<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1999
REGISTRATION NO. 333-71279
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------------
NTL INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4899 52-1822078
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR 110 EAST 59TH STREET
ORGANIZATION) NEW YORK, NEW YORK 10022
(212) 906-8440
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
</TABLE>
<TABLE>
<S> <C>
RICHARD J. LUBASCH, ESQ. COPY TO:
SENIOR VICE PRESIDENT, THOMAS H. KENNEDY, ESQ.
GENERAL COUNSEL AND SECRETARY SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
NTL INCORPORATED 919 THIRD AVENUE
110 EAST 59TH STREET NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10022 (212) 735-3000
(212) 906-8440
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR
SERVICE)
</TABLE>
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-------------------------
THE REGISTRANT AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
The information in this prospectus in not complete and may be changed. We may
not deliver these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Prospectus
Subject to Completion, dated February 11, 1999
Offer to Exchange
NTL INCORPORATED (NTL LOGO)
11 1/2% SENIOR NOTES DUE 2008
12 3/8% SENIOR DEFERRED COUPON NOTES DUE 2008
------------------------
We are offering to exchange an aggregate principal amount of up to:
- $625,000,000 of our new 11 1/2% Series B Senior Notes due 2008 for a like
amount of our new 11 1/2% Senior Notes.
- $450,000,000 of our new 12 3/8% Series B Senior Notes due 2008 for a like
amount of our new 12 3/8% Senior Notes due 2008.
-------------------------------
Terms of the Exchange Offer
- The exchange offer expires at 5:00 p.m., New York City time, on
, 1999, unless extended.
- We will exchange all outstanding old notes that are validly tendered and
not validly withdrawn.
- You may withdraw tenders of outstanding old notes at any time prior to
the expiration of the exchange offer.
- The exchange of outstanding old notes for new notes will not be a taxable
event for United States federal income tax purposes. See "Federal income
tax considerations" on page 132 for more information.
- We will not receive any proceeds from the exchange offer.
- The terms of the new notes are substantially identical to the outstanding
old notes, except that the new notes will be registered under the
Securities Act and freely tradeable.
See "Risk Factors" beginning on page 14 for a discussion of risk factors
that you should consider before deciding to tender your old notes.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 1999.
<PAGE> 3
Until , 1999, which 90 days after the date of this
prospectus, if you are a dealer affecting transactions in the new notes, whether
or not you participate in the exchange offer, you may be required to deliver a
prospectus. This obligation is in addition to your obligation if you are a
dealer to deliver a prospectus when acting as an underwriter and with respect to
any unsold allotments or subscriptions.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We are currently subject to the informational requirements of the
Securities Exchange Act of 1934, as amended. We file reports, proxy statements,
information statements and other information with the Commission under the
Exchange Act. You can inspect and copy any reports, proxy statements,
information statements and other information we file with the Commission at the
public reference facilities the Commission maintains at:
Room 1024, Judiciary Plaza,
450 Fifth Street, N.W.,
Washington, D.C. 20549,
and at the Commission's Regional Offices located at:
Suite 1400, Northwestern Atrium Center,
500 West Madison Street,
Chicago, Illinois 60661
and
13th Floor, Seven World Trade Center,
New York, New York 10048,
and you may also obtain copies of such material by mail from the Public
Reference Section of the Commission at:
450 Fifth Street, N.W.,
Washington, D.C. 20549,
at prescribed rates.
The Commission also maintains a site on the World Wide Web, the address of
which is http://www.sec.gov. That site also contains our reports, proxy and
information statements and other information. Reports, proxy statements and
other information concerning the Company may also be inspected at the offices of
the Nasdaq Stock Market, Reports Section, at:
1735 K Street, N.W.,
Washington, D.C. 20006.
If the new notes are listed on the Luxembourg Stock Exchange, copies of our
reports, proxy statements and other information will also be made available free
of charge at the office of our agent in Luxembourg, Banque Internationale a
Luxembourg S.A..
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<PAGE> 4
This prospectus is part of a registration statement filed by us with the
Commission. It does not contain all the information included or incorporated in
the registration statement. The full registration statement can be obtained from
the Commission as indicated above or from us.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Commission allows us to incorporate by reference some information about
NTL that we file with the Commission. This allows us to disclose important
information to you by referencing those filed documents. Any information that we
reference this way is considered part of this prospectus.
The following documents filed by us with the Commission are incorporated by
reference into this prospectus:
(a) the Company'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;
(b) the Company's Quarterly Reports on Form 10-Q for the three months
ended March 31, 1998, dated May 14, 1998, for the three months ended June
30, 1998, dated August 14, 1998 and for the three months ended September
30, 1998, dated November 12, 1998;
(c) the Company's Current Reports on Form 8-K dated February 5, 1998
(filed February 6, 1998), March 6, 1998 (filed March 9, 1998), March 18,
1998 (filed March 20, 1998), May 29, 1998 (filed June 2, 1998), June 16,
1998 (filed June 16, 1998), August 14, 1998 (filed August 18, 1998),
October 5, 1998 (filed October 5, 1998), October 27, 1998 (filed October
28, 1998), October 29, 1998 (filed November 4, 1998), December 16, 1998
(filed December 17, 1998), December 21, 1998 (filed December 23, 1998),
December 22, 1998 (filed December 22, 1998) and January 25, 1999 (filed on
January 25, 1999); and
(d) the Company's Proxy Statement on Schedule 14A dated January 29,
1999.
We incorporate by reference the documents listed above and any future
filings made by us with the Commission pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act until the end of the exchange offer. Any information
incorporated by reference this way will automatically be deemed to update and
supersede this information.
ii
<PAGE> 5
We will provide you without charge on your oral or written request, a copy
of any or all documents which are incorporated by reference to this prospectus,
except for exhibits which are specifically incorporated by reference into those
documents. You should direct your request to:
NTL Incorporated
110 East 59th Street
26th Floor
New York NY 10022
Attention: Richard J. Lubasch
Tel: (212) 906 8440
To ensure timely delivery of any documents you request, you should make
such a request at least five days before the exchange offer expires. In
addition, copies of those documents will also be made available free of charge
at the office of our agent in Luxembourg.
------------------------
You should rely only on the information contained in this prospectus. We
have not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it. We are not making an offer of the new notes in any jurisdiction
where the offer or sale is not permitted. You should assume that the information
appearing in this prospectus is accurate as of the date on the front cover of
this prospectus only. Our business, financial condition, results of operations
and prospects may have changed since that date.
