196
Change in other liabilities............................... 3,252 23,166
Other....................................................... (1,274) 613
-------- --------
Net cash used in operating activities....................... (15,444) (4,501)
-------- --------
Cash flows from investing activities:
Cash invested in property, plant and equipment............ (51,456) (118,033)
Proceeds from disposition of assets....................... -- 869
Acquisition of Telecential, net of cash received.......... -- (117,024)
Acquisition of Coventry, net of cash received............. (3,949) --
Advances to Telecential................................... (40,411) (15,893)
-------- --------
Net cash used in investing activities....................... (95,816) (250,081)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of debt............................ 49,180 301,048
Repayment of debt......................................... (22,086) (30,000)
Repayment of advances..................................... -- (62,456)
Capital contributions from shareholders................... 93,012 46,132
-------- --------
Net cash provided by financing activities................... 120,106 254,724
-------- --------
Net increase in cash and cash equivalents................... 8,846 142
Cash and cash equivalents at beginning of year.............. 1,131 9,977
-------- --------
Cash and cash equivalents at end of year.................... 9,977 10,119
======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-98
<PAGE> 176
COMTEL UK FINANCE B.V.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1. THE COMPANY
ComTel UK Finance B.V. ("the Company") is a holding company to be
incorporated in The Netherlands to hold the United Kingdom cable assets of
Vision Networks N.V. ("Vision Networks"). These assets comprise United Kingdom
subsidiaries which have exclusive licenses to operate a cable television and
telecommunications business through partnerships and subsidiaries focused on
certain franchise areas located north and east of Birmingham and north and west
of London, England.
References to Shareholders in these financial statements are to the
subscribers to the Company.
All amounts herein are presented in thousands in pounds sterling ("L")
unless otherwise noted.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's combined financial statements have been prepared in
accordance with United States of America generally accepted accounting
principles.
The financial statements include the results of the companies acquired by
Vision Networks in 1995 and 1996. These companies include Vision Networks UK
Holding B.V., Vision Networks (UK) Holdings Limited, Vision Network (UK) I
Limited, Vision Network (UK) II Limited, Vision Networks Canada Limited, Andover
Cablevision Limited, Oxford Cable Limited, Stafford Communications Limited,
Wessex Cable Limited, ComTel Coventry Limited, ComTel Cable Services Limited,
Lichfield Cable Communications Limited, Tamworth Cable Communications Limited
and Vision Networks Services UK Limited. In addition, the financial statements
reflect the 50% ownership position in Telecential Communications (UK) Limited
and Telecential Communications (Canada) Limited (collectively "Telecential") on
the equity basis through May 27, 1997, being the date of acquisition of the
remaining 50% interest, and 100% on a combined basis for the remainder of 1997.
Principles of Combination -- The financial statements combine the accounts
of the Company and those of all majority owned subsidiaries for the two year
period ended December 31, 1997. The subsidiaries are under common ownership and
common management. Investments in more than 20% owned affiliates are accounted
for on the equity method. All significant intercompany accounts and transactions
have been eliminated.
Cable System Costs and Expenses -- The Company accounts for costs and
expenses applicable to the construction and operation of its cable system under
Statement of Financial Accounting Standards ("SFAS") No. 51, "Financial
Reporting by Cable Television Companies". Costs and expenses incurred in each
franchise during the set up period of the cable system have been capitalised in
full. Certain expenses incurred during the prematurity period are apportioned
between capital and revenue on the basis of the average number of subscribers as
a fraction of the number of subscribers estimated at the end of the prematurity
period. The prematurity period is deemed to run from when the first subscriber
is connected to the system to the earlier of three years or when the number of
cable television and telephony subscribers represents an appropriate percentage
penetration of the number of homes passed.
Revenue Recognition -- Revenue is recognised as services are delivered.
Initial connection fees are recognized in full upon installation to the
extent of direct selling costs incurred.
Initial installation costs for subscribers are capitalised and written off
over a period of 8 years. Subsequent connections are expensed as incurred.
Income Tax Expense -- Deferred tax assets and liabilities are recognised
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to reverse. A
F-99
<PAGE> 177
COMTEL UK FINANCE B.V.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
valuation allowance is raised against a deferred tax asset where it is more
likely than not some portion of the deferred tax asset will not be realised.
Franchise Costs -- Costs of successful franchise applications are
capitalised as intangible assets and amortised over a period of 20 years. Costs
of unsuccessful applications are expensed as incurred.
Goodwill -- Goodwill arising on the acquisition of subsidiaries is
amortised on a straight line basis over twenty years.
Property, Plant and Equipment -- Property, plant and equipment is stated at
cost. Depreciation on equipment other than cable infrastructure is computed on a
straight line basis using estimated useful lives of five to ten years. Cable
infrastructure is depreciated over twenty years. Leasehold improvements are
depreciated on a straight line basis over the lease periods.
Cash and Cash Equivalents -- Cash and cash equivalents include highly
liquid investments with original maturity of three months or less that are
readily convertible to cash.
Foreign Currencies -- The primary economic environment in which the Company
operates is the United Kingdom and hence its functional and reporting currency
is the United Kingdom pound sterling. Transactions in foreign currencies are
recorded using the rate of exchange in effect on the date of the transaction or
at the forward rate if the transaction has been hedged. Monetary assets and
liabilities denominated in foreign currencies are translated using the rate of
exchange in effect on the balance sheet date and gains or losses on translation
are included in the statement of operations.
Leasing Commitments -- Assets held under finance lease contracts are
capitalised in the balance sheet and are depreciated over their useful lives.
The interest element of the rental obligation is charged to expense over the
period of the lease and represents a constant proportion of the balance of
capital repayments outstanding. Rentals paid under operating leases are charged
to expense over the lease term.
Pension Costs -- The Company operates a defined contribution pension plan
for eligible employees and contributes up to specified limits to a third party
plan of the employee's choice. Pension costs totalled L85 and L332 in the years
ended December 31, 1996 and 1997, respectively.
Use of Estimates -- The preparation of financial statements in conformity
with United States of America generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Concentration of Credit Risk and Market Risk -- The Company operates
predominantly in one industry segment, the provision of cable television and
telecommunications services in certain areas of England. Concentrations of
credit risk with respect to trade receivables are limited due to the large
number of customers comprising the Company's customer base. Ongoing credit
evaluations of customers' financial condition are performed and generally, no
collateral is required. The Company maintains reserves for potential credit
losses and such losses, in the aggregate, have not exceeded management's
estimates. No single customer accounts for 10% or more of combined revenues.
Fair Value of Financial Instruments -- Financial instruments are defined as
cash or contracts relating to the receipt, delivery or exchange of financial
instruments. Except as otherwise noted, fair value approximates the carrying
value of such instruments.
F-100
<PAGE> 178
COMTEL UK FINANCE B.V.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAX EXPENSE
No provision for deferred taxation has been made due to operating losses
incurred to date in the Company. The Company has net tax operating losses
carried forward in the United Kingdom and The Netherlands of approximately L175
million at December 31, 1997.
The operating losses have an unlimited carry forward period under United
Kingdom tax law (subject to restrictions on a loss carried forward where there
is a change in group ownership and a major change in the nature or conduct of
the business), but are limited in their use to the type of business which
generated the loss. The operating losses available in The Netherlands are also
subject to an unlimited carry forward under The Netherlands tax law (again
subject to restrictions where there is a change in group ownership).
Differences between the tax benefit recognised in the financial statements
and the expected tax benefit for the Company at the United Kingdom and The
Netherlands statutory rate of 31.5% (1996: 33%) and 35%, respectively, are
summarised as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
------------------
1996 1997
L L
------- -------
(IN THOUSANDS)
<S> <C> <C>
Tax benefit of net losses at statutory rate.............. (11,716) (20,532)
Non-deductible expenses.................................. (103) 755
Tax benefit of operating losses not recognised
currently.............................................. 11,819 19,877
------- -------
Income tax expense....................................... -- 100
======= =======
Deferred tax assets relating to:
Net losses............................................... 17,976 56,331
Valuation allowance...................................... (9,516) (23,265)
------- -------
8,460 33,066
Deferred tax liabilities relating to:
Property, plant and equipment............................ (8,460) (33,066)
------- -------
Deferred tax per balance sheet........................... -- --
======= =======
</TABLE>
The ultimate realisation of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, the level of
historical taxable losses, and tax planning strategies in making its assessment
as to the appropriateness of the reported valuation allowance.
The tax charge for the year represents current taxation on those United
Kingdom profits against which United Kingdom group relief cannot be offset.
F-101
<PAGE> 179
COMTEL UK FINANCE B.V.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and comprises:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1996 1997
L L
------ -------
(IN THOUSANDS)
<S> <C> <C>
Land and buildings and improvements....................... 4,835 13,982
Plant and equipment....................................... 86,554 453,373
Set-up and prematurity costs.............................. 6,748 33,737
------ -------
98,137 501,092
Less accumulated depreciation............................. (8,798) (75,156)
------ -------
89,339 425,936
====== =======
</TABLE>
The Company leases certain plant and equipment under arrangements accounted
for as capital leases. The original cost of assets held under these arrangements
was L2,558 and L17,510 at December 31, 1996 and 1997, respectively. Accumulated
depreciation charged against these assets was L734 and L7,047 at December 31,
1996 and 1997, respectively.
Depreciation expense totaled L4,780 and L23,425 in the years ended December
31, 1996 and 1997, respectively, of which L537 and L2,770, respectively,
represented depreciation on assets held under capital lease arrangements.
5. ACQUISITIONS
In April 1996, the Company acquired 87.75% of ComTel Coventry Limited
("Coventry") for cash consideration of L3,973. The acquisition was accounted for
using the purchase method of accounting. The excess of consideration over fair
value of net assets acquired was L11,829, which is included in goodwill.
The 50% interest in Telecential which was not owned was acquired on May 27,
1997 for cash consideration of L123,191. The acquisition was accounted for using
the purchase method of accounting. The excess of fair value of net assets
acquired at the date of acquisition was L90,553 which is included in goodwill.
Accordingly, operating results of Telecential have been included in the combined
statement of operations from the date of acquisition of the remaining 50%
interest.
The unaudited pro forma combined historical results of the Company, as if
the acquisitions had occurred as of January 1, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
------------------
1996 1997
L L
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revenue.................................................. 47,555 72,271
Operating cost and expenses.............................. 89,368 119,036
------- -------
Operating loss........................................... (41,813) (46,765)
Loss before income taxes................................. (63,874) (74,248)
Net loss................................................. (63,971) (74,348)
</TABLE>
The unaudited pro forma results are not necessarily indicative of what
actually would have occurred if the acquisition had been completed as of the
beginning of each of the fiscal periods presented, nor are they necessarily
indicative of future combined results.
F-102
<PAGE> 180
COMTEL UK FINANCE B.V.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. ACQUISITIONS (CONTINUED)
Following the May 27, 1997 acquisition of the 50% interest in Telecential
the operations of both Telecential and the Company were combined. This involved
rationalising operations throughout the Company to (i) consolidate customer
operations and combine processes, practices and systems in order to provide
"World Class" customer services; (ii) rebrand the Company under the ComTel brand
name; and (iii) reduce staff and pay related severance costs. The initial
accrued liability in respect of these costs comprised:
<TABLE>
<CAPTION>
L
(IN THOUSANDS)
--------------
<S> <C>
Consolidation of customer operations........................ 1,838
Rebranding as ComTel........................................ 450
Severance costs............................................. 300
-----
2,588
=====
</TABLE>
All of the above was contracted for in 1997 and has therefore been expensed
within operating costs and expenses in the combined statement of operations.
L2,316 of these costs had been incurred by December 31, 1997 and the remaining
L272 was spent in the first quarter of 1998.
6. INTANGIBLE ASSETS
Intangible assets are stated at cost and comprise:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1996 1997
L L
------- -------
(IN THOUSANDS)
<S> <C> <C>
Goodwill................................................. 128,658 220,155
Franchise costs.......................................... -- 7,293
------- -------
128,658 227,448
Less accumulated amortisation............................ (7,696) (16,875)
------- -------
120,962 210,573
======= =======
</TABLE>
Amortisation expense totaled L6,431 and L9,179 in the years ended December
31, 1996 and 1997, respectively.
7. DEBT AND CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1996 1997
L L
------- -------
(IN THOUSANDS)
<S> <C> <C>
Note payable to bank..................................... 181,314 463,545
Other.................................................... -- 2,516
Capital lease obligations................................ 1,443 21,688
------- -------
182,757 487,749
Loan from Parent......................................... 51,129 69,141
------- -------
233,886 556,890
======= =======
</TABLE>
The note payable to the bank bears interest at a rate of LIBOR (7.438% at
December 31, 1997) plus 15 basis points. The loan is repayable in full in 1998.
The loan is collateralised by a guarantee from the ultimate parent company
Koninklijke PTT Nederland N.V. The loan from parent represents a Dutch guilder
denominated loan from Vision Networks and bears interest at a rate of LIBOR as
of December 31, 1997, and
F-103
<PAGE> 181
COMTEL UK FINANCE B.V.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. DEBT AND CAPITAL LEASE OBLIGATIONS -- (CONTINUED)
has no fixed repayment term. Debt obligations consisting of repayments on loans,
excluding capital lease obligations, are all due 1998.
Future minimum lease payments on capital lease obligations are due in
future years in the following amounts:
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1997
L
--------------
(IN THOUSANDS)
<S> <C>
1998................................................... 4,073
1999................................................... 2,878
2000................................................... 2,288
2001................................................... 9,155
2002................................................... 1,454
Thereafter............................................. 1,840
------
21,688
Imputed interest....................................... 3,247
------
24,935
======
</TABLE>
Cash paid for interest during 1996 and 1997 was L10,874 and L27,726,
respectively.
8. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
VISION
VISION NETWORKS VISION
NETWORKS (UK) NETWORKS
UK HOLDING HOLDINGS SERVICES UK
B.V. LIMITED LIMITED TOTAL
L L L L
---------- -------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996...................... (1,363) (2,207) -- (3,570)
Net loss........................................ (7,547) (27,190) (134) (34,871)
Capital contributions........................... 93,012 -- -- 93,012
------- ------- ---- -------
BALANCE AT DECEMBER 31, 1996.................... 84,102 (29,397) (134) 54,571
Net loss........................................ (13,079) (48,888) (130) (62,097)
Capital contributions........................... 46,132 -- -- 46,132
------- ------- ---- -------
BALANCE AT DECEMBER 31, 1997.................... 117,155 (78,285) (264) 38,606
======= ======= ==== =======
</TABLE>
Vision Networks UK Holding B.V. consolidates all of the ComTel group of
companies, whilst Vision Networks (UK) Holdings Limited combines all of the
Telecential group of companies. Vision Networks Services UK Limited is a Dutch
holding company which provided management services to all of the companies in
each of the two groups.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases business offices and uses certain equipment under lease
agreements accounted for as operating leases. Rental expense under such
arrangements amounted to L1,427 and L4,510 in the years ended December 31, 1996
and 1997 respectively.
F-104
<PAGE> 182
COMTEL UK FINANCE B.V.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments under non cancellable operating leases as of
December 31, 1997 are summarised as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1997
L
--------------
(IN THOUSANDS)
<S> <C>
1998................................................... 1,533
1999................................................... 2,686
2000................................................... --
2001................................................... --
2002................................................... --
Thereafter............................................. 1,608
-----
5,827
=====
</TABLE>
It is expected that, in the normal course of business, expiring leases will
be renewed or replaced by leases on other properties.
Milestones
The Company is obligated under the terms of its existing licences, and
under the milestone requirements of Local Delivery Licences ("LDL's") to
construct cable systems passing a predefined number of premises. Should the
Company fail to achieve these milestones, without licence modifications, the
Director General could commence proceedings to require compliance. Similarly the
Independent Television Commission ("ITC") may commence proceedings to require
compliance with the build milestones in the LDL's.
If the Company is unable to comply, its licence, in respect of which
milestones have not been met, could be revoked and awarded to other cable
operators, which could have a material adverse effect on the Company.
As of December 31, 1997 the Company was in compliance with its milestone
obligations.
10. SUBSEQUENT EVENTS
On June 11, 1998 the Company was incorporated in The Netherlands as
contemplated in note 1.
On June 16, 1998 NTL Group Limited ("NTL"), a subsidiary of NTL
Incorporated, acquired the entire issued share capital of the UK subsidiaries
which form part of the Company's combined group as presented in these financial
statements (the "ComTel Shares"). These UK subsidiaries comprised Andover
Cablevision Limited, Oxford Cable Limited, Stafford Communications Limited,
Wessex Cable Limited, ComTel Coventry Limited, ComTel Cable Services Limited,
Lichfield Cable Communications Limited, Tamworth Cable Communications Limited
and Vision Networks Services UK Limited.
On the same date an undertaking was entered into by NTL to acquire the
entire issued share capital of ComTel Limited, Heartland Cablevision (UK)
Limited and Heartland Cablevision II (UK) Limited, together with all interests
in the Telecommunications Partnership and LP5 and LP6 (the "Telecential
Assets"). The Telecential Assets form part of the Company's combined group as
presented in these financial statements. The completion of the acquisition of
the Telecential Assets is subject to compliance with certain obligations on all
parties to the sale before March 15, 1999 or, subject to specific exceptions,
December 31, 2002.
F-105
<PAGE> 183
COMTEL UK FINANCE B.V.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
(UNAUDITED)
------------------
1997 1998
L L
------- -------
(IN THOUSANDS)
<S> <C> <C>
REVENUE
Cable television............................................ 4,921 21,534
Residential telephone....................................... 3,511 19,390
Business telecommunications................................. 274 2,570
------- -------
8,706 43,494
------- -------
OPERATING COSTS AND EXPENSES
Telephone................................................... 1,065 5,699
Programming................................................. 3,393 12,924
Selling, general and administrative......................... 7,640 24,140
Depreciation and amortisation............................... 8,897 25,969
------- -------
20,995 68,732
------- -------
OPERATING LOSS.............................................. (12,289) (25,238)
Interest income............................................. 412 665
Interest expense............................................ (8,726) (19,877)
Loss from equity investment................................. (9,312) --
Foreign exchange gain (loss)................................ 3,876 (7,639)
------- -------
LOSS BEFORE INCOME TAX EXPENSE.............................. (26,039) (52,089)
Income tax expense.......................................... -- --
------- -------
NET LOSS.................................................... (26,039) (52,089)
======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-106
<PAGE> 184
COMTEL UK FINANCE B.V.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1998
(UNAUDITED)
L
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and cash equivalents................................... 11,517
Trade receivables (net of allowance for doubtful accounts of
L3,854 at June 30, 1998).................................. 11,493
Other assets................................................ 114,074
Property, plant and equipment, net.......................... 295,132
Intangible assets, net...................................... 156,923
-------
Total assets...................................... 589,139
=======
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
L
--------------
(IN THOUSANDS)
<S> <C>
Accounts payable............................................ 23,248
Other liabilities........................................... 60,798
Debt and capital lease obligations.......................... 309,706
Shareholders' equity........................................ 195,387
-------
Total liabilities and shareholders' equity........ 589,139
=======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-107
<PAGE> 185
COMTEL UK FINANCE B.V.
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIOD ENDED
JUNE 30, 1998
-----------------
(UNAUDITED)
L
-----------------
(IN THOUSANDS)
<S> <C>
BALANCE AT DECEMBER 31, 1997................................ 38,606
Capital contributions....................................... 208,870
Net loss.................................................... (52,089)
-------
BALANCE AT JUNE 30, 1998.................................... 195,387
=======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-108
<PAGE> 186
COMTEL UK FINANCE B.V.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIODS ENDED
JUNE 30
--------------------
(UNAUDITED)
1997 1998
L L
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... (26,039) (52,089)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortisation............................. 8,897 25,969
Loss from equity investment............................... 9,312 --
Foreign exchange (gain) loss.............................. (3,876) 7,639
Change in operating assets and liabilities:
Change in trade receivables............................... (2,317) (12,432)
Change in other assets.................................... 5,815 5,899
Change in accounts payable................................ 12,311 19,061
Change in other liabilities............................... (9,850) 10,312
Other....................................................... (2,461) 654
-------- --------
Net cash used in/provided by operating activities........... (8,208) 5,013
-------- --------
Cash flows from investing activities:
Cash invested in property, plant and equipment............ (45,798) (44,533)
Proceeds from sale of ComTel Shares, net of cash on
hand................................................... -- 267,652
Acquisition of Telecential, net of cash received.......... (117,024) --
Advances to Telecential................................... (15,893) --
-------- --------
Net cash used in/provided by investing activities........... (178,715) 223,119
-------- --------
Cash flows from financing activities:
Proceeds from the issuance of debt........................ 222,433 280,712
Repayment of debt......................................... (1,443) (535,535)
Repayment of advances..................................... (62,456) --
Capital contributions from shareholders................... 33,786 28,089
-------- --------
Net cash provided by/used in financing activities........... 192,320 (226,734)
-------- --------
Net increase in cash and cash equivalents................... 5,397 1,398
Cash and cash equivalents at beginning of period............ 9,977 10,119
-------- --------
Cash and cash equivalents at end of period.................. 15,374 11,517
======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-109
<PAGE> 187
COMTEL UK FINANCE B.V.
NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS
1. THE COMPANY
ComTel UK Finance B.V. ("the Company") is a holding company incorporated in
The Netherlands to hold the United Kingdom cable assets of Vision Networks N.V.
("Vision Networks"). These assets comprise United Kingdom subsidiaries which
have exclusive licences to operate a cable television and telecommunications
business through partnerships and subsidiaries focused on certain franchise
areas located north and east of Birmingham and north and west of London,
England.
References to Shareholders in these financial statements are to the
subscribers to the Company.
The preparation of unaudited financial statements in conformity with United
States of America generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
These unaudited financial statements are presented on a basis which is
consistent with the audited financial statements included elsewhere, herein.
The amounts pertaining to the unaudited combined financial statements are
presented in thousands in pounds sterling ("L").
2. SUPPLEMENTAL UNAUDITED PRO FORMA INFORMATION
The following supplemental unaudited pro forma information includes 100% of
the results of Vision Networks UK Holding B.V., Vision Networks (UK) Holdings
Limited, Vision Networks (UK) I Limited, Vision Networks (UK) II Limited, Vision
Networks Canada Limited, Andover Cablevision Limited, Oxford Cable Limited,
Stafford Communications Limited, Wessex Cable Limited, ComTel Coventry Limited,
ComTel Cable Services Limited, Lichfield Cable Communications Limited, Tamworth
Cable Communications Limited, Vision Networks Services UK Limited, and
Telecential Communications (UK) Limited and Telecential Communications (Canada)
Limited (collectively "Telecential") on a pro forma basis for the six months
ended June 30, 1997 as if Telecential had been acquired as of January 1, 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
(UNAUDITED)
L
----------------
(IN THOUSANDS)
----------------
<S> <C>
Revenue..................................................... 34,063
Operating costs and expenses................................ (59,852)
-------
Operating loss.............................................. (25,789)
Interest income............................................. 544
Interest expense............................................ (11,278)
Foreign exchange gain....................................... 3,876
-------
Loss before income tax expense.............................. (32,647)
-------
Income tax expense.......................................... (75)
-------
Net loss.................................................... (32,722)
=======
</TABLE>
The supplemental unaudited pro forma information is provided for
illustrative purposes only and does not purport to represent what the actual
results of operations would have been had Telecential operated as part of the
Company for the six months ended June 30, 1997, nor is it necessarily indicative
of the Company's future operating results or combined financial position.
F-110
<PAGE> 188
COMTEL UK FINANCE B.V.
NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUPPLEMENTAL UNAUDITED PRO FORMA INFORMATION (CONTINUED)
The Company has accounted for the acquisition of Telecential using the
purchase method of accounting under United States of America generally accepted
accounting principles. Accordingly, the purchase consideration in the
acquisition has been allocated to the assets acquired and liabilities assumed
with any excess being allocated to goodwill and amortised over 20 years.
The six months ended June 30, 1997 supplemental unaudited pro forma
information includes estimates made by the Company and assumptions that it
believes to be reasonable.
The supplemental unaudited pro forma information reflects the following:
1. The actual results of operations for the Company for the six month
period ended June 30, 1997.
2. The results of operations for Telecential for the six month period
ended June 30, 1997 as if Telecential had been acquired January 1, 1997.
3. Amortisation of goodwill based on purchase price allocation as if
Telecential had been acquired January 1, 1997.
4. Interest expense related to loans incurred to finance the
acquisition of Telecential as if the loans had been outstanding since
January 1, 1997.
5. The elimination of intercompany income and expenses as if
Telecential had been acquired January 1, 1997.
3. SUBSEQUENT EVENTS
On June 16, 1998 NTL Group Limited ("NTL"), a subsidiary of NTL
Incorporated, acquired the entire issued share capital of the UK subsidiaries
which form part of the Company's combined group as presented in these financial
statements (the "ComTel Shares"). These UK subsidiaries comprised Andover
Cablevision Limited, Oxford Cable Limited, Stafford Communications Limited,
Wessex Cable Limited, ComTel Coventry Limited, ComTel Cable Services Limited,
Lichfield Cable Communications Limited, Tamworth Cable Communications Limited
and Vision Networks Services UK Limited.
On the same date an undertaking was entered into by NTL to acquire the
entire issued share capital of ComTel Limited, Heartland Cablevision (UK)
Limited and Heartland Cablevision II (UK) Limited, together with all interests
in the Telecommunications Partnership and LP5 and LP6 (the "Telecential
Assets"). The Telecential Assets form part of the Company's combined group as
presented in these financial statements. The completion of the acquisition of
the Telecential Assets is subject to compliance with certain obligations on all
parties to the sale before March 15, 1999 or, subject to specific exceptions,
December 31, 2002.
F-111
<PAGE> 189
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Telecential Communications (Canada) Limited and
Telecential Communications (UK) Limited
We have audited the accompanying combined balance sheet of Telecential
Communications (Canada) Limited and Telecential Communications (UK) Limited
(collectively "Telecential") as of December 31, 1996 and the related combined
statement of operations, shareholders' equity and cash flows for the sixteen
month period ended December 31, 1996. The companies are under common ownership
and common management. These combined financial statements are the
responsibility of the Telecential management. Our responsibility is to express
an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United Kingdom which are similar to those in the United States
of America. 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 reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Telecential as of
December 31, 1996 and the combined results of their operations and their
combined cash flows for the sixteen month period ended December 31, 1996 in
conformity with generally accepted accounting principles in the United States of
America.
DELOITTE & TOUCHE
Chartered Accountants
Bracknell, England
June 5, 1998
(July 16, 1998 as to note 9)
F-112
<PAGE> 190
TELECENTIAL COMMUNICATIONS (CANADA) LIMITED
TELECENTIAL COMMUNICATIONS (UK) LIMITED
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOUR MONTHS
SIXTEEN MONTHS YEAR ENDED ENDED
ENDED DECEMBER 31, 1996 DECEMBER 31, 1995
DECEMBER 31, 1996 (UNAUDITED) (UNAUDITED)
L L L
-------------------- ----------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE
Cable television....................... 26,829 21,196 5,633
Residential telephone.................. 20,273 16,363 3,910
Business telecommunications............ 982 855 127
------- ------- ------
48,084 38,414 9,670
------- ------- ------
OPERATING COSTS AND EXPENSES
Telephone.............................. 8,370 6,880 1,490
Programming............................ 15,346 12,557 2,789
Selling, general and administrative.... 28,709 23,125 5,584
Depreciation and amortisation.......... 18,199 14,660 3,539
------- ------- ------
70,624 57,222 13,402
------- ------- ------
OPERATING LOSS......................... (22,540) (18,808) (3,732)
Interest income........................ 288 207 81
Interest expense....................... (13,372) (11,834) (1,538)
Other income........................... 83 83 --
------- ------- ------
LOSS BEFORE INCOME TAX EXPENSE......... (35,541) (30,352) (5,189)
Income tax expense (note 3)............ (129) (97) (32)
------- ------- ------
NET LOSS............................... (35,670) (30,449) (5,221)
======= ======= ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-113
<PAGE> 191
TELECENTIAL COMMUNICATIONS (CANADA) LIMITED
TELECENTIAL COMMUNICATIONS (UK) LIMITED
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AT
DECEMBER 31,
1996
L
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Cash and cash equivalents................................... 6,501
Trade receivables (net of allowance for doubtful accounts of
L2,100 at December 31, 1996).............................. 3,299
Other assets................................................ 2,319
Property, plant and equipment, net (note 4)................. 222,157
Investments (note 5)........................................ 969
Franchise costs less accumulated amortisation of L1,109 at
December 31, 1996......................................... 6,187
-------
Total assets................................................ 241,432
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
L
-------
(IN THOUSANDS)
Accounts payable............................................ 12,521
Other liabilities........................................... 11,375
Debt and capital lease obligations (note 6)................. 142,861
Shareholders' equity........................................ 74,675
-------
Total liabilities and shareholders' equity.................. 241,432
=======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-114
<PAGE> 192
TELECENTIAL COMMUNICATIONS (CANADA) LIMITED
TELECENTIAL COMMUNICATIONS (UK) LIMITED
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON SHARES COMMON SHARE ADDITIONAL ACCUMULATED SHAREHOLDERS'
(NOTE 8) CAPITAL PAID-IN CAPITAL DEFICIT EQUITY
NUMBER L L L L
------------- ------------ --------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 1, 1995... 200 -- 84,201 (37,344) 46,857
Shares issued and capital
contributions................ -- -- 60,000 -- 60,000
Net loss....................... -- -- -- (35,670) (35,670)
Interest imputed on
shareholders' subordinated
debt (note 6)................ -- -- -- 3,488 3,488
--- -- ------- ------- -------
BALANCE AT DECEMBER 31, 1996... 200 -- 144,201 (69,526) 74,675
=== == ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-115
<PAGE> 193
TELECENTIAL COMMUNICATIONS (CANADA) LIMITED
TELECENTIAL COMMUNICATIONS (UK) LIMITED
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS
SIXTEEN MONTHS YEAR ENDED ENDED
ENDED DECEMBER 31, 1996 DECEMBER 31, 1995
DECEMBER 31, 1996 (UNAUDITED) (UNAUDITED)
L L L
-------------------- ----------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss for the period................ (35,670) (30,449) (5,221)
Adjustments to reconcile net loss to
net cash provided by/(used in)
operating activities:
Depreciation and amortisation........ 18,199 14,660 3,539
Amortisation of deferred financing
costs............................. 5,146 4,946 200
Interest imputed on shareholders'
subordinated debt................. 3,488 3,404 84
Change in operating assets and
liabilities:
Change in trade receivables.......... (1,923) (381) (1,542)
Change in other assets............... 2,513 3,444 (931)
Change in accounts payable........... 2,291 3,585 (1,294)
Change in other liabilities.......... 5,600 4,971 629
-------- ------- -------
Net cash (used in)/provided by
operating activities................. (356) 4,180 (4,536)
-------- ------- -------
Cash flows from investing activities:
Cash invested in property and
equipment......................... (99,044) (74,119) (24,925)
Cash invested in set up & prematurity
costs............................. (7,513) (5,847) (1,666)
Proceeds from disposition of
assets............................ 16 16 --
-------- ------- -------
Net cash used in investing
activities........................... (106,541) (79,950) (26,591)
-------- ------- -------
Cash flows from financing activities:
Shareholder advances................. 112,113 81,403 30,710
Repayment of shareholder advances.... (60,000) (60,000) --
Repayment of capital lease
obligations....................... (961) (434) (527)
Issue of share capital............... 60,000 60,000 --
-------- ------- -------
Net cash provided by financing
activities........................... 111,152 80,969 30,183
-------- ------- -------
Net increase/(decrease) in cash and
cash equivalents..................... 4,255 5,199 (944)
Cash and cash equivalents at beginning
of period............................ 2,246 1,302 2,246
-------- ------- -------
Cash and cash equivalents at end of
period............................... 6,501 6,501 1,302
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-116
<PAGE> 194
TELECENTIAL COMMUNICATIONS (CANADA) LIMITED
TELECENTIAL COMMUNICATIONS (UK) LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1. TELECENTIAL
Telecential Communications (Canada) Limited and Telecential Communications
(UK) Limited (collectively "Telecential") have exclusive licenses to operate a
cable television and telecommunications business through their partnerships and
subsidiaries focused on certain franchise areas located south and east of
Birmingham and north and west of London, England.
At December 31, 1996, Telecential was indirectly 50% owned by each of
Koninklijke PTT Nederland N.V. and TELUS Corporation of Canada.
All amounts herein are presented in thousands in pounds sterling ("L").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Telecential combined financial statements have been prepared in
accordance with United States of America generally accepted accounting
principles.
Principles of Combination -- The financial statements combine the accounts
of Telecential and those of all majority owned subsidiaries for the 16 month
period ended December 31, 1996. The subsidiaries are under common ownership and
common management. All significant intercompany accounts and transactions have
been eliminated on combination.
Use of Estimates -- The preparation of financial statements in conformity
with United States of America generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cable System Costs and Expenses -- Telecential accounts for costs and
expenses applicable to the construction and operation of its cable system under
Statement of Financial Accounting Standards ("SFAS") No. 51, "Financial
Reporting by Cable Television Companies". Costs and expenses incurred in each
franchise during the set up period of the cable system have been capitalised in
full. Certain expenses incurred during the prematurity period are apportioned
between capital and revenue on the basis of the average number of subscribers as
a fraction of the number of subscribers estimated at the end of the prematurity
period. The prematurity period is deemed to run from when the first subscriber
is connected to the system to the earlier of three years or when the number of
cable television and telephony subscribers represents an appropriate penetration
percentage of the number of homes passed.