------------------------
In this prospectus, references to "pounds sterling," "L" "pence" or "p" are
to the lawful currency of the United Kingdom and references to "U.S. dollars,"
"dollars," "$" or "c" are to the lawful currency of the United States. For your
convenience only we have translated some pound sterling amounts into U.S.
dollars and certain U.S. dollar amounts into pounds sterling. We are not making
any representation to you regarding those translated amounts. Unless we
otherwise clearly indicate, the translations of pounds sterling into U.S.
dollars have been made at $1.6995 per L1.00, the noon buying rate in The City of
New York for cable transfers in pounds sterling as certified for customers
purposes by the Federal Reserve Bank of New York on September 30, 1998. See
"Exchange Rates" for information regarding the noon buying rate for the past ten
fiscal years. On February 4, 1999, the noon buying rate was 1.64 per L1.00.
------------------------
iii
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights information about us and the exchange offer which
is contained elsewhere or incorporated by reference in this prospectus. This
summary is not complete and may not contain all the information that is
important to you. You should read the entire prospectus, including the financial
statements and related notes, before making a decision to exchange your old
notes. When we refer to NTL in this prospectus, we mean NTL and its consolidated
subsidiaries, except where we make it clear that we are only referring to the
parent company. The statistical data included in this prospectus is as at
September 30, 1998, unless we indicate otherwise. That statistical data does not
include statistical data relating to ComTel or Partners, each of which we have
recently acquired or give effect to our proposed acquisition of Diamond.
ABOUT NTL
We are a leading communications company in the United Kingdom, providing
residential, business and wholesale customers with the following services:
- residential telecoms and television services, including residential
telephony, cable television and Internet access services;
- national telecoms services including national business telecoms, national
and international carrier telecommunications, and satellite and radio
communications services; and
- broadcast services including digital and analog television and radio
broadcast transmission services.
We provide a broad range of services over local, national and international
network infrastructure. We operate:
- advanced local broadband networks serving entire communities throughout
our regional franchise areas;
- the UK's first synchronous digital hierarchy backbone telecommunications
network, as well as satellite earth stations and radio communications
facilities from our tower sites across the UK; and
- a broadcast transmission network which provides national, regional and
local analog and digital transmission services to customers throughout
the UK.
In March 1997, we changed our name from International CableTel Incorporated
to NTL Incorporated to reflect the integration of the services provided by us
following our acquisition of NTL Group Limited in 1996, and to capitalize on NTL
Group Limited's 30 year history in the United Kingdom as a provider of reliable
communications services.
ABOUT OUR RESIDENTIAL TELECOMS AND TELEVISION SERVICES
We are the third largest operator of local broadband communications systems
in the UK as measured by the number of homes in its franchise areas, and have
achieved the highest customer penetration and lowest churn rates of any
multi-system operator in the
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<PAGE> 7
UK. We are presently the sole provider of broadband services in our franchise
areas, offering residential telephony, cable television and Internet access
services to customers connected to our networks.
As of September 30, 1998, we had more than 429,000 residential customers,
approximately 92% of which subscribed to both telephony and television services.
As of September 30, 1998, we had approximately 823,400 revenue generating units
resulting in 40.1% telephony penetration, 40.6% cable penetration and 80.7%
revenue generating unit penetration of homes marketed by us. As of September 30,
1998, after giving pro forma effect to the acquisition of Partners, without
including the Cable London franchise, and the proposed acquisition of Diamond,
we 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, we had approximately 1.8 million
revenue generating units resulting in 35.3% telephony penetration, 28% cable
penetration and 61.6% revenue generating unit penetration of homes marketed. By
comparison, based on published statistics of the Independent Television
Commission, 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.
The following table illustrates operating statistics for our 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 revenue generating units(4).... 1,792,000 823,400 608,500 302,000 102,330 3,960
Customer penetration................. 38% 42% 40% 36% 33% 32%
Revenue generating unit
penetration(5)..................... 62% 81% 75% 65% 58% 55%
Annualized churn..................... NA 14% 11% 10% NM NM
</TABLE>
- ---------------
(1) Pro forma operating statistics for our newly constructed network give
effect to the acquisition of Partners (without including the Cable London
franchise), our acquisition of ComTel and our proposed 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 our
network.
(3) Represents only those homes marketed for cable television. As of September
30, 1998, on a pro forma basis, 2,776,000 homes were marketed for
telephone.
(4) A revenue generating unit is one telephone account or one cable television
account; a dual customer represents two revenue generating units.
(5) Revenue generating unit penetration is the number of revenue generating
units per 100 homes marketed. As defined, maximum revenue generating unit
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.
2
<PAGE> 8
Our customer base and revenue generating units both increased by nearly
100% in 1997 compared to year-end 1996. We believe that much of its success
during this period has been due to our marketing strategies and the introduction
of innovative residential service packages which bundle telephony and a small
selection of cable television channels within a single product offering. We also
give customers the opportunity to purchase additional channel packages and
premium channels. Consistent with our objectives, the high penetration rates
generated by this strategy have led to increased levels of gross profit
contribution per home passed.
We believe that we have also maintained high levels of customer
satisfaction as indicated by our low rates of churn. During 1997, we 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 our customers, we found that 89% of our customers
would recommend the service to a friend or relative, and that only 15% had ever
considered changing their telephone service back to British Telecommunications
plc.
Our 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, our integrated full-service network had been constructed
past over 1.2 million (or approximately 57%) of its homes under franchise. Our
local broadband networks use advanced high capacity synchronous digital
hierarchy fiber rings which serve entire communities, bringing fiber connections
directly to businesses and "Siamese" coaxial/copper connections to residences.
Our 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.
ABOUT OUR NATIONAL TELECOMS SERVICES
Our objective in national telecoms services is to successfully integrate
our strategies for developing, operating and marketing local telephony/cable
systems with our national network to provide high-quality voice, data and video
communications services throughout the UK. We have constructed a national
synchronous digital hierarchy fiber telecoms network, which is one of only five
national telecoms networks in the UK. Our national network currently covers
approximately 1,500 route miles and 40,000 fiber miles throughout England,
Scotland and Wales. During 1998, we extended the network to include the first
resilient fiber connection between Northern Ireland, the Republic of Ireland and
England.
The integration of our local networks with the national telecoms network
creates strategic advantages for our telephony business. The national network
allows us to carry telecommunications traffic between each of our franchise
areas and throughout the United Kingdom and, therefore, achieve significant
savings on the interconnection fees we pay to other carriers. In addition, using
the national telecoms network gives us greater pricing flexibility and will
enable us to design and offer new telephony service packages to our customers,
which we believe should have a positive effect on our penetration rates.
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<PAGE> 9
Capitalizing on the extended reach of our national network, we are
competing for a share of the approximately L21 billion ($36 billion) UK telecoms
market on a national basis. In the business telecoms market, we have been
increasingly successful in obtaining telecoms contracts from businesses located
within our franchise areas. As of September 30, 1998, we 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. Our current business customers include major
international corporations, universities, local governmental authorities, and
small and medium sized businesses. We believe that we 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, we have a variety of options, including building
fiber where justified, using microwave links from the our tower infrastructure,
or leasing circuits from other local operators. We launched our national
business telecoms service in November 1997 and our strategy is to target medium
to large sized businesses, beginning with those located near the major urban
areas currently served by our national network.
We also offer a variety of other telecommunications services from our
national fiber network and microwave transmission facilities. We compete in the
growing market for bandwidth and leased line services as a national and
international wholesale telecommunications carrier. Our international facilities
license allows us to carry international traffic, and we have 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. We are also expanding our 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, we provide the following
telecom services:
- 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;
- global satellite connectivity for clients requiring video, digital audio
and data services; and
- residential, wholesale and business Internet access and support services,
consulting and systems integration services, and Intranet design and
implementation.
ABOUT OUR BROADCAST SERVICES
Our 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.
We transmit 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.
Our current customers include
4
<PAGE> 10
the Independent Television companies, Channel 4 and the Welsh Fourth Channel,
and Channel 5. The broadcast services group provides us 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 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 digital terrestrial television
multiplexes awarded to date have selected us as the preferred supplier of
transmission services. The introduction of digital terrestrial television
broadcasting in the UK will significantly expand our broadcasting transmission
services business.
------------------------
We are a Delaware corporation, and were 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. Our
principal executive office is located at 110 East 59th Street, New York, New
York 10022, and our telephone number is (212) 906-8440.
5
<PAGE> 11
RECENT DEVELOPMENTS
COMPLETION OF PARTNERS ACQUISITION
On February 4, 1998, NTL and NTL (Bermuda) Limited, a Bermuda corporation
and a wholly owned subsidiary of NTL ("Sub"), entered into an Agreement and Plan
of Amalgamation, as amended, with Comcast UK Cable Partners Limited which
provided for the amalgamation of Sub with Partners. At special meetings of
shareholders of NTL and of Partners held on October 29, 1998, the amalgamation
was approved by our shareholders and the shareholders of Partners. The
amalgamation closed on the same day following receipt of those approvals.
Partners' shareholders received 0.3745 shares of our common stock for each
Partners' Class A common share or Class B common share, an aggregate of
approximately 18,700,000 shares of our common stock.
EASTERN GROUP ACQUISITION
On December 22, 1998, we 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 cash or NTL common stock.
Eastern Group is headquartered in Ipswich, England, and is comprised of two
business divisions. The telecoms division utilizes a 1,800 km synchronous
digital hierarchy fiberoptic 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 Limited, a wholly-owned subsidiary of NTL,
acquired 9,000,000 shares, or 6.3%, of Newcastle United from Cameron Hall
Developments Limited, the majority shareholder of Newcastle United, for
approximately L10 million in cash.
In conjunction with the sale of such shares, Cameron Hall Developments 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, Cameron Hall Developments 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. The irrevocable commitment given by Cameron Hall Developments is binding
until 12 weeks following the publication of such report, subject to extension in
certain circumstances.
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<PAGE> 12
PROPOSED DIAMOND ACQUISITION
On June 16, 1998, we entered into an acquisition agreement with the
shareholders of Diamond Cable Communications, plc. Pursuant to the diamond
agreement, on the closing date of the diamond transaction, we will transfer to
each shareholder of Diamond one share of NTL common stock for each four issued
and outstanding ordinary shares, par value 2.5p per share, and each deferred
share, par value 25p per share, of Diamond. However, the Diamond Agreement
provides for adjustment of such consideration in that 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 $65.00. The
diamond agreement provides that a maximum of approximately 15.2 million shares
of common stock will be issued in connection with the Diamond transaction. The
consummation of the Diamond transaction is subject to, among other things, the
approval by our stockholders of the issuance of shares of common stock in
accordance with the terms of the Diamond agreement. There can be no assurance
that the Diamond acquisition will be consummated on the terms described herein
or at all. See "Risk Factors -- Network construction costs, need for additional
financing."
STRATEGIC PARTNERSHIP WITH MICROSOFT
On January 25, 1999, we agreed with Microsoft to jointly develop new
broadband services for delivery to customers in the UK and Ireland. In addition,
Microsoft has agreed to purchase $500 million of our 5.25% convertible preferred
stock. Such 5.25% convertible 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
trading days.
We have agreed with Microsoft 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,
Microsoft will receive five-year warrants to purchase 1.2 million shares of
common stock at an exercise price of $84 per share.
OFFERING OF OUR 7% CONVERTIBLE SUBORDINATED NOTES
On December 16, 1998, we issued and sold $600 million in aggregate
principal amount of our 7% convertible subordinated notes due 2008, the "new
convertible notes." The new convertible notes carry a cash-pay current coupon.
The new convertible notes are convertible into shares of common stock at a
conversion price of $61.25 per share, subject to adjustment in certain events.
We intend to use the net proceeds of the offering of the new convertible notes
to finance the construction, capital expenditures and working capital
requirements (including, without limitation, debt service and repayment
obligations). The new convertible notes were offered and sold in transactions
exempt from the registration requirements of the Securities Act.
7
<PAGE> 13
THE EXCHANGE OFFER
Notes offered................. We are offering up to
- $625,000,000 principal amount of new 11 1/2%
Series B Senior Notes due 2008 (the "11 1/2%
new notes" and, together with the 11 1/2% old
notes, the "11 1/2% notes"), and
- $450,000,000 principal amount at maturity of
new 12 3/8% Series B Senior Deferred Coupon
Notes due 2008 (the "12 3/8% new notes" and,
together with the 12 3/8% old notes, the
"12 3/8% notes" and, the 12 3/8% new notes,
together with the 11 1/2% new notes, the "new
notes").