Franchise Costs -- Costs arising on the acquisition of franchises are
capitalised in accordance with SFAS 51 and are amortised on a straight line
basis over twenty years.
Revenue Recognition -- Revenue is recognised as services are delivered.
Initial connection fees are recognised in the period of connection.
Income Tax Expense -- Deferred tax assets and liabilities are recognised
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases to the extent that they are available to Telecential.
Under this method, deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to reverse. A valuation allowance is
raised against a deferred tax asset where it is more likely than not some
portion of the deferred tax asset will not be realised.
Investments -- Investments are stated at original cost less any appropriate
provisions for permanent diminution in value.
F-117
<PAGE> 195
TELECENTIAL COMMUNICATIONS (CANADA) LIMITED
TELECENTIAL COMMUNICATIONS (UK) LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Plant and Equipment -- Property, plant and equipment is stated at
cost. Depreciation on equipment other than cable infrastructure is computed on a
straight line basis using estimated useful lives of five to ten years. Cable
infrastructure is depreciated over twenty years. Leasehold improvements are
depreciated on a straight line basis over the lease periods.
Cash and Cash Equivalents -- Cash and cash equivalents include highly
liquid investments with original maturity of three months or less that are
readily convertible to cash.
Foreign Currencies -- The primary economic environment in which Telecential
operates is the United Kingdom and hence its reporting currency is the United
Kingdom pound sterling. Transactions in foreign currencies are recorded using
the rate of exchange in effect on the date of the transaction or at the forward
rate if the transaction has been hedged. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange in
effect on the balance sheet date and gains or losses on translation are included
in the statement of operations.
Leasing Commitments -- Assets held under finance leases are capitalised in
the balance sheet and are depreciated over their useful lives. The interest
element of the rental obligation is charged to expense over the period of the
lease and represents a constant proportion of the balance of capital repayments
outstanding.
Rentals paid under operating leases are charged to expense on a straight
line basis over the lease term.
Pension Plan -- Telecential operates a defined contribution pension plan
for eligible employees and contributes up to specified limits to a third party
plan of the employee's choice. Pension costs which totalled L437,000 in the
sixteen month period ended December 31, 1996 represent the contributions payable
to the selected plans.
Concentration of Credit Risk and Market Risk -- Telecential operates
predominantly in one industry segment, the provision of cable television and
telecommunications services in certain areas of England. Concentrations of
credit risk with respect to trade receivables are limited due to the large
number of customers comprising Telecential's customer base. Ongoing credit
evaluations of customers' financial condition are performed and generally, no
collateral is required. Telecential maintains reserves for potential credit
losses and such losses, in the aggregate, have not exceeded management's
estimates. No single customer accounts for 10% or more of combined revenues.
Fair Value of Financial Instruments -- Financial instruments are defined as
cash or contracts relating to the receipt, delivery or exchange of financial
instruments. Except as otherwise noted, fair value approximates the carrying
value of such instruments.
3. INCOME TAX EXPENSE
No provision for deferred taxation has been made due to operating losses
incurred to date. Various subsidiary entities of Telecential have net tax
operating losses carried forward of approximately L38 million at December 31,
1996.
The operating losses have an unlimited carry forward period under United
Kingdom tax law (subject to restrictions on a loss carried forward where there
is a change in group ownership and a major change in the nature or conduct of
the business), but are limited in their use to the type of business which
generated the loss and to those entities in which the losses arose.
F-118
<PAGE> 196
TELECENTIAL COMMUNICATIONS (CANADA) LIMITED
TELECENTIAL COMMUNICATIONS (UK) LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAX EXPENSE (CONTINUED)
Differences between the tax benefit recognised in the financial statements
and the expected tax benefit at the United Kingdom statutory rate of 33% are
summarised as follows:
<TABLE>
<CAPTION>
YEAR ENDED FOUR MONTHS ENDED
SIXTEEN MONTHS ENDED DECEMBER 31, 1996 DECEMBER 31, 1995
DECEMBER 31, 1996 (UNAUDITED) (UNAUDITED)
L L L
-------------------- ----------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax benefit on loss before
income tax expense at
statutory rate............... (10,706) (9,010) (1,696)
Non-deductible expenses........ 28 21 7
Tax benefit of operating losses
not recognised currently..... 10,807 9,086 1,721
------- ------ ------
Income tax expense............. 129 97 32
======= ====== ======
Deferred tax assets relating
to:
Net losses..................... 12,509 12,509 7,917
Valuation allowance............ (8,046) (8,046) (47)
------- ------ ------
4,463 4,463 7,870
Deferred tax liabilities
relating to:
Property, plant and
equipment.................... (4,463) (4,463) (7,870)
------- ------ ------
Deferred tax per balance
sheet........................ -- -- --
======= ====== ======
</TABLE>
The ultimate realisation of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, the level of
historical taxable losses, and tax planning strategies in making its assessment
as to the appropriateness of the reported valuation allowance.
The income tax expense for the period represents current taxation on those
United Kingdom profits against which United Kingdom tax relief cannot be offset.
F-119
<PAGE> 197
TELECENTIAL COMMUNICATIONS (CANADA) LIMITED
TELECENTIAL COMMUNICATIONS (UK) LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and comprises:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
L
-----------------
(IN THOUSANDS)
<S> <C>
Land and buildings and improvements......................... 3,922
Plant and equipment......................................... 234,593
Set-up and prematurity costs................................ 19,768
-------
258,283
Less accumulated depreciation............................... (36,126)
-------
222,157
=======
</TABLE>
Telecential leases certain plant and equipment under arrangements accounted
for as capital leases. The original cost of assets held under these arrangements
was L13,847 at December 31, 1996. Accumulated depreciation charged against these
assets was L3,693 at December 31, 1996.
Depreciation expense totalled L18,199 in the sixteen month period ended
December 31, 1996 of which L1,264 represented depreciation on assets held under
capital lease arrangements.
5. INVESTMENTS
Investments are stated at cost and comprise:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
L
-----------------
(IN THOUSANDS)
<S> <C>
ComTel Coventry Limited.............................. 869
Other................................................ 100
---
969
===
</TABLE>
ComTel Coventry Limited is registered in England and Wales and holds the
cable television license for the Coventry franchise. The amount for ComTel
Coventry Limited represented a 12.25% shareholding in the company. The remaining
shares were held by a related company, Vision Networks UK Holding B.V., at
December 31, 1996 and to whom the above equity interest was transferred, at
cost, during 1997.
The fair value of the above investments is not less than original cost.
6. DEBT AND CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
L
-----------------
(IN THOUSANDS)
<S> <C>
Bank loan............................................ 30,000
Shareholders' subordinated debt...................... 95,223
Capital lease obligations............................ 17,638
-------
142,861
=======
</TABLE>
F-120
<PAGE> 198
TELECENTIAL COMMUNICATIONS (CANADA) LIMITED
TELECENTIAL COMMUNICATIONS (UK) LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
Bank Loan
In December 1994, Telecential entered into a L140 million facility with a
syndicate of banks. Following initial drawdowns which totalled L30 million,
Telecential was unable to make any further drawdowns on the loan and the balance
of the facility was cancelled. The bank facility was therefore fully drawn at
December 31, 1996. Interest was at LIBOR plus 3%. At December 31, 1996, the rate
was 9.047%. Interest and commitment fees expense amounted to L4,313 during the
sixteen month period ended December 31, 1996. The loan was repaid in August 1997
and the remaining facility cancelled.
Shareholders' Subordinated Debt
The changes in shareholders' subordinated debt in the period were as
follows:
<TABLE>
<CAPTION>
1996
L
--------------
(IN THOUSANDS)
<S> <C>
As at September 1, 1995..................................... 43,110
Subordinated debt borrowings................................ 112,113
Subordinated debt converted to equity....................... (60,000)
-------
As at December 31, 1996..................................... 95,223
=======
</TABLE>
The shareholders' subordinated debt is interest free and has no specific
repayment terms. An imputed interest expense of L3,488,000 has been recognised
and accounted for as a capital contribution. The interest expense has been
calculated by applying a variable rate comprising the aggregate of a margin and
LIBOR applicable to the related loan made to the company's parent by ING Bank
NV. As at December 31, 1996, the margin was 15 basis points and the one month
LIBOR rate was 6.047%.
Capital Lease Obligations
Future minimum lease payments under non cancellable capital leases are
summarised as follows as of December 31, 1996:
<TABLE>
<CAPTION>
L
--------------
(IN THOUSANDS)
<S> <C>
1997........................................................ 1,588
1998........................................................ 2,283
1999........................................................ 1,242
2000........................................................ 1,961
2001........................................................ 1,547
Thereafter.................................................. 9,017
------
17,638
Imputed interest............................................ 602
------
18,240
======
</TABLE>
Cash paid for interest on capital leases totalled L1,059 for the sixteen
month period ended December 31, 1996.
F-121
<PAGE> 199
TELECENTIAL COMMUNICATIONS (CANADA) LIMITED
TELECENTIAL COMMUNICATIONS (UK) LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
Telecential leases business offices and uses certain equipment under lease
agreements accounted for as operating leases. Minimum rental expenses under such
arrangements amounted to L2,533 for the sixteen month period ended December 31,
1996.
Future minimum lease payments under non cancellable operating leases are
summarised as follows as of December 31, 1996:
<TABLE>
<CAPTION>
L
--------------
(IN THOUSANDS)
<S> <C>
1997................................................... 1,806
1998................................................... 3,017
1999................................................... 1,646
2000................................................... 1,643
2001................................................... 4,586
Thereafter............................................. 28,113
------
40,811
======
</TABLE>
It is expected that, in the normal course of business, expiring leases will
be renewed or replaced by leases on other properties.
Milestones
Telecential is obligated under the terms of its existing licenses, and
under the milestone requirements of Local Delivery Licenses ("LDL's") to
construct cable systems passing a predefined number of premises. Should
Telecential fail to achieve these milestones, without license modifications, the
Director General could commence proceedings to require compliance. Similarly the
Independent Television Commission ("ITC") may commence proceedings to require
compliance with the build milestones in the LDL's.
If Telecential is unable to comply, its license in respect of which
milestones have not been met could be revoked and awarded to other cable
operators, which could have a material adverse effect on Telecential.
As of December 31, 1996 Telecential was in compliance with its milestone
obligations.
F-122
<PAGE> 200
TELECENTIAL COMMUNICATIONS (CANADA) LIMITED
TELECENTIAL COMMUNICATIONS (UK) LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMON SHARE CAPITAL
Common Share Capital comprises:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
L
-----------------
(IN THOUSANDS)
<S> <C>
Telecential Communications (Canada) Limited:
Authorised:
Unlimited number of Common Shares with no par value
Called up, allotted and fully paid:
200 Common Shares of no par value each...................... --
------
--
======
Telecential Communications (UK) Limited:
Authorised:
Unlimited number of Common Shares with L0.05 par value
Called up, allotted and fully paid:
200 Common Shares of L0.05 par value each (L10)............. --
------
--
======
</TABLE>
9. SUBSEQUENT EVENTS
On June 16, 1998, NTL Group Limited, a subsidiary of NTL Incorporated,
entered into an undertaking to acquire the entire issued share capital of ComTel
Limited, Heartland Cablevision (UK) Limited and Heartland Cablevision II (UK)
Limited, together with all interests in the Telecommunications Partnership and
LP5 and LP6 (the "Telecential Assets"). The Telecential Assets form
substantially all of Telecential's combined group as presented in these
financial statements. The completion of the acquisition of the Telecential
Assets is subject to compliance with certain obligations on all parties to the
sale before March 15, 1999 or, subject to specific exceptions, December 31,
2002.
F-123
<PAGE> 201
INDEPENDENT AUDITORS' REPORT
To the Shareholders
Diamond Cable Communications Plc
We have audited the accompanying consolidated balance sheets of Diamond
Cable Communications Plc and subsidiaries ("the Group") as of December 31, 1996
and 1997 and the related consolidated statements of operations, shareholders'
deficit and cash flows for each of the years in the three year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Group's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. 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 financial position of the Group as
of December 31, 1996 and 1997 and the results of their operations and their cash
flows for each of the years in the three year period ended December 31, 1997 in
conformity with generally accepted accounting principles in the United States of
America.
KPMG
Chartered Accountants
Registered Auditors
Nottingham, England
March 12, 1998
F-124
<PAGE> 202
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE
Business telecommunications................................ L 5,852 L 9,763 L 14,208
Residential telephone...................................... 6,662 17,723 29,495
Cable television........................................... 3,479 10,091 16,602
-------- -------- --------
15,993 37,577 60,305
-------- -------- --------
OPERATING COSTS AND EXPENSES
Telephone.................................................. (5,454) (9,776) (12,088)
Programming................................................ (1,844) (6,041) (9,749)
Selling, general and administrative........................ (13,020) (22,391) (27,192)
Depreciation and amortization.............................. (8,867) (21,380) (27,620)
-------- -------- --------
(29,185) (59,588) (76,649)
-------- -------- --------
OPERATING LOSS............................................. (13,192) (22,011) (16,344)
Interest income............................................ 3,887 3,441 6,440
Interest expense and amortization of debt discount and
expenses................................................. (17,118) (40,334) (66,367)
Foreign exchange gains/(losses), net as foreign currency
denominated indebtedness (note 17)....................... 925 31,018 (12,555)
Unrealized (losses)/gains on derivative financial
instruments (note 3)..................................... (868) (7,944) 669
Realized gain on derivative financial instruments (note
4)....................................................... -- -- 11,553
Other expenses (note 5).................................... (1,241) -- --
-------- -------- --------
Loss before income taxes................................... (27,607) (35,830) (76,604)
Income taxes (note 6)...................................... -- -- --
-------- -------- --------
NET LOSS................................................... L(27,607) L(35,830) L(76,604)
======== ======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-125
<PAGE> 203
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1996 1997
-------- ---------
(IN THOUSANDS EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Cash and cash equivalents (note 7).......................... L 18,311 L 75,680
Trade receivables (net of allowance for doubtful accounts of
L1,691 and L2,788 at December 31, 1996 and 1997
respectively (note 8)).................................... 6,389 8,569
Other assets................................................ 3,904 4,470
Deferred financing costs (less accumulated amortization of
L1,325 and L2,627 at December 31, 1996 and 1997
respectively)............................................. 19,573 15,533
Property and equipment, net (note 9)........................ 277,301 365,636
Goodwill (less accumulated amortization of L6,064 and
L10,914 at December 31, 1996 and 1997 respectively)....... 90,896 86,046
Franchise costs (less accumulated amortization of L91 and
L116 at December 31, 1996 and 1997 respectively).......... 445 423
-------- ---------
Total Assets...................................... L416,819 L 556,357
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Accounts payable............................................ L 18,528 L 22,319
Other liabilities........................................... 19,150 11,224
Senior discount notes (note 10)............................. 314,418 534,861
Capital lease obligations (note 11)......................... 8,146 8,041
Mortgage loan (note 12)..................................... 2,477 2,423
Shareholders' equity/(deficit) (note 13)....................
Ordinary shares: 70,000,000 authorized; 59,138,791 shares
issued at December 31, 1996 and 1997...................... 1,478 1,478
Non-voting deferred shares:
6 shares authorized and issued at December 31, 1996 and
1997...................................................... -- --
Additional paid-in-capital.................................. 134,466 134,466
Unrealized loss on securities............................... (197) (204)
Accumulated deficit......................................... (81,647) (158,251)
-------- ---------
Total Liabilities and Shareholders
Equity/(Deficit)................................ L416,819 L 556,357
======== =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-126
<PAGE> 204
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIT)
<TABLE>
<CAPTION>
NON-VOTING
DEFERRED TOTAL
ORDINARY SHARES SHARES(I) ADDITIONAL UNREALIZED SHAREHOLDERS'
------------------- --------------- PAID-IN- LOSS ON ACCUMULATED EQUITY/
NUMBER L NUMBER L CAPITAL SECURITIES DEFICIT (DEFICIT)
---------- ------ ------ ------ ---------- ---------- ----------- -------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995........ 31,903,232 L 797 6 L -- L 43,505 L -- L (18,210) L 26,092
Shares issued and capital
contributions (net of
expenses)....................... 9,437,428 236 -- -- 26,742 -- -- 26,978
Bonus shares issued............... 2,413,515 61 -- -- (61) -- -- --
Unrealized loss on securities..... -- -- -- -- -- (330) -- (330)
Net loss.......................... -- -- -- -- -- -- (27,607) (27,607)
---------- ------ -- ------ -------- ----- --------- --------
BALANCE AT DECEMBER 31, 1995...... 43,754,175 L1,094 6 L -- L 70,186 L(330) L (45,817) L 25,133
========== ====== == ====== ======== ===== ========= ========
BALANCE AT JANUARY 1, 1996........ 43,754,175 L1,094 6 L -- L 70,186 L(330) L (45,817) L 25,133
Shares issued and capital
contributions (net of
expenses)....................... 15,384,616 384 -- -- 64,280 -- -- 64,664
Unrealized gain on securities..... -- -- -- -- -- 133 -- 133
Net loss.......................... -- -- -- -- -- -- (35,830) (35,830)
---------- ------ -- ------ -------- ----- --------- --------
BALANCE AT DECEMBER 31, 1996...... 59,138,791 L1,478 6 L -- L134,466 L(197) L (81,647) L 54,100
========== ====== == ====== ======== ===== ========= ========
BALANCE AT JANUARY 1, 1997........ 59,138,791 L1,478 6 L -- L134,466 L(197) L (81,647) L 54,100
Unrealized loss on securities..... -- -- -- -- -- (7) -- (7)
Net loss.......................... -- -- -- -- -- -- (76,604) (76,604)
---------- ------ -- ------ -------- ----- --------- --------
BALANCE AT DECEMBER 31, 1997...... 59,138,791 L1,478 6 L -- L134,466 L(204) L (158,251) L(22,511)
========== ====== == ====== ======== ===== ========= ========
</TABLE>
- ---------------
(i) On September 4, 1995, the six A shares were automatically converted into six
non-voting deferred shares in accordance with the Articles of the Company.
See accompanying Notes to the Consolidated Financial Statements
F-127
<PAGE> 205
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ L (27,607) L (35,830) L (76,604))
Adjustments to reconcile net loss to net cash (used
in)/provided by operating activities:
Depreciation and amortization........................... 8,867 21,380 27,620
Foreign exchange (gains)/losses......................... (613) (31,468) 11,714
(Profit)/loss on disposition of assets.................. (11) (11) 110
Provision for losses on accounts receivable............. 407 918 1,097
Amortization of deferred financing costs................ 312 943 9,301
Accretion of senior note discount....................... 14,335 38,157 55,038
Accretion of investment income.......................... 524 -- --
Profit on disposition of investments.................... (2,733) -- --
Change in operating assets and liabilities:
Change in trade receivables............................. (1,577) (3,724) (3,277)
Change in other assets.................................. (2,175) 1,300 (566)
Change in accounts payable.............................. 4,532 (1,680) 4,255
Change in other liabilities............................. 1,626 8,667 (7,812)
--------- --------- ---------
Net cash (used in)/provided by operating activities..... (4,113) (1,348) 20,876
--------- --------- ---------
Cash flows from investing activities:
Cash invested in property and equipment................. (102,899) (128,246) (110,145)
Cash invested in marketable securities.................. (17,445) -- --
Proceeds from disposition of assets..................... 72 65 62
Proceeds from disposition of investments................ 73,644 -- --
Cash paid for franchises................................ (45) (29) (3)
Payment for purchase of LCL (net of cash acquired)...... (108,844) -- --
--------- --------- ---------
Net cash used in investing activities................... (155,517) (128,210) (110,086)
--------- --------- ---------
Cash flows from financing activities:
Proceeds of issue of debt............................... 194,881 -- 153,691
Debt financing costs.................................... (7,924) (9,096) (5,375)
New loans............................................... 94,000 -- --
Repayment of loans...................................... (94,119) (23) (54)
Capital element of capital lease obligations............ (841) (1,117) (1,676)
Issue of shares and capital contributions (net of
expenses)............................................. 26,978 64,664 --
Net decrease in short-term borrowings................... (773) -- --
--------- --------- ---------
Net cash provided by financing activities............... 212,202 54,428 146,586
--------- --------- ---------
Net increase/(decrease) in cash......................... 52,572 (75,130) 57,376
Cash and cash equivalents at beginning of year.......... 41,066 93,308 18,311
Effect of exchange rate changes on cash and cash
equivalents........................................... (330) 133 (7)
--------- --------- ---------
Cash and cash equivalents at end of year (note 7)....... L 93,308 L 18,311 L 75,680
========= ========= =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-128
<PAGE> 206
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Diamond Cable Communications Plc ("the Company"), has exclusive licenses to
operate a cable television and telecommunications business through its
subsidiaries focused on certain franchise areas centered around Nottingham,
England.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting -- The consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Diamond Cable Communications Plc and those of all
majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated on consolidation. Until September 1, 1994 the
business of the Group was conducted by Diamond Cable (Nottingham) Limited which
was subsequently renamed Diamond Cable Communications (UK) Limited ("DCL") and
its subsidiary undertakings. On September 1, 1994 the shareholders of DCL
transferred all of their ordinary shares of 2.5p each and A shares of 25p each
to the Company in exchange for ordinary shares of 2.5p each and A shares of 25p
each in the Company. The transaction was accounted for at book value. During
1995, the Company through Jewel Holdings Limited ("Jewel") acquired the entire
share capital of three undertakings, referred to collectively as "LCL". The
transaction has been recorded using the purchase method of accounting.
Cable System Costs and Expenses -- The Group accounts for costs and
expenses applicable to the construction and operation of its cable system under
Statement of Financial Accounting Standard ("SFAS") No. 51, "Financial Reporting
by Cable Television Companies". In accordance with the standard the cable
infrastructure is being depreciated over 40 years weighted by factors influenced
by the growth in the number of subscribers. The prematurity period covers the
period between connecting the first customer and substantial completion of the
network. Initial subscriber installation costs are capitalized and depreciated
over a period of 7 years. A proportion of the costs of the installation
department representing the costs of disconnecting and reconnecting subscribers
is charged to expenses.
Revenue Recognition -- Revenue is recognized as services are delivered.
Initial connection fees are recognized in the period of connection to the extent
that the fee is offset by direct selling costs. The remainder is recognized over
the estimated average period that subscribers are expected to remain connected
to the system.
Interest Rate Swap -- Interest rate swaps, which are not designated to an
asset or liability, are recorded on the balance sheet in other assets or other
liabilities at their market value. Any gains or losses are recognized in the
consolidated statement of operations. Interest rate swaps which are designated
to assets and liabilities are accounted for on an accruals basis.
Income Taxes -- Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax
F-129
<PAGE> 207
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
rates expected to apply to taxable income in the years in which those temporary
differences are expected to reverse. A valuation allowance is raised against a
deferred tax asset where it is more likely than not that some portion of the
deferred tax asset will not be realized.
Goodwill -- Goodwill arising on the acquisition of subsidiaries is
amortized on a straight line basis over twenty years.
Impairment of Cable Systems and Goodwill -- The Company assesses the
recoverability of these assets by determining whether the carrying value can be
recovered through projected undiscounted future operating cash flows. The amount
of impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the average cost of funds
of financing such assets. The assessment of the recoverability will be impacted
if changes in technology or other market conditions result in the projected
future operating cash flows not being achieved.
Property and Equipment -- Property and equipment is stated at cost.
Depreciation on equipment other than cable infrastructure is computed on a
straight line basis using estimated useful lives of 5 to 10 years. Motor
vehicles are depreciated on a reducing balance basis over 3 years. Leasehold
improvements are depreciated on a straight line basis over the period of the
lease.
Franchise Costs -- Costs relating to an unsuccessful application are
charged to operations while costs relating to successful applications are
amortized over the franchise term, generally 23 years.
Cash and Cash Equivalents -- Cash and cash equivalents include highly
liquid investments with original maturity of three months or less that are
readily convertible to cash.
Foreign Currencies -- The primary economic environment in which the Group
operates is the United Kingdom and hence its reporting currency is the United
Kingdom Pound Sterling (L). Transactions in foreign currencies are recorded
using the rate of exchange in effect on the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are translated using
the rate of exchange in effect on the balance sheet date and gains or losses on
translation are included in the consolidated statement of operations. Foreign
exchange forward contracts which do not hedge firm commitments are accounted at
market value with reported gains and losses recorded in the consolidated
statement of operations.
Pension Costs -- The Group operates a defined contribution pension scheme
and also contributes up to specified limits to the third party plan of the
employee's choice. Pension costs of L55,000, L125,000 and L196,000 in 1995, 1996
and 1997 respectively, represent the contributions payable to the selected
plans.
Senior Discount Notes -- The debt discount is amortized to the consolidated
statement of operations on a constant yield to maturity basis.
Deferred Financing Costs -- Costs incurred relating to the issue of debt
are shown as an asset on the consolidated balance sheet and are amortized over
the term of the debt as an adjustment of yield.
Share Options -- The Group accounts for stock-based compensation using the
recognition provisions of APB No. 25, "Accounting for Stock Issued to
Employees". Compensation expense is measured as the difference between the
exercise price and the market price of the stock on the date of the grant of the
option and is amortized as a charge to the consolidated statement of operations
over the vesting period of the option. The disclosure requirements of SFAS No.
123, "Accounting for Stock-Based Compensation" are set out in note 18.
New Accounting Standards Applicable to the Group -- SFAS No. 129,
"Disclosure of Information about Capital Structure" was issued in February 1997
and lists the requirements for disclosures about the characteristics of the
shares in issue. SFAS No. 129 is effective for financial statements for periods
ending
F-130
<PAGE> 208
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
after December 15, 1997. No significant changes to the disclosure in the
consolidated financial statements have been necessary to comply with this
statement.
SFAS No. 130, "Reporting Comprehensive Income" was issued in June 1997, and
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. It requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. It requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid in capital in the equity
section of a statement of financial position. The Group has not yet evaluated
the likely impact of the level of disclosure required.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" was issued in June 1997, and is effective for fiscal years
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. It requires that
companies disclose segment data based on how management makes decisions about
allocating resources to segments and measuring their performance. It also
requires entity wide disclosures about the products and services the entity
provides, the material countries in which it holds assets and reports revenues
and its major customers. The Group has not yet evaluated the extent of any
additional disclosure or changes to existing disclosure which may be required.
3. UNREALIZED (LOSSES)/GAINS ON DERIVATIVE FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
----- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Unrealized (loss)/gain on interest rate swap (note 17)...... L(868) L 174 L (57)
Unrealized (loss)/gain on foreign exchange forward contracts
(note 17)................................................. -- (8,118) 726
----- ------- -------
L(868) L(7,944) L 669
===== ======= =======
</TABLE>
4. REALIZED GAIN ON DERIVATIVE FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
----- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Realized gain on foreign exchange forward contract (note
17)....................................................... L -- L -- L11,553
===== ======= =======
</TABLE>
5. OTHER EXPENSES
Other expenses in 1995 represent costs incurred in an aborted flotation of
equity.
6. INCOME TAXES
No provision for taxation has been made due to operating losses incurred to
date. The Group has tax net operating losses carried forward of approximately
L296 million and approximately L1 million of capital losses carried forward at
December 31, 1997.
The operating losses have an unlimited carry forward period under United
Kingdom tax law (subject to restrictions on a loss carried forward where there
is a change in Group ownership and a major change in the nature or conduct of
the business) but are limited in their use to the type of business which
generated the loss. Capital losses carried forward are limited to their offset
against future capital gains.
F-131
<PAGE> 209
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES (CONTINUED)
Differences between the tax benefit recognized in the consolidated
financial statements and the expected tax benefit at the United Kingdom
statutory rate of 31% (1995 and 1996: 33%) are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax benefit of net losses at 31% (1995 and
1996: 33%)................................ L(9,110) L(11,824) L(23,747)
Non-deductible expenses..................... 367 1,695 1,915
Valuation allowance......................... 8,743 10,129 21,832
------- -------- --------
Net tax benefit............................. L -- L -- L --
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets relating to:
Net losses............................................. L 45,736 L 91,882
Other.................................................. 447 1,173
-------- --------
Deferred tax asset..................................... 46,183 93,055
Valuation allowance.................................... (27,299) (54,650)
-------- --------
18,884 38,405
-------- --------
Deferred tax liabilities relating to:
Property and equipment................................. (18,087) (38,405)
Financing costs........................................ (155) --
Other.................................................. (642) --
-------- --------
Deferred tax liability................................. (18,884) (38,405)
-------- --------
Deferred tax per consolidated balance sheet............ L -- L --
======== ========
</TABLE>
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, the level of
historical taxable losses, and tax planning strategies in making its assessment
as to the appropriateness of the reported valuation allowance.
7. CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash at bank and in hand................................. L 1,241 L 3,723
Short term securities.................................... 17,070 71,957
------- -------
L18,311 L75,680
======= =======
</TABLE>
The short term securities represent short term deposits placed in a cash
based unit fund. The deposits are denominated in both US dollars and pounds
sterling.
F-132
<PAGE> 210
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO
BALANCE AT ARISING ON COSTS AND AMOUNTS BALANCE AT
JANUARY 1 ACQUISITION EXPENSES WRITTEN OFF DECEMBER 31
---------- ----------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1995
Allowance for doubtful accounts... L 233 L133 L 439 L (32) L 773
====== ==== ====== ===== ======
1996
Allowance for doubtful accounts... L 773 L -- L1,143 L(225) L1,691
====== ==== ====== ===== ======
1997
Allowance for doubtful accounts... L1,691 L -- L1,204 L(107) L2,788
====== ==== ====== ===== ======
</TABLE>
9. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
LAND
AND CABLE OFFICE MOTOR
BUILDINGS NETWORK EQUIPMENT VEHICLES TOTAL
--------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS
BALANCE AT JANUARY 1, 1996............. L3,863 L170,660 L4,701 L 644 L179,868
Additions.............................. 688 127,454 1,979 19 130,140
Dispositions........................... -- (42) (154) (228) (424)
Reclassification....................... 467 (10) (457) -- --
------ -------- ------ ----- --------
BALANCE AT DECEMBER 31, 1996........... 5,018 298,062 6,069 435 309,584
------ -------- ------ ----- --------
ACCUMULATED DEPRECIATION
BALANCE AT JANUARY 1, 1996............. 74 14,295 1,450 328 16,147
Charge for year........................ 150 14,737 1,524 95 16,506
Dispositions........................... -- (41) (154) (175) (370)
Reclassification....................... 90 (50) (40) -- --
------ -------- ------ ----- --------
BALANCE AT DECEMBER 31, 1996........... 314 28,941 2,780 248 32,283
------ -------- ------ ----- --------
1996 NET BOOK VALUE.................... L4,704 L269,121 L3,289 L 187 L277,301
====== ======== ====== ===== ========
ACQUISITION COSTS
BALANCE AT JANUARY 1, 1997............. 5,018 298,062 6,069 435 309,584
Additions.............................. 93 107,844 2,948 367 111,252
Dispositions........................... -- (254) -- (196) (450)
------ -------- ------ ----- --------
BALANCE AT DECEMBER 31, 1997........... 5,111 405,652 9,017 606 420,386
------ -------- ------ ----- --------
ACCUMULATED DEPRECIATION
BALANCE AT JANUARY 1, 1997............. 314 28,941 2,780 248 32,283
Charge for year........................ 164 20,886 1,589 106 22,745
Dispositions........................... -- (132) -- (146) (278)
------ -------- ------ ----- --------
BALANCE AT DECEMBER 31, 1997........... 478 49,695 4,369 208 54,750
------ -------- ------ ----- --------
1997 NET BOOK VALUE.................... L4,633 L355,957 L4,648 L 398 L365,636
====== ======== ====== ===== ========
</TABLE>
F-133
<PAGE> 211
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. PROPERTY AND EQUIPMENT (CONTINUED)
The reclassification to land and buildings more appropriately allocates
expenditure on leasehold properties.
The Group leases certain cable network equipment and motor vehicles under
arrangements accounted for as capital leases. The original cost of assets held
under these arrangements was L11,543,000 and L13,042,000 at December 31, 1996
and 1997 respectively. Accumulated depreciation charged against these assets was
L3,882,000 and L5,238,000 at December 31, 1996 and 1997 respectively.
Depreciation on assets held under capital lease arrangements charged to the
consolidated statement of operations during the year was L863,000, L1,375,000
and L1,535,000 in 1995, 1996 and 1997 respectively.
10. DEBT
On September 28, 1994 the Company issued $285,101,000 of 13 1/4% Senior
Discount Notes due September 30, 2004 (the "1994 Notes") at an issue price of
$526.13 per $1,000 principal. Total proceeds received by the Company after
issuance costs amounted to L91 million. Interest will not accrue on the 1994
Notes prior to September 30, 1999. Interest on the 1994 Notes will be payable on
March 31 and September 30 of each year commencing March 31, 2000 at a rate of
13 1/4% per annum.
The 1994 Notes may be redeemed at the option of the Company, at any time as
a whole but not in part at the accreted value thereof or if such redemption is
to occur on or after September 30, 1999 at 100% of the principal amount at
maturity thereof, plus accrued and unpaid interest, if any, to the date of
redemption in the event of certain tax law changes requiring the Company to pay
additional amounts. In addition, the 1994 Notes may be redeemed in whole or in
part at the option of the Company, at any time after September 30, 1999, at
specified redemption prices.