The Series B Notes have been registered under
the Securities Act.
The exchange offer............ We are offering to issue the new notes in
exchange for a like principal amount of your
old notes. For procedures for tendering, see
"The Exchange Offer."
Tenders, expiration date;
withdrawal................. The exchange offer will expire at 5:00 p.m. New
York City time on , 1999 unless
we extend it. If you decide to tender your old
notes in the exchange offer, you may withdraw
them at any time before , 1999.
If we decide for any reason not to accept any
old note for exchange, it will be returned
without expense to you promptly after the end
of the Exchange Offer.
United States federal income
tax consequences.............. Your exchange of old notes for new notes in the
exchange offer should not result in any income,
gain or loss to you for federal income tax
purposes. See "Federal Income Tax
Considerations."
Use of proceeds............... We will not receive any proceeds from the
exchange pursuant to the exchange offer.
Exchange agent................ The Chase Manhattan Bank through its offices
specified in this prospectus in New York and
Luxembourg is serving as the exchange agent for
the exchange offer. See "The exchange
offer -- exchange agent" and the inside back
cover of this prospectus for the location of
the offices of the exchange agent.
Shelf registration
statement..................... Under some limited circumstances, some holders
of old notes including holders who may not
participate in the exchange offer, or who may
not freely resell new notes received in the
exchange offer, may require us to file, and
cause to become effective, a shelf registration
statement under the Securities Act, which would
cover resales of old notes by such holders. See
"Registration Rights."
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<PAGE> 14
CONSEQUENCES OF EXCHANGING OLD NOTES IN THE EXCHANGE OFFER
Based on interpretations by the staff of the Commission in no action
letters issued to third parties, unless you are an affiliate of NTL generally if
you exchange your old notes for new notes in the exchange offer you may offer
such new notes for resale, resell such new notes, and otherwise transfer such
new notes without compliance with the registration and prospectus delivery
provisions of the Securities Act. However such new notes must be acquired in the
ordinary course of your business and unless you are a broker-dealer you must not
be engage in, intend to engage in or have any arrangement or understanding with
any person to participate in, a distribution of such new notes.
If you are a broker-dealer and hold old notes acquired for your own account
as a result of market-making activities or other trading activities, and you
receive new notes in exchange for such old notes in the exchange offer, you may
be an "underwriter" within the meaning of the Securities Act. To participate in
the exchange offer you must acknowledge that you will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such new notes. See "Plan of distribution" for more information.
To comply with the securities laws of some jurisdictions, it may be
necessary to qualify for sale or register the new notes before offering or
selling such new notes. We have agreed, subject to some limitations set forth in
the registration rights agreements that are exhibits to the registration
statement, to register or qualify the new notes held by broker-dealers for offer
or sale under the securities or blue sky laws of such jurisdictions as any such
holder of such new notes reasonably requests in writing. Unless we are so
requested, we do not intend to register or qualify the sale of the new notes in
any jurisdictions.
If you do not exchange your old notes for new notes in the exchange offer,
such old notes will continue to be subject to provisions of the indenture under
which they were issued regarding transfer and exchange of the old notes and the
restrictions on transfer contained in the legend on the old notes. In general,
you may not offer or sell old notes unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. We do not currently
anticipate that we will take any action to register old notes under the
Securities Act. See "The exchange offer -- consequences of failure to exchange"
and "Registration rights."
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<PAGE> 15
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the new notes and the old notes are identical in all material
respects, except for the transfer restrictions and registration rights relating
to the old notes and except for some provisions under the registration rights
agreements providing for special interest on the old notes under some
circumstances relating to timing of the exchange offer, which in each case will
terminate upon consummation of the exchange offer.
11 1/2% NEW NOTES
Issuer..................... NTL Incorporated
Securities offered......... $625,000,000 principal amount of 11 1/2% Series B
Senior Notes due 2008.
Maturity date.............. October 1, 2008.
Interest................... Interest on the 11 1/2% New Notes will accrue at
the rate of 11 1/2% per annum. Interest will be
payable in cash, semi-annually in arrears, on April
1 and October 1, commencing on April 1, 1999.
Optional redemption........ On or after October 1, 2003, the 11 1/2% notes will
be redeemable at our option, in whole at any time
or in part on one or more occasions, at the
redemption prices set forth in this prospectus,
plus accrued and unpaid interest, if any, to the
date of redemption.
Ranking.................... The 11 1/2% new notes will rank senior in right of
payment to all of our subordinated indebtedness and
will rank equal in right of payment with all of our
existing and future unsubordinated obligations. As
of September 30, 1998, after giving effect to the
acquisition of Partners and our recent debt
financings and the use of proceeds from those
transactions we would have had approximately $3.7
billion accreted value of unsubordinated debt
outstanding. The 11 1/2% new notes will be
effectively subordinated to all existing and future
indebtedness and other liabilities of our
subsidiaries with respect to the cash flow and
assets of those subsidiaries. As of September 30,
1998, after giving effect to the acquisition of
Partners and the recent debt financings and the use
of proceeds from those transactions, our
subsidiaries had approximately $967 million of
total liabilities outstanding. The 11 1/2% new
notes will rank senior to all our 7% convertible
subordinated notes due 2008.
Change of control.......... Upon the occurrence of a Change of Control
Triggering Event (which requires a Change of
Control (as we define
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<PAGE> 16
that term under "Description of Notes") and a
Ratings Decline (as we define that term under
"Description of Notes")), we will be required to
make an offer to purchase all of the 11 1/2% notes
at 101% of their principal amount plus accrued and
unpaid interest to the date of purchase. We may not
have sufficient funds or the financial resources
necessary to satisfy our obligations to repurchase
the 11 1/2% notes and other debt that may become
repayable upon a Change of Control Triggering
Event.
Certain Covenants.......... The indenture governing the 11 1/2% notes contains
covenants relating to, among other things, the
following matters:
- restricted payments;
- incurrence of additional indebtedness and
issuance of preferred stock;
- liens;
- dividend and other payment restrictions affecting
subsidiaries;
- mergers, consolidations and sales of assets;
- transactions with affiliates;
- and reports.
Listing.................... We will make an application to list the 11 1/2% new
notes on the Luxembourg Stock Exchange.
Governing law.............. The 11 1/2% new notes and the 11 1/2% indenture
will be governed exclusively by the laws of the
State of New York.
Trustee, principal paying
agent and registrar..... The Chase Manhattan Bank.