On December 15, 1995, the Company issued $530,955,000 of 11 3/4% Senior
Discount Notes due December 15, 2005 (the "1995 Notes") at an issue price of
$565.02 per $1,000 principal. Total proceeds received by the Company amounted to
L187 million after issuance costs of L8 million. Interest will not accrue on the
1995 Notes prior to December 15, 2000. Interest on the 1995 Notes will be
payable on June 15 and December 15 of each year, commencing June 15, 2001 at a
rate of 11 3/4% per annum.
The 1995 Notes may be redeemed at the option of the Company, in whole or in
part, at any time on or after December 15, 2000 at specified redemption prices.
The 1995 Notes may be redeemed at the option of the Company in whole, but
not in part, at any time at the accreted value thereof or if such redemption is
to occur on or after December 15, 2000 at 100% of the principal amount plus
accrued interest to the date of redemption, in the event of certain tax law
changes requiring the payment of additional amounts.
On February 21, 1997 the Company issued $420,500,000 of 10 3/4% Senior
Discount Notes due February 15, 2007 (the "1997 Notes") at an issue price of
$594.48 per $1,000 principal. Total proceeds received by the Company amounted to
approximately L149 million after issuance costs of approximately L5 million.
Interest on the 1997 Notes will be payable on February 15, and August 15 of each
year commencing August 15, 2002.
The 1994 Notes, 1995 Notes and the 1997 Notes (collectively "the Discount
Notes") are unsecured indebtedness of the Company and rank junior to any
indebtedness of its subsidiaries to the extent of the assets of such
subsidiaries and to any secured indebtedness of the Company to the extent of the
assets securing such indebtedness.
The Discount Notes are stated net of unamortized discount of approximately
L162 million ($278 million) and L218 million ($358 million) at December 31, 1996
and 1997 respectively. The discount is being accreted
F-134
<PAGE> 212
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. DEBT (CONTINUED)
through the consolidated statement of operations such that the Company
recognizes a fixed rate of interest, the total accretion for the year being L38
million ($65 million) and L55 million ($90 million) in 1996 and 1997
respectively.
The costs relating to the issue of the Discount Notes have been deferred
and are shown as deferred financing costs in the consolidated balance sheet.
These costs are being amortized over the term of the Discount Notes, where
appropriate, as an adjustment of yield.
The Discount Notes contain certain covenants generally restricting the
raising of certain types of additional financing, payment of dividends, creation
of liens, sale and leaseback transactions, sale of certain assets and engaging
in certain transactions with Affiliates of Related Persons (note 16).
The Discount Notes all mature after more than five years.
On February 6, 1998 Diamond Holdings plc, a wholly-owned subsidiary of the
Company, issued L135,000,000 of 10% Senior Notes due February 1, 2008 and
$110,000,000 of 9 1/8% Senior Notes due February 1, 2008 (together "the Senior
Notes") at par. The Senior Notes are fully and unconditionally guaranteed as to
principal, interest and any other amounts due by the Company. Total proceeds
received by Diamond Holdings plc amounted to L195 million after issuance costs
of L7 million. Interest on the Senior Notes is payable in arrears on February 1
and August 1 of each year commencing August 1, 1998.
11. COMMITMENTS AND CONTINGENCIES
Capital and Operating Leases
The Group leases business offices and uses certain equipment under lease
arrangements accounted for as operating leases. Minimum rental expenses under
such arrangements amounted to L733,000, L1,158,000 and L1,246,000 in 1995, 1996
and 1997 respectively.
Future minimum lease payments under capital and operating leases are
summarized as follows as of December 31, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998............................................ L 2,633 L1,027
1999............................................ 2,521 809
2000............................................ 2,325 556
2001............................................ 1,342 277
2002............................................ 350 200
2003 and thereafter............................. -- 1,969
Imputed interest................................ (1,130) --
------- ------
L 8,041 L4,838
======= ======
</TABLE>
It is expected that, in the normal course of business, expiring leases will
be renewed or replaced by leases on other properties.
Milestones
The Group is obligated under the terms of its existing licenses, and under
the milestone requirements of Local Delivery Licenses ("LDLs"), to construct
cable systems passing a predefined number of premises. Should the Group fail to
achieve these milestones, without license modifications, the Director General of
F-135
<PAGE> 213
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Telecommunications could commence proceedings to require compliance. Similarly
the Independent Television Commission ("ITC") may commence proceedings to
require compliance with the build milestones in the LDLs.
If the Group is unable to comply, its license in respect of which
milestones have not been met could be revoked, and awarded to other cable
operators, which could have a material adverse effect on the Group.
Liquidity
The consolidated financial statements have been prepared on a basis which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the consolidated financial statements
during the years ended December 31, 1995, 1996 and 1997 the Group incurred net
losses of L27.6 million, L35.8 million and L76.6 million respectively.
The Group is obligated by the milestones in its telecommunications licenses
and LDLs to construct and activate a network passing an aggregate of 1,021,894
premises within prescribed time periods. The Group's continuation to build out
its network is dependent upon its ability to obtain sufficient debt and/or
equity financing in order to meet its network milestones. The inability of the
Group to secure financing in addition to that currently available, including the
proceeds of the issue of the Senior Notes, could result in a failure to comply
with the build milestones set forth in its licenses to operate, and ultimately
could lead to the revocation of such licenses. Under such conditions the Group
may be unable to continue to operate. The consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
liabilities that might be necessary should the Group be unable to continue to
operate.
To the extent that the amount required to complete the Group's network to
meet its milestones exceeds its estimates, the annualized cash flow of certain
subsidiaries does not meet expectations, or the Group continues constructing the
network beyond its milestone obligations, the amount of additional debt or other
financing required will increase.
12. MORTGAGE LOAN
The Group entered into a mortgage loan agreement of L2.5 million to fund
the construction of the Company's headquarters in Nottingham. The mortgage is
repayable over a period of 20 years from July 31, 1995, the date of drawdown,
subject to a capital repayment moratorium which expired in September 1996.
Interest is paid monthly at a rate of LIBOR + 1 1/2%.
13. SHAREHOLDERS' EQUITY/(DEFICIT)
The authorized and issued share capital of DCL during 1992 consisted of two
L1 par value ordinary shares. On July 3, 1993 the shareholders agreed to a
four-for-one share split such that the share capital consisted of eight 25 pence
ordinary shares. In addition on such date DCL issued an additional 392 shares in
consideration of a reduction in the amount of advances from shareholders of
L3.87 million.
On February 18, 1994, a further 1,780 DCL ordinary shares of 25 pence each
were issued for a total consideration of L17.59 million. The proceeds of the
issue were used to repay the advance from shareholders.
On May 6, 1994 the authorized share capital of DCL was increased to
L1,000,001 divided into 4,000,000 ordinary shares of 25 pence each and six 'A'
class shares of 25 pence each. The six 'A' shares have now been converted into
non-voting deferred shares in accordance with the Articles of Association of
DCL. The deferred shares entitle holders thereof only to the repayment of the
amounts paid up on such shares after payment in respect of each Ordinary Share
of L100,000. The holders of deferred shares are not entitled to the payment of
any dividend or other distribution.
F-136
<PAGE> 214
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SHAREHOLDERS' EQUITY/(DEFICIT) (CONTINUED)
On May 13, 1994 DCL's principal shareholder made a capital contribution to
DCL in the amount of $1.3 million (L863,000).
On May 17, 1994 DCL issued six A shares for cash at par and, for nil
consideration an additional 999 ordinary shares of 25 pence each to each of its
shareholders for each of the 2,180 ordinary shares held at that time.
On July 6, 1994 DCL issued a further 574,682 ordinary shares of 25 pence
each to European Cable Capital Partners LP ("ECCP") for a consideration of
L15.44 million (net of L1 million financing fees) which had been advanced to DCL
at various dates in May and June 1994 pending formal issue of these ordinary
shares. At such date a bonus allotment of 146,981 ordinary shares of 25 pence
each was made to the holders of A shares in accordance with the rights attaching
to the A shares.
On September 1, 1994 DCL effected a ten for one share split such that the
authorized ordinary shares consisted of 40,000,000 shares of 2.5 pence each, of
which 29,016,630 were outstanding. In addition, on such date the shareholders
exchanged their shares in DCL for 29,016,630 ordinary shares of 2.5 pence each
and six A shares of 25 pence each in Diamond Cable Communications Plc ("the
Company"), a newly formed public limited company in proportion to their
shareholding in DCL.
At September 1, 1994 the authorized share capital of the Company was
70,000,000 ordinary shares of 2.5 pence each and six A shares of 25 pence each
of which 29,016,630 ordinary shares and six A shares were outstanding. The six A
shares conferred certain anti-dilution rights and have now been converted into
non-voting deferred shares in accordance with the Articles of Association.
On October 11, 1994, the Company issued 2,298,728 ordinary shares of 2.5
pence each to a wholly owned subsidiary of Investor Investments AB, a company
incorporated in Sweden, for gross proceeds of L6.57 million. A total of 587,874
ordinary shares of 2.5 pence each were allotted by way of bonus to the holders
of the A shares in accordance with the terms of such shares.
On February 7, 1995 the Company issued 2,298,728 ordinary shares of 2.5
pence each to Creative Artists Agency Inc. for gross proceeds of L6.57 million.
A further 587,873 ordinary shares of 2.5 pence each were allotted by way of a
bonus to the holders of the A shares in accordance with the terms of such
shares.
On August 31, 1995, a total of 7,138,700 ordinary shares of 2.5 pence each
of the Company were issued to ECCP, Investor Investments AB, Creative Artists
Agency, Inc. and William McDonald for gross proceeds of approximately L20.4
million. A further 1,825,642 ordinary shares of 2.5 pence each were allotted on
August 31, 1995 and September 4, 1995 by way of a bonus to the holders of the A
shares of 25 pence each, in accordance with the terms of such shares. The
conditions in the Articles relating to the conversion of the A shares of 25
pence each into non-voting deferred shares of 25 pence each were thereby
satisfied and the six A shares of 25 pence each converted automatically into six
non-voting deferred shares of 25 pence each on September 4, 1995.
The deferred shares entitle holders thereof only to the repayment of the
amounts paid up on such shares after payment in respect of each ordinary share
of L100,000. The holders of deferred shares will not be entitled to the payment
of any ordinary dividend or other distributions.
On August 16, 1995, the Company exchanged all its ordinary shares in DCL
for ordinary shares of a newly incorporated company, Jewel Holdings Limited
("Jewel"). As a result, DCL became a wholly owned subsidiary of Jewel and Jewel
became a wholly owned subsidiary of the Company.
On June 27, 1996, a total of 15,384,616 ordinary shares of 2.5 pence each
of the Company were issued to ECCP, Goldman Sachs, DCI Partners, Investor
Investments AB, English Cable Enterprises Inc. and Sanford R Climan for gross
proceeds of approximately L64.7 million (net of expenses).
F-137
<PAGE> 215
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. DEBT FINANCING COSTS
Cash expended for debt financing costs in 1996 consists of payments of
L1.15 million to holders of the 1994 Notes in connection with their consent to
certain amendments to the 1994 Notes indenture which were made to conform
certain provisions thereof to provisions of the 1995 Notes indenture, and
payments of L7.94 million relating to the arrangement costs of the Senior Bank
Facility (described herein).
15. SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENT OF CASH FLOWS
Cash paid for interest was L2,376,000, L1,060,000 and L2,148,000 for the
years ended December 31, 1995, 1996 and 1997.
16. RELATED PARTY TRANSACTIONS
In 1995 the Group declared a bonus to Mr. Davis, Managing Director, in an
amount sufficient to repay his loan from the former majority shareholder, and to
meet any related tax liabilities (together amounting to approximately $1.2
million).
DCL entered into a 10-year Management Agreement with effect from June 1,
1994 (the "Management Agreement") with ECE Management Company ("ECE
Management"), a company controlled by Ralph H. Booth II and Robert T. Goad,
shareholders in the Company. As of April 4, 1996, ECE Management assigned its
rights and obligations under the Management Agreement to ECE Management
International, also controlled by Ralph H. Booth II and Robert T. Goad. As of
July 1, 1996 DCL assigned its rights and obligations under the Management
Agreement to the Company. Pursuant to the Management Agreement, ECE Management
International has agreed to manage and act as agent (under the supervision and
control of the Company's board of directors) in connection with the strategic
activities of the Company, including preparation of strategic business plans and
capital budgets, identification of investment opportunities and strategic issues
relating to the construction of the Group's cable network, the operation and
administration of the Company's business and the retention of consultants. The
contract provides for an annual management fee of $200,000. In addition, the
Group has agreed to reimburse ECE Management International for the costs of all
expenses incurred in the performance of its duties, and to indemnify ECE
Management International from any liability incurred in connection with the
performance of its duties, except in the case of ECE Management International's
wilful misconduct, gross negligence or bad faith. During 1996 and 1997, the
Group recorded expenses of L1,610,000 and L2,061,000, respectively, as amounts
paid or payable to ECE Management and/or ECE Management International in
connection with management services provided to the Group and all related
expenses incurred.
ECCP is a Delaware limited partnership of which European Cable Capital
Partners Holding Inc is the general partner and certain Goldman Sachs
affiliates, Booth English Cable Inc and Columbia Management Inc are the limited
partners. Under the partnership agreement governing ECCP, the Goldman Sachs
affiliates effectively control ECCP, which effectively controls 66.7% of the
outstanding shares of the Company at December 31, 1997. In addition, other
investment funds managed by Goldman, Sachs & Co or its affiliates directly own
4.2% of the outstanding shares of the Company at December 31, 1997.
Other Relationships
Goldman, Sachs & Co and Goldman Sachs International acted as purchasers in
connection with the offering of the Senior Notes and received underwriting
commissions of approximately $9,600,000. Goldman, Sachs & Co acted as purchaser
in connection with the 1997 Notes offering and received underwriting commissions
of approximately $6,750,000. Goldman, Sachs & Co acted as underwriter in
connection with the 1995 Notes offering and received underwriting commissions of
approximately $6,750,000. In connection with the offering of the 1994 Notes,
Goldman, Sachs & Co received underwriting commissions of approximately
F-138
<PAGE> 216
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. RELATED PARTY TRANSACTIONS (CONTINUED)
$4,875,000. Goldman, Sachs & Co acted as advisor in connection with the
acquisition of LCL and received an advisory fee for their services amounting to
L1,091,000. Goldman Sachs International acted as agent and financial advisor in
connection with the negotiation of the Senior Bank Facility for which it has
charged fees of approximately L400,000 in 1996. In 1995, Goldman, Sachs & Co
charged a fee of $750,000 for financial advisory services that Goldman, Sachs &
Co rendered the Company. Goldman, Sachs & Co was the counterparty to foreign
exchange contracts entered into by the Company in 1996 and 1997.
John Thornton, who is a managing director of Goldman Sachs International
and a Director of the Company, is also a director of BSkyB, a principal supplier
of programming to the Group and a principal competitor of the Group.
Robert T. Goad, a Director and the Chief Executive Officer of the Company
also has an indirect minority interest in ICTL, which has significant cable
interests in the UK.
17. FINANCIAL INSTRUMENTS
Interest Rate Swap -- On July 3, 1995, a subsidiary of EMCG entered into a
five year agreement to swap a floating interest rate calculated at sterling
LIBOR for a fixed rate of 8.79%. The swap has a maximum nominal value of L33.6
million and its nominal value at December 31, 1997 was L24.0 million. Following
acquisition by the Company, the interest rate swap has been retained and has
been recorded on the consolidated balance sheet in other liabilities at its
market value at December 31, 1997 of L1.2 million. Profits or losses on the mark
to market of the interest rate swap are recognized in the consolidated statement
of operations. The Directors may decide to terminate the agreement or they may
retain the swap to alter the interest rate on its loan facility. The net cash
outflow in respect of the swap in 1997 was L339,000.
Foreign Exchange Forward Contracts -- The Company entered into a foreign
exchange forward contract on November 1, 1996 for settlement on May 6, 1997 to
sell L200 million at a rate of $1.6289 to L1. On January 31, 1997 an offsetting
agreement was entered into at a rate of $1.6014 to L1. The offsetting contracts
were settled on February 6, 1997 with a payment of approximately L3.4 million to
the Company. Because of changes in prevailing rates, the Company has recorded
for the year ended December 31, 1996, an unrealized loss of approximately L8.1
million on the pounds sterling sell forward contract. For the year ended
December 31, 1997, the Company has recorded a gain of approximately L11.5
million on the two offsetting forward contracts, reflecting the reversal of the
L8.1 million loss referred to above and the approximately L3.4 million cash
payment on settlement of the contracts.
The Company entered into a foreign exchange forward contract on June 23,
1997 for settlement on June 25, 1998 to sell L50 million at a rate of $1.6505 to
L1. The Company also entered into a foreign exchange forward contract on June
27, 1997 for settlement on July 1, 1998 to sell L50 million at a rate of $1.6515
to L1. For the year ended December 31, 1997 the Company has recorded an
unrealized gain of approximately L726,000 on the contracts.
Disclosures About the Fair Value of Financial Instruments
Cash and Cash Equivalents, Trade Receivables, Trade Accounts Payable and
Accrued Expenses -- The carrying amount approximates fair value because of the
short maturity of these instruments.
Interest Rate Swap -- The interest rate swap has been marked to market and
the resulting carrying amount approximates its fair value. The fair value of the
instrument has been calculated based on quotations received from independent,
third party financial institutions and represents discounted future cash flows
based on the industry norm derivatives formula.
F-139
<PAGE> 217
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. FINANCIAL INSTRUMENTS (CONTINUED)
Senior Discount Notes -- The fair value of the senior notes has been
calculated based on quotations from Goldman, Sachs & Co and are based on
discounting the future cash flows to net present values using appropriate market
interest rates prevailing at the year end. The following table compares the
carrying value with the fair value of the debt:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1997 1996 1997
CARRYING CARRYING FAIR FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1994 Notes...................... L117,062 L138,726 L136,740 L155,333
1995 Notes...................... 197,356 230,599 220,726 249,688
1997 Notes...................... -- 165,536 -- 174,067
-------- -------- -------- --------
L314,418 L534,861 L357,466 L579,088
======== ======== ======== ========
</TABLE>
Foreign Exchange Forward Contracts -- The foreign exchange forward
contracts have been marked to market and the resulting carrying amounts
approximates their fair values. The fair values of the instruments have been
calculated based on the difference between the forward rate available at
December 31, 1997 for the remaining maturity of the contracts and the contracted
forward rate.
Concentration of Credit Risk and Market Risk
The Group operates predominantly in one industry segment, the provision of
cable television and telecommunications services in certain areas of England. No
single customer accounts for 10% or more of consolidated net sales.
Financial instruments which potentially subject the Group to concentrations
of credit risk consist principally of temporary cash investments and trade
receivables. The Group places its temporary cash investments with high credit
quality financial institutions. Concentrations of credit risk with respect to
trade receivables are limited due to the large number of customers comprising
the Group's customer base. At December 31, 1997, the Group had no significant
concentrations of credit risk.
The Group is exposed to market risk on the interest rate swap to the extent
that the variable rate receivable is lower than the fixed rate payable.
The Group's revenues are generated in pounds sterling while the interest
and principal obligations with respect to the Discount Notes will be payable in
US dollars. While the Company's policy has previously been not to enter in
hedging contracts it did enter into foreign exchange forward contracts during
1996 and 1997 (discussed herein). Changes in currency exchange rates may
continue to have a material effect on the results of operations of the Group.
18. SHARE OPTIONS
The Group adopted a Senior Management Option Scheme on October 27, 1994.
Under the scheme, the Board of Directors may, for a period of 10 years, grant
options over Shares with an exercise price of L3.44 or such other price as the
Board of Directors may determine, to executives or other individuals associated
with the Group selected by the Board of Directors. Options granted on or before
April 30, 1995 can be exercised as to 50% of the shares subject to the option on
or after June 30, 1998 and as to the other 50% on or after June 30, 1999, in
each case, until the seventh anniversary of the date of grant of the option.
Options granted after April 30, 1995 can only be exercised as to 50% on or after
the fourth anniversary of the date of grant, and as to the remaining 50%, on or
after the fifth anniversary of the date of grant, in each case, until the
seventh
F-140
<PAGE> 218
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. SHARE OPTIONS (CONTINUED)
anniversary of the date of grant of the option. Options may be exercised early
in certain circumstances if the option holder ceases to be a director or
employee of the Group or if there is a change in control of the Group.
According to the rules of the Senior Management Option Scheme, the
aggregate number of shares which have been or may be issued pursuant to options
granted under the Senior Management Option Scheme and options granted under any
other option scheme of the Group may not exceed 10% of the Company's then
current issued share capital.
Options over a total of 728,000 shares were granted to directors, senior
management and certain principals of ECE Management on February 23, 1995 and
July 19, 1995 under the Senior Management Option Scheme with an exercise price
of L3.44. Of these 218,000 were granted to Gary Davis and 10,000 to Lord Pym.
On October 24, 1995, options over a total of 490,000 shares were granted to
directors, senior management and certain principals of ECE Management under the
Senior Management Option Scheme with an exercise price of L4.11 per share.
Options over a total of 77,500 shares were granted to directors and senior
management on May 7, 1997 and November 19, 1997 under the Senior Management
Option Scheme with an exercise price or L4.11 per share.
Options were granted on January 5, 1995 to CGT, in which Mr. Davis and his
family are shareholders, over 654,000 shares with an exercise price or L3.44 and
are exercisable at any time up to January 5, 2002. These options were not
granted under the Senior Management Option Scheme but are subject to some of the
provisions of the Senior Management Option Scheme.
The following table sets forth the number of options in issue:
<TABLE>
<CAPTION>
AT GRANTED AT AT AT
JANUARY 1, IN DECEMBER 31, FORFEITED DECEMBER 31, GRANTED FORFEITED DECEMBER 31,
1995 1995 1995 IN 1996 1996 IN 1997 IN 1997 1997
---------- ------- ------------ --------- ------------ ------- --------- ------------
(NUMBER IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
-- 1,872 1,872 (45) 1,827 77 (380) 1,524
== ===== ===== === ===== == ==== =====
</TABLE>
Options over 654,000 shares were exercisable at December 31, 1995, 1996 and
1997.
No compensation expense has been recorded for these options under the
recognition provisions of APB 25 as they were all granted at a price which
approximated the market value at the date of grant.
The following pro-forma summary shows the reported net loss as if the fair
value based accounting method prescribed by SFAS No. 123 had been used to
account for stock-based compensation cost. In the absence of a reported share
price and restrictions on dividend payments, the fair value of the options has
been estimated using a risk-free interest rate based on prevailing interest
rates of 6.25% for options granted in 1995 and 7.5% for options granted in 1997
and assuming options are exercised on the seventh anniversary of the date of the
grant. The pro-forma compensation cost for 1995, 1996 and 1997 is L0.22 million,
L0.33 million and L0.15 million respectively. The effects of applying SFAS No.
123 may not be representative of the effects on reported net income/loss for
future years.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Pro-forma net loss................... L(27,812) L(36,164) L(76,754)
======== ======== ========
</TABLE>
F-141
<PAGE> 219
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. SENIOR BANK FACILITY AND RESTRICTION OF NET ASSETS
In August 1996, certain of the Company's subsidiaries entered into a senior
bank lending agreement, which provided for a borrowing facility of up to an
aggregate amount of L340 million. In February 1997, the Senior Bank Facility was
amended, and the Group has subsequently negotiated further amendments to the
facility. These amendments included a reduction in the amount to be available
for borrowing under the facility to L175 million to reflect the additional
proceeds available to the Group through the issuance of the 1997 Notes. No funds
were drawn under the facility. The issuance of the Senior Notes in February 1998
replaces, in large part, the expected borrowing under the Senior Bank Facility.
As a condition to the issuance of the Senior Notes, therefore, the Group
provided notice to terminate the Senior Bank Facility on February 6, 1998. For
the year ended December 31, 1997 the Group has recorded a charge of L8.0 million
representing the write-off of the deferred financing cost (principally
origination fees and expenses) that had been carried on the consolidated balance
sheet.
Indebtedness under the Senior Bank Facility was to be incurred and
guaranteed by certain of the Company's subsidiaries and secured by a lien on
their assets. The Senior Bank Facility contained various covenants, including
(i) financial covenants relating to leverage, bank debt loan charges coverage
ratios, cash interest coverage ratios and annualized EBITDA levels; (ii)
requirements that the Group maintain interest rate protection agreements in
relation to a portion of the loans expected to be outstanding for the period
January 1, 1998 to June 30, 2001; and (iii) restrictions on the payment of
dividends and intra-Group debt.
As a result of the above restrictions, certain subsidiaries were subject to
restrictions on their ability to make dividend payments, loans or other
transfers of cash to the Company as at December 31, 1997. Such restrictions,
unless amended or waived, limit the use of any cash generated by these
subsidiaries to pay obligations of the Company. As of December 31, 1997, the
conditions which would allow the subsidiaries to make distributions to the
Company were not satisfied and hence the restrictions applied to the entire net
assets of the subsidiaries.
20. CONDENSED FINANCIAL INFORMATION OF REGISTRANT
The following condensed financial statements of the Company are provided in
compliance with the requirements of Rule 5-04 and 12-04 of Regulation S-X. They
also represent the financial statements of the Guarantor of the offering of
Senior Notes by Diamond Holdings plc in February 1998.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Selling, general and administrative......................... L -- L (1,468) L (2,285)
Equity accounted share of net losses of subsidiaries........ (16,832) (25,391) (87,672)
Interest income............................................. 3,543 40,119 56,417
Interest expense and amortization of debt discount and
expenses.................................................. (14,646) (39,100) (56,393)
Foreign exchange gains/(losses), net........................ 909 (1,542) 1,016
Unrealized (loss)/gain on derivative
financial instruments..................................... -- (8,118) 726
Realized gain on derivative financial instruments........... -- -- 11,553
Other expenses.............................................. (911) -- --
-------- -------- --------
Loss before income taxes.................................... (27,937) (35,500) (76,638)
Income taxes................................................ -- -- --
-------- -------- --------
Net loss.................................................... L(27,937) L(35,500) L(76,638)
======== ======== ========
</TABLE>
See accompanying notes to the Condensed Financial Statements
F-142
<PAGE> 220
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------
1996 1997
----------- ------------
(IN THOUSANDS EXCEPT SHARE
DATA)
<S> <C> <C>
ASSETS
Investments in and advances to subsidiaries................. L349,676 L 468,167
Cash and cash equivalents................................... 16,032 28,697
Other assets................................................ 115 822
Deferred financing costs (less accumulated amortization of
L1,325 and L2,627 at December 31, 1996 and 1997
respectively)............................................. 11,960 15,533
-------- ---------
Total Assets...................................... L377,783 L 513,219
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Other liabilities........................................... L 9,265 L 869
Senior discount notes....................................... 314,418 534,861
Shareholders' equity/(deficit)..............................
Ordinary shares: 70,000,000 authorized; 59,138,791 shares
issued at December 31, 1996 and 1997................... 1,478 1,478
Non-voting deferred shares:
6 shares authorized and issued at December 31, 1996 and
1997................................................... -- --
Additional paid-in-capital.................................. 134,466 134,466
Unrealized loss on securities............................... (197) (170)
Accumulated deficit......................................... (81,647) (158,285)
-------- ---------
Total Liabilities and Shareholders'
Equity/(Deficit)................................ L377,783 L 513,219
======== =========
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-143
<PAGE> 221
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIT)
<TABLE>
<CAPTION>
NON-VOTING
DEFERRED
ORDINARY SHARES SHARES ADDITIONAL UNREALIZED TOTAL
------------------ ------------ PAID- IN- LOSS ON ACCUMULATED SHAREHOLDERS'
NUMBER L NUMBER L CAPITAL SECURITIES DEFICIT EQUITY/(DEFICIT)
---------- ------ ------ --- ---------- ---------- ----------- ----------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995... 31,903,232 L 797 6 L-- L 43,505 L -- L (18,210) L 26,092
Shares issued and capital
contributions (net of
expenses).................. 9,437,428 236 -- -- 26,742 -- -- 26,978
Bonus shares issued.......... 2,413,515 61 -- -- (61) -- -- --
Net loss..................... -- -- -- -- -- (27,937) (27,937)
---------- ------ -- --- -------- ----- ---------- --------
BALANCE AT DECEMBER 31,
1995....................... 43,754,175 L1,094 6 L-- L 70,186 L -- L (46,147) L 25,133
========== ====== == === ======== ===== ========== ========
BALANCE AT JANUARY 1, 1996... 43,754,175 L1,094 6 L-- L 70,186 L -- L (46,147) L 25,133
Shares issued and capital
contributions (net of
expenses).................. 15,384,616 384 -- -- 64,280 -- -- 64,664
Unrealized loss on
securities................. -- -- -- -- -- (197) -- (197)
Net loss..................... -- -- -- -- -- -- (35,500) (35,500)
---------- ------ -- --- -------- ----- ---------- --------
BALANCE AT DECEMBER 31,
1996....................... 59,138,791 L1,478 6 L-- L134,466 L(197) L (81,647) L 54,100
========== ====== == === ======== ===== ========== ========
BALANCE AT JANUARY 1, 1997... 59,138,791 L1,478 6 L-- L134,466 L(197) L (81,647) L 54,100
Unrealized gain on
securities................. -- -- -- -- -- 27 -- 27
Net loss..................... -- -- -- -- -- -- (76,638) (76,638)
---------- ------ -- --- -------- ----- ---------- --------
BALANCE AT DECEMBER 31,
1997....................... 59,138,791 L1,478 6 L-- L134,466 L(170) L (158,285) L(22,511)
========== ====== == === ======== ===== ========== ========
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-144
<PAGE> 222
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................. L (27,937) L(35,500) L (76,638)
Adjustments to reconcile net loss to net cash provided
by/(used in) operating activities:
Equity accounted share of net losses of subsidiaries... 16,832 25,391 87,672
Foreign exchange losses/(gains)........................ (613) 820 (2,524)
Accrued interest on advances to subsidiaries........... (318) (39,581) (53,998)
Amortization of deferred financing costs............... 312 943 1,302
Accretion of senior note discount...................... 14,335 38,157 55,038
Accretion of investment income......................... 524 -- --
Profit on disposition of investments................... (2,733) -- --
Change in operating assets and liabilities:
Change in other assets................................. (13) (102) 18
Change in other liabilities............................ 1,613 8,380 (8,282)
--------- -------- ---------
Net cash provided by/(used in)
operating activities................................... 2,002 (1,492) 2,588
--------- -------- ---------
Cash flows from investing activities:
Cash invested in marketable securities................. (17,445) -- --
Proceeds from disposition of investments............... 73,644 -- --
Advances to subsidiaries............................... (310,611) (45,306) (138,652)
--------- -------- ---------
Net cash used in investing activities.................... (254,412) (45,306) (138,652)
--------- -------- ---------
Cash flows from financing activities:
Proceeds of issue of debt.............................. 194,881 -- 153,691
Debt financing costs................................... (7,924) (1,637) (4,989)
Issue of shares and capital contributions (net of
expenses)........................................... 26,978 64,664 --
--------- -------- ---------
Net cash provided by financing activities................ 213,935 63,027 148,702
--------- -------- ---------
Net (decrease)/increase in cash.......................... (38,475) 16,229 12,638
Cash and cash equivalents at beginning of year........... 38,475 -- 16,032
Effect of exchange rate changes on cash and cash
equivalents............................................ -- (197) 27
--------- -------- ---------
Cash and cash equivalents at end of year................. L -- L 16,032 L 28,697
========= ======== =========
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-145
<PAGE> 223
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A. Basis of Presentation and Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes -- Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to reverse. A valuation allowance is
raised against a deferred tax asset where it is more likely than not that some
portion of the deferred tax asset will not be realized.
Investments in and Advances to Subsidiaries -- Investments in and advances
to subsidiaries are accounted for using the equity method of accounting.
Cash and Cash Equivalents -- Cash and cash equivalents include highly
liquid investments with original maturity of three months or less that are
readily convertible to cash.
Foreign Currencies -- The primary economic environment in which the Group
operates is the United Kingdom and hence its reporting currency is the United
Kingdom Pound Sterling (L). Transactions in foreign currencies are recorded
using the rate of exchange in effect on the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are translated using
the rate of exchange in effect on the balance sheet date and gains or losses on
translation are included in the statement of operations. Foreign exchange
forward contracts which do not hedge firm commitments are accounted at market
value with reported gains and losses recorded in the statement of operations.
Senior Discount Notes -- The debt discount is amortized to the statement of
operations on a constant yield to maturity basis.
Deferred Financing Costs -- Costs incurred relating to the issue of debt
are shown as an asset on the balance sheet and are amortized over the term of
the debt as an adjustment of yield.
B. Advances to Subsidiaries
The advances to subsidiaries consist of a dollar denominated loan and
sterling denominated loans.
The dollar denominated loan bears interest at a rate of 12.25% per annum.
The Sterling denominated loans bear interest at a rate of LIBOR plus 2% per
annum.
The interest income on these loans in 1996 and 1997 was L39.6 million and
L54.0 million respectively.
C. Commitments and Contingencies
Liquidity -- The financial statements have been prepared on a basis which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the financial statements during the
years ended December 31, 1995, 1996 and 1997 the Group incurred net losses of
L27.6 million, L35.8 million and L76.6 million respectively.
F-146
<PAGE> 224
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Group is obligated by the milestones in its telecommunications licenses
and LDLs to construct and activate a network passing an aggregate of 1,021,894
premises within prescribed time periods. The Group's continuation to build out
its network is dependent upon its ability to obtain sufficient debt and/or
equity financing in order to meet its network milestones. The inability of the
Group to secure financing in addition to that currently available, including the
proceeds of the issue of the Senior Notes, could result in a failure to comply
with the build milestones set forth in its licenses to operate, and ultimately
could lead to the revocation of such licenses. Under such conditions the Group
may be unable to continue to operate. The financial statements do not include
any adjustments relating to the recoverability and classification of liabilities
that might be necessary should the Group be unable to continue to operate.