Paying agent and transfer
agent in Luxembourg..... Chase Manhattan Bank Luxembourg S.A.
Listing agent in
Luxembourg.............. Banque Internationale a Luxembourg.
12 3/8% NEW NOTES
Issuer..................... NTL Incorporated
Securities offered......... $450,000,000 principal amount at maturity of
12 3/8% Series B Senior Deferred Coupon Notes due
2008.
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<PAGE> 17
Issue price................ $555.05 per $1,000 principal amount at maturity for
each 12 3/8% new note.
Maturity date.............. October 1, 2008.
Yield and interest......... The issue price of each 12 3/8% old note represents
a yield to maturity of 12.375% per annum (computed
on a semi-annual bond equivalent basis). Cash
interest will only accrue on the 12 3/8% new notes
from October 1, 2003. From October 1, 2003,
interest on the 12 3/8% New Notes will accrue at
the rate of 12 3/8% per annum and will be payable
in cash, semi-annually in arrears, on April 1 and
October 1, commencing on April 1, 2004.
Optional redemption........ On or after October 1, 2003, the 12 3/8% notes will
be redeemable at our option, in whole at any time
or in part on one or more occasions, at the
redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of
redemption.
Ranking.................... The 12 3/8% new notes will rank senior in right of
payment to all of our subordinated indebtedness and
will rank equal in right of payment with all of our
existing and future unsubordinated obligations. As
of September 30, 1998, after giving effect to the
acquisition of Partners and our recent debt
financings and the use of proceeds from those
transactions, we would have had approximately $3.7
billion accreted value of unsubordinated debt
outstanding. The 12 3/8% new notes will be
effectively subordinated to all existing and future
indebtedness and other liabilities of our
subsidiaries with respect to the cash flow and
assets of those subsidiaries. As of September 30,
1998, after giving effect to the acquisition of
Partners, our recent debt financings and the use of
proceeds from those transactions, our subsidiaries
had approximately $967 million of total liabilities
outstanding. The 12 3/8% new notes will rank senior
to all our convertible notes.
Change of control.......... Upon the occurrence of a Change of Control
Triggering Event (which requires a Change of
Control and a Ratings Decline), we will be required
to make an offer to purchase all of the 12 3/8%
notes at 101% of principal amount thereof plus
accrued and unpaid interest to the date of
purchase. In the case of repurchases of 12 3/8%
Notes before October 1, 2003, the purchase price
will be equal to 101% of the Accreted Value (as we
define that term under "Description of Notes") at
the date of repurchase. We may not have sufficient
funds or the financial resources
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<PAGE> 18
necessary to satisfy its obligations to repurchase
the 12 3/8% Notes and other debt that may become
repayable upon a Change of Control Triggering
Event.
Covenants.................. The indenture governing the 12 3/8% notes contains
covenants relating to, among other things, the
following matters:
- restricted payments;
- incurrence of additional indebtedness and
issuance of preferred stock;
- liens;
- dividend and other payment restrictions affecting
subsidiaries;
- mergers, consolidations and sales of assets;
- transactions with affiliates; and
- reports.
Original issue discount.... The old 12 3/8% notes were issued at an original
issue discount for United States federal income tax
purposes. This means that, although cash interest
will not accrue on the 12 3/8% notes before October
1, 2003, original issue discount accrues from the
issue date of the old 12 3/8% notes and will be
included as interest income periodically in your
gross income for United States federal income tax
purposes before you receive the cash payments to
which the income is attributable. See "Federal
income Tax Considerations" for more information.
Listing.................... We will make an application to list the 12 3/8% new
notes on the Luxembourg Stock Exchange.
Governing law.............. The 12 3/8% new notes and the 12 3/8% indenture
will be governed exclusively by the laws of the
State of New York.
Trustee, principal paying
agent and registrar..... The Chase Manhattan Bank.
Paying agent and transfer
agent in Luxembourg..... Chase Manhattan Bank Luxembourg S.A.
Listing agent in
Luxembourg.............. Banque Internationale a Luxembourg.
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<PAGE> 19
RISK FACTORS
You should consider carefully all of the information in this Prospectus and
incorporated by reference in this Prospectus. See "Where you can find more
information about us" and "Incorporation of documents by reference." In
particular, you should carefully evaluate the following risks before tendering
your old notes in the exchange offer. However, the risk factors set forth below,
other than the first risk factor, are also generally applicable to the old notes
as well as the new notes.
IF YOU DO NOT EXCHANGE YOUR OLD NOTES FOR NEW NOTES YOU WILL CONTINUE TO HOLD
NOTES SUBJECT TO RESTRICTIONS ON TRANSFER
If you do not tender your old notes or you tender your old notes and we do
not accept the tender, your old notes will continue to be subject to the
provisions of the indenture under which they were issued regarding transfer and
exchange of the old notes, the existing restrictions upon transfer thereof set
forth in the legend on the old notes, in the offering memorandum dated October
26, 1998 relating to the 11 1/2% old notes and in the offering memorandum dated
October 30, 1998 relating to the 12 3/8% old notes. Except in limited
circumstances with respect to some types of holders of old notes, we will have
no further obligation to provide for the registration under the Securities Act
of your old notes. In general, old notes, unless registered under the Securities
Act, may not be offered or sold except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. We do not currently anticipate that it will take any action to register
the old notes under the Securities Act or blue sky laws.
OUR SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT THE FINANCIAL HEALTH OF THE
COMPANY
We are and, for the foreseeable future will continue to be, highly
leveraged. On September 30, 1998, after giving effect to our acquisition of
Partners and our recent debt financings and the use of proceeds from those
transactions, the accreted value of our total long-term indebtedness, including
our 13% senior redeemable exchangeable preferred stock, was approximately $5.0
billion. This debt represents approximately 90% of our total capitalization. The
indentures governing our outstanding indebtedness do not restrict our ability or
our subsidiaries' ability to incur additional indebtedness. Our ability and the
ability of our subsidiaries to make scheduled payments under present and future
indebtedness will depend on, among other things:
- our ability to complete the build out of our franchises on a timely and
cost effective basis,
- our ability to access the earnings of our subsidiaries (which may be
subject to significant contractual and legal limitations),
- our future operating performance and that of our subsidiaries and
- our ability to refinance our indebtedness when necessary.