To the extent that the amount required to complete the Group's network to
meet its milestones exceeds its estimates, the annualized cash flow of certain
subsidiaries does not meet expectations, or the Group continues constructing the
network beyond its milestone obligations, the amount of additional debt or other
financing required will increase.
21. SUMMARIZED FINANCIAL INFORMATION ABOUT DIAMOND HOLDINGS PLC
The following information is provided in accordance with the Staff
Accounting Bulletin No. 53 and represents the summarized financial information
of Diamond Holdings plc.
Diamond Holdings plc ("Holdings") was incorporated under the laws of
England and Wales on December 15, 1997. Holdings is a wholly owned subsidiary of
Diamond Cable Communications Plc ("the Company") and, on January 16, 1998 became
the intermediate holding company which holds all the shares of (i) Diamond Cable
Communications (UK) Limited and (ii) East Midlands Cable Communications Limited,
East Midlands Cable Group Limited and East Midlands Cable Holdings Limited
through an intermediate holding company, Jewel Holdings Limited.
Holdings raised approximately L195 million by the offer of Senior Notes in
February 1998. The proceeds will be used by the Group for general corporate
purposes, including to fund a portion of the costs of constructing the network
in the Group's franchise area and related working capital. The Senior Notes are
unconditionally guaranteed by the Company.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997
---------------
<S> <C>
Amounts due from group undertakings......................... L49,998
Cash at bank and in hand.................................... 2
-------
Total assets...................................... L50,000
=======
Liabilities................................................. L --
Shareholders' equity
Ordinary shares: 50,000,000 authorized; 50,000 shares
issued................................................. 50,000
-------
Total liabilities and shareholders' equity........ L50,000
=======
</TABLE>
F-147
<PAGE> 225
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1997 1998 1997 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUE
Business telecommunications............................ L 3,697 L 4,651 L 10,217 L 13,650
Residential telephone.................................. 7,518 11,975 20,450 32,806
Cable television....................................... 4,187 6,110 11,884 17,466
-------- -------- -------- --------
15,402 22,736 42,551 63,922
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES
Telephone.............................................. (3,173) (4,469) (8,710) (12,390)
Programming............................................ (2,368) (3,259) (6,918) (9,450)
Selling, general, and administrative................... (7,126) (9,506) (19,694) (27,430)
Depreciation and amortization.......................... (7,042) (10,851) (20,057) (30,501)
-------- -------- -------- --------
(19,709) (28,085) (55,379) (79,771)
-------- -------- -------- --------
OPERATING LOSS......................................... (4,307) (5,349) (12,828) (15,849)
Interest income........................................ 1,868 3,383 4,837 10,264
Interest expense and amortization of debt discount and
expenses............................................. (15,875) (21,569) (43,075) (61,984)
Foreign exchange gains/(losses), net as foreign
currency denominated indebtedness.................... (16,457) 10,906 (22,180) 21,071
Unrealized gain on derivative financial instruments.... 2,660 -- 2,904 --
Realized gain on derivative financial instruments...... -- -- 11,553 412
-------- -------- -------- --------
Loss before income taxes............................... (32,111) (12,629) (58,789) (46,086)
Income taxes........................................... -- -- -- --
-------- -------- -------- --------
NET LOSS............................................... L(32,111) L(12,629) L(58,789) L(46,086)
======== ======== ======== ========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
F-148
<PAGE> 226
DIAMOND CABLE COMMUNICATIONS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30,
1997 1998
--------------- ----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... L 75,680 L 186,190
Trade receivables (net of allowance for doubtful accounts of
L2,788 at December 31, 1997 and L4,236 at September 30,
1998)..................................................... 8,569 9,722
Other assets................................................ 4,470 2,448
Deferred financing costs (less accumulated amortization of
L2,627 at December 31, 1997 and L4,243 at September 30,
1998)..................................................... 15,533 20,910
Property and equipment, net (note 4)........................ 365,636 442,330
Goodwill (less accumulated amortization of L10,914 at
December 31, 1997 and L14,551 at September 30, 1998)...... 86,046 82,409
Franchise costs (less accumulated amortization of L116 at
December 31, 1997 and L137 at September 30, 1998)......... 423 402
--------- ---------
Total Assets...................................... L 556,357 L 744,411
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable............................................ L 22,319 L 27,595
Other liabilities........................................... 11,224 15,731
Senior discount notes....................................... 534,861 563,499
Senior notes................................................ -- 199,725
Capital lease obligations................................... 8,041 6,884
Mortgage loan............................................... 2,423 2,397
Shareholders' equity
Ordinary shares (70,000,000 authorized;
59,138,791 issued at December 31, 1997 and
at September 30, 1998).................................... 1,478 1,478
Non-voting deferred shares (6 shares authorized and issued
at December 31, 1997 and September 30, 1998).............. -- --
Additional paid-in-capital.................................. 134,466 134,466
Accumulated other comprehensive loss........................ (204) (3,027)
Accumulated deficit......................................... (158,251) (204,337)
--------- ---------
Total Liabilities and Shareholders' Equity........ L 556,357 L 744,411
========= =========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
F-149
<PAGE> 227
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NON-VOTING
DEFERRED ACCUMULATED
ORDINARY SHARES SHARES OTHER TOTAL
------------------- ------------ ADDITIONAL COMPREHENSIVE ACCUMULATED SHAREHOLDERS'
NUMBER L NUMBER L PAID-IN-CAPITAL LOSS DEFICIT DEFICIT
---------- ------ ------ --- --------------- ------------- ----------- -------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998... 59,138,791 L1,478 6 L-- L134,466 L (204) L(158,251) L(22,511)
Unrealized loss on
securities................. -- -- -- -- -- (2,823) -- (2,823)
Net loss..................... -- -- -- -- -- -- (46,086) (46,086)
---------- ------ -- --- -------- ------- --------- --------
BALANCE AT SEPTEMBER 30,
1998....................... 59,138,791 L1,478 6 -- L134,466 L(3,027) L(204,337) L(71,420)
========== ====== == === ======== ======= ========= ========
BALANCE AT JULY 1, 1998...... 59,138,791 L1,478 6 -- L134,466 L(1,905) L(191,708) L(57,669)
Unrealized gain on
securities................. -- -- -- -- -- (1,122) -- (1,122)
Net loss..................... -- -- -- -- -- -- (12,629) (12,629)
---------- ------ -- --- -------- ------- --------- --------
BALANCE AT SEPTEMBER 30,
1998....................... 59,138,791 L1,478 6 -- L134,466 L(3,027) L(204,337) L(71,420)
========== ====== == === ======== ======= ========= ========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
F-150
<PAGE> 228
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1998
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... L(58,789) L (46,086)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 20,057 30,501
Unrealized foreign exchange losses/(gains)................ 22,270 (20,982)
Loss on disposition of assets............................. 99 --
Accretion of Senior Note discount......................... 39,865 46,964
Provision for losses on accounts receivable............... 795 1,448
Amortization of deferred financing costs.................. 1,837 1,616
Change in operating assets and liabilities:
Change in trade receivables............................ (958) (2,602)
Change in other assets................................. (3,007) 2,022
Change in accounts payable............................. 5,646 2,944
Change in other liabilities............................ (5,744) 4,372
-------- ---------
Net cash provided by operating activities................... 22,071 20,197
-------- ---------
Cash flows from investing activities:
Cash invested in property and equipment................... (78,728) (100,958)
Proceeds from disposition of assets....................... 39 95
-------- ---------
Net cash used in investing activities....................... (78,689) (100,863)
-------- ---------
Cash flows from financing activities:
Proceeds of issue of debt................................. 153,692 202,381
Debt financing costs...................................... (5,249) (6,814)
Repayment of mortgage loan................................ (55) (27)
Capital element of capital lease repayments............... (1,187) (1,541)
-------- ---------
Net cash provided by financing activities................... 147,201 193,999
-------- ---------
Net increase in cash and cash equivalents................... 90,583 113,333
Cash and cash equivalents at beginning of period............ 18,311 75,680
Effect of exchange rate changes on cash and cash
equivalents............................................... (500) (2,823)
-------- ---------
Cash and cash equivalents at end of period.................. L108,394 L 186,190
======== =========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
F-151
<PAGE> 229
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
Diamond Cable Communications Plc (the "Company") owns and operates cable
television and telecommunications systems through its subsidiaries. The
unaudited consolidated financial statements of the Company and its subsidiaries
(the "Group") have been prepared in accordance with U.S. generally accepted
accounting principles and the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Accordingly, certain information and footnote
disclosures normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The financial statements as of and for the periods ended September 30, 1998
and 1997 are unaudited. However, in the opinion of the management, such
statements include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the results for the periods
presented. The results of operations for any interim period are not necessarily
indicative of the results for the full year. The interim financial statements
should be read in conjunction with the financial information included in the
Company's 1997 Annual Report on Form 10-K filed with the SEC.
3. COMPREHENSIVE LOSS
SFAS No. 130, "Reporting Comprehensive Income" was issued in June 1997, and
is effective for accounting periods beginning after December 15, 1997. SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components. Comprehensive loss for the nine-month periods to September 30,
1997 and 1998 is shown below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net loss.................................................... L(58,789) L(46,086)
Other comprehensive loss net of tax --
Unrealized loss on securities............................. (500) (2,823)
-------- --------
Comprehensive loss.......................................... L(59,289) L(48,909)
======== ========
</TABLE>
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
LAND AND CABLE OFFICE MOTOR
BUILDINGS NETWORK EQUIPMENT VEHICLES TOTAL
--------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1998..................... L5,111 L405,652 L 9,017 L 606 L420,386
Additions...................................... 1,511 100,506 1,109 506 103,632
Dispositions................................... -- (271) (5) (213) (489)
------ -------- ------- ----- --------
Balance at September 30, 1998.................. 6,622 505,887 10,121 899 523,529
------ -------- ------- ----- --------
</TABLE>
F-152
<PAGE> 230
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT (CONTINUED)
<TABLE>
<CAPTION>
LAND AND CABLE OFFICE MOTOR
BUILDINGS NETWORK EQUIPMENT VEHICLES TOTAL
--------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ACCUMULATED DEPRECIATION
Balance at January 1, 1998..................... 478 49,695 4,369 208 54,750
Charge for period.............................. 143 25,046 1,515 139 26,843
Dispositions................................... -- (220) (5) (169) (394)
------ -------- ------- ----- --------
Balance at September 30, 1998.................. 621 74,521 5,879 178 81,199
------ -------- ------- ----- --------
SEPTEMBER 30, 1998 NET BOOK VALUE.............. 6,001 431,366 4,242 721 442,330
====== ======== ======= ===== ========
DECEMBER 31, 1997 NET BOOK VALUE............... L4,633 L355,957 L 4,648 L 398 L365,636
====== ======== ======= ===== ========
</TABLE>
The estimated useful life of set-top boxes and initial subscriber
installations was reduced from seven years to three years with effect from
January 1, 1998. The effect of the change in estimated useful life was to reduce
net income for the period by L5.0 million ($8.5 million).
5. COMMITMENTS AND CONTINGENCIES
The Company is obligated under the terms of its existing licenses, and
under the milestone requirements of its local delivery licenses ("LDLs"), to
construct cable systems passing a predetermined number of premises. Should the
Company fail to achieve these milestones, without license modifications, the
Director General could commence proceedings to require compliance. Similarly,
the Independent Television Commission ("ITC") may commence proceedings to
require compliance with the build milestones in the LDLs. If the Company is
unable to comply, its licenses in respect of which milestones have not been met
could be revoked, which could have a material adverse effect on the Company.
6. ISSUE OF 1998 NOTES
On February 6, 1998, Diamond Holdings plc ("Diamond Holdings"), a
subsidiary of the Company, issued L135,000,000 in principal amount of its 10%
Senior Notes due February 1, 2008 and $110,000,000 in principal amount of its
9 1/8% Senior Notes due February 1, 2008 (together, the "1998 Notes".) The 1998
Notes have been fully and unconditionally guaranteed by the Company as to
principal, interest and other amounts due. Net proceeds received by Diamond
Holdings amounted to approximately L195 million after issuance costs of
approximately L7 million.
7. SHARE EXCHANGE AGREEMENT
On June 16, 1998, the Company announced that all of the holders of its
outstanding ordinary shares of 2.5p each and deferred shares of 25p each have
agreed to exchange all outstanding shares in the Company for newly issued shares
of common stock of NTL, an alternative telecommunications company in the UK, the
common stock of which is quoted on NASDAQ (NTLi). Under the Share Exchange
Agreement, the Company's shareholders will receive one share of NTL common stock
for every four Ordinary Shares of the Company held subject to adjustment in the
event that the average NTL share price for a predetermined period before closing
of the transaction exceeds a specified price (which will be $52.50 per share
until November 16, 1998, increasing thereafter to $53 per share until December
16, 1998, $53.50 per share until January 16, 1999 and $54 per share thereafter).
Holders of the Company's deferred shares will receive one share of NTL common
stock for each deferred share held.
The proposed share exchange is subject to a number of conditions, including
the receipt of required regulatory approvals (which have been obtained) and
approved by NTL shareholders. Although the
F-153
<PAGE> 231
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
7. SHARE EXCHANGE AGREEMENT (CONTINUED)
transaction will not require the prior approval of the holders of the Group's
outstanding debt securities, each of the indentures pursuant to which the
Group's debt securities were issued requires that offers to repurchase such debt
securities be made to holders of such securities subsequent to closing at a
price of 101% of their accreted value or principal amount, which may influence
the ability of the parties to complete the proposed share exchange in its
current form.
If such offers should be required, there can be no assurance that the
Company or Diamond Holdings will have sufficient funds, or be able to raise
sufficient funds, to effect such repurchases.
8. SUMMARIZED FINANCIAL INFORMATION
The following table presents summarized consolidated financial information
for Diamond Holdings plc ("Diamond Holdings") as of and for the nine months
ended September 30, 1998. This summarized financial information is being
provided pursuant to Section G of Topic 1 of Staff Accounting Bulletin No. 53 --
"Financial Statement Requirements in Filings Involving the Guarantee of
Securities by a Parent". The 1998 Notes have been guaranteed by the Company as
to principal, interest and other amounts due. The Company will continue to
provide such summarized financial information for Diamond Holdings for as long
as the 1998 Notes remain outstanding and guaranteed by the Company.
<TABLE>
<CAPTION>
DIAMOND HOLDINGS PLC (NOTE A)
----------------------------------
17 DAYS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Summarized Consolidated Income Statement
Information
Revenue....................................... L-- L 63,922
Operating costs and expenses.................. -- 77,919
Net loss for the period....................... L-- L (50,334)
=== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Summarized Consolidated Balance Sheet
Information
Fixed and noncurrent assets................... L-- L 531,596
Current assets................................ 50 170,048
--- ---------
Total assets.................................. L50 L 701,644
=== =========
Current liabilities........................... L-- L 42,836
Noncurrent liabilities........................ -- 818,494
Shareholders equity/(deficit)................. 50 (159,686)
--- ---------
Total liabilities and shareholders interest... L50 L 701,644
=== =========
</TABLE>
- ---------------
(a) Diamond Holdings was incorporated on December 15, 1997 and is a
wholly-owned, direct subsidiary of Diamond Cable Communications Plc. On
January 16, 1998 Diamond Holdings became the intermediate holding company
which holds all of the shares of all Group companies (other than Diamond
National Networks Limited, a company with no operations, and L100 called up
share capital, which was disposed of by Diamond Cable Communications plc on
November 6, 1998). The Summarized Financial Information shows operating
results as if Diamond Holdings became the intermediate holding company on
January 1, 1998.
F-154
<PAGE> 232
ANNEX A
SHARE EXCHANGE AGREEMENT
AMONG
NTL INCORPORATED
AND
THE SHAREHOLDERS OF
DIAMOND CABLE COMMUNICATIONS PLC
DATED AS OF JUNE 16, 1998
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TABLE OF CONTENTS
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ARTICLE I
ACQUISITION OF STOCK
Section 1.1 Transfer of Stock........................................... A-4
Section 1.2 Consideration for Shares.................................... A-4
Section 1.3 Fractional Shares........................................... A-4
ARTICLE II
CLOSING
Section 2.1 Closing..................................................... A-4
Section 2.2 Documents to be delivered by Transferors.................... A-5
Section 2.3 Documents to be delivered by NTL............................ A-5
Section 2.4 Board Meetings.............................................. A-5
Section 2.5 Form of Documents to be Delivered........................... A-5
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties relating to Diamond.......... A-6
Section 3.2 Representations and Warranties of Transferors............... A-13
Section 3.3 Representations and Warranties of NTL....................... A-14
Section 3.4 No Counterclaim............................................. A-18
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1(a) Conduct of Business by Diamond.............................. A-18
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Access to Information; Confidentiality...................... A-20
Section 5.2 Reasonable Best Efforts..................................... A-21
Section 5.3 Stock Options and Stock Appreciation Rights................. A-21
Section 5.4 Fees and Expenses........................................... A-22
Section 5.5 Public Announcements........................................ A-22
Section 5.6 NASDAQ Quotation............................................ A-22
Section 5.7 Covenant of Transferors..................................... A-22
Section 5.8 Covenant of NTL............................................. A-22
Section 5.9 Standstill Agreements; Confidentiality Agreements........... A-22
Section 5.10 Conveyance Taxes............................................ A-22
Section 5.11 Debt Offers................................................. A-23
Section 5.12 Confidential Information.................................... A-23
Section 5.13 Shareholders' Agreement..................................... A-23
Section 5.14 Bring-along for Optionholder Shares......................... A-23
Section 5.15 Tag-along for Optionholders Shares.......................... A-23
Section 5.16 No change to Stock Options.................................. A-23
Section 5.17 Indemnification; Directors and Officers Insurance........... A-23
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ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1 Conditions to Each Party's Obligation to Effect the
Closing..................................................... A-24
Section 6.2 Conditions to Obligations of NTL............................ A-25
Section 6.3 Conditions to Obligations of Transferors.................... A-25
Section 6.4 Frustration of Closing Conditions........................... A-26
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination................................................. A-26
Section 7.2 Effect of Termination....................................... A-27
Section 7.3 Amendment................................................... A-27
Section 7.4 Extension; Waiver........................................... A-27
Section 7.5 Procedure for Termination, Amendment, Extension or Waiver... A-27
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Survival of Representations, Etc. .......................... A-27
Section 8.2 Notices..................................................... A-28
Section 8.3 Definitions................................................. A-29
Section 8.4 Interpretation.............................................. A-30
Section 8.5 Counterparts................................................ A-30
Section 8.6 Entire Agreement; No Third-Party Beneficiaries.............. A-30
Section 8.7 Governing Law............................................... A-30
Section 8.8 Assignment.................................................. A-30
Section 8.9 Consent to Jurisdiction..................................... A-30
Section 8.10 Headings.................................................... A-31
Section 8.11 Severability................................................ A-31
Section 8.12 Liability of AmSouth in its Corporate Capacity.............. A-31
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SHARE EXCHANGE AGREEMENT dated as of June 16, 1998, among NTL INCORPORATED,
a Delaware corporation ("NTL"), and the shareholders of Diamond Cable
Communications plc ("Diamond") set forth on the signature page hereto
("Transferors").
WHEREAS, each Transferor owns the number of ordinary shares, par value 2.5p
per share, and deferred shares, par value 25p per share, of Diamond set forth
opposite its name on the signature page hereto (the "Shares").
WHEREAS, NTL desires to acquire from Transferors, and Transferors desire to
transfer to NTL, all of the Shares, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
ACQUISITION OF STOCK
Section 1.1 Transfer of Stock. Upon the terms and subject to the
conditions contained herein, each Transferor will exchange, convey, transfer,
assign and deliver to NTL with full title guarantee, and NTL will acquire on the
Closing Date (as hereinafter defined), all of the Shares set forth opposite its
name on the signature page hereto. Each Transferor shall procure that NTL
acquires good title to the Shares to be acquired by it from such Transferor free
from all liens, charges, encumbrances, equities and claims whatsoever and
together with all rights now or hereafter attaching to them. NTL shall not be
obliged to complete the acquisition of any of the Shares unless the acquisition
of all the Shares is completed simultaneously.
Section 1.2 Consideration for Shares. Upon the terms and subject to the
conditions contained herein, as consideration for the acquisition of the Shares,
on the Closing Date NTL shall transfer to each Transferor consideration
consisting of one share of common stock, par value $.01 per share, of NTL (the
"NTL Common Stock") for (a) each four ordinary shares in Diamond, provided that
if the Closing Date shall have occurred before the fourth month anniversary date
of the date hereof and the NTL Average Stock Price is $52.00 (the "Maximum
Average Stock Price") or more, the consideration for each four ordinary shares
will be the number of NTL Common Stock equal in value (at the NTL Average Stock
Price) to the Maximum Average Stock Price; provided; however if the Closing Date
shall have occurred after the fourth month anniversary date of the date hereof,
then the Maximum Average Stock Price shall increase by $.50 on such date and on
each subsequent monthly anniversary date of the date hereof until the Closing
Date and (b) each deferred share in Diamond.
Section 1.3 Fractional Shares. No fractional shares of NTL Common Stock
shall be issued pursuant to this Agreement. All fractional shares of NTL Common
Stock that a holder of shares of Diamond would otherwise be entitled to receive
as a result of the transaction contemplated hereby shall be aggregated and if a
fractional share results from such aggregation, such holder shall be entitled to
receive, in lieu thereof, an amount in cash determined by multiplying the
closing sale price of the NTL Common Stock on the NASDAQ on the trading day
immediately preceding the Closing Date by the fraction of a share of NTL Common
Stock to which such holder would otherwise have been entitled.
ARTICLE II
CLOSING
Section 2.1 Closing. The Closing of the transactions contemplated herein
(the "Closing") shall be held at 9:00 a.m., local time, at the offices of
Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York
10022, on the third Business Day after the day in which all of the conditions
set out in Article VI hereof have been satisfied or been waived (the "Closing
Date") unless NTL and the Transferors' Representative (as hereinafter defined)
otherwise agree.
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Section 2.2 Documents to be delivered by Transferors. At Closing,
Transferors shall deliver to NTL the following:
(a) duly executed transfers of the Shares by the registered holders in
favour of NTL or such person or persons nominated by NTL, the share
certificates and any additional documentation necessary to establish the
transferor's title to the Shares, to authorize the execution of such
transfers and to allow the transferees (subject to due stamping) to be
registered in the Register of Members of Diamond as holders of the Shares;
(b) the common seal, statutory books and other record books of Diamond
and its subsidiaries written up to Closing;
(c) the certificates in respect of all issued shares in the
subsidiaries of Diamond and duly executed transfers in respect of such
shares not registered in the name of Diamond or a subsidiary of Diamond in
favour of NTL or a person nominated by NTL;
(d) statements of balances at a date not more than seven days prior to
Closing on all bank accounts of Diamond and its subsidiaries;
(e) the resignation letters referred to in Section 2.4 below;
(f) an unqualified letter of resignation from the auditors of Diamond
and its subsidiaries in the form prescribed by Section 394, UK Companies
Act 1985;
(g) duly executed powers of attorney in the approved terms in respect
of the rights attaching to the Shares;
(h) evidence reasonably satisfactory to NTL that:
(i) all sums owed by Diamond or its subsidiaries to any Transferor
or their Affiliates or by any Transferor or their Affiliates to Diamond
or any of its subsidiaries have been repaid; and
(ii) any guarantees granted or, security or indemnities given by
Diamond or any of its subsidiaries in respect of obligations of any
Transferor or its Affiliates, have been released or discharged;
(i) evidence reasonably satisfactory to NTL as to the termination of
the management agreement dated as of June 1, 1994 between ECE Management
Company and Diamond Cable Limited as subsequently assigned by the parties
to ECE Management International and Diamond respectively. The Transferors
hereby agree, and shall cause Diamond to agree, that, effective on the
Closing Date, the shareholders agreement, dated September 1, 1994 among
European Cable Capital Partners, L.P., AmSouth Bank of Alabama, as Trustee,
C.G.T. Family Corporation, GS Capital Partners L.P., William W. McDonald
and Diamond shall be terminated; and Investor Investments AB, DCI Partners
and European Cable Capital Partners L.P. agree that, effective on the
Closing Date, the Relationship Agreements dated October 12, 1994 and June
21, 1996, respectively, shall be terminated, in each case without liability
to any of the parties to such agreements.
(j) a schedule setting forth each Transferors' tax basis (cost) as
determined under U.S. tax principles in all ordinary shares of Diamond and
deferred shares of Diamond, if any.
Section 2.3 Documents to be delivered by NTL. NTL shall deliver to each
Transferor the shares of NTL Common Stock as set out in Section 1.2 and, if
applicable, cash for fractional shares as set out in Section 1.3.
Section 2.4 Board Meetings. Each Transferor shall procure (i) the holding
of a meeting of the board of directors of Diamond and each of its subsidiaries
immediately prior to the Closing at which board resolutions in the approved
terms shall be passed and (ii) duly executed resignation letters in the approved
terms from all of the directors of Diamond and its subsidiaries with effect from
the end of such board meeting.
Section 2.5 Form of Documents to be Delivered. All instruments and
documents executed and delivered to NTL pursuant hereto shall be in form and
substance, and shall be executed in a manner, reasonably
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satisfactory to NTL. All instruments and documents executed and delivered to
Transferors pursuant hereto shall be in form and substance, and shall be
executed in a manner, reasonably satisfactory to Transferors' Representative.
All documents in the approved terms shall be deemed to be in a form reasonably
satisfactory to NTL and Transferor's Representative.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties relating to Diamond. Except as
fairly disclosed in the Diamond SEC Documents (as defined in Section 3.1(e)) or
as set forth on the Disclosure Schedule delivered by Transferors to NTL in
connection with the execution of this Agreement (the "Transferors Disclosure
Schedule") and making reference to the particular subsection of this Agreement
to which exception is being taken, each Transferor severally and not jointly
represents and warrants to NTL as follows:
(a) Organization, Standing and Corporate Power. Each of Diamond and
its subsidiaries (as defined in Section 8.7) is a corporation duly
organized and validly existing under the laws of England and Wales and has
the requisite corporate power and authority to carry on its business as now
being conducted. Each of Diamond and its subsidiaries is duly qualified or
licensed to do business in each jurisdiction in which the nature of its
business or operations makes such licensing necessary except where such
failure would not individually or in the aggregate have a material adverse
effect on Diamond. Due compliance has been made with all the provisions of
the UK Companies Act 1985 and other legal requirements, in connection with
the formation of Diamond and its subsidiaries, the allotment, issue,
purchase and redemption of shares, debentures and other securities in
Diamond and its subsidiaries, any reduction of the authorized and issued
share capital of Diamond or any of its subsidiaries, any amendment to the
memorandum or articles of association of Diamond or any of its subsidiaries
and the passing of resolutions and the payment of dividends by Diamond and
its subsidiaries. Each of Diamond and its subsidiaries is not in breach of
the provisions of its articles of association.
(i) Complete and correct copies of the memorandum and articles of
association of Diamond, as amended to date have been filed as Exhibits
to the Diamond SEC Documents (as defined below).
(ii) In all material respects, the statutory books and minute books
of Diamond contain accurate records of all meetings and accurately
reflect all other actions taken by the shareholders, the Board of
Directors and all committees of the Board of Directors of Diamond since
Diamond's incorporation.
(b) Subsidiaries. Exhibit 21 to Diamond's Annual Report on Form 10K
for the Year Ended December 31, 1997 ("Diamond's Form 10K") sets forth all
the subsidiaries of Diamond. Except as set forth in Section 3.1(b) of the
Transferors Disclosure Schedule, all such outstanding shares of or other
equity interests in, each such subsidiary have been validly issued and are
fully paid and nonassessable and are owned directly or indirectly by
Diamond, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens") and free of any other restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests) and represent the entire allotted and
issued share capital of each company.
(c) Capital Structure. The authorized share capital of Diamond
consists of 150,000,000 ordinary shares and six (6) deferred shares. As of
the date hereof: 59,138,791 ordinary shares and six (6) deferred shares
were issued and outstanding and the shares comprised all of the shares in
Diamond issued and outstanding; 870,500 ordinary shares of Diamond were
reserved for issuance pursuant to the Senior Management Option Scheme, a
complete and correct copy of the rules of which has been made available to
NTL (such scheme, the "Stock Plan") and (iii) 654,000 ordinary shares of
Diamond were reserved for issuance pursuant to an option agreement dated
January 7, 1995 between Diamond and CGT Family Corporation, a complete and
correct copy of which has been made available to NTL (such agreement, the
"CGT Option Agreement"). As of the date hereof, Section 3.1(c) of the
Transferors Disclosure
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Schedule sets forth a complete and correct list of the number of Shares
subject to employee share options or other rights to purchase or receive
Shares granted under the Stock Plan (collectively, "Stock Options"), the
dates of grant and exercise prices thereof. All outstanding shares of
Diamond are, and all shares which may be issued prior to the Closing Date
will be, when issued, duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in this Section 3.1(c) and in Section
3.1(c) of the Transferors Disclosure Schedule and except for changes since
May 15, 1998 resulting from the issuance of Shares pursuant to the Stock
Options or the CGT Option Agreement, (x) there are not issued, reserved for
issuance or outstanding (A) any shares or other securities or loan capital
of Diamond, (B) any securities of Diamond or any Diamond subsidiary
convertible into or exchangeable or exercisable for shares or securities or
loan capital of Diamond, (C) any warrants, calls, options or other rights
to acquire from Diamond or any Diamond subsidiary, and any obligation of
Diamond or any Diamond subsidiary to issue, shares or other securities or
loan capital of Diamond and (y) there are no outstanding obligations of
Diamond or any Diamond subsidiary to repurchase, redeem or otherwise
acquire any such securities or loan capital or to issue, deliver or sell,
or cause to be issued, delivered or sold, any such securities or loan
capital. Except as set forth in Section 3.1(c) of the Transferors
Disclosure Schedule, there are no outstanding (A) securities of Diamond or
any Diamond subsidiary convertible into or exchangeable or exercisable for
shares or other securities or ownership interests or loan capital in any
Diamond subsidiary, (B) warrants, calls, options or other rights to acquire
from Diamond or any Diamond subsidiary, and any obligation of Diamond or
any Diamond subsidiary to issue, any shares, or other securities or
ownership interests or loan capital in, or any securities convertible into
or exchangeable or exercisable for any shares, securities or ownership
interests or loan capital in, any Diamond subsidiary or (C) obligations of
Diamond or any Diamond subsidiary to repurchase, redeem or otherwise
acquire any such outstanding securities or loan capital of Diamond
subsidiaries or to issue, deliver or sell, or cause to be issued, delivered
or sold, any such securities or loan capital. Except as set forth in
Section 3.1(c) of the Transferors Disclosure Schedule, neither Diamond nor
any Diamond subsidiary is a party to any agreement restricting the transfer
of, relating to the voting of, requiring registration of, or granting any
preemptive or, except as provided by the terms of the Stock Options or
under the CGT Option Agreement, antidilutive rights with respect to, any
securities or loan capital of the type referred to in the two preceding
sentences. Other than the Diamond subsidiaries, Diamond does not directly
or indirectly beneficially own, any securities or other beneficial
ownership interests in any other entity.
(d) Noncontravention. Except as set forth in Section 3.1(d) of the
Transferors Disclosure Schedule, the execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by
this Agreement and compliance with the provisions of this Agreement will
not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
benefit under, or result in the creation of any Lien upon any of the
properties or assets of Diamond or any of its subsidiaries under, (i) the
memorandum of association or articles of association of Diamond or any of
its subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise, license or similar authorization applicable to Diamond or any of
its subsidiaries or their respective properties or assets or (iii) subject
to the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Diamond or any of its subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii)
and (iii), any such conflicts, violations, defaults, rights, losses or
Liens that individually or in the aggregate would not (x) have a material
adverse effect on Diamond or (y) reasonably be expected to impair in any
material way the ability of any Transferor to perform its obligations under
this Agreement. No consent, approval, order or authorization of, action by
or in respect of, or registration, declaration or filing with, any federal,
state, local or foreign government, any court, administrative, regulatory
or other governmental agency, commission or authority or any
nongovernmental self-regulatory agency, commission or authority (a
"Governmental Entity") is required by or with respect to Transferors or
Diamond or any of its subsidiaries in connection with the execution and
delivery of this Agreement by Transferors or the consummation by
Transferors of the transactions contemplated by this Agreement, except for
such filings with Governmental Entities to satisfy the applicable
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requirements of state securities or "blue sky" laws; receipt of the
Required British Approvals (as defined); and such consents, approvals,
orders or authorizations the failure of which to be made or obtained
individually or in the aggregate would not (x) have a material adverse
effect on Diamond or (y) reasonably be expected to impair in any material
way the ability of Transferors to perform their respective obligations
under this Agreement.
(e) SEC Documents; Undisclosed Liabilities; Financial
Statements. Diamond has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated therein)
required to be filed with the SEC since January 1, 1996 (the "Diamond SEC
Documents"). As of their respective dates, the Diamond SEC Documents
complied in all material respects with the requirements of the Securities
Act of 1933, as amended (the "Securities Act"), or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as the case may be, and the
rules and regulations of the SEC promulgated thereunder applicable to such
Diamond SEC Documents, and none of the Diamond SEC Documents when filed
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(i) The financial statements of Diamond included in the Diamond SEC
Documents comply as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with United States
generally accepted accounting principles ("GAAP") (except, in the case
of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material
respects the consolidated financial position of Diamond and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as reflected in such financial statements or in the
notes thereto neither Diamond nor any of its subsidiaries has any
liabilities or obligations of any nature which, individually or in the
aggregate, would have a material adverse effect on Diamond.
(ii) The management accounts of Diamond and its subsidiaries for
the period from January 1, 1998 to April 30, 1998 have been prepared on
a substantially consistent basis as that adopted for the financial
statements included in the Diamond SEC Documents and fairly present, in
all material respects the operating results, working capital position
and net indebtedness of Diamond and its subsidiaries as at and for the
period ended on the date to which they have been prepared subject to
normal quarterly and annual closing adjustments and subject to the
absence of (i) a statement of cash flows and (ii) explanatory notes that
would each be included in financial statements prepared in accordance
with generally accepted accounting principles.
(f) Absence of Certain Changes or Events. Except (x) as disclosed in
Section 3.1(f) of the Transferors Disclosure Schedule, (y) as permitted by
Section 4.1(a) or (z) as disclosed in any Diamond SEC Document filed since
December 31, 1997 and prior to the date hereof, since December 31, 1997
Diamond and its subsidiaries have conducted their business only in the
ordinary and usual course and since such date there has not been (i) any
material adverse change in Diamond, (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, shares,
other securities or property) with respect to any of Diamond's shares,
(iii) any split, combination or reclassification of any of Diamond's shares
or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for Diamond's
shares except for issuances of ordinary shares upon the exercise of Stock
Options awarded prior to the date hereof in accordance with their present
terms, or pursuant to the CGT Option Agreement in accordance with its
present terms (iv)(A) any granting by Diamond or any of its subsidiaries to
any current or former director, executive officer or any of the persons
identified as a key employee of Diamond or its subsidiaries in Section 3.1
(f) of Transferors' Disclosure Schedule (the "Key Employees") of any
increase in compensation, bonus or other benefits, except for normal
increases as a result of promotions, normal increases of base pay in the
ordinary and usual course of
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business or as required under any employment agreements in effect as of
December 31, 1997, (B) any granting by Diamond or any of its subsidiaries
to any such current or former director, executive officer or Key Employee
of any increase in severance or termination pay, or (C) any entry by
Diamond or any of its subsidiaries into, or any amendment of, any
employment, deferred compensation, consulting, severance, termination or
indemnification agreement with any such current or former director,
executive officer or Key Employee, (v) except insofar as may have been
required by a change in GAAP, any change in accounting methods, principles
or practices by Diamond materially affecting its assets, liabilities or
business, (vi) any tax election, notice, claim agreement or surrender that
individually or in the aggregate would have a material adverse effect on
Diamond or any of its subsidiaries or tax attributes or any settlement or
compromise of any material Taxation (as hereinafter defined) liability, or
(vii) any action taken by Diamond or any of the Diamond subsidiaries during
the period from December 31, 1997 through the date of this Agreement that,
if taken during the period from the date of this Agreement through the
Closing Date would constitute a breach of Section 4.1(a).
(g) Compliance with Applicable Laws; Litigation.
(i) Diamond and its subsidiaries, and the respective employees of
Diamond and its subsidiaries hold all permits, licenses, variances,
exemptions, orders, registrations and approvals of all Governmental
Entities which are required for the operation of the respective
businesses of Diamond and its subsidiaries (the "Diamond Permits"),
except where the failure to have any such Diamond Permits individually
or in the aggregate would not have a material adverse effect on Diamond.
Diamond and its subsidiaries are, and have at all times been, in
compliance with the terms of the Diamond Permits and all applicable
statutes, laws, ordinances, rules and regulations, except where the
failure so to comply individually or in the aggregate, would not have a
material adverse effect on Diamond. No action, demand, requirement,
investigation or proceeding by any Governmental Entity and no suit,
action or proceeding by any person, in each case with respect to Diamond
or any of its subsidiaries or any of their respective properties is
existing or pending or, to the knowledge (as defined in Section 8.7) of
Transferors, threatened other than, in each case, those the outcome of
which individually or in the aggregate would not (A) have a material
adverse effect on Diamond or (B) reasonably be expected to impair in any
material way the ability of Transferors to perform their respective
obligations under this Agreement or prevent or materially delay the
consummation of any of the transactions contemplated by this Agreement
or the obligations of Diamond or any of its subsidiaries under any
contract with any third party.
(ii) Except as set forth in Section 3.01(g) of the Transferor
Disclosure Schedule (x) neither Diamond nor any Diamond subsidiary is
subject to any outstanding order, judgement, injunction or decree or is
a party to any undertaking or assurance given to any court, governmental
agency or other regulatory body which is still in force and (y) to the
knowledge of Transferors, there is no proceeding or threatened
proceeding which may result in Diamond or any Diamond subsidiary
becoming subject to any such order, judgement, injunction or decree or
being required to be a party to any such undertaking or assurance.
(iii) Diamond and its subsidiaries have obtained the necessary
licences pursuant to the Wireless Telegraphy Act 1949, the
Telecommunications Act 1984 the Cable and Broadcasting Act 1984, the
Broadcasting Act 1990 (as amended) and the Broadcasting Act 1996 to
enable them to engage in the cable television and telecommunications
business as described in the Diamond SEC Document (together "the
Licences"). All the Licences are listed in Section 3.1 (g)(iii) of the
Transferors Disclosure Schedule and copies have been supplied to NTL.
Except as set forth in Section 3(g)(iii) of the Transferors Disclosure
Schedule, the Licences are (A) in full force and effect in accordance
with the copies supplied to NTL; (B) have been complied with in all
material respects including, without limitation, any build obligations
set out in such licences as currently in effect; and (C) all fees due
and payable to date in respect of such licences have been paid in full.
There are no circumstances which indicate that any of the Licences will
or may be amended in any material respect, revoked or not renewed, in
whole or in part, in the ordinary and usual course of events and neither
the Closing nor the performance by any party of their obligations under
this Agreement will,
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or is reasonably likely to, give rise to any of the foregoing. No
objection has been made by the DTI, the ITC or the Director General of
Telecommunications and no proceedings have been threatened by any
relevant authority (including without limitation by any relevant local
authority) which would, if successful, have a material adverse effect on
the business of Diamond, in relation to any construction program of
Diamond and its subsidiaries, taken as a whole, for the construction of
their prospective cable television and telecommunications systems.
(h) Incentive Compensation/Benefit Plans. Diamond has delivered to
NTL true and complete copies of the documents listed in Section 3.1(h) of
the Transferors Disclosure Schedule.
(i) With respect to any employee benefit plans and arrangements of
Diamond and its subsidiaries (the "Diamond Benefit Plans"), Diamond, its
subsidiaries and any Diamond Benefit Plans have been operated, and are,
in compliance with the applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), the Code and all
other applicable laws.
(ii) No Diamond Benefit Plan is subject to Title IV of ERISA or is
a "multiemployer plan" within the meaning of Section 3(37) of ERISA.
Neither Diamond nor any of its subsidiaries has incurred any unsatisfied
liability under Title IV of ERISA. None of Diamond nor any of its
subsidiaries has any contingent liability under Section 4204 of ERISA.
(iii) "Schemes" means all and each of the pension schemes
identified in Section 3.1(h)(iii) of the Transferors Disclosure
Schedule, and "Scheme Documents" means the documents relating to the
Schemes identified in Section 3.1(h)(iii) of the Transferors Disclosure
Schedule. The Scheme Documents have been made available to NTL and
comprise all the material documents governing the Schemes. Except
pursuant to the Schemes or as required by applicable law, neither
Diamond or any of its subsidiaries have paid, provided or contributed
towards and are not under any obligation (whether or not legally
enforceable) to pay, provide or contribute towards any
retirement/death/disability benefit for or in respect of any present or
past officer employee (or any spouse, child or dependant of any of them)
of Diamond or any of its subsidiaries. The Schemes are approved by the
Board of the Inland Revenue as an exempt approved Scheme (within the
meaning of Section 592, Income Taxes and Corporation Act 1988).
(iv) The Scheme Documents correctly describe in all material
respects all the benefits which are paid or which may become payable
under the Schemes. The Schemes have at all times, in all material
respects, been operated, and employees have been eligible to join the
Schemes, in accordance with the provisions governing them and all
applicable laws and fiscal and other regulatory requirements. All
amounts due to the Schemes from Diamond or any of its subsidiaries have
been paid and were properly assessed and calculated in accordance with
the provisions governing the Schemes. There are no actions, suits,
complaints or claims pending or threatened against Diamond or any of its
subsidiaries or the trustees of the Schemes.
The Schemes provide only money purchase benefits (as defined in
section 181 of the Pension Schemes Act 1993) and lump sum death
benefits. The rates of contributions payable by Diamond and its
subsidiaries have been shown in Section 3.1(h)(iv) of the Transferors
Disclosure Schedule. The liability for all lump sum death benefits which
may become payable under the Schemes is fully insured with a reputable
insurance company on normal terms and at normal rates with all lives
assured being treated as enjoying good health and all premiums have been
properly paid.
(i) Taxes. Each of Diamond and its subsidiaries has filed all
material Tax (as defined herein) returns, claims, applications,
computations and reports required to be filed by it and all such returns,
claims, applications, computations and reports are complete and correct in
all material respects, or requests for extensions to file such returns,
claims, applications, computations and reports have been timely filed,
granted and have not expired. Except as described in Section 3.1(i) of the
Transferors Disclosure Schedule, Diamond and each of its subsidiaries has
paid all Taxes (as defined herein) which it or they have become liable to
pay and it or they are not now, and have never been, under a liability to
pay
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any fine, surcharge, penalty or interest in connection with any Taxes. The
most recent financial statements contained in the Diamond SEC Documents
reflect an adequate reserve in accordance with GAAP for all Taxes payable
by Diamond and its subsidiaries for all taxable periods and portions
thereof accrued through the date of such financial statements.
(i) Except as described in Section 3.1(ii) of the Transferors
Disclosure Schedule, no deficiencies for any Taxes have been proposed,
asserted or assessed against Diamond or any of its subsidiaries that are
not adequately reserved for. Diamond has never been included as a member
of any United States consolidated tax group and neither Diamond nor any
of its subsidiaries are or have ever been liable for Taxes levied in any
jurisdiction other than the United Kingdom.
(ii) As used in this Agreement, "Tax", "Taxes" or "Taxation" shall
include all (x) national, state, provincial or local, corporate,
capital, income, property, sales, use, occupation, lease, excise, value
added, stamp duty, stamp duty reserve and other taxes or similar
governmental charges, including any interest, penalties, fines, charges
or additions with respect thereto, (y) liability for the payment of any
amounts of the type described in (x) as a result of being a member of an
affiliated, consolidated, combined or unitary, group or consortium, and
(z) liability for the payment of any amounts as a result of being party
to any tax sharing agreement or agreement relating to tax relief or as a
result of any express or implied obligation to indemnify any other
person with respect to the payment of any amounts of the type described
in clause (x) or (y).
(j) Brokers. Except pursuant to advisory fee letters previously made
available by Diamond to NTL, no broker, investment banker, financial
advisor or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Diamond.
(k) Intellectual Property. Diamond and its subsidiaries own or have a
valid license to use all trademarks, service marks, trade names, patents
and copyrights (including any registrations or applications for
registration of any of the foregoing) (collectively, the "Diamond
Intellectual Property") necessary to carry on their respective businesses
substantially as currently conducted. Neither Diamond nor any such
subsidiary has received any notice of infringement of or conflict with,
and, to Diamond's knowledge, there are no infringements of or conflicts (i)
with the rights of others with respect to the use of, or (ii) by others
with respect to, any Diamond Intellectual Property that individually or in
the aggregate, in either such case, would have a material adverse effect on
Diamond.
(l) Certain Contracts. Except as set forth in Section 3.1(l) of the
Transferors Disclosure Schedule, (A) neither Diamond nor any of its
subsidiaries is a party to or bound by (i) any "material contract" (as such
term is defined in Item 601(b)(10) of Regulation S-K of the SEC), (ii) any
non-competition agreement or any other agreement or obligation which
purports to limit in any material respect the manner in which, or the
localities in which, all or any material portion of the business of Diamond
and its subsidiaries (including, for purposes of this Section 3.1(l), NTL
and its subsidiaries, assuming the transactions contemplated hereby have
taken place), taken as a whole, is or would be conducted, (iii) any
agreement or arrangement between Diamond or any Diamond subsidiary, on the
one hand, and any Transferor or its Affiliate (as defined in Section 8.3
below), on the other, (iv) any contract or other agreement which would
prohibit or materially delay the consummation of any of the transactions
contemplated by this Agreement, (v) any partnership, joint venture,
European Economic Interest Grouping or consortium agreement or any
agreement for sharing income, or (vi) any agreement or arrangement which is
liable to be terminated by another party or under which rights of any
person are liable to arise or be affected as a result of any change in the
control, management or shareholders of Diamond and (B) none of Diamond or
any subsidiary of Diamond is subject to any agreements related to
indebtedness for borrowed money ("Debt Agreements"). (All contracts of the
type described in clauses (A)(i), (ii),(iii), (iv), (v) and (vi) and all
Debt Agreements being referred to herein as "Diamond Material Contracts").
Each Diamond Material Contract is valid and binding on Diamond (or, to the
extent a Diamond subsidiary is a party, such entity) and is in full force
and effect, and Diamond and each Diamond subsidiary have in all material
respects performed all their respective obligations required to be
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performed by them to date under each Diamond Material Contract, except
where such noncompliance, individually or in the aggregate, would not have
a material adverse effect on Diamond. Neither Diamond nor any Diamond
subsidiary knows of, or has received notice of, any violation or default
under (nor, to the knowledge of Transferors, does there exist any condition
which with the passage of time or the giving of notice or both would result
in such a violation or default under) any Diamond Material Contract.
(m) Employees. True and complete particulars relating to the
employment of each of the Key Employees are contained in Section 3.1(m) of
the Transferors Disclosure Schedule including, (A) period of continuous
employment; (B) job title or job function and workplace location; (C) all
terms and conditions of employment (including entitlement to annual salary
and arrangements relating to hours of work (including any agreement with
any Key Employee to extend such hours of work) private medical care,
permanent health insurance and company cars); and (D) details of any other
benefits including but not limited to profit sharing, bonus, commission or
other incentive arrangements whether provided on a contractual or
discretionary basis. There are no employees of Diamond or any of its
subsidiaries on which the business of Diamond is substantially dependent
other than the Key Employees.
(i) Copies of any handbooks or works rules or procedures (including
any disciplinary or grievance procedures) and all collective,
procedural, recognition or other agreements (whether written or oral)
with any trade union, works council or other staff association or
representative and details of any arrangements relating to the election
of any person as such a representative have been made available to NTL.
(ii) Diamond has in all material respects complied with all its
obligations to, and no amount which is in arrears or unpaid is due to or
in respect of, any of the employees of Diamond or any of its
subsidiaries ("the Employees") arising out of or in connection with: (A)
any of their terms and conditions of employment and/or customs and
practices related thereto; (B) any statutes and regulations relevant to
their employment including, but not limited to, those relating to
discrimination by reason of sex, race or disability, any duties to
inform and consult employees and/or their representatives and any
obligation to make payments to the UK Inland Revenue and to pay National
Insurance contributions; and/or (C) any orders and awards made in
relation to them or any of them.
(iii) Except as set forth in Schedule 3.1(m)(iv) of the Transferors
Disclosure Schedule there are no arrangements, whether contractual or
otherwise, entitling any of the Employees to any payment or other
benefits arising from the transactions contemplated hereby.
(iv) Except as described in Section 3.1(m)(v) of the Transferors
Disclosure Schedule there are no agreements or arrangements for the
payment of allowances, lump sums or other benefits on death or during
any periods of sickness or disablement for the benefit of any of the
Employees or their dependants.
(v) No trade union is recognized in relation to any of the
Employees nor has Diamond or any of its subsidiaries entered into any
collective agreements relating to any of the Employees and nor is there
any works council or other staff association in existence in relation to
any of the Employees and no person has been elected as a representative
of any of the Employees nor have any arrangements been made for any such
election.
(n) Insolvency. No receiver or administrative receiver has been
appointed of the whole or any part of the assets or undertaking of Diamond
or any of its subsidiaries. No administration order has been made in
relation to Diamond or any of its subsidiaries and no petition for such an
order has been presented. No proposal for a voluntary arrangement between
Diamond or any of its subsidiaries and any of their respective creditors
(or any class of them) has been made to or is in the contemplation of
Diamond or any of its subsidiaries. No petition has been presented, no
order has been made and no resolution has been passed for the winding-up of
Diamond or any of its subsidiaries. Neither Diamond nor any of its
subsidiaries has stopped payment to its creditors nor is any of them
insolvent or unable to pay its debts as and when they fall due. No
unsatisfied judgement is outstanding against Diamond or any of its
subsidiaries.
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Section 3.2 Representations and Warranties of Transferors. Each Transferor
severally and not jointly, as to itself only represents and warrants to NTL:
(a) Organization, Standing and Corporate Power. Except for
Transferors that are individuals, such Transferor is a corporation,
partnership or other legal entity duly organized, validly existing and in
good standing (with respect to jurisdictions which recognize such concept)
under the laws of the jurisdiction in which it is organized.
(b) Authority; Noncontravention. Except for Transferors that are
individuals, such Transferor has all requisite corporate power and
authority to enter into this Agreement (or partnership). Except for
Transferors that are individuals, the execution and delivery of this
Agreement by such Transferor and the consummation by Transferor of the
transactions contemplated by this Agreement have been duly authorized by
all necessary corporate (or partnership) action on the part of such
Transferor. This Agreement has been duly executed and delivered by
Transferor and, assuming the due authorization, execution and delivery by
NTL and each other Transferor, constitutes the legal, valid and binding
obligation of Transferor, enforceable against Transferor in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy and similar laws or by general principles of equity (whether
considered in a proceeding in equity or at law). Except as set forth in
Section 3.2(b) of the Transferors Disclosure Schedule, the execution and
delivery of this Agreement by such Transferor do not, and the consummation
of the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement by such Transferor will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of a benefit under, or result in
the creation of any Lien upon any of the properties or assets of such
Transferor or, if applicable, any of its subsidiaries under, (i) the
memorandum of association or by-laws (or other governing documents) of such
Transferor, (ii) any material loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, license or similar authorization applicable to such
Transferor or its properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to such Transferor or its properties or assets, other than, in
the case of clauses (ii) and (iii), any such conflicts, violations,
defaults, rights, losses or Liens that individually or in the aggregate
would not impair in any material way the ability of such Transferor to
perform its obligations under this Agreement. No consent, approval, order
or authorization of, action by or in respect of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Transferor in connection with the execution and delivery of this
Agreement by Transferor or the consummation by Transferor of the
transactions contemplated by this Agreement, except for such filings with
Governmental Entities to satisfy the applicable requirements of state
securities or "blue sky" laws; receipt of the Required British Approvals
(as defined); and such consents, approvals, orders or authorizations the
failure of which to be made or obtained individually or in the aggregate
would not impair in any material way the ability of Transferor to perform
its obligations under this Agreement.
(c) Title, Absence of Liens. Except as set forth in Section 3.2(c) of
the Transferors Disclosure Schedule, all Shares set forth opposite
Transferor's name on the signature page hereto are hereto owned directly or
indirectly by Transferor, free and clear of all Liens and free of any other
restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests).
(d) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of
Transferor.
(e) Investment Intent; Private Placement.
(i) Such Transferor is knowledgeable, sophisticated and experienced
in making, and is qualified to make, decisions with respect to
investments in equity securities presenting an investment decision
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like that involved in the acquisition of the NTL Common Stock. Such
Transferor or its counsel, accountants or other investment advisers have
requested, received, reviewed and considered all information deemed
relevant by them in making an informed decision to acquire the NTL
Common Stock.
(ii) Such Transferor is acquiring the NTL Common Stock for
investment for its own account only and not with a view to, or for
resale in connection with, any "distribution" thereof within the meaning
of the Securities Act. Such Transferor has no present intention of
selling, granting any participation in, or otherwise distributing such
NTL Common Stock, except in compliance with the Securities Act or
pursuant to an available exemption thereunder.
(iii) Such Transferor understands that the NTL Common Stock which
it is to receive under this Agreement has not been registered under the
Securities Act or registered or qualified under any state securities law
in reliance on specific exemptions therefrom, which exemptions may
depend upon, among other things, the bona fide nature of each
Transferor's investment intent as expressed herein. Each Transferor is
familiar with Rule 144 under the Securities Act, as presently in effect,
and understands the resale limitations imposed thereby and by the
Securities Act. Each Transferor further understands that the
certificate(s) representing the NTL Common Stock shall bear the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR UNDER ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM.
Section 3.3 Representations and Warranties of NTL. Except as fairly
disclosed in the NTL SEC Documents (as defined in Section 3.3(e)) or as set
forth on the Disclosure Schedule delivered by NTL to Transferors prior to the
execution of this Agreement (the "NTL Disclosure Schedule") and making reference
to the particular subsection of this Agreement to which exception is being
taken, NTL represents and warrants to Transferors as follows:
(a) Organization, Standing and Corporate Power.
(i) Each of NTL and its subsidiaries is a corporation or other
legal entity duly organized, validly existing and in good standing (with
respect to jurisdictions which recognize such concept) under the laws of
the jurisdiction in which it is organized and has the requisite
corporate or other power, as the case may be, and authority to carry on
its business as now being conducted, except, as to subsidiaries, for
those jurisdictions where the failure to be so organized, existing or in
good standing individually or in the aggregate would not have a material
adverse effect on NTL. Each of NTL and its subsidiaries is duly
qualified or licensed to do business and is in good standing (with
respect to jurisdictions which recognize such concept) in each
jurisdiction in which the nature of its business or the ownership,
leasing or operation of its properties makes such qualification or
licensing necessary, except for those jurisdictions where the failure to
be so qualified or licensed or to be in good standing individually or in
the aggregate would not have a material adverse effect on NTL.
(ii) NTL has delivered to Transferors prior to the execution of
this Agreement complete and correct copies of its certificate of
incorporation and by-laws, as amended to date.
(b) Subsidiaries. Except as set forth in Section 3.3(b) of the NTL
Disclosure Schedule, Exhibit 21 to NTL's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 includes all the subsidiaries of NTL
which as of the date of this Agreement are subsidiaries. Except as set
forth in Section 3.3(b) of the NTL Disclosure Schedule, all the outstanding
shares of capital stock of, or other equity interests in, each such
subsidiary have been validly issued and are fully paid and nonassessable
and are owned directly or indirectly by NTL, free and clear of all Liens
and free of any other restriction (including any restriction on the right
to vote, sell or otherwise dispose of such capital stock or other ownership
interests).
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(c) Capital Structure. As of the date hereof, the authorized capital
stock of NTL consists of 100,000,000 shares of NTL Common Stock and
2,500,000 shares of preferred stock, par value $.01 per share, of NTL ("NTL
Preferred Stock"). At the close of business on May 29, 1998: (i) 41,264,252
shares of NTL Common Stock were issued and outstanding; (ii) no shares of
NTL Common Stock were held by NTL in its treasury; (iii) 117,465,922 shares
of 13% Senior Redeemable Exchangeable Preferred Stock were issued and
outstanding (the "NTL 13% Preferred"), (iv) 1,000,000 shares of Series A
Junior Participating Preferred Stock were reserved for issuance pursuant to
a Rights Agreement, dated as of October 13, 1993, between NTL and
Continental Stock Transfer & Trust Company (the "Rights Agreement"); (v)
7,260,726 shares of NTL Common Stock were reserved for issuance pursuant to
the conversion of the 7% Convertible Subordinated Notes due 2008 ("2008
Notes") and 973,429 shares of NTL Common Stock were reserved for issuance
upon the exercise of certain warrants (2008 Notes and such warrants, the
"NTL Convertible Securities"); and (vi) 15,764,279 shares of NTL Common
Stock were reserved for issuance pursuant to various NTL employee and
director stock option (such options, collectively, the "NTL Common Stock
Options"). Pursuant to an Agreement and Plan of Amalgamation (the
"Amalgamation Agreement") dated February 4, 1998, between NTL and Comcast
UK Cable Partners Limited, NTL will issue additional shares of NTL Common
Stock and may issue new classes of NTL preferred stock. Except as set forth
in this Section 3.3(c) and except for changes since May 29, 1998 resulting
from the issuance of shares of NTL Common Stock pursuant to the conversion
or exercise of NTL Convertible Securities or the exercise of NTL Employee
Stock Options, as of the date hereof, (x) there are not issued, reserved
for issuance or outstanding (A) any shares of capital stock or other voting
securities of NTL, (B) any securities of NTL or any NTL subsidiary
convertible into or exchangeable or exercisable for shares of capital stock
or voting securities of NTL, (C) any warrants, calls, options or other
rights to acquire from NTL or any NTL subsidiary, and any obligation of NTL
or any NTL subsidiary to issue, any capital stock, voting securities or
securities convertible into or exchangeable or exercisable for capital
stock or voting securities of NTL, and (y) there are no outstanding
obligations of NTL or any NTL subsidiary to repurchase, redeem or otherwise
acquire any such securities or to issue, deliver or sell, or cause to be
issued, delivered or sold, any such securities. As of the date hereof,
there are no outstanding (A) securities of NTL or any NTL subsidiary
convertible into or exchangeable or exercisable for shares of capital stock
or other voting securities or ownership interests in any NTL subsidiary,
(B) warrants, calls, options or other rights to acquire from NTL or any NTL
subsidiary, and any obligation of NTL or any NTL subsidiary to issue, any
capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable or exercisable for any capital
stock, voting securities or ownership interests in, any NTL subsidiary or
(C) obligations of NTL or any NTL subsidiary to repurchase, redeem or
otherwise acquire any such outstanding securities of NTL subsidiaries or to
issue, deliver or sell, or cause to be issued, delivered or sold, any such
securities.
(d) Authority; Noncontravention. NTL has all requisite corporate
power and authority to enter into this Agreement to consummate the
transactions contemplated by this Agreement. The execution and delivery of
this Agreement by NTL and the consummation by NTL of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of NTL, including, if required, by the
shareholders of NTL prior to the Closing Date. This Agreement has been duly
executed and delivered by NTL and, assuming the due authorization,
execution and delivery by Diamond and each Transferor, constitutes the
legal, valid and binding obligations of NTL, enforceable against NTL in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy and similar laws or by general principles of equity
(whether considered in a proceeding in equity or at law). Except as set
forth in Section 3.3(d) of the NTL Disclosure Schedule, the execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
obligation or loss of a benefit under, or result in the creation of any
Lien upon any of the properties or assets of NTL or any of its subsidiaries
under, (i) the certificate of incorporation or by-laws of NTL or the
comparable organizational documents of any of its subsidiaries, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement,
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instrument, permit, concession, franchise, license or similar authorization
applicable to NTL or any of its subsidiaries or their respective properties
or assets or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to NTL or any of its
subsidiaries or their respective properties or assets, other than, in the
case of clauses (ii) and (iii), any such conflicts, violations, defaults,
rights, losses or Liens that individually or in the aggregate would not (x)
have a material adverse effect on NTL or (y) reasonably be expected to
impair the ability of NTL to perform its obligations under this Agreement.
No consent, approval, order or authorization of, action by, or in respect
of, or registration, declaration or filing with, any Governmental Entity is
required by or with respect to NTL or any of its subsidiaries in connection
with the execution and delivery of this Agreement by NTL or the
consummation by NTL of the transactions contemplated by this Agreement,
except for such filings with Governmental Entities to satisfy the
applicable requirements of state securities or "blue sky" laws; the receipt
of the Required British Approvals; and such consents, approvals, orders or
authorizations the failure of which to be made or obtained individually or
in the aggregate would not (x) have a material adverse effect on NTL or (y)
reasonably be expected to impair the ability of NTL to perform its
obligations under this Agreement.
(e) SEC Documents; Undisclosed Liabilities. NTL has filed all
required registration statements, prospectuses, reports, schedules, forms,
statements and other documents (including exhibits and all other
information incorporated therein) with the SEC since January 1, 1997 (the
"NTL SEC Documents"). As of their respective dates, the NTL SEC Documents
complied in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to such NTL SEC Documents, and
none of the NTL SEC Documents when filed contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of NTL included in the NTL SEC Documents comply as to form, as
of their respective dates of filing with the SEC, in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of NTL and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except (i) as reflected in such financial statements or in
the notes thereto or (ii) for liabilities incurred in connection with this
Agreement or the transactions contemplated hereby, neither NTL nor any of
its subsidiaries has any liabilities or obligations of any nature which,
individually or in the aggregate, would have a material adverse effect on
NTL.
(f) Absence of Certain Changes or Events. Except as set forth in
Section 3.3(f) of the NTL Disclosure Schedule and except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, since December 31, 1997, NTL and its subsidiaries have conducted
their business only in the ordinary course or as disclosed in any NTL SEC
Document filed since such date and prior to the date hereof, and there has
not been (i) any material adverse change in NTL, (ii) any declaration,
setting aside or payment of any dividend or other distribution (whether in
cash, stock or property) with respect to any of NTL's capital stock, (iii)
any split, combination or reclassification of any of NTL's capital stock or
any issuance or the authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for shares of NTL's capital
stock, except for issuances of NTL Common Stock upon conversion or exercise
of NTL Convertible Securities or exercise of NTL Employee Stock Options, in
each case, awarded prior to the date hereof in accordance with their
present terms, (iv) except as required by a change in GAAP, any change in
accounting methods, principles or practices by NTL materially affecting its
assets, liabilities or business or (v) any tax election that individually
or in the aggregate would have a material adverse effect on NTL or any of
its tax attributes or any settlement or compromise of any material income
tax liability.
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(g) Compliance with Applicable Laws; Litigation.
(i) NTL, its subsidiaries and employees hold all permits, licenses,
variances, exemptions, orders, registrations and approvals of all
Governmental Entities which are required for the operation of the
businesses of NTL and its subsidiaries (the "NTL Permits"), except where
the failure to have any such NTL Permits individually or in the
aggregate would not have a material adverse effect on NTL. NTL and its
subsidiaries are in compliance with the terms of the NTL Permits and all
applicable statutes, laws, ordinances, rules and regulations, except
where the failure so to comply individually or in the aggregate would
not have a material adverse effect on NTL. As of the date of this
Agreement, no action, demand, requirement or investigation by any
Governmental Entity and no suit, action or proceeding by any person, in
each case with respect to NTL or any of its subsidiaries or any of their
respective properties, is pending or, to the knowledge of NTL,
threatened, other than, in each case, those the outcome of which
individually or in the aggregate would not (A) have a material adverse
effect on NTL or (B) reasonably be expected to impair in any material
way the ability of NTL to perform its obligations under this Agreement
or prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement.
(ii) Neither NTL nor any NTL subsidiary is subject to any
outstanding order, injunction or decree which has had or, insofar as can
be reasonably foreseen, individually or in the aggregate will have a
material adverse effect on NTL.
(h) Absence of Changes in Benefit Plans. Since March 31, 1998, there
has not been any adoption or amendment in any material respect by NTL or
any of its subsidiaries of any collective bargaining agreement or any
material bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or understanding
providing benefits to any current or former employee, officer or director
of NTL or any of its wholly owned subsidiaries (collectively, the "NTL
Benefit Plans"), or any material change in any actuarial or other
assumption used to calculate funding obligations with respect to any NTL
pension plans, or any material change in the manner in which contributions
to any NTL pension plans are made or the basis on which such contributions
are determined.
(i) ERISA Compliance.
(i) With respect to the NTL Benefit Plans, no event has occurred
and, to the knowledge of NTL, there exists no condition or set of
circumstances, in connection with which NTL or any of its subsidiaries
could be subject to any liability that individually or in the aggregate
would have a material adverse affect on NTL under ERISA, the Code or any
other applicable law.
(ii) Neither NTL nor any of its subsidiaries has incurred any
unsatisfied liability under Title IV of ERISA (other than liability for
premiums to the Pension Benefit Guaranty Corporation arising in the
ordinary course). No NTL Benefit Plan has incurred an "accumulated
funding deficiency" (within the meaning of Section 302 of ERISA or
Section 412 of the Code) whether or not waived. To the knowledge of NTL,
there are not any facts or circumstances that would materially change
the funded status of any NTL Benefit Plan that is a "defined benefit"
plan (as defined in Section 3(35) of ERISA) since the date of the most
recent actuarial report for such plan. No NTL Benefit Plan is a
"multiemployer plan" within the meaning of Section 3(37) of ERISA.
(j) Taxes. Each of NTL and its subsidiaries has filed all material
Tax returns and reports required to be filed by it and all such returns and
reports are complete and correct in all material respects, or requests for
extensions to file such returns or reports have been timely filed, granted
and have not expired, except to the extent that such failures to file, to
be complete or correct or to have extensions granted that remain in effect
individually or in the aggregate would not have a material adverse effect
on NTL. NTL and each of its subsidiaries has paid (or NTL has paid on its
behalf) all Taxes shown as due on such returns, and the most recent
financial statements contained in the NTL SEC Documents reflect an
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adequate reserve in accordance with GAAP for all Taxes payable by NTL and
its subsidiaries for all taxable periods and portions thereof accrued
through the date of such financial statements.