Each of these factors is to a large extent subject to economic, financial,
competitive, regulatory and other factors that are beyond our control. See
"-- The anticipated
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<PAGE> 20
construction costs of our network will increase as a result of our acquisitions
and will require substantial amounts of additional funding," "-- Need for
additional financing -- we do not expect to generate sufficient cash flow to
repay at maturity the entire principal amount of our outstanding indebtedness,"
"-- We cannot be certain as to future network construction progress and costs"
and "-- We are a holding company that is dependent upon cash flow from our
subsidiaries -- our ability to access that cash flow may be limited in some
circumstances."
Future agreements and debt instruments may contain covenants which, among
other things, may require us to:
- maintain certain financial ratios,
- restrict or prohibit the payment of dividends and other distributions to
us by our subsidiaries,
- restrict asset sales and dictate the use of proceeds from the sale of
assets.
Compliance with these restrictions, in combination with our current indebtedness
and holding company structure, could limit our ability to respond to market
conditions or meet extraordinary capital needs or otherwise could restrict
corporate activities and the ability of some of our subsidiaries to make
payments to us which might otherwise fund payments due on the notes and our
other obligations as they fall due. We cannot assure you that such restrictions
will not adversely affect our ability to finance our future operations or
capital needs, to service and repay indebtedness including, without limitation,
the notes or to engage in other business activities, such as acquisitions, which
may be in our interest. See "-- We are a holding company that is dependent upon
cash flow from our subsidiaries -- our ability to access that cash flow may be
limited in some circumstances."
The degree to which we are leveraged could have important consequences to
you including the following:
- increasing our vulnerability to adverse changes in general economic
conditions or increases in prevailing interest rates,
- limiting our 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 our business,
- requiring a substantial portion of our cash flow from operations to be
dedicated to debt service requirements, thereby reducing the funds
available for dividends, operations and future business opportunities and
- increasing our exposure to increases in interest rates given that some of
our borrowings may be at variable rates of interest.
In addition, we may under some circumstances be obligated to offer to
repurchase outstanding securities prior to maturity. We cannot assure you that
we will have available financial resources necessary or otherwise be able to
repurchase those securities
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<PAGE> 21
in such circumstances, including, without limitation, on the occurrence of a
Change of Control Triggering Event.
THE ANTICIPATED CONSTRUCTION COSTS OF OUR NETWORK WILL INCREASE AS A RESULT OF
OUR RECENT ACQUISITIONS AND WILL REQUIRE SUBSTANTIAL AMOUNTS OF ADDITIONAL
FUNDING
Following our recent and proposed acquisitions, our capital expenses and
cost of operations for the development, construction and operation of our
combined telecommunications networks will significantly increase. We intend to
fund a portion of these costs with cash, cash equivalents and marketable
securities and funds generated by the operations of our subsidiaries. However,
given our most recent acquisitions, we estimate that significant amounts of
additional funding will be necessary to meet these capital expenditure
requirements.
We cannot be certain that:
- we will be able to obtain additional financing with acceptable terms,
- actual construction costs will meet our expectations,
- we will satisfy conditions precedent to advances under future credit
facilities,
- we will not acquire additional businesses that require additional
capital,
- we will be able to generate sufficient cash from operations to meet
capital requirements, debt service and other obligations when required or
- our subsidiaries will withstand exposure to exchange and interest rate
fluctuations.
We do not have any firm additional financing plans to address the factors
enumerated above, except in relation to our new credit facility which we discuss
below.
NEED FOR ADDITIONAL FINANCING -- WE DO NOT EXPECT TO GENERATE SUFFICIENT CASH
FLOW TO REPAY AT MATURITY THE ENTIRE PRINCIPAL AMOUNT OF OUR OUTSTANDING
INDEBTEDNESS
We anticipate that we will not generate sufficient cash flow from
operations to repay at maturity the entire principal amount of our outstanding
indebtedness. Some of the measures we may take to refinance our debt include:
- refinancing all or portions of such indebtedness,
- seeking modifications to the terms of such indebtedness,
- seeking additional debt financing, which may require us to obtain the
consent of some of our lenders, and
- seeking additional equity financing.
We cannot be certain that we will succeed in executing any of these
measures.
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<PAGE> 22
ACQUISITIONS ARE SUBJECT TO RISK
We 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 our holdings and might require us to incur substantial
indebtedness or raise additional equity. We cannot assure you that, with respect
to the recent acquisitions of Comcast, ComTel and Eastern and the proposed
Diamond acquisition, as well as future acquisitions, that we:
- will realize any anticipated benefits,
- will successfully integrate the businesses with our operations, or
- will manage such integration without adversely affecting NTL.
The indentures governing our existing indebtedness allow us 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 entities that are directly or indirectly
engaged in a cable business.
WE ARE A HOLDING COMPANY THAT IS DEPENDENT UPON CASH FLOW FROM OUR
SUBSIDIARIES -- OUR ABILITY TO ACCESS THAT CASH FLOW MAY BE LIMITED IN SOME
CIRCUMSTANCES
We are a holding company that conducts its operations through direct and
indirect wholly-owned subsidiaries and affiliated joint ventures. Consequently,
we hold no significant assets other than our investments in and advances to our
subsidiaries and affiliated joint ventures. We depend upon the receipt of
sufficient funds from our subsidiaries and affiliated joint ventures to meet our
obligations. Additionally, our claim to any distribution of assets following
liquidation of a 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 our subsidiaries which are payable to us
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 and other distributions to us. In the absence of a
default, we anticipate that the new credit facility, when we renegotiate it,
will generally permit payments to us to pay the interest and principal of
existing indebtedness.
Each of our subsidiaries that is a Delaware corporation may pay dividends
under Delaware General Corporation Law 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 our 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
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<PAGE> 23
obligations also affect the ability of our subsidiaries to declare dividends and
the ability of our subsidiaries to make payments to us 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 by our UK subsidiaries.
Each of our subsidiaries that is a Bermuda corporation may pay dividends subject
to the satisfaction of statutory solvency tests.
The old notes are, and the new notes will be effectively subordinated to
all existing and future indebtedness and other liabilities and commitments of
our subsidiaries, including borrowings under the new credit facility. As of
September 30, 1998, after giving effect to our acquisition of Partners, our
recent debt financings and the use of proceeds from those transactions, the
total liabilities of our subsidiaries were approximately $967 million. In
addition, our subsidiaries 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 some
qualifying criteria. In light of our strategy of continued growth, in part
through acquisitions, we may and our subsidiaries may incur substantial
indebtedness in the future. Borrowings under the new credit facility are, and a
substantial portion of our and our subsidiaries' future indebtedness is expected
to be, secured by liens and other security interests over the assets of our
subsidiaries and our equity interests in our subsidiaries. In addition, our
ability and, therefore, the holders of notes, to benefit from distributions of
assets of our 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 ours or our subsidiaries.
Any right we have 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 we are
recognized as an unsubordinated creditor of such subsidiary. However, to the
extent we are so recognized, our claims 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 us and may otherwise be challenged by third
parties in a liquidation or reorganization proceeding. In addition, the new
credit facility requires us to subordinate its right to repayment of
indebtedness outstanding between it and the borrower under such agreement or any
other subsidiary of ours to the rights of the lenders under the agreement. In
particular our rights 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.
Our 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
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<PAGE> 24
creditors seize the assets that secure our debt, these creditors would likely
seek to sell the business as a going concern.
WE HAVE HISTORICALLY INCURRED LOSSES AND GENERATED NEGATIVE CASH FLOWS
We had net losses for
- the nine months ended September 30, 1998 of $336.1 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, our accumulated deficit was $1.1 billion.
Diamond had net (loss) for the nine months ended September 30, 1998 and
1997 and for the year 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 we expect will continue at least until we establish an adequate
customer base. We also expect to incur substantial additional losses. We cannot
be certain that we will achieve or sustain profitability in the future. Failure
to achieve profitability could diminish our ability to sustain operations and
obtain additional required funds. In addition, such a failure would adversely
affect our ability to make required payments on our indebtedness and our
preferred stock.
WE HAVE HISTORICALLY HAD A DEFICIENCY OF EARNINGS TO FIXED CHARGES AND EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
For the nine months ended September 30, 1998 and the years ended December
31, 1997, 1996, 1995, 1994 and 1993, our earnings were insufficient to cover
fixed charges by approximately $351.7 million, $355.4 million, $257.1 million,
$105.4 million, $31.8 million and $10.4 million, respectively. Our earnings for
the nine months ended September 30, 1998 and the year ended December 31, 1997
were insufficient to cover combined fixed charges and preferred stock dividends
by $363.3 million and $367.4 million, respectively. Fixed charges consist of
interest expense, including capitalized interest, amortization of fees related
to debt financing and rent expense deemed to be interest.
WE ARE SUBJECT TO REGULATORY REQUIREMENTS TO MEET BUILD MILESTONES IN THE
CONSTRUCTION OF OUR NETWORK
We hold licences under the Telecommunications Act 1984 and the Broadcasting
Act 1990 which grant exclusive rights to convey and provide cable television
services for the relevant areas subject to obligations as to the number of
premises to which, and the timetable within which, such services must be made
available. The aggregate
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<PAGE> 25
requirement is to pass approximately 4 million (excluding Cable London and
Diamond) premises over the period up to 2005. This position is now under review
by the regulatory authorities in view of the U.K. Government's announcement in
1998 that all exclusive franchising would come to an end by January 1, 2001. We
believe we have the necessary resources to satisfy our build program milestones
between now and January 1, 2001, although we cannot be certain that such
obligations will be met. Failure to meet license milestone requirements, or to
modify such requirements may result in revocation of the relevant licenses.
WE CANNOT BE CERTAIN AS TO FUTURE NETWORK CONSTRUCTION PROGRESS AND COSTS
At September 30, 1998, construction of our network had passed in excess of
57% of our final milestone requirements for all our franchises. Successful
construction and development of the combined network will depend on, among other
things, our 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. We cannot be certain that the actual costs of network construction
will remain as budgeted.
Our licenses generally require underground construction of our 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, we must bear the cost of restoring the surface area when
construction is complete. To date we have been successful 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 grow. We cannot be certain that we will be able
to construct our network in a timely manner or at a reasonable cost.
WE ARE SUBJECT TO SIGNIFICANT COMPETITION IN OUR BUSINESSES
We face significant competition from established and new competitors in the
areas of residential telephony, business telecoms services and cable television.
We believe that competition will intensify in each of these business areas,
particularly business telecommunications.
Residential Telephony. We compete primarily with British
Telecommunications plc in providing telephone services to residential customers.
BT, formerly the only major national public telephone operator in the UK,
occupies an established market position and manages fully built networks with
resources that are substantially greater than ours. According to OFTEL, at March
31, 1997, British Telecommunications serviced nearly 90% of UK residential
telephone exchange line customers. Our growth in telecommuni-
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<PAGE> 26
cations services depends upon our ability to appropriate British
Telecommunications' customers.
In our view, value-for-money is currently one of the more important
influences on UK customers. Our goal to remain competitive with British
Telecommunications' residential telephony service rates may cause a decline in
our average per-line residential telecommunications revenues, and we may not
achieve desired penetration rates. Consequently, we may experience a decline in
total revenues.
On February 8, 1996, the DTI awarded British Telecommunications 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 the our residential telephony
services in some remote rural areas of our franchise in Northern Ireland.
We also compete with mobile networks, which is a technology that may grow
to be competitive with our other networks, particularly if call charges are
reduced further on the mobile networks. Our radio communications group may
enable us to benefit from growth in the mobile networks technology. We cannot
assure you that we will be able to compete successfully with British
Telecommunications or any other telecommunication operations.
We believe that we have a competitive advantage in the residential market
because we offer integrated telephone, cable television, telecommunication
services including interactive and on-line services and dual product packages
that are designed to encourage customers to subscribe to multiple services. We
cannot be certain that this perceived competitive advantage will continue.
Indeed, the UK recently announced that British Telecommunications and all other
operators would be permitted to provide and convey cable television 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 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.
If this joint venture's bid to enter the interactive digital services market
passes review by the competition directorate of the European Commission, we
believe that the resulting combination would provide significant competition.
Business Telecommunications. British Telecommunications is also our
principal competitor in providing business telecommunications services.
Additionally, we compete with Cable & Wireless Communications, 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, we may compete with additional
entrants to the business telecommunications market, such as
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AT&T U.K. Competition is based on price range and quality of services, and the
Company expects price competition to intensify if existing and new market
entrants compete aggressively.