(i) No deficiencies for any Taxes have been proposed, asserted or
assessed against NTL or any of its subsidiaries that are not adequately
reserved for, except for deficiencies that individually or in the
aggregate would not have a material adverse effect on NTL. The federal
income tax returns of NTL and each of its subsidiaries consolidated in
such returns for tax years through 1992 have closed by virtue of the
applicable statute of limitations.
(k) Tax Free Reorganization Matters.
(i) NTL and Transferors each has adopted a plan of reorganization
as provided in the Code and Treasury Regulations promulgated thereunder
(the "Treasury Regulations") with respect to the intended qualification
of the share exchange as a tax free reorganization within the meaning of
Section 368(a)(1)(B) of the Code;
(ii) To the best of NTL's knowledge, immediately after the exchange
contemplated by this Agreement, NTL will own shares of Diamond's capital
stock possessing at least eighty percent (80%) of the combined voting
power of all the shares of capital stock of Diamond entitled to vote and
at least eighty percent (80%) of each class of shares of capital stock
of Diamond not entitled to vote;
(iii) The transactions described in this Agreement have a "bona
fide business purpose" as defined in the Treasury Regulations.
It is understood that neither NTL or Diamond is representing, warranting,
covenanting or indemnifying as to the actual qualification of the share
exchange under Section 368(a)(1)(B) of the Code.
(l) Brokers. No broker, investment banker, financial advisor or other
person, other than Donaldson, Lufkin & Jenrette, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based
upon arrangements made by or on behalf of NTL.
Section 3.4 No Counterclaim. Transferors undertake not to exercise any
right of counterclaim or set off any claim or right of recovery against Diamond
or any of its subsidiaries or any of their respective officers, employees,
auditors or advisers in relation to any claim which may be made in respect of
the warranties and representations contained in this Agreement.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 (a) Conduct of Business by Diamond. Except as set forth in
Section 4.1(a) of the Transferors Disclosure Schedule, as otherwise contemplated
by this Agreement or the transactions contemplated hereby as fairly disclosed in
Diamond's capital expenditure budgets previously made available to NTL as part
of the development of Diamond's business telecommunication business or as
consented to by NTL in writing, such consent not to be unreasonably withheld or
delayed, during the period from the date of this Agreement to the Closing Date,
Transferors shall cause Diamond and its subsidiaries to carry on their
respective businesses in the ordinary and usual course consistent with past
practice and, to the extent consistent therewith, use all reasonable efforts to
preserve intact their current business organizations and use reasonable efforts
to keep available the services of their current officers and other key employees
and preserve their relationships with those persons having business dealings
with them. Without limiting the generality of the foregoing (but subject to the
above exceptions), during the period from the date of this Agreement to the
Closing Date, Transferors shall not permit Diamond or any of its subsidiaries
to:
(i) other than dividends and distributions by a direct or indirect
wholly owned subsidiary of Diamond to its parent, or by a subsidiary that
is partially owned by Diamond or any of its subsidiaries, provided that
Diamond or any such subsidiary receives or is to receive its proportionate
share thereof,
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(w) declare, set aside or pay any dividends on, make any other
distributions in respect of, or enter into any agreement with respect to
the voting of, any of its shares, (x) split, combine, reclassify or vary
any class rights attached to, any of its shares or issue or create or
authorize the issuance of any shares or other securities or loan capital or
(y) capitalize any amount standing to the credit of any reserve or
purchase, redeem or otherwise acquire any shares or other securities or
loan capital of Diamond or any of its subsidiaries or any rights, warrants
or options to acquire any such shares or other securities or loan capital
or otherwise reorganize its share capital (z) grant any option over any
shares or other securities or loan capital or uncalled capital or issue any
securities convertible into shares or other securities or loan capital;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to
any Lien any shares or any other securities or loan capital or any rights,
warrants or options to acquire, any such shares or other securities or loan
capital (other than the issuance of ordinary shares upon the exercise of
Stock Options outstanding as of the date hereof in accordance with their
present terms or pursuant to the CGT Option Agreement in accordance with
its present terms);
(iii) amend its memorandum or articles of association or other
comparable organizational documents;
(iv) acquire or agree to acquire the shares or stock or other
securities of any other body corporate or any portion of the assets of any
business or any person;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets (including
securitizations) other than (A) in the ordinary course of trading
consistent with past practice or (B) the sale, lease, license or other
disposition of up to L750,000 of such assets, in the aggregate;
(vi) incur any indebtedness for borrowed money, other than pursuant to
agreements or arrangements in effect as of the date hereof, or issue any
debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for the obligations of any person for
borrowed money in an amount that exceeds individually or in aggregate
L500,000;
(vii) enter into any joint venture, partnership or European Economic
Interest Grouping;
(viii) enter into any contract or commitment or any transaction
otherwise than (A) in the ordinary and usual course of business and (B) at
arms' length and for full value;
(ix) enter into any contract, commitment or arrangement with
Transferors or any of their Affiliates or vary, supplement or amend such
existing contract, commitment or arrangement (other than on terms no less
favorable than would be obtained from unaffiliated third parties, and as
approved by a resolution of the Board of Directors of Diamond that contains
such a conclusion);
(x) engage any employees or consultants having an annual salary in
excess of L100,000 or make a material change in the terms and conditions of
employment or engagement or pension benefits of any employees or
consultants;
(xi) enter into any contract or commitment which either individually
or in the aggregate may result in expenditure in excess of L250,000 per
month;
(xii) enter into any material agreement, arrangement or understanding
with respect to programming (except for the transaction with [newspaper]),
software, the provisioning of cable modem internet services, billing, the
provisioning of digital CATV services and/or the acquisition of set top
boxes, switching equipment or other computer and/or telecommunications
equipment with a value in excess of L1 million;
(xiii) make or change any material Tax election or method of
accounting or settle any material Tax dispute or controversy; or
(xiv) authorize, or commit or agree to take, any of the foregoing
actions;
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provided that the limitations set forth in this Section 4.1(a) (other than
clause (iii)) shall not apply to any transaction between Diamond and any
wholly owned subsidiary or between any wholly owned subsidiaries of
Diamond. NTL shall treat as confidential any information which Diamond
discloses to NTL in respect of any Affiliate and designates as
confidential.
(b) Other Actions. Except as required by law, Transferors undertake to NTL
that they shall procure that Diamond and its subsidiaries shall not, and NTL
undertakes to Transferors that it shall not and shall not permit any of its
subsidiaries to, voluntarily take any action that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties given by Transferors (where this undertaking is given by Transferors)
or by NTL (where this undertaking is given by NTL) set forth in this Agreement
that are qualified as to materiality becoming untrue at the Closing Date (as if
made at and as of such time), (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect at the Closing
Date (as if made at and as of such time), or (iii) any of the conditions set
forth in Article VI not being satisfied.
(c) Advice of Changes. At, or prior to, the date hereof, Transferors shall
appoint one Transferor to act as the Transferors' Representative (the
"Transferors' Representative"). The Transferors' Representative is set forth on
Section 4.1, (c) of the Transferors Disclosure Schedule. Each Transferor
(through the Transferors' Representative) and NTL shall promptly advise the
Transferors' Representative or NTL, as the case may be, orally and in writing to
the extent it has knowledge of (i) any representation or warranty contained in
this Agreement that is qualified as to materiality becoming untrue or inaccurate
in any respect or any such representation or warranty that is not so qualified
becoming untrue or inaccurate in any material respect, (ii) any failure to
comply in any material respect with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied under this
Agreement and (iii) any change or event having, or which, insofar as can
reasonably be foreseen, could reasonably be expected to have a material adverse
effect on the truth of any of the representations and warranties or the ability
of the conditions set forth in Article VI to be satisfied; provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties (or remedies with respect thereto) or the
conditions to the obligations of the parties under this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Access to Information; Confidentiality. Subject to the
Confidentiality Agreement dated May 20, 1998, between NTL and Transferors (the
"Confidentiality Agreement"), and subject to restrictions contained in
confidentiality or other agreements to which such party is subject (which such
party will use its reasonable efforts to have waived) and applicable law,
Transferors undertake to NTL to procure that Diamond and its subsidiaries shall,
and NTL undertakes to Transferors that it shall, and shall cause each of its
subsidiaries to, afford to Transferors' Representative or NTL, as the case may
be, and to the officers, employees, accountants, counsel, financial advisors and
other representatives of Transferors' Representative or NTL, as the case may be,
reasonable access during normal business hours during the period prior to the
Closing Date to all the properties, books, contracts, commitments, personnel and
records of Diamond and its subsidiaries (where the undertaking is given by
Transferors) and of NTL and its subsidiaries (where the undertaking is given by
NTL) and, during such period, Transferors undertake to NTL to procure that
Diamond and its subsidiaries shall, and NTL shall, and shall cause each of its
subsidiaries to, furnish promptly to Transferors' Representative or NTL, as the
case may be, (a) a copy of each report, schedule, registration statement and
other document filed by Diamond or any of its subsidiaries (where the undertaken
is given by Transferors) or by NTL or any of its subsidiaries (where the
undertaken is given by NTL) during such period pursuant to the requirements of
federal or state securities laws and (b) all other information concerning the
business, properties and personnel of Diamond or any of its subsidiaries (where
the undertaken is given by Transferors) or of NTL or any of its subsidiaries
(where the undertaking given by NTL) as Transferors' Representative or NTL, as
the case may be, may reasonably request. No review pursuant to this Section 5.1
shall affect any representation or warranty given by any party hereto.
Transferors' Representative shall be
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entitled to disclose any information received by it pursuant to this Section 5.1
to the other Transferors. Each Transferor will and NTL will, hold, and will use
all reasonable efforts to cause its respective officers, employees, accountants,
counsel, financial advisors and other representatives and Affiliates to hold,
any nonpublic information in accordance with the terms of the Confidentiality
Agreement.
Section 5.2 Reasonable Best Efforts. (a) Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings and the
taking of all steps as may be necessary to obtain an approval or waiver from, or
to avoid an action or proceeding by, any Governmental Entity, (ii) the obtaining
of all necessary consents, approvals or waivers from third parties, (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated by this Agreement, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. Without limitation of the
foregoing, NTL shall, and Transferors shall procure that Diamond and its
subsidiaries shall, promptly supply such information as is reasonably necessary
to enable the confirma-tions and indications referred to in Section 6.1(a) to be
obtained.
(b) In connection with and without limiting the foregoing, Transferors and
NTL shall (i) take all action necessary to ensure that no takeover statute or
similar statute or regulation is or becomes applicable to this Agreement, or any
of the other transactions contemplated by this Agreement and (ii) if any
takeover statute or similar statute or regulation becomes applicable to this
Agreement, or any other transaction contemplated by this Agreement, take all
action necessary to ensure that the transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the transactions contemplated by this Agreement.
Section 5.3 Stock Options and Stock Appreciation Rights. (a) In respect of
all outstanding Stock Options issued under the Stock Plan, NTL shall permit each
holder thereof to receive, at such holder's option, upon release of such
holder's Stock Option that either is exercisable or not or will become, upon the
Closing, exercisable under the Stock Plan, either (i) an option (the "NTL
Option") to acquire, except as provided in paragraph (b) below, on the same
terms and conditions as were applicable under such Stock Option, one share of
NTL Common Stock for every four ordinary shares in Diamond subject to the Stock
Option (to be adjusted in the same manner as provided for in Section 1.2) at an
exercise price per share of NTL Common Stock (rounded to nearest whole cent)
equal to (A) the aggregate exercise price for the ordinary shares in Diamond
that are the subject of such Stock Option divided by (B) the aggregate number of
whole shares of NTL Common Stock deemed to be subject to such Stock Option in
accordance with the foregoing or (ii) that number of shares of NTL Common Stock
(rounded down to the nearest whole number) as is equal to one share of NTL
Common Stock for every four ordinary shares in Diamond subject to the Stock
Option (to be adjusted in the same manner as provided for in Section 1.2) less
that number of shares of NTL Common Stock (rounded to the nearest whole number)
as is equal in value to (A) the aggregate exercise price for the ordinary shares
in Diamond the subject of the Stock Option divided by (B) the NTL Average Stock
Price on the Closing Date.
(b) With respect to the NTL Options issued as contemplated in paragraph (a)
(x) 50% of each holders' NTL Options shall be exercisable from the Closing Date,
(y) 25% shall be exercisable from the first anniversary date of the Closing Date
and (z) 25% shall be exercisable from the second anniversary date of the Closing
Date. Further, such NTL Options shall also be exercisable in full in the event
that the holder of a Stock Option ceases to be an employee or director of any
company in the NTL or Diamond group save where this is as a result of voluntary
resignation or if such employee is dismissed as a result of his or her gross
misconduct in circumstances entitling NTL summarily to dismiss the employee
without prior notice under such employee's or director's service agreement and
applicable law.
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(c) As soon as practicable after the date hereof, NTL (and if appropriate,
the Transferors shall procure Diamond, jointly with NTL) shall deliver to the
holders of Stock Options appropriate notices setting forth such holders' rights
pursuant to the Stock Plan and the alternatives offered to them in accordance
with Section 5.3(a) together with any form of release required to be executed by
such holders.
(d) No later than the Closing Date, NTL shall prepare and file with the SEC
a registration statement on Form S-8 (or another appropriate form) registering a
number of shares of NTL Common Stock issuable in accordance with clauses (i) and
(ii) of Section 5.3(a). Such registration statement shall be kept effective (and
the current status of the prospectus or prospectuses required thereby shall be
maintained) at least for so long as NTL Options remain outstanding and until
such time as the shares of NTL Common Stock subject to such NTL Options as
issuable pursuant to clauses (i) and (ii) of Section 5.3(a) are no longer
subject to resale restrictions under the Securities Act.
Section 5.4 Fees and Expenses. Except as provided in Section 5.10 hereof,
all fees and expenses incurred in connection with this Agreement and the
transactions contemplated by this Agreement shall be paid by the party incurring
such fees or expenses, whether or not the transactions contemplated hereby are
consummated. Transferors represent and undertake that no such fees and expenses
have been or will be borne by Diamond or any of its subsidiaries.
Section 5.5 Public Announcements. NTL will consult with the Transferors'
Representative and each Transferor will, and will procure that Diamond and its
subsidiaries will, consult with NTL before issuing, and provide the Transferors'
Representative or NTL (as appropriate) the opportunity to review, comment upon
and concur with and use reasonable efforts to agree on, any press release or
other public statements with respect to the transactions contemplated by this
Agreement and shall not issue any such press release or make any such public
statement prior to such consultation, except as any party may determine is
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange. The parties agree that
the initial press release to be issued with respect to the transactions
contemplated by this Agreement shall be in the form heretofore agreed to by the
parties.
Section 5.6 NASDAQ Quotation. NTL shall use reasonable best efforts to
cause the NTL Common Stock issuable under Section 1.2 and Section 5.3 and upon
exercise of NTL Options pursuant to Section 5.3 to be approved for quotation on
the NASDAQ, subject to official notice of issuance, as promptly as practicable
after the date hereof, and (except in respect to NTL Common Stock issuable upon
excise of Adjusted Options) in any event prior to the Closing Date.
Section 5.7 Covenant of Transferors. Each Transferor agrees that it will,
and will cause its Affiliates to, vote any Voting Securities of NTL which they
are entitled to vote to approve the matters that will be presented to the
shareholders of NTL at the meeting called to approve the Amalgamation Agreement
that are necessary to implement that agreement.
Section 5.8 Covenant of NTL. If so required, as promptly as practicable
after the date hereof, NTL shall take all necessary actions to convene a special
meeting of its shareholders to authorize the transaction contemplated hereby.
Section 5.9 Standstill Agreements; Confidentiality Agreements. During the
period from the date of this Agreement through the Closing Date, Transferors
shall procure that neither Diamond nor any of its subsidiaries shall terminate,
amend, modify or waive any provision of any confidentiality or standstill
agreement to which it is a party. During such period, Transferors shall procure
that Diamond and its subsidiaries shall enforce, to the fullest extent permitted
under applicable law, the provisions of any such agreement, including by
obtaining injunctions to prevent any breaches of such agreements and to enforce
specifically the terms and provisions thereof in any court having jurisdiction.
Section 5.10 Conveyance Taxes. NTL and Transferors shall, and Transferors
shall procure that Diamond shall, cooperate in the preparation, execution and
filing of all returns, questionnaires, applications or other documents regarding
any real property transfer or gains, sales, use transfer, value added, stock
transfer and stamp taxes, any transfer, recording, registration; and other fees
or any similar taxes which become payable in connection with the transactions
contemplated by this Agreement that are required or permitted to
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be filed on or before the Closing Date; provided, however, in the event that any
stamp duty liability or obligation that arises in connection with the
transaction contemplated hereby, such obligations shall be the obligations of
NTL.
Section 5.11 Debt Offers. NTL and Transferors will each use their
respective reasonable best efforts to obtain, upon terms and conditions which
are reasonably satisfactory to NTL, any required consents of the holders of the
various debt securities of NTL and Diamond in order to permit the transactions
contemplated hereby. The costs, fees and expenses payable by Diamond in
connection with its debt offer, if required, shall be subject to the reasonable
approval of NTL.
Section 5.12 Confidential Information. Transferors undertake to NTL that
they shall, and shall cause Diamond and its subsidiaries to, keep confidential
and not at any time after the date of this Agreement disclose or make known in
any way to anyone (other than NTL and Diamond) or use for their own or any other
person's benefit any know-how or confidential information relating to any of the
customers, suppliers or affairs of the businesses (including any prospective
business) of Diamond or its subsidiaries or otherwise relating to the businesses
of Diamond and its subsidiaries except information which is (i) in the public
domain or (ii) becomes public knowledge through no fault of such Transferor or
(iii) is required to be disclosed by court order or other government process or
the disclosure of which is necessary to enable such Transferor to comply with
applicable law or defend against claims. In the event that such Transferor shall
be required to make disclosure pursuant to the provisions of clause (iii) of the
preceding sentence, such Transferor shall promptly notify NTL and take, at the
expense of NTL, all reasonably necessary steps requested by NTL to defend
against the enforcement of such court order or other government process, and
permit NTL to participate with counsel of its choice in any proceeding relating
to the enforcement thereof.
Section 5.13 Shareholders' Agreement. Each Transferor hereby agrees that
the proposed transfer of the Shares to NTL pursuant to this Agreement shall be
deemed to comply in all respects with the provisions of Schedule 2 to the
Shareholders Agreement dated September 1, 1994 between European Cable Capital
Partners, L.P., AmSouth Bank of Alabama, CGT Family Corporation, GS Capital
Partners L.P., William W. McDonald and Diamond.
Section 5.14 Bring-along for Optionholder Shares. Transferors covenant and
undertake to NTL that insofar as the holders of Stock Options (including the CGT
Family Corporation) ("Option Shareholders") shall validly exercise their Stock
Options in accordance with the rules of the Stock Plan after the date of this
Agreement to acquire ordinary shares in Diamond ("Option Shares") then
Transferors will, in accordance with paragraph 8 of the Schedule to the Rules of
the Stock Plan require the Option Shareholders to sell all of the Option Shares
to NTL on the same terms and conditions as contained in this Agreement and
Transferors shall take all steps and do all matters including the giving of a
notice as may be necessary to achieve this and shall not withdraw the same
unless authorized to do so by NTL.
Section 5.15 Tag-along for Optionholders Shares. Without prejudice to the
obligations of Transferors in section 5.14 NTL covenants with and undertakes to
Transferors that in the event that any holders of Stock Options (including the
CGT Family Corporation) shall validly exercise their Stock Options as described
in section 5.14 then NTL shall offer to purchase from the Option Shareholders
all of the Option Shares on the same terms and conditions as set out in this
Agreement and that such offer shall remain capable for acceptance for a period
of 14 days from the date on which it is made.
Section 5.16 No change to Stock Options. Transferors covenant and
undertake to NTL that they will procure that Diamond shall not, except as
specifically contemplated herein or with the prior consent of NTL either (a)
amend the rules of the Stock Plan or the Option Agreement (whether or not with
the prior consent of the holders of Stock Options; or (b) approach, or despatch
any document to, the holders of Stock Options.
Section 5.17 Indemnification; Directors and Officers Insurance. NTL agrees
to maintain for the benefit of Diamond's past and present directors and officers
indemnification arrangements pursuant to Diamond's memorandum and articles of
association and indemnification agreements in existence on the date hereof
covering acts or omissions occurring at or prior to the Closing Date to the dame
extent as are in place at the date of this Agreement. NTL shall also provide,
for an aggregate period of not less than six years from the
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Closing Date, Diamond's current directors and officers with a directors' and
officers' liability insurance policy that provides coverage for events occurring
prior to the Closing Date that is no less favorable than Diamond's existing
policy.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1 Conditions to Each Party's Obligation to Effect the
Closing. The respective obligation of each party to effect the Closing is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Required British Approvals. The following shall have occurred:
(i) NTL shall have received a written indication from The Secretary
of State for Trade and Industry ("DTI"), from the Independent Television
Commission ("ITC"), in terms reasonably satisfactory to NTL and from the
Radio Communications Agency ("RCA"), to the effect that the Closing will
not lead to the revocation of any licenses (issued pursuant to the Cable
and Broadcasting Act 1984 or the Broadcasting Act 1990 (as amended) or
the Broadcasting Act 1996 or the revocation of any of the
telecommunications or wireless telegraphy licenses or RCA licences
(issued by the DTI or by the RCA acting for the DTI pursuant to the
Telecommunications Act 1984 or the Wireless Telegraphy Act 1949) which
are held by Diamond or any of its subsidiaries, except for any licenses
the loss of which would not have a material adverse effect on Diamond;
(ii) NTL shall have received written confirmation from the Office
of Telecommunications, in terms reasonably satisfactory to NTL, that the
Director General has not after the date hereof (a) issued any directions
to Diamond or any of its subsidiaries in connection with their
telecommunications licenses issued pursuant to the Telecommunications
Act 1984 or their wireless telegraphy licenses issued pursuant to the
Wireless Telegraphy Act 1949, (b) given notice to Diamond or any of its
subsidiaries of its intention to make modifications to such licenses
(other than modifications which are to be made to all or substantially
all of the licenses issued pursuant to the Telecommunications Act 1984
or the Wireless Telegraphy Act 1949 (as appropriate), or (c) taken and
has no intention to take any steps pursuant to Section 16, 17 or 18 of
the Telecommunications Act 1984 or the Wireless Telegraphy Act 1948 in
relation to enforcement of any such licenses, except for, in the case of
clause (a), such directions, in the case of clause (b), such
modifications, or, in the case of clause (c), such enforcement steps as
would not have a material adverse effect on Diamond;
(iii) NTL shall have received written confirmation from the ITC, in
terms reasonably satisfactory to NTL, that the ITC has not after the
date hereof (a) issued any directions to Diamond or any of its
subsidiaries in connection with any license issued pursuant to the Cable
and Broadcasting Act 1984 or the Broadcasting Act 1990 (as amended) or
the Broadcasting Act 1996, (b) given notice to Diamond or any of its
subsidiaries of its intention to make modifications to any such license
(other than modifications which are to be made to all or substantially
all licenses issued pursuant to the Cable and Broadcasting Act 1984 or
the Broadcasting Act 1990 (as amended) or the Broadcasting Act 1996 as
the case may be), or (c) taken and has no intention to take any steps in
relation to enforcement of any such license, except for, in the case of
clause (a), such directions, in the case of clause (b), such
modifications, or, in the case of clause (c), such enforcement steps as
would not have a material adverse effect on Diamond;
(iv) the Office of Fair Trading shall have indicated to NTL, in
terms reasonably satisfactory to NTL, either that the transaction
contemplated hereby does not qualify for investigation by the Monopolies
and Mergers Commission pursuant to the Fair Trading Act 1973 or that The
Secretary of State for Trade and Industry has decided not to refer the
transactions contemplated hereby to the Monopolies and Mergers
Commission;
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(b) Governmental and Regulatory Approvals. Other than the Required
British Approvals (which are addressed in Sections 6.1(a), all consents,
approvals and actions of, filings with and notices to any Governmental
Entity required of Diamond, NTL or any of their subsidiaries to consummate
the transactions contemplated hereby, the failure of which to be obtained
or taken (i) is reasonably expected to have a material adverse effect on
NTL or Diamond or (ii) will result in a material violation of any laws,
shall have been obtained, all in form and substance reasonably satisfactory
to Transferors' Representative and NTL.
(c) NTL Shareholders' Approval. If so required under applicable law
or stock exchange (including NASDAQ) regulation, a resolution shall have
been passed at a special meeting of shareholders of NTL, convened after
proper notice to, and/or waiver of such notice by, the shareholders, with a
quorum of the shareholders present or represented, to approve the
transactions contemplated hereby.
(d) No Injunctions or Restraints. No judgment, order, decree,
statute, law, ordinance, rule or regulation, entered, enacted, promulgated,
enforced or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect (i) preventing the consummation of the
transactions contemplated hereby, or (ii) which otherwise is reasonably
likely to have a material adverse effect on Diamond or NTL, as applicable;
provided, however, that each of the parties shall have used its best
efforts to prevent the entry of any such Restraints and to appeal as
promptly as possible any such Restraints that may be entered.
(e) NASDAQ Quotation. The shares of NTL Common Stock issuable to
Transferors as contemplated by Section 1.2 and the shares of NTL Common
Stock issuable upon exercise of Adjusted Options pursuant to Section 5.3
shall have been approved for quotation on the NASDAQ, subject to official
notice of issuance.
(f) Required Consents. NTL or Transferors, as the case may be, shall
have obtained (or in the case of Transferors, shall have caused Diamond to
obtain) all consents designated as "Required Consents" in the NTL
Disclosure Schedule or the Transferors Disclosure Schedule (as applicable).
Section 6.2 Conditions to Obligations of NTL. The obligation of NTL to
effect the transactions contemplated hereby is further subject to satisfaction
or waiver of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Transferors set forth herein shall be true and correct both
when made and at and as of the Closing Date, as if made at and as of such
time (except to the extent expressly made as of an earlier date, in which
case as of such date), except where the failure of such representations and
warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "material adverse effect" set forth
therein) does not have, and is not likely to have, individually or in the
aggregate, a material adverse effect on NTL (assuming the consummation of
the transactions contemplated herein) or Diamond.
(b) Performance of Obligations of Transferors. Transferors shall have
performed in all material respects all obligations required to be performed
by them under this Agreement at or prior to the Closing Date.
(c) All steps required to be taken by Diamond in accordance with
section 5.3(a) shall have been taken.
(d) No Material Adverse Change. As of the Amalgamation Closing Date,
there shall not have occurred any material adverse change relating to
Diamond from the date hereof.
Section 6.3 Conditions to Obligations of Transferors. The obligation of
Transferors to effect the transactions contemplated hereby is further subject to
satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The representations and
warranties of NTL set forth herein shall be true and correct both when made
and at and as of the Amalgamation Closing Date, as if made at and as of
such time (except to the extent expressly made as of an earlier date, in
which case as of such date), except where the failure of such
representations and warranties to be so true and correct (without
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<PAGE> 257
giving effect to any limitation as to "materiality," or "material adverse
effect" set forth therein) does not have, and is not likely to have,
individually or in the aggregate, a material adverse effect on NTL.
(b) Performance of Obligations of NTL. NTL shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Amalgamation Closing Date.
(c) No Material Adverse Change. As of the Amalgamation Closing Date,
there shall not have occurred any material adverse change relating to NTL
from the date hereof.
(d) Registration Rights. NTL shall have executed an Amalgamation
Registration Rights Agreement implementing the terms set forth on Exhibit
6.3(d).
(g) Tax Opinion. Transferors shall have received an opinion, dated
the Amalgamation Closing Date, from Sullivan & Cromwell, counsel to
Diamond, in form and substance reasonably satisfactory to Transferors
substantially to the effect that on the basis of facts, representations and
assumptions set forth in such opinion, for federal income tax purposes the
share exchange will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and NTL and Diamond will each be a party to
that reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, Sullivan & Cromwell may receive and rely upon
representations from NTL, Diamond and others.
Section 6.4 Frustration of Closing Conditions. None of NTL or Transferors
may rely on the failure of any condition set forth in Section 6.1, 6.2 or 6.3,
as the case may be, to be satisfied if such failure was caused by the failure by
any of the Transferors (in the case of the Transferors) or by NTL (in the case
of NTL) to use best efforts to consummate the transactions contemplated by this
Agreement, as required by and subject to Section 5.2.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Amalgamation Closing Date:
(a) by mutual written consent of NTL and the Majority Transferors (for
the purposes of this Article VII, Transferors holding two-thirds or more of
the aggregate number of Shares shall constitute the "Majority
Transferors");
(b) by either NTL or the Majority Transferors:
(i) if the Amalgamation Closing shall not have been consummated by
January 31, 1999 (the "Amalgamation End Date"), except if such failure
is due to a material breach of this Agreement by the party seeking to
terminate;
(ii) if any Amalgamation Restraint having any of the effects set
forth in Section 6.1(d) shall be in effect and shall have become final
and nonappealable; provided, that the party seeking to terminate this
Agreement pursuant to this Section 7.1(b)(ii) shall have used best
efforts to prevent the entry of and to remove such Amalgamation
Restraint; or
(iii) if so required, NTL shall have failed to acquire the
authorization of its shareholders as contemplated in Section 6.1(c)
hereof.
(c) by NTL, if any Transferor shall have breached or failed to perform
in any material respect any of their respective warranties, covenants or
other agreements contained in this Agreement, which breach or failure to
perform would give rise to the failure of a condition set forth in Section
6.2(a) or (b), and such condition is incapable of being satisfied by the
End Date;
(d) by Transferors, if NTL shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or
other agreements contained in this Agreement, which breach or
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<PAGE> 258
failure to perform would give rise to the failure of a condition set forth
in Section 6.3(a) or (b), and such condition is incapable of being
satisfied by the End Date; or
(e) by the Majority Transferors if (i) as of a date not more than
three Business Days before the expected Amalgamation Closing Date, the NTL
Average Stock Price determined as of such date is less than $36.00, (ii)
notice shall have been provided to NTL hereunder of an intent to terminate
and (iii) within one Business Day of receipt of such notice, NTL shall not
have agreed (by notice to the Majority Transferors) to increase the
consideration payable per each four ordinary shares such that the value of
such consideration shall be $36.00 per share or more at such time.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement by Transferors or NTL as provided in Section 7.1, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of NTL or Transferors, other than the provisions of Section 3.1(j),
3.2(d), 3.3(l), the last sentence of Section 5.1, Section 5.4 and this Section
7.2, which provisions survive such termination, and except to the extent that
such termination results from the willful and material breach by a party of any
of its representations, warranties, covenants or agreements set forth in this
Agreement.
Section 7.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties; provided that
each of the Transferors agrees to be bound by any amendment approved by and
entered into by the Majority Transferors; provided, however, that any amendment
that has or could reasonably be expected to have a disproportionate adverse
effect on one Transferor but that does not similarly affect all Transferors will
also require the approval of the affected Transferor.
Section 7.4 Extension; Waiver. Each Transferor hereby agrees and
irrevocably appoints the Transferors' Representative to waive or extend any
provision of this Agreement. At any time prior to the Amalgamation Closing Date,
NTL or the Transferors' Representative may (a) extend the time for the
performance of any of the obligations or other acts of the other, (b) waive any
inaccuracies in the representations and warranties of the other contained in
this Agreement or in any document delivered pursuant to this Agreement or (c)
waive compliance by the other with any of the agreements or conditions contained
in this Agreement. Any agreement on the part of NTL or the Transferors'
Representative to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party. The failure of NTL
or the Transferors' Representative to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such rights.
Section 7.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require, in the case of NTL or any
Transferor who is a body corporate, action by its Board of Directors or, with
respect to any amendment to this Agreement, the duly authorized committee of its
Board of Directors to the extent permitted by law.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Survival of Representations, Etc. All statements contained in
the respective Disclosure Schedules or in any certificate or instrument of
conveyance delivered by or on behalf of any party pursuant to this Agreement or
in connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by such party hereunder. Except for the
representations and warranties of Transferors set forth in Section 3.2 hereof,
neither the representations and warranties of Transferors and NTL nor their
respective covenants (except for those expressly to be performed after the
Closing Date) contained herein shall survive the Amalgamation Closing Date. For
the avoidance of doubt, neither the Transferors nor NTL shall have any liability
for a breach of any representation, warranty or covenant under this Agreement
(except for any breach by such Transferor of its representations and warranties
in Section 3.2 hereof or the breach of any covenant by such Transferors
expressly to be performed after the Amalgamation Closing Date in which case only
the Transferor that has committed such breach of a representation and warranty
or such
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<PAGE> 259
breach of a covenant shall have any liability therefor) and the sole remedy of
the parties hereunder for any such breach (subject to the above exception) shall
be termination of this Agreement pursuant to Section 7.1.
Section 8.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to NTL, to:
NTL Incorporated
110 East 59th Street
New York, New York 10022
Telecopy No.: (212) 906-8497
Attention: Richard J. Lubasch
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopy No.: (212) 735-2000
Attention: Thomas H. Kennedy
and to:
Travers Smith Braitwaite
10 Snow Hill,
London, England ECIA 2AL
Telecopy:(011) 44 171 236-3728
Attention: Spencer Summerfield / Simon Jay
(b) If to Transferors, to:
European Cable Capital Partners, L.P.
85 Broad Street
New York, NY 10004
Telecopy No.:
Attention:
AmSouthBank of Alabama, as Trustee
1901 Sixth Avenue North, Third Floor
Harbert Plaza
Birmingham, AL 35203
Telecopy No.:
Attention:
DCI Capital Partners
9830 Wilshire Boulevard
Beverly Hills, CA 90212
Telecopy No.:
Attention:
Investor Investments AB
Arsenalsgatan 8c
P.O. Box 161574, S-103 24
Stockholm, Sweden
Telecopy No.:
Attention:
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<PAGE> 260
Booth English Cable Inc.
33 West Fort St., Suite 1230
Detroit, MI 48226
Telecopy No.:
Attention:
With a copy to:
ECE Management, Inc.
P.O. Box 499
Carmel, IN 46032
Telecopy No.:
Attention: Robert T. Goad
With a copy to:
Sullivan & Cromwell
9a Ironmonger Lane
Telecopy: 44-171-710-6565
Telephone: 44-171-710-6500
Attention: Scott D. Miller
Section 8.3 Definitions. For purposes of this Agreement:
(a) an "Affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person, where "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the
ownership of voting securities, by contract, as trustee or executor, or
otherwise;
(b) "knowledge" of any person means the actual knowledge of such
person or, where such person is a corporation, such person's executive
officers or senior management of such person's operating divisions and
segments person, in each case after due inquiry which shall include, where
it is the knowledge of the Transferors, after making due enquiry of the
board of directors and senior management of Diamond and its subsidiaries;
(c) "material adverse change" or "material adverse effect" means, when
used in connection with Diamond or NTL, any change, effect, event,
occurrence or state of facts that is, or would reasonably be expected to
be, materially adverse to the business, financial condition or results of
operations of such party and its subsidiaries taken as a whole, other than
changes, effects, events, occurrences or facts caused by changes in general
economic or securities market conditions, changes that affect the U.K.
cable industry generally or changes in the business of Diamond that result
from the announcement or proposed consummation of the transactions
contemplated hereby, and the terms "material" and "materially" have
correlative meanings;
(d) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(e) a "subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting Partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person;
(f) "Business Day" shall mean a day on which both (i) NASDAQ if
functional for a normal trading day and (ii) banks in the City of New York
are open for business;
(g) "NTL Average Stock Price" shall mean the volume-weighted average
of the average high and low sales prices of the NTL Common Stock or NASDAQ
for each of the twenty trading days ending on the trading day prior to the
date of determination;
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<PAGE> 261
(h) "Required British Approval" shall mean those approvals and
contents set forth in Section 6.1(a);
(i) "in the approved term" shall mean a document, the terms, condition
and form of which have been agreed by the parties to this Agreement and a
copy of which has been identified as such and initialed by or on behalf of
NTL and the Transferor's Representative.
Section 8.4 Interpretation. When a reference is made in this Agreement to
an Article, Section or Exhibit, such reference shall be to an Article or Section
of, or an Exhibit to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.
Section 8.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 8.6 Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) and the
Confidentiality Agreement (a) constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter of this Agreement and (b) are not intended to
confer upon any person other than the parties any rights or remedies.
Section 8.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflict of
laws thereof.
Section 8.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by either of the parties hereto without
the prior written consent of the other party; provided, however, that NTL have
the right, at any time at or prior to the Closing, to designate in writing, in
accordance with applicable law, one or more of its direct or indirect wholly
owned subsidiaries or a holding company formed in compliance with Section 251(g)
of the Delaware General Corporation Law to purchase, in whole or in part, the
Shares on the terms set out in this Agreement, and NTL shall remain jointly and
severally liable with its designee(s) under this Agreement following such
designation. Any assignment in violation of the preceding sentence shall be
void. Subject to the preceding two sentences, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
Section 8.9 Consent to Jurisdiction. Each of the parties hereto (i)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of New York or any New York state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement, (ii) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
and (iii) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other than a
federal court sitting in the State of New York or a New York state court.
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<PAGE> 262
Section 8.10 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 8.11 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
Section 8.12 Liability of AmSouth in its Corporate
Capacity. Notwithstanding anything to the contrary in this Agreement: (a)
AmSouth Bank N.A. ("AmSouth") has entered into this Agreement solely as trustee
of the trusts listed in the signature pages hereto and shall have no liability
whatsoever in its corporate capacity for any acts taken or omitted to be taken
by it under this Agreement or otherwise in connection with the transactions
provided for herein; (b) any liability of AmSouth under this Agreement or
otherwise in connection with the transactions contemplated herein shall be
limited to and satisfied only from the assets of the relevant trusts now or
hereafter held by AmSouth, as trustee; and (c) if AmSouth shall resign, be
removed, or otherwise cease to serve, as trustee of any of the trusts, AmSouth
shall be fully discharged from any and all liability that it may have incurred
under this Agreement or otherwise in connection with the transactions provided
for herein, in its capacity as trustee of such trusts.
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<PAGE> 263
IN WITNESS WHEREOF, NTL and Transferors have caused this Agreement to be
signed by them or their respective officers thereunto duly authorized, all as of
the date first written above.
<TABLE>
NTL INCORPORATED
By: /s/ RICHARD J. LUBASCH
--------------------------------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President
NUMBER OF NUMBER OF
ORDINARY DEFERRED
TRANSFERORS: SHARES SHARES
---------- --
<S> <C> <C>
EUROPEAN CABLE CAPITAL 39,447,443 0
PARTNERS, L.P.
By: /s/ RICHARD FRIEDMAN
--------------------------------------------------------
Name: Richard Friedman
Title:
AMSOUTH BANK OF ALABAMA, 2,187,570 2
(No. 2 ACCOUNT)
By: /s/ AMY E. STAATS
--------------------------------------------------------
Name: Amy E. Staats
Title: Trust Officer
AMSOUTH BANK OF ALABAMA 2,187,556 2
(NO. 3 ACCOUNT)
By: /s/ AMY E. STAATS
--------------------------------------------------------
Name: Amy E. Staats
Title: Trust Officer
</TABLE>
<PAGE> 264
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
ORDINARY DEFERRED
SHARES SHARES
TRANSFERORS: ---------- ---------
<S> <C> <C>
AMSOUTH BANK OF ALABAMA
(NO. 4 ACCOUNT) 2,187,556 1
By: /s/ AMY E. STAATS
--------------------------------------------------------
Name: Amy E. Staats
Title: Trust Officer
AMSOUTH BANK OF ALABAMA
(NO. 5 ACCOUNT) 2,187,556 1
By: /s/ AMY E. STAATS
--------------------------------------------------------
Name: Amy E. Staats
Title: Trust Officer
BRIDGE STREET FUND 1996, L.P. 497,370 0
By: /s/ RICHARD FRIEDMAN
--------------------------------------------------------
Name: Richard Friedman
Title:
CGT FAMILY CORPORATION 35,000 1
By: /s/ CARY E. DAVIS
--------------------------------------------------------
Name: Cary E. Davis
Title: President
/s/ SANFORD R. CLIMAN 76,923 0
--------------------------------------------------------
SANFORD R. CLIMAN
</TABLE>
<PAGE> 265
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
ORDINARY DEFERRED
SHARES SHARES
TRANSFERORS: ---------- ---------
<S> <C> <C>
GS CAPITAL PARTNERS, L.P. 1,249,115 0
By: /s/ RICHARD FRIEDMAN
--------------------------------------------------------
Name: Richard Friedman
Title:
</TABLE>
<PAGE> 266
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
ORDINARY DEFERRED
SHARES SHARES
TRANSFERORS: ---------- ---------
<S> <C> <C>
/s/ WILLIAM WHITE MCDONALD 503 0
--------------------------------------------------------
WILLIAM WHITE MCDONALD
STONE STREET FUND 1996, L.P. 733,399 0
By:
/s/ RICHARD FRIEDMAN
--------------------------------------------------------
Name: Richard Friedman
Title:
DCI CAPITAL PARTNERS 3,909,754 0
By: /s/ MICHAEL OVITZ
--------------------------------------------------------
Name: Michael Ovitz
Title: General Partner
INVESTOR INVESTMENTS AB 3,909,754 0
By: /s/ THOMAS NILSSON
--------------------------------------------------------
Name: Thomas Nilsson
Title: Managing Director
BOOTH ENGLISH CABLE, INC. 529,292 0
By: /s/ RALPH BOOTH
--------------------------------------------------------
Name: Ralph H. Booth, II
Title: President
</TABLE>
<PAGE> 267
ANNEX B
AMENDMENT NO. 1 TO
SHARE EXCHANGE AGREEMENT
Amendment No. 1, dated as of December 21, 1998 (the "Amendment"), to the
Share Exchange Agreement, dated as of June 16, 1998 (the "Share Exchange
Agreement"), among NTL Incorporated ("NTL") and the shareholders of Diamond
Cable Communications plc ("Diamond").
W I T N E S S E T H:
WHEREAS, on June 16, 1998, the parties hereto entered into the Share
Exchange Agreement; and
WHEREAS, the parties hereto now desire to amend certain provisions of the
Share Exchange Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 1.2 of the Share Exchange Agreement is hereby amended in its
entirety to read as follows:
SECTION 1.2 Consideration for Shares. Upon the terms and subject to
the conditions contained herein, as consideration for the acquisition of
the Shares, on the Closing Date, NTL shall transfer to each Transferor
consideration consisting of one share of common stock, par value $.01 per
share, of NTL (the "NTL Common Stock") for (i) each deferred share in
Diamond and (ii) each four ordinary shares in Diamond; provided, however,
that such consideration shall be adjusted as follows: (A) if the Closing
Date shall have occurred within four months of the date hereof, and the NTL
Average Stock Price is $52.00 (the "Maximum Average Stock Price") or more,
then the consideration for each four ordinary shares shall be the number of
shares of NTL Common Stock equal in value (at the NTL Average Stock Price)
to the Maximum Average Stock Price; (B) if the Closing Date shall have
occurred after the four month anniversary date of the date hereof and prior
to February 1, 1999, then the Maximum Average Stock Price shall increase by
$.50 on the four month anniversary date of the date hereof and on each
subsequent monthly anniversary date thereof until the Closing Date; and (C)
if the Closing Date shall have occurred on February 1, 1999 or thereafter,
the Maximum Average Stock Price shall be $65.00.
2. Section 5.3(b) of the Share Exchange Agreement is hereby amended in its
entirety to read as follows:
(b) With respect to the NTL Options issued as contemplated in
paragraph (a), 100% of each holder's NTL Options shall be exercisable from
the Closing Date. Further, such NTL Options shall also be exercisable in
full in the event that the holder of a Stock Option ceases to be an
employee or director of any company in the NTL or Diamond group, except if
such employee is dismissed as a result of his or her gross misconduct in
circumstances entitling the NTL or Diamond group summarily to dismiss the
employee without prior notice under such employee's or director's service
agreement and applicable law.
3. Section 5.8 of the Share Exchange Agreement is hereby amended in its
entirety to read as follows:
SECTION 5.8 Covenant of NTL. As promptly as practicable after the
date of the Amendment, NTL shall take all necessary actions to convene a
special meeting of its shareholders to authorize the transaction
contemplated hereby.
4. Section 6.1(c) of the Share Exchange Agreement is hereby amended in its
entirety to read as follows:
(c) NTL Shareholders' Approval. A resolution shall have been passed
at a special meeting of shareholders of NTL, convened after proper notice
to, and/or waiver of such notice by, the shareholders, with a quorum of the
shareholders present or represented, to approve the transactions
contemplated hereby.
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<PAGE> 268
5. Section 7.1(b)(i) of the Share Exchange Agreement is hereby amended in
its entirety as follows:
(i) if the Closing shall not have been consummated by April 30, 1999
(the "End Date"), except if such failure is due to a material breach of
this Agreement by the party seeking to terminate;
6. Unless otherwise specifically defined herein, each term used herein
which is defined in the Share Exchange Agreement shall have the meaning assigned
to such term in the Share Exchange Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Agreement" and each similar reference contained in the Share
Exchange Agreement shall from and after the date hereof refer to the Share
Exchange Agreement as amended hereby.
7. This Amendment shall be governed by, and construed in accordance with,
the laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflict of laws thereof.
8. This Amendment may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties.
9. Except as amended hereby, all of the terms of the Share Exchange
Agreement shall remain and continue in full force and effect and are hereby
confirmed in all respects.
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<PAGE> 269
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
NTL INCORPORATED
By: /s/ RICHARD J. LUBASCH
----------------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President
MAJORITY TRANSFERORS:
EUROPEAN CABLE CAPITAL PARTNERS, L.P.
By: /s/ TERENCE O'TOOLE
----------------------------------------
Name: Terence O'Toole
Title: Attorney-in-fact
GS CAPITAL PARTNERS, L.P.
By: /s/ TERENCE O'TOOLE
----------------------------------------
Name: Terence O'Toole
Title: Attorney-in-fact
STONE STREET FUND 1996, L.P.
By: /s/ SANJEEV MEHRA
----------------------------------------
Name: Sanjeev Mehra
Title: Attorney-in-fact
BOOTH ENGLISH CABLE, INC.
By: /s/ RALPH BOOTH
----------------------------------------
Name: Ralph H. Booth, II
Title: President
BRIDGE STREET FUND 1996, L.P.
By: /s/ SANJEEV MEHRA
----------------------------------------
Name: Sanjeev Mehra
Title: Attorney-in-fact
B-3
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ANNEX C
As of June 16, 1998
Board of Directors
NTL Incorporated
110 East 59th Street
26th Floor
New York, NY 10022
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to NTL Incorporated (the "Company") of the Exchange Ratio (as defined
below) pursuant to the terms of the Share Exchange Agreement dated as of June
16, 1998 (the "Agreement"), between the Company and the shareholders of Diamond
Cable Communications Plc ("Diamond" or "Target"), pursuant to which the Company
will acquire (the "Transaction") Diamond.
Pursuant to the Agreement, each four ordinary shares, par value 25p per
share ("Ordinary Shares"), of Diamond and each deferred share of Diamond (a
"Deferred Share" and, together with the Ordinary Shares, the "Shares"), will,
subject to certain exceptions, be canceled in consideration for the right to
receive one share of common stock, $.01 par value per share ("Company Common
Stock") of the Company, provided that if consummation of the Transaction occurs
before October 16, 1998 and the volume weighted average high and low sales
prices of the Company Common Stock for each of the 20 trading days ending on the
trading day prior to such consummation is $52.00 per share (the "Maximum Average
Stock Price") or more, the consideration for each four Ordinary Shares will be
the number of Shares of Company Common Stock equal in value to the Maximum
Average Stock Price; provided further, that if consummation of the Transaction
occurs after October 16, 1998, then the Maximum Average Stock Price will
increase by $0.50 on such date and on each subsequent monthly anniversary date
until consummation of the Transaction (the quotient of (i) the number of shares
of Company Common Stock to be issued, and (ii) the Ordinary Shares to be
canceled, the "Exchange Ratio"). For purposes of our analyses we have assumed
that the Exchange Ratio is 0.25.
In arriving at our opinion, we have reviewed the Agreement. We also have
reviewed financial and other information that was publicly available or
furnished to us by the Company and Diamond including information provided during
discussions with Company management. Included in the information provided during
discussions with management were certain financial projections of Diamond for
the period beginning January 1, 1998 and ending December 31, 2005 prepared by
the management of the Company and certain financial projections of the Company
for the period beginning January 1, 1998 and ending December 31, 2005 prepared
by the management of the Company, assuming consummation of the Comcast
Transaction (as defined below) and assuming that the Comcast Transaction is not
consummated. In addition, we have compared certain financial and securities data
of the Company and Target with various other companies whose securities are
traded in public markets, reviewed prices and premiums paid in certain other
business combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion.
In February 1998, NTL entered into an Agreement and Plan of Amalgamation
("the Comcast Agreement") pursuant to which a wholly-owned subsidiary of NTL is
expected to be amalgamated (the "Comcast Transaction") with Comcast UK Cable
Partners Limited ("Comcast"), on which transaction we previously issued a
fairness opinion. Under the terms of the Comcast Agreement, Comcast's
shareholders will receive 0.3745 shares of NTL Common Stock for each share of
Comcast's Class A Common Shares, L0.01 per share, and Class B Common Shares,
L0.01 per share. Under certain circumstances, the consideration payable to
Comcast's shareholders may be adjusted based on the proceeds of the potential
exercise by a third party of certain rights of first refusal (the "Comcast
Purchase Rights") with respect to Comcast's interests in Birmingham Cable
Corporation, Limited ("Birmingham Cable"), in which Comcast owns a 27.5%
interest,
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and Cable London PLC ("Cable London"), in which Comcast owns a 50.0% interest.
NTL anticipates that the Comcast Purchase rights may be exercised in whole or in
part. In addition, NTL has entered into an Acquisition Agreement with
Koninklijke PTT Nederland N.V. to acquire all of the outstanding shares of
ComTel UK Finance B.V. ("ComTel"), a UK-based cable and telephone communications
operator.
The Board of Directors of NTL has asked us to confine our analysis and
opinion to the acquisition of Diamond, both assuming consummation of the Comcast
Transaction and assuming that the Comcast Transaction is not consummated. With
the consent of NTL, we assumed the Comcast Purchase Rights were exercised in
whole. We have not reflected the ComTel acquisition in our analysis, as
consummation of the ComTel acquisition remains uncertain.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company or its
representatives, or that was otherwise reviewed by us. In particular, we have
relied upon the estimates of the management of the Company of the operating
improvements achievable as a result of the Transaction and upon our discussion
of such improvements with the management of the Company. With respect to the
financial projections supplied to us, we have assumed that they have been
reasonably prepared and reflect the best currently available estimates and
judgments of the management of the Company as to the future operating and
financial performance of the Company and Target. We have not assumed any
responsibility for making any independent evaluation of any assets or
liabilities or for making any independent verification of any of the information
reviewed by us. We have relied as to certain legal matters on advice of counsel
to the Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of
June 5, 1998, the trading day immediately prior to the date of your request. It
should be understood that, although subsequent developments may affect this
opinion, we do not have any obligation to update, revise or reaffirm this
opinion. We are expressing no opinion herein as to the prices at which Company
Common Stock will actually trade at any time. Our opinion does not address the
relative merits of the Transaction and the other business strategies being
considered by the Company's Board of Directors, nor does it address the Board's
decision to proceed with the Transaction. Our opinion does not constitute a
recommendation to any shareholder as to how such shareholder should vote on the
proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company, Diamond and their affiliates in the
past and has been compensated for such services, including (i) acting as (a)
lead manager for the offering in 1996 of approximately $600 million of Senior
Deferred Coupon Notes by International CableTel Incorporated ("ICTI"), the
Company's predecessor, (b) ICTI's financial advisor and agent in the 1996
consent solicitation for approximately $489 million of Senior Deferred Coupon
Notes issued thereby, (c) lead manager for the offering in 1996 of approximately
$275 million of Subordinated Convertible Notes by ICTI, (d) lead manager for the
offering in 1997 of approximately $400 million of Senior Notes by ICTI, (e) lead
manager for the offering in 1997 of approximately $100 million of Senior
Redeemable Exchangeable Preferred Stock by ICTI, and (f) acting as the Company's
financial advisor in connection with its Amalgamation with Comcast UK Cable
Partners Limited and (ii) acting as co-manager for the Target's offering in 1995
of approximately $531 million of Senior Discount Notes.
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Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair to the Company from a financial
point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ MICHAEL J. CONNELLY
------------------------------------
Michael J. Connelly
Managing Director
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ANNEX D
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
NTL INCORPORATED
AND
THE SHAREHOLDERS LISTED IN ANNEX A HERETO
------------------------------------------------------
DATED AS OF , 1998*
------------------------------------------------------
- ---------------
* To be signed on the closing date
D-1
<PAGE> 274
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Definitions................................................. D-3
Section 2. Registration Rights......................................... D-5
D-5
2.1 Demand Rights...........................................
D-6
2.2 Market-Making Registration..............................
D-7
2.3 "Piggy-Back" Rights.....................................
D-8
2.4 Allocation of Securities Included in a Public
Offering....................................................
D-8
2.5 Requirements with Respect to Registration...............
D-11
2.6 Alternative Disposition.................................
D-11
2.7 Private Sale Tag Along..................................
Section 3. Hold-Back Agreement......................................... D-11
Section 4. Registration Expenses....................................... D-12
Section 5. Representations, Warranties and Agreements.................. D-12
D-12
(a) NTL Representations, Warranties and Agreements..........
D-13
(b) Holder Representations, Warranties and Agreements.......
Section 6. Survival of Representations and Agreements.................. D-13
Section 7. Indemnification............................................. D-13
D-13
(a) Indemnification by NTL..................................
D-14
(b) Indemnification by Holder of Registrable Securities.....
D-14
(c) Conduct of Indemnification Proceedings..................
D-15
(d) Contribution............................................
D-16
(e) Remedies Cumulative.....................................
D-16
(f) Underwriting Agreement Controls.........................
Section 8. Underwritten Registration................................... D-16
Section 9. Unregistered Offerings...................................... D-16
Section 10. Miscellaneous............................................... D-17
D-17
(a) Remedies................................................
D-17
(b) Amendments and Waivers..................................
D-17
(c) Notices.................................................
D-18
(d) Interpretation..........................................
D-18
(e) Counterparts............................................
D-18
(f) Entire Agreement; No Third Party Beneficiaries..........
D-18
(g) Confidential Information................................
D-18
(g) Governing Law...........................................
D-18
(h) Severability............................................
D-18
(i) Assignment..............................................
D-18
(j) Attorney's Fees.........................................
D-19
(k) Use of Terms............................................
</TABLE>
D-2
<PAGE> 275
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is dated as of
, 1998, and is being entered by and among NTL INCORPORATED, a
Delaware corporation ("NTL"), and the persons listed in Annex A hereto, each of
which are sometimes referred to herein individually as a "Holder" and
collectively as the "Holders."
RECITALS
WHEREAS, NTL and the shareholders of Diamond Cable Communications Plc., a
company organized under the laws of England and Wales with limited liability
("Diamond") have entered into a Share Exchange Agreement pursuant to which the
shareholders of Diamond will exchange their Ordinary Shares and Deferred Shares
in Diamond, for shares of Common Stock, par value $0.01 per share, of NTL (the
"Exchange"); and
WHEREAS, without being legally bound to do so, NTL has expressed its
intention to register with the Securities and Exchange Commission (as defined
below) under the Securities Act of 1933, as amended, reasonably soon after the
closing of the transaction contemplated by the Share Exchange Agreement a number
of shares of its Common Stock for sale by certain of the current shareholders of
Diamond receiving such shares pursuant to the Exchange;
WHEREAS, the parties wish to make certain covenants and agreements
concerning, among other things, the further registration of shares of Common
Stock of NTL under the Securities Act of 1933, as amended;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
"Affiliate" shall mean, with respect to any Person, any other Person
that directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with such Person.
"Blackout Period" shall have the meaning set forth in Section 2.3(b).
"Closing" shall mean the closing of the Exchange under the Share
Exchange Agreement.
"Commission" 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.
"Common Stock" shall mean the Common Stock, par value $0.01 per share,
of NTL.
"Company" shall have the meaning set forth in the introductory
paragraph to this Agreement.
"Demand Period" shall have the meaning set forth in Section 2.1(a).
"Demand Request" shall have the meaning set forth in Section 2.1(a).
"Demanding Holder" shall have the meaning set forth in Section 2.1(a).
"Effectiveness Period" shall have the meaning set forth in Section
2.5(b).
"Exchange" shall have the meaning set forth in the second recital of
this Agreement.
"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.
"Holder" or "Holders" shall have the meaning set forth in the
introductory paragraph to this Agreement and shall also include (i) any
assignee or transferee of a Registrable Security (A) that
D-3
<PAGE> 276
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with the initial Holder or (B)
that is otherwise approved by NTL (such approval not to be unreasonably
withheld) and (ii) any holder of options to purchase its ordinary shares
issued by Diamond that, either prior to, or in connection with, the
Exchange receives shares of Common Stock that are subject to restrictions
on resale under the Securities Act which, in any such case, agrees in
writing at the time of such assignment or transfer or such receipt to be
bound by the restrictions set forth herein. Otherwise, registration rights
are non-transferable except as set forth in Section 10(j) hereof.
"Initial Shelf Registration" shall have the meaning set forth in
Section 2.2(a).
"Joining Request" shall have the meaning set forth in Section 2.1(a).
"Maximum Number" shall have the meaning set forth in Section 2.1(b).
"Notice of Demand Request" shall have the meaning set forth in Section
2.1(a).
"Other Securities" shall have the meaning set forth in the definition
of Registrable Securities.
"Person" shall mean an individual, trustee, corporation, partnership,
joint stock company, trust, unincorporated association, union, business
association, firm or other entity.
"Preliminary Prospectus" shall mean any preliminary prospectus that
may be included in any Registration Statement.
"Prospectus" shall mean the prospectus included in any Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an
effective Registration Statement in reliance upon Rule 430A promulgated
under the Securities Act), 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), pursuant to a
firm-commitment or best-efforts underwriting or purchase arrangement.
"Registrable Securities" shall mean all shares of Common Stock
beneficially owned by a Holder on the date hereof (after giving effect to
the Closing) and set forth on Annex A attached hereto. As to any particular
Registrable Securities, such shares shall cease to be Registrable
Securities (a) when a Registration Statement with respect to the sale of
such shares shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such Registration
Statement, (b) when such shares shall have been sold under Rule 144 (or any
successor provision) under the Securities Act or (c) when such shares shall
have ceased to be outstanding. 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 a Holder in respect of
Registrable Securities held by such Holder, references herein to
Registrable Securities shall be deemed to include such Other Securities.
"Registration Statement" shall mean any registration statement of NTL
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 statements.
"Regulations" shall mean the General Rules and Regulation of the
Commission under the Securities Act.
D-4
<PAGE> 277
"Required Holders" shall mean, as of any date of determination, the
Holders of -% in interest of Registrable Securities outstanding as of such
date.
"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 Commission 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.
"Securities Act" shall mean the United States Securities Act of 1933,
as amended, or any United States federal statute then in effect which 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 statute.
"Seller" shall have the meaning set forth in Section 2.1(a).
"Share Exchange Agreement" shall have the meaning set forth in the
first recital of this Agreement.
"Shelf Blackout Period" shall have the meaning set forth in Section
2.2(d).
"Shelf Registration" shall have the meaning set forth in Section
2.2(b).
"Subsequent Shelf Registration" shall have the meaning set forth in
Section 2.2(b).
"underwritten registration or underwritten offering" shall mean a
registration in which securities of NTL are sold to an underwriter for
reoffering to the public.
SECTION 2. REGISTRATION RIGHTS.
2.1 DEMAND RIGHTS. (a) Subject to Section 2.1(b) below, at any time, and
from time to time, during the period beginning [INSERT DATE SIX MONTHS AFTER
CLOSING] and ending [INSERT THE DATE FIVE YEARS THEREAFTER] any Holder or group
of Holders who hold and propose to sell Registrable Securities with an aggregate
value of at least $50 million (herein, individually or collectively, as the case
may be, a "Demanding Holder"), shall have the right to require NTL to file a
Registration Statement under the Securities Act for a Public Offering of all or
part of such Demanding Holder's Registrable Securities to be lead managed by an
underwriter designated by such Demanding Holders and reasonably acceptable to
NTL (it being understood for purposes of this provision that under current
circumstances, Goldman, Sachs & Co. is reasonably acceptable to NTL) by
delivering written notice thereof to NTL specifying the number of Registrable
Securities to be included in such registration and the intended method of
distribution thereof (the "Demand Request"). NTL shall, within 10 days after
receipt, give written notice by facsimile transmission (the "Notice of Demand
Request") of such Demand Request to all Holders of any Registrable Securities.
Thereupon NTL shall prepare and file with the Commission as promptly as
practicable following the receipt of the Notice of Demand Request, and in any
event within 45 days thereafter, a Registration Statement covering, and shall
use its best efforts to effect the registration under the Securities Act of, (i)
the Registrable Securities included in the Demand Request, and (ii) all other
Registrable Securities as to which the Holders thereof that have received a
Notice of Demand Request and shall have made a written request (a "Joining
Request") to NTL for registration thereof within ten days after the transmittal
of such Notice of Demand Request, all to the extent necessary to permit the sale
or other disposition by such Holders (each, a "Seller" and, collectively, the
"Sellers") of such Registrable Securities.
(b) NTL's obligations pursuant to Section 2.3(a) above are subject to the
following limitations and conditions: (i) NTL shall not be obligated to fulfill
the requirements or file the Registration Statement referred to therein (A)
during any period of time (not to exceed ninety (90) days in the aggregate with
respect to each request) when NTL has determined to proceed with a Public
Offering (whether for its own account or that of any Holder pursuant to any
previously received Demand Request and related Joining Request) and, in the
judgment of the managing underwriter thereof, the fulfillment of such
requirements or such filing would have an adverse effect on such offering, (B)
during any period of time (not to exceed ninety (90) days with respect to each
request) when NTL is in possession of material information that NTL (x) has
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<PAGE> 278
determined, after advice of NTL's recognized US securities counsel, would be
required to be disclosed in an offering registered under the Securities Act and
(y) reasonably deems is in NTL's best interests not to publicly disclose, and
during which period NTL has not otherwise filed and does not otherwise have
effective, a registration statement under which its securities may be offered or
sold, or (C) during the 90-day period following the effectiveness of any
previous Registration Statement (the periods of time referred to in subclauses
(A), (B) and (C) hereof being hereinafter referred to as "Blackout Periods");
provided, that the aggregate period of time during which NTL shall be relieved
from its obligation to file such a Registration Statement pursuant to this
clause (i) shall in no event exceed ninety (90) consecutive days with respect to
each request; provided, further, that, in the case of a Blackout Period pursuant
to sub-clause (i)(A) above, the Blackout Period shall earlier terminate upon the
completion or abandonment of the relevant securities offering; provided,
further, that in the case of a Blackout Period pursuant to sub-clause (i)(B)
above, the Blackout Period shall earlier terminate upon public disclosure by NTL
or public admission by NTL of such material nonpublic information or such time
as such material nonpublic information shall be publicly disclosed without
breach of the last sentence of this subsection (b); and provided, further, that
in the case of a Blackout Period pursuant to sub-clauses (i)(A), (B) or (C)
above, NTL shall furnish to the Security Holders a certificate of an executive
officer of NTL to the effect that an event permitting a Blackout Period has
occurred and is continuing (and no other reason need be given); provided,
further, that if prior to the expiration of any Blackout Period the Demanding
Holders withdraw their Demand Request, such request shall not be considered a
Demand Request for purposes of this Section 2.1(b) and such Demand Request and
any Joining Request related thereto shall be of no further effect; (ii) the
aggregate number of days included in all Blackout Periods during any consecutive
12 months shall not exceed 180 days; (iii) the minimum aggregate offering price
of any such Public Offering, as estimated in good faith by the managing
underwriter thereof immediately prior to the time the Registration Statement
with respect to any such Public Offering becomes effective, shall be at least
$50 million; (iv) the number of shares of Common Stock to be sold in any such
Public Offering shall not exceed the maximum number which the managing
underwriter thereof considers in good faith to be appropriate based on market
conditions and other relevant factors, including pricing, the identity of the
Sellers and other shareholders (the "Existing Holders") selling shares of Common
Stock and the proportion of shares of Common Stock being sold by NTL, by the
Sellers and by the Existing Holders (the "Maximum Number"); and (v) NTL shall
not be obligated to effect more than one Demand Registration in any six-month
period or more seven Demand Registrations in total (four of which may be
exercised by the Holders designated as "X Holders" in Annex A hereto and three
of which may be exercised by the Holders designated as "Y Holders" in Annex A
hereto), provided that for any demand given by the Y Holders, the reference to
"$50 million" in Sections 2.1(a) and (b) shall be deemed to be "$25 million").
(c) Subject to Section 2.4, NTL may elect to include in any Registration
Statement filed pursuant to this Section 2.1 any authorized but unissued shares
of Common Stock and NTL shall not, without the prior consent of the Required
Holders include in any such Registration Statement any other Securities (other
than Registrable Securities); provided, that such inclusion shall be permitted
only to the extent that it is pursuant to and subject to the terms of any
underwriting agreement or arrangements entered into by the Demanding Holders
whose Registrable Securities are also included therein.
(d) A request by a Holder or Holders that NTL file a Registration Statement
shall not be considered a Demand Request if (i) the Registration Statement
relating thereto does not become effective or (ii) Holders are not able to sell
shares of Common Stock as a result of any stop order issued by the Commission
suspending the effectiveness of a registration statement, or as a result of the
initiation of any proceeding for such a stop order by the Commission, through no
fault of the Holders.
2.2 MARKET-MAKING REGISTRATION. (a) NTL shall file under the Securities
Act, as soon as reasonably possible after the date of this Agreement (but in any
event within 30 days thereof), one or more "shelf" registration statements in
forms reasonably acceptable to Goldman, Sachs & Co. pursuant to Rule 415 under
the Securities Act or any similar rule that may be adopted by the Commission
providing for the registration, and the sale on a continuous or delayed basis in
secondary transactions by Goldman, Sachs & Co., of outstanding publicly traded
debt and equity securities of NTL (collectively, the "Market Making Shelf"). NTL
agrees to use its reasonable best efforts to cause the Market Making Shelf to
become or be declared
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effective as soon as reasonably possible and to keep such Market Making Shelf
continuously effective for so long as Goldman, Sachs & Co. may be required to
deliver a prospectus in connection with secondary transactions in the
outstanding publicly traded debt and equity securities of NTL. NTL further
agrees to supplement or make amendments to the Market Making Shelf, as and when
required by the rules, regulations or instructions applicable to the
registration form used for such Market Making Shelf or by the Securities Act or
rules and regulations thereunder for shelf registration, and NTL agrees to
furnish to Goldman, Sachs & Co. copies of any such supplement or amendment prior
to its being used or promptly following its filing with the Commission.