Cable television. Our cable television systems compete with direct
reception over-the-air broadcast television, direct-to-home satellite services
and satellite master antenna systems. Additionally, pay television and
pay-per-view services offered by us compete 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 encouraging British
Telecommunications and the other national public telephone operators to provide
"video-on-demand" services under their existing licenses. We expect to face
competition from programming provided by video-on-demand services, including
those provided by public telephone operators with national licenses, as well as
after 2001 from companies which seek to provide cable television services in our
franchises under the recently announced change of government policy.
The Broadcasting Act of 1996 provides for the regulation of digital
terrestrial television 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 digital terrestrial television, as
well as digital satellite television, will provide both additional programming
sources as well as increased competition.
We do not now how developing media may impact the market for cable
television systems. As-of-yet undeveloped technologies may 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. We may encounter
significant competition from this consortium following the expiration of our
current contracts with the Independent Television contractors and Channel 4 and
the Welsh Fourth Channel for the provision of transmission services.
WE HAVE LIMITED ACCESS TO PROGRAMMING WHICH MAY AFFECT THE COMPETITIVENESS OF
OUR CABLE TELEVISION SERVICES
The competitiveness of our cable television services depends on our access
to programming at a reasonable cost. Like many other cable operators, we obtain
most of our programming through unofficial arrangements with BSkyB and other
programming suppliers. 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 us by operating a direct
to home satellite service that provides programming, including programming that
is also offered by us, to approximately 4
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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.
To date, we have not had a formal contract with BSkyB, although we have
discussed entering such an agreement for some time. We cannot be certain that we
will reach a definitive agreement with BSkyB, that the terms of such agreement
will improve our current arrangement, or that BSkyB will continue to supply
programming to us on reasonable commercial terms. Moreover, we have not, to
date, entered into written contracts with many of our 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 we must
pay for BSkyB or other programming could have a material adverse effect on us.
OUR PRINCIPAL BUSINESSES ARE SUBJECT TO GOVERNMENT REGULATION WHICH MAY CHANGE
ADVERSELY TO US
Our principal business activities 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
our activities and those of our competitors, such as licensing requirements,
changes in price regulation and deregulation of interconnection arrangements,
could have a material adverse effect on us.
Specifically, the prices that we may charge the ITV companies, Channel 4
and Welsh Fourth Channel, 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 our Telecommunications Act License to
address the new price control for the television transmission services that we
provide to the ITV companies, Channel 4 and Welsh Fourth Channel. Under the new
arrangements, our total revenues receivable for such services (excluding certain
insignificant items) can not exceed L53.15 million in 1997 and, 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 Welsh Fourth Channel.
As a UK company we are subject to regulatory initiatives of the European
Commission. Changes 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 us to provide access to our cable network infrastructure
to other service providers.
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OUR BROADCAST SERVICES BUSINESS IS DEPENDENT UPON SITE SHARING ARRANGEMENT
As a result of, among other factors, a natural shortage of potential
transmission sites and the difficulties in obtaining planning permission for
erection of further masts, CTI and NTL have made arrangements to share a large
number of sites. Under the present arrangements, one of the parties is the
owner, lessee or licensee of each site and the other party is entitled to
request a license to use certain facilities at that site. Each site license
granted pursuant to the site sharing agreement is for an initial period expiring
on December 31, 2005, subject to title and to the continuation in force of the
site sharing agreement. Each site sharing agreement provides that, if requested
by the sharing party, it will be extended for further periods. Either party may
terminate the agreement by 5 years' notice in writing to the other expiring on
December 31, 2005 or at any date which is a date 10 years or a multiple of 10
years after December 31, 2005. Although we do not anticipate that the site
sharing agreement or the site licenses will be terminated, we cannot assure you
that such a termination will not occur. Termination of the site sharing
arrangements would have a material adverse effect on our business.
OUR BROADCAST SERVICES BUSINESS IS DEPENDENT UPON ITV AND OTHER CONTRACTS
Our broadcast services business is substantially dependent upon contracts
with the ITV contractors, Channel 4/Welsh Fourth Channel and Vodafone for the
provision of transmission services. The prices that we may charge these
companies for television transmission services are subject to regulation by
OFTEL. See "-- Our principal businesses are subject to government regulation
which may change adversely to us." The contracts with the ITV contractors and
Channel 4/Welsh Fourth Channel terminate on December 31, 2002. Although,
historically, the ITV contractors and Channel 4/Welsh Fourth Channel have
renewed their contracts with us, we cannot assure you that they will do so upon
expiration of the current contracts, that they will not negotiate terms for our
provision of transmission services on a basis less favorable to us or that they
would not seek to obtain from third parties a portion of the transmission
services currently provided by us. The loss of any one of these contracts could
have a material adverse effect on us.
MANAGEMENT OF GROWTH AND EXPANSION
We have experienced rapid growth and development in a relatively short
period, and we plan to meet our strategic objectives and regulatory milestones.
Management of such growth will require, among other things, stringent control of
construction and other costs, continued development of our financial and
management controls, increased marketing activities and the training of new
personnel. Failure to manage our rapid growth and development successfully could
have a material adverse effect on us.
WE ARE DEPENDENT UPON A SMALL NUMBER OF KEY PERSONNEL
A small number of key executive officers manage our businesses, and the
loss of one or more of them could have a material adverse effect on us. We
believe that our future success will depend in large part on our continued
ability to attract and retain highly
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skilled and qualified personnel. We have not entered into written employment
contracts or non-compete agreements with, nor have we obtained life insurance
policies covering, such key executive officers. Some of our senior managers also
serve as members of senior management of other companies in the
telecommunications business.
THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGES AND WE
CANNOT PREDICT THE EFFECT OF SUCH CHANGES ON OUR BUSINESSES
The telecommunications industry is subject to rapid and significant changes
in technology and the effect of technological changes on our businesses cannot
be predicted. However, the cost of implementation for emerging and future
technologies could be significant, and our ability to fund such implementation
may depend on our ability to obtain additional financing.
WE ARE SUBJECT TO CURRENCY RISK TO THE EXTENT WE OBTAIN FINANCING IN US DOLLARS
BUT INCUR EXPENSES IN POUNDS STERLING
To the extent that we obtain financing in United States dollars and incur
construction and operating expenses in British pounds sterling, we will
encounter currency exchange rate risks. In addition, we generate revenues
primarily in British pounds sterling while we pay interest and principal
obligations with respect to most of our existing indebtedness in United States
dollars. We have entered into an option agreement to hedge some of the risk of
exchange rate fluctuations related to debt service and corporate expenses. While
we may consider entering into additional transactions to hedge