(b) In addition, the registration procedures set forth in Section 2.5 below
shall be deemed to apply to the Market Making Shelf and the securities
registered thereunder to the extent such procedures are reasonably applicable.
Moreover, for purposes of Sections 4, 5, 7, 9 and 10 hereof, such securities
insofar as they relate to the market-making activities of Goldman, Sachs & Co.
shall be deemed to be Registrable Securities, references to underwriters shall
be deemed to include Goldman, Sachs & Co. and references to a prospectus or
registration statement shall be deemed to include any prospectus or registration
statement relating to the Market Making Shelf.
(c) Notwithstanding the other provisions of this Section 2.2, NTL shall
have the right to delay the filing of any Market-Making Shelf otherwise required
to be prepared and filed by NTL pursuant to this Section 2.2, or to suspend the
use of any Market-Making Shelf, for a period not in excess of 90 days (a "Shelf
Blackout Period") if NTL reasonably determines after obtaining the advice of
recognized U.S. securities counsel that the registration and distribution of the
Registrable Securities to be covered by such Market-Making Shelf Registration
would require disclosure of information which is in its best interest not to
publicly disclose, provided, that, the Shelf Blackout Period shall terminate
upon the public disclosure by NTL or public admission by NTL of such material
nonpublic information or such time as such material nonpublic information shall
be publicly disclosed or become immaterial; and provided, further, that NTL
shall furnish a certificate of an executive officer of NTL to the effect that a
Shelf Blackout Period is in effect.
(d) NTL will take such steps as are reasonably necessary under the Rights
Agreement, dated as of October 13, 1993, as amended (the "Rights Agreement"),
between NTL Incorporated (formerly International CableTel Inc.) and Continental
Stock Transfer & Trust Company to ensure that the activities of Goldman, Sachs &
Co. or any of its affiliates undertaken in the ordinary course of their
respective businesses, including, but not limited to, the acquisition of
beneficial ownership of NTL securities as a result of any market-making or
underwriting activities (including any shares of Common Stock acquired for the
investment account of any of them in connection with such underwriting
activities), or the purchase or exercise of investment or voting discretion
authority over any of their respective customer accounts or in other ordinary
course asset management activities, or the acquisition in good faith of such
securities in connection with a debt previously contracted and in any such case
not with the purpose nor with the effect of exercising control over NTL, nor in
connection with nor as a participant in any transaction having such purpose or
effect, do not and will not result in a "Triggering Event" (as defined in the
Rights Agreement).
2.3. "PIGGY-BACK" RIGHTS. If NTL proposes to register any shares of
Common Stock for itself or any of its shareholders under the Securities Act 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, NTL shall give written notice of such proposal at least twenty (20)
days before the anticipated filing date, which notice shall include the intended
method of distribution of such shares, to each of the Holders who hold
Registrable Securities. 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 2.4, upon the
written request of any such Holder, given within ten (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 such Holder),
NTL will use its best efforts to include in the registration statement with
respect to such Public Offering the number of the Registrable Securities
referred to in such Holder's request; provided, that, any participation in such
Public Offering by such Holders shall be on substantially the same terms as
NTL's (or its other shareholders') participation therein; and provided, further,
that the number of Registrable
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Securities to be included in any such Public Offering shall not exceed the
Maximum Number. Any such Holder shall have the right to withdraw a request to
include Registrable Securities in any Public Offering pursuant to this Section
2.3 by giving written notice to NTL of its election to withdraw such request at
least five (5) days prior to the proposed effective date of such registration
statement. Notwithstanding the foregoing, the provisions of this Section 2.3
shall not apply to an offering contemplated by Registration Rights to be
provided to the former shareholders of Comcast (UK) Cable Partners Limited
("Comcast") as contemplated by the Agreement and Plan of Amalgamation between
Comcast and NTL to the extent that such provisions would violate that agreement
2.4. ALLOCATION OF SECURITIES INCLUDED IN A PUBLIC OFFERING. If the lead
managing underwriter for any Public Offering to be effected pursuant to Section
2.1 or Section 2.3 of this Agreement shall advise NTL and 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 NTL, those sought to be
offered by 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:
(a) if, such registration or Public Offering is pursuant to Section
2.1 of this Agreement, and (x) if the total number of Registrable
Securities included in the Demand Request and any Joining Request exceeds
the Maximum Number Registrable Securities included in the Demand Request
and any Joining Requests shall be reduced pro rata among the Sellers to the
extent necessary to reduce the total number of Registrable Securities to be
included in such Public Offering to the Maximum Number and (y) if the total
number of Registrable Securities included in the Demand Request and any
Joining Request is less than the Maximum Number, any additional shares of
Common Stock sought to be included at the request of NTL may be included,
subject to not exceeding the Maximum Number; provided, however, that if NTL
desires to sell Common Stock in such Public Offering and in the good faith
judgment of the managing underwriter of such Public Offering designated by
the Demanding Holders pursuant to Section 2.1(a), after consultation with
the Holders, the failure to include Common Stock to be sold by the Company
in such Public Offering would be materially detrimental to the success of
the Public Offering or to the trading market in NTL's Common Stock, an
amount of Common Stock to be sold by NTL equal to the lesser of (i) the
minimum number of shares of Common Stock recommended by such managing
underwriter to be sold by NTL and (ii) that amount sought to be included at
the request of NTL, will be included in the Public Offering and the
Registrable Securities to be sold by the Holder will be reduced, applying
clause (x) above to such Holder's requests mutatis mutandis; or
(b) if, such registration or Public Offering is pursuant to Section
2.3 of this Agreement, (x) first, securities sought to be included at the
request of NTL shall be included, and (y) second, if the number of
securities to be registered exceeds the Maximum Number, the amount of
Registrable Securities proposed to be offered by Holders shall be reduced
as agreed among such Holders, to the extent necessary to reduce the total
amount of securities to be included in such offering to the Maximum Number.
2.5. REQUIREMENTS WITH RESPECT TO REGISTRATION. Subject to Section 4, if
and whenever NTL is required by the provisions hereof to use its best efforts to
register any Registrable Securities under the Securities Act, NTL shall:
(a) As promptly as practicable prepare and file with the Commission a
Registration Statement with respect to such Registrable Securities and use
its best efforts to cause such Registration Statement to become and remain
effective; provided, however, that, before filing any Registration
Statement or prospectus or any amendments or supplements thereto, NTL shall
furnish to and afford the Holders of the Registrable Securities covered by
such Registration Statement, and the managing underwriters, 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.
(b) As promptly as practicable, prepare and file with the Commission
such amendments and supplements to such Registration Statement and the
prospectus used in connection therewith as may be necessary to keep such
Registration Statement current and effective for a period equivalent to the
longer
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of (i) 90 days or (ii) the period provided for in any underwriting or
purchase agreement under which such Registrable Securities are offered and
sold and to comply with the provisions of the Securities Act, and the
Regulations, with respect to the sale or disposition of such Registrable
Securities (the "Effectiveness Period").
(c) Promptly notify each Seller of any Registrable Securities covered
by such Registration Statement (A) when the Registration Statement or any
related prospectus or any amendment or supplement has been filed, and, with
respect to the Registration Statement or any post-effective amendment, when
the same has become effective, (B) of any request by the Commission for
amendments or supplements to the Registration Statement or the related
prospectus or for additional information, (C) of any order issued or
threatened by the Commission suspending the effectiveness of such
Registration Statement, preventing or suspending the use of a prospectus or
suspending the qualification (or exemption from qualification) of any of
the Registrable Securities for sales in any jurisdiction NTL shall use its
best efforts to prevent the issuance of any such order and, if any such
order is issued, shall use its best efforts to obtain the withdrawal of any
such order at the earliest possible moment or (D) of the receipt by NTL of
any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation of
any proceedings for such purpose.
(d) Immediately upon becoming aware thereof, notify each Seller and
underwriter of such Registrable Securities, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of
the occurrence of an event requiring the preparation of a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any 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 and promptly make available to each Seller and underwriter any
such supplement or amendment.
(e) Use its best efforts to register or qualify the Registrable
Securities covered by such Registration Statement under such securities or
blue sky laws of such jurisdictions in the United States as the Holders or
the managing underwriter of any Public Offering shall reasonably request,
and do any and all other acts and things that may be reasonably necessary
to enable each participating Seller or underwriter to consummate the
disposition of the Registrable Securities in such jurisdictions; provided,
however, that in no event shall NTL be required to qualify to do business
as a foreign corporation in any jurisdiction where it is not so qualified;
or to execute or file any general consent to service of process under the
laws of any jurisdiction.
(f) Make available upon reasonable advance notice for inspection by
any Seller of such Registrable Securities, any underwriter participating in
any disposition pursuant to such Registration Statement and any attorney,
accountant or other professional retained by any such Seller or underwriter
(collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of NTL (collectively, the
"Records") as shall be reasonably necessary to enable them to conduct a
"reasonable" investigation for purposes of Section 11(a) of the Securities
Act and cause NTL's officers, directors and employees to supply all
information reasonably requested by any Inspectors in connection with such
Registration Statement; provided that such Seller shall maintain
confidential any such information received from NTL and designated as such
except information which is (i) in the public domain or (ii) becomes public
knowledge through no fault of such Seller or (iii) is required to be
disclosed by court order or other government process or the disclosure of
which is necessary to enable such Seller to comply with applicable law or
defend against claims. In the event that such Seller shall be required to
make disclosure pursuant to the provisions of clause (iii) of the proviso
to the preceding sentence, such Seller shall to the extent practicable
promptly notify NTL and take, at the expense of NTL, all reasonably
necessary steps requested by NTL to defend against the enforcement of such
court order or other government process, and permit NTL to participate with
counsel of its choice in any proceeding relating to the enforcement
thereof.
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(g) Use its best efforts to cause all Registrable Securities covered
by such Registration Statement to be (A) listed or qualified for trading on
the principal national securities exchange or quotation service on which
the outstanding Common Stock is listed or quoted (which for the avoidance
of doubt is currently the National Association of Securities Dealers
Automated Quotation -- National Market System ("NASDAQ")) and (B) listed or
qualified for trading on any other stock exchange or quotation service on
which NTL's outstanding shares of Common Stock are listed or qualified for
trading.
(h) Furnish to each Seller and each underwriter of the Registrable
Securities covered by such Registration Statement such number of copies of
such Registration Statement, each amendment and supplement thereto (in each
case including all exhibits thereto and documents incorporated by reference
therein), the Prospectus included in such Registration Statement (including
each Preliminary Prospectus) and such other documents as such Holder or
underwriter may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Seller.
(i) In connection with an underwritten offering of Registrable
Securities, enter into an underwriting agreement in such form as is
customary in underwritten offerings made by selling security holders 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, and in such connection, (A) make such representations and
warranties to the underwriters and the Sellers with respect to the business
of NTL and its subsidiaries, and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, as are customarily made by issuers to underwriters
in underwritten offerings made by selling security holders, and confirm the
same on the settlement date for the offering; (B) cause opinions of counsel
to NTL (which counsel and opinions shall be reasonably satisfactory to the
managing underwriters), to be delivered to the underwriters and the Sellers
covering the matters customarily covered in opinions requested in
underwritten offerings by selling security holders; (C) cause "cold
comfort" letters and updates thereof (which letters and updates shall be
reasonably satisfactory to the managing underwriters) from the independent
certified public accountants of NTL (and, if necessary, any other
independent certified public accountants of any subsidiary of NTL or of any
business acquired by NTL for which financial statements and financial data
are, or are required to be, included in the Registration Statement), to be
delivered to each of the underwriters and the Sellers of such Registrable
Securities included in such underwritten offering (if such accountants are
permitted under applicable law and accounting literature to so address
"cold comfort" letters), such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings by selling security holders; and (D)
if an underwriting agreement is entered into, the same shall contain
customary indemnification provisions and procedures from NTL in favor of
both the Sellers of such Registrable Securities and the underwriters or
selling agents. The delivery of certificates, opinions and letters referred
to above shall be done at each closing under such underwriting agreement,
as and to the extent required thereunder.
(j) Comply with all applicable rules and regulations of the Commission
and make generally available to security holders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities Act)
not later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (A)
commencing at the end of any fiscal quarter in which Registrable Securities
are sold to underwriters in a Public Offering and (B) if not sold to
underwriters in such an offering, commencing on the first day of the fiscal
quarter of NTL after the effective date of a Registration Statement, which
statements shall cover said 12-month periods.
(k) Cooperate with each Seller and the managing underwriter, if any,
participating in the disposition of such Registrable Securities in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
(l) 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
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enter into any other customary agreements and take such other actions,
including participation in "roadshows" in connection with any Demand
Registration, as are reasonably required in order to expedite or facilitate
the disposition of such Registrable Securities.
(m) Until there are no Registrable Securities outstanding at the
reasonable request of the Holders, hold periodic meetings with
representatives of the Holders to report on the market for NTL's shares and
opportunities for such Holders to effect sales of Registrable Securities.
(n) With respect to any Registration Statement under Section 2 hereof,
the Company may require each Holder disposing of Registrable Securities
covered by such Registration Statement to furnish such information
regarding the Holder and such Holder's intended disposition of Registrable
Securities as the Company may from time to time reasonably request (with
reasonable prior notice) in writing. If any such information with respect
to the Holder is not furnished within a reasonable period of time after
receipt of such request, the Company may exclude such Holder's Registrable
Securities from such Registration Statement.
2.6 ALTERNATIVE DISPOSITION.
Holders may request registration of Registrable Securities pursuant to this
Section 2 in connection with any offering of (i) Registrable Securities or (ii)
securities of a trust or other special purpose vehicle formed for the purpose of
disposing of Registrable Securities, alone or in conjunction with other
securities, on a current or delayed basis, in connection with which Registrable
Securities are required to be registered under the Securities Act and the
provisions of this Agreement shall apply mutatis mutandis to any registration
of, or registration statement relating to such trust or special purpose vehicle;
provided further that the obligations under Section 8 to indemnify underwriters
of Registrable Securities shall also extend to any such trust or special purpose
vehicle to the extent it may be deemed to be an "underwriter" of Registrable
Securities for purposes of the Securities Act.
2.7 PRIVATE SALE TAG ALONG.
If before [INSERT DATE ONE YEAR AFTER CLOSING] any of the X Holders wishes
to transfer shares of Common Stock to a third party in a transaction not
registered with the Commission, it shall give written notice (the "Private Sale
Notice") to the Y Holders to that effect. If, not later than the close of
business on the third business day following delivery of the Private Sale
Notice, one or more Y Holders gives written notice to the X Holders that such Y
Holders intend to sell shares of Common Stock on the terms and conditions set
forth in the Private Sale Notice, such Y Holders will be entitled to sell shares
of Common Stock in the same proportion of shares held by such Y Holders as
shares which the X Holders are selling bears to the total number of shares held
by the X Holders, provided that the rights in this Section 2.7 shall no longer
be available to any Y Holder that has after the date hereof either (i) sold
shares of Common Stock in a transaction not registered with the Commission or
(ii) sold shares of Common Stock pursuant to the terms of this Agreement
(including the second recital hereto) in circumstances in which such Y Holder
was not required to sell fewer shares than originally sought to be sold by such
Y Holder pursuant to Section 2.4 hereof or any similar allocation procedures.
For the avoidance of doubt, it is acknowledged that (i) the agreements in this
Section 2.7 are solely among the X Holders and the Y Holders and NTL shall have
no responsibility or liability therefor and (ii) any sale of shares of Common
Stock under this Section 2.7 must comply with the provisions of Section 3.2(e)
of the Share Exchange Agreement.
SECTION 3. HOLD-BACK AGREEMENT.
NTL and each Holder whose Registrable Securities are covered by a
Registration Statement filed pursuant hereto each agrees, that it will upon the
reasonable request (pursuant to a timely written notice) of the managing
underwriter or underwriters in an underwritten offering, not to effect any
public sale or distribution of any of the securities of NTL being registered, or
any similar security of NTL, or any securities convertible or exchangeable or
exercisable for such securities, including sale pursuant to Rule 144 (except in
each case as part of such underwritten offering), during the period beginning 10
days prior to, and ending
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90 days after, the closing date of each underwritten offering made pursuant to
such Registration Statement, to the extent timely notified in writing by NTL or
by the managing underwriter of such underwritten offering.
SECTION 4. REGISTRATION EXPENSES.
(a) Except as provided in clause (b) below, all fees and expenses incident
to the registration and sale of the Registrable Securities shall be borne by NTL
whether or not a Registration Statement is filed or becomes effective,
including, without limitation, (i) all registration and filing fees (including,
without limitation, (A) fees with respect to filings required to be made with
the NASD in connection with an underwritten offering and (B) fees and expenses
of compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for NTL or the underwriters, or
both, in connection with Blue Sky qualifications of the Registrable
Securities)), (ii) 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, 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
NTL, (iv) fees and disbursements of all independent certified public accountants
for NTL (including, without limitation, the expenses of any "cold 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 designated by the Sellers
under Section 2.1 hereof and one of such Sellers, in which case such fees and
expenses will be borne by the Sellers), (vi) Securities Act liability insurance,
if NTL so desires such insurance, (vii) all out-of-pocket expenses of NTL
(including, without limitation, expenses incurred by officers and employees of
NTL performing legal or accounting duties or participating in "roadshow"
presentations or of any public relations, investor relations or other
consultants retained by NTL in connection with any roadshow), 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 ((i) through (viii) above collectively, "Registration Expenses").
(b) Each Seller 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 such Seller's account and any fees
and expenses of legal counsel and other advisors separately engaged by such
Seller.
SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) NTL Representations, Warranties and Agreements. NTL represents and
warrants to, and agrees with, each Holder that:
(i) NTL has all requisite corporate power and authority to execute,
deliver, and perform this Agreement. This Agreement has been duly
authorized, executed, and delivered by NTL. No consent, authorization,
approval, order, license, certificate, or permit of or from, or declaration
or filing with, any United States federal, state, local, or other
governmental authority or any court or other tribunal is required by NTL
for the execution, delivery or performance of this Agreement by NTL (except
filings under the Securities Act which will be made and any consents under
Blue Sky or state securities laws which will be obtained).
(ii) NTL shall not enter into any transaction involving the issuance
or transfer by any other Person of Other Securities to any Holder, or any
merger or consolidation in which it is not the surviving Person, or any
sale, lease or other transfer of all or substantially all the assets of
NTL, unless effective provision is made for the assumption by such other
Person, jointly and severally with NTL if NTL shall remain in existence, of
all of the obligations of NTL hereunder, and in the case of any such
issuance or transfer, the registration of such Other Securities on the same
or no more favorable basis as the registration of the other Registrable
Securities hereunder.
(iii) The execution and delivery of this Agreement by NTL do not, and
the consummation of the transactions contemplated hereby will not, violate,
conflict with, or result in a breach of any provision of,
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or constitute a default (with or without notice or lapse of time or both)
under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination, cancellation, or
acceleration of any obligation or the loss of a material benefit under, or
result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets (any such violation,
conflict, breach, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") of NTL or any of its
subsidiaries pursuant to any provisions of (i) the articles of
incorporation, by-laws or similar governing documents of NTL or any of its
subsidiaries, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any governmental
authority applicable to NTL or any of its subsidiaries or any of their
respective properties or assets or (iii) any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which NTL
or any of its subsidiaries is a party or by which it or any of its
properties or assets may be bound or affected.
(iv) NTL covenants that it will file any reports required to be filed
by it under the Securities Act and the Exchange Act, will make available
"adequate current public information concerning NTL within the meaning of
paragraph (c) of Rule 144" and that it will take such further action as any
Holder may reasonably request, all to the extent required from time to time
to enable Holders to sell Registrable Securities without registration under
the Securities Act pursuant to the exemptions provided by Rule 144. Upon
the request of any Holder, NTL will deliver to such Holder a written
statement as to whether it has complied with such requirements.
(b) Holder Representations, Warranties and Agreements. Each Holder
represents and warrants to, and agrees with, NTL, that:
(i) Such Holder, if not a natural person, is duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
organization. Such Holder has all requisite power and authority to execute,
deliver, and perform this Agreement. This Agreement has been duly
authorized by such Holder, if not a natural person, and has been duly
executed and delivered by such Holder.
(ii) Neither such Holder nor any such Holder's Affiliates will take,
directly or indirectly, during the term of this Agreement, any action
designed to stabilize (except as may be permitted by applicable law) or
manipulate the price of any security of NTL.
(iii) Such Holder shall promptly furnish to NTL upon NTL's reasonable
request any and all information as may be required by, or as may be
necessary or advisable to comply with the provisions of, the Securities
Act, the Regulations, the Exchange Act, and the rules and regulations of
the Commission thereunder in connections with the preparation and filing of
any Registration Statement pursuant hereto, or any amendment or supplement
thereto, or any Preliminary Prospectus or Prospectus included therein.
SECTION 6. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS.
All representations, warranties, covenants and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants and
agreements at the effective date of each Registration Statement contemplated by
this Agreement, and such representations, warranties, covenants and agreements,
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of NTL, any Holder, or any other Person and
shall survive termination of this Agreement.
SECTION 7. INDEMNIFICATION
(a) Indemnification by NTL. NTL shall, without limitation as to time,
indemnify and hold harmless, to the fullest extent permitted by law, each holder
of Registrable Securities, and any underwriter participating in the
distribution, their respective officers, directors, partners and agents and
employees of each of them, each Person who controls each such holder 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,
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defending and appearing as a third-party witness and attorney's 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 NTL 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 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 Holder of Registrable Securities. In connection
with any Registration Statement in which a Holder of Registrable Securities is
participating, such Holder of Registrable Securities shall furnish to NTL in
writing such information as NTL reasonably requests for use in connection with
any Registration Statement or Prospectus, and shall severally, without
limitation as to time, indemnify and hold harmless, to the fullest extent
permitted by law, NTL, any underwriter participating in the distribution and
their respective directors, officers, agents and employees, each Person who
controls NTL 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 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 NTL by
such Holder expressly for use therein or (ii) the failure of such participating
Holder or any underwriter acting for such participating Holder 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 any Seller of Registrable Securities hereunder be, or be claimed by NTL to
be, greater in amount than the dollar amount of the proceeds actually received
by such Seller 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
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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: (1) the indemnifying party or parties agree to pay such fees and
expenses; or (2) the indemnifying parties fail promptly to assume the defense of
such Proceeding or fail to employ counsel reasonably satisfactory to such
indemnified party or parties; or (3) 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 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 7(a) or Section 7(b)
shall be available to any party who shall fail to give notice as provided in
this Section 7(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 7(a) or Section 7(b).
(d) Contribution. If the indemnification provided for in this Section 7 is
unavailable to an indemnified party or is insufficient to hold such indemnified
party harmless for any Losses in respect to which this Section 7 would otherwise
apply by its terms, except by reasons of Section 7(a)(i) or (ii) hereof or the
failure of the indemnified party to give notice as required in Section 7(c)
hereof (provided that the indemnifying party was unaware of the proceeding to
which such notice would have related and was 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 a Holder, NTL, shall have an obligation to contribute
to the 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 NTL, the Holders 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 Holders on the one hand
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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 NTL entered into this Agreement
to induce the Holders to engage in the transaction in which the Registrable
Securities were acquired. The relative benefits received by the Holders 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 Holders 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 7(a) or 7(b) were
available to such party.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7(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 7(d), an indemnifying party that
is a selling Holder of Registrable Securities 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 7 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.
SECTION 8. UNDERWRITTEN REGISTRATION
No Holder of Registrable Securities may participate in any underwritten
registration hereunder unless such Holder (i) agrees to sell such Holder's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Holders of a majority of Registrable Securities included in such
offering, and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements, custodial or escrow agreements
and other documents required under the terms of such underwriting arrangements.
SECTION 9. UNREGISTERED OFFERINGS
The parties hereto hereby agree that, in the event that NTL or one or more
Holders propose to make an underwritten Public Offering of shares of Common
Stock (i) that is exempt from, or not subject to, the registration requirements
of the Securities Act pursuant to Regulation S (or any successor or similar
regulation) thereunder and (ii) with respect to which the Holder or Holders
proposing such underwritten offering request the cooperation and participation
of NTL or the management of NTL in performing due diligence and marketing such
offering to potential investors, the relevant notice provisions of Section 2.1
or 2.3 will state that the offering is proposed to be made on an unregistered
basis pursuant to Regulation S. In that
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event, the parties agree to proceed with such an offering on an unregistered
basis pursuant to Regulation S in good faith as and to the extent provided
herein with respect to a registered offering and that the provisions of this
Agreement will apply mutatis mutandis to such unregistered offering, including,
without limitation, provisions relating to Joining Notices, NTL's ability to
delay an offering, allocations of securities included in an offering, NTL's
obligations with respect to an offering (including indemnification provisions
and procedures), selection of underwriters, hold-back agreements, expenses
associated with an offering and representations and warranties.
SECTION 10. MISCELLANEOUS
(a) Remedies. In the event of 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 its rights
under this Agreement. NTL and each Holder agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by NTL or
such Holder, 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, NTL or such Holder, 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 NTL or any Holder 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.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless NTL has obtained the written consent of Holders of at least two-
thirds of the then outstanding Registrable Securities. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders of Registrable
Securities whose securities are being sold pursuant to a Registration Statement
and that does not directly or indirectly affect, impair, limit or compromise the
rights of other Holders of Registrable Securities may be given by Holders of at
least a majority of the Registrable Securities being sold by Holders pursuant to
such Registration Statement; provided, however, that the provisions of this
sentence may not be amended, modified or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(c) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, by telecopier
(receipt of which is confirmed) or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
if to NTL, to:
NTL Incorporated
110 East 59th Street
New York, New York 10022
Telecopy No.: (212) 906-8497
Attention: Richard J. Lubasch
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopy No.: (212) 735-2000
Attention: Thomas H. Kennedy
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If to Holders, at the addresses listed on Annex A hereto.
with a copy to:
Sullivan & Cromwell
9a Ironmonger Lane
London EC2V 8EY, England
Telecopy No.: 44-171-710-6565
Attention: Scott D. Miller
and to:
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Telecopy No.: 212-902 3000
Attention: Ben Adler
(d) Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
(e) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
(f) Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein) (i) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and (ii) except as contemplated by the definition of "Holders" in
Section 1 hereof, is not intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
(g) Confidential Information. The Holders and NTL each agree that they
shall keep confidential and not at any time after the date of this Agreement
disclose any confidential information regarding NTL (in the case of the Holders)
and regarding the Holders (in the case of NTL) received in connection with the
performance of this Agreement except information which is (i) in the public
domain or (ii) becomes public knowledge through no fault of such party or (iii)
is required to be disclosed by court order or other government process or the
disclosure of which is necessary to enable such party to comply with applicable
law or defend against claims. In the event that such party shall be required to
make disclosure pursuant to the provisions of clause (iii) of the preceding
sentence, such party shall promptly notify the others and take all reasonably
necessary steps requested by such other party for such other party's expense to
defend against the enforcement of such court order or other government process,
and permit such other party to participate with counsel of its choice in any
proceeding relating to the enforcement thereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, USA, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
(i) Severability. Wherever possible, each provision hereof shall be
interpreted in such a manner as to be valid, legal and enforceable under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
or rendering unenforceable the remainder of this Agreement, unless such a
construction would be unreasonable or materially impair the rights or any party
hereto.
(j) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without prior written consent of the other
parties, except as may otherwise occur by operation of the definition of
"Holders" in
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<PAGE> 291
Section 1 hereof or to another Holder who, by such assignment, agrees to be
bound by the restrictions set forth herein; provided, however that NTL may
assign its rights and obligations hereunder to a holding company formed in
accordance with Section 251(g) of the Delaware General Corporation Law.
Notwithstanding the foregoing, a Holder that is a trust may, in connection with
any distribution of the assets of the trust to the beneficiaries thereof, assign
its rights under this Agreement to such beneficiaries; and, any Holder may with
the consent of NTL (which consent will not be unreasonably withheld) in
connection with a private sale of shares of Common Stock assign its rights under
this Agreement to any single purchaser that acquires shares of Common Stock from
such Holder in a private sale for a purchase price of $25 million or more.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties hereto and their respective
successors and assigns.
(k) Attorney's Fees. As between parties to this Agreement, in any action
or proceeding brought to enforce any provision of this Agreement, or where any
provision hereof is validly asserted as a defense, the successful party shall be
entitled to recover reasonable attorney's fees in addition to its costs and
expenses and any other available remedy.
(l) Use of Terms. This Agreement contemplates the filing of Registration
Statements under the Securities Act on numerous occasions involving various
offers of securities. In connection with such Registration Statements, there may
be identified therein one or more underwriters through which securities are to
be offered on behalf of NTL or one or more of the Holders, or both, pursuant to
either a "firm-commitment" or "best-efforts" arrangement, and, in the case where
there is more than one underwriter, one or more of the underwriters may be
designated as the "manager" or "representative" or the "co-managers" or
"representatives" of the several underwriters. Accordingly, all references
herein to an "underwriter" or "underwriters" are intended to refer to a
"principal underwriter" (as defined in Rule 405 of the Regulations) and to
provide for those transactions in which securities may be offered by or through
one or more underwriters, and not to imply that any of the transactions
contemplated hereby is conditioned in any manner whatsoever on the participation
therein by one or more underwriters on behalf of any party. Nothing contained
herein relating to NTL's obligation to enter into an underwriting agreement at
any time or from time to time in the future shall impair, alter, restrict or
otherwise affect in any manner whatsoever the duties of the Board of Directors
of NTL under applicable law in approving the form, terms and provisions thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
NTL INCORPORATED
By:
--------------------------------------
Name:
Title:
[HOLDERS]
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ANNEX A
IDENTITY OF HOLDERS
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ANNEX E
DIAMOND CABLE COMMUNICATIONS PLC
EUROPEAN CAPITAL CABLE PARTNERS, L.P.
CGT FAMILY CORPORATION
NTL INCORPORATED
------------------------------------------------------------
SUPPLEMENTAL OPTION AGREEMENT
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SUPPLEMENT OPTION AGREEMENT made on 15 June 1998
AMONG
DIAMOND CABLE COMMUNICATIONS PLC, a company registered in England with
number 2965241 (the "Company"), whose registered office is at Regency House, 2A
Sherwood Rise, Nottingham, NG7 6JN.
EUROPEAN CABLE CAPITAL PARTNERS, L.P., a Delaware limited partnership
(ECCP) whose principal office is at 85 Broad Street, New York, NY 10004.
CGT FAMILY CORPORATION, a corporation registered under the laws of the
State of Kentucky (CGT), whose address is c/o Gary Davis, Route 3, Hwy 600,
Greenville, KY 42345.
NTL INCORPORATED, a Delaware corporation ("NTL") whose address is at 110
East 59th Street, New York,
(A) The Company granted to CGT options to acquire 654,000 ordinary
shares of 2.5 pence each in the capital of the Company ("the CGT Option")
pursuant to an Option Agreement, dated January 5, 1995, among the Company,
ECCP and CGT ("the CGT Option Agreement").
(B) NTL and the Shareholders of the Company have, today, entered into
a share exchange agreement ("the Share Exchange Agreement") relating to the
acquisition by NTL of all the issued share capital of the Company.
IT IS AGREED AS FOLLOWS:
1. CGT will, prior to but conditional upon, Closing (as defined in the
Share Exchange Agreement) either:
1.1 exercise in full the CGT Option by serving a notice of exercise on
the Company in accordance with the terms of the CGT Option Agreement
accompanied by payment in full of the relevant subscription price; or
1.2 release in full the CGT Option in return for the issue by NTL of
shares of NTL Common Stock on the same basis as is set out in Section
5.3(a)(ii) of the Share Exchange Agreement.
2. CGT further agrees that in the event that the CGT Option shall not have
been exercised in accordance with clause 1.1 above or shall not have been
released in accordance with clause 1.2 above then with effect from Closing the
CGT Option shall be treated as released in accordance with clause 1.2 above and
CGT hereby appoints NTL as its true and lawful attorney-in-fact with full power
and authority in its name and on its behalf to sign or execute any such
agreements, instruments, deeds or other papers and to do all such acts and
things in its name as may be necessary to release the CGT Option on the terms
set out in clause 1.2 above.
3. It is agreed between the parties that any amendments made or to be made
to the Schedule to the Rules of the Diamond Cable Senior Management Option
Scheme shall apply to the CGT Option and to any Ordinary Shares in the Company
to be issued pursuant to the Option.
4. It is agreed by the parties that Clauses 3, 4, 5 and 6 of the Option
Agreement shall apply equally to the provisions of this Supplemental Option
Agreement as if set out in this Supplemental Option Agreement with the addition
in Clause 3.1 of the following:
NTL
Address: 110 East 59th Street
New York, New York 10022
Attention: Richard J. Lubasch
Fax No: 212 906 8497
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<PAGE> 295
with a copy to:
Skadden, Arps Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Thomas H. Kennedy
Fax No: 212 735 2000
with a copy to:
Travers Smith Braithwaite
10 Snow Hill
London, England
EC1A 2AL
Attention: Spencer Summerfield/Simon Jay
Fax No: (44 171) 236 3728
Signed for and on behalf of
DIAMOND CABLE
COMMUNICATIONS PLC
Signed for and on behalf of
EUROPEAN CABLE CAPITAL
PARTNERS HOLDINGS, INC
as general partner of
EUROPEAN CABLE CAPITAL
PARTNERS, L.P.
SIGNED for and on behalf of
CGT FAMILY CORPORATION
SIGNED for and on behalf of
NTL INCORPORATED
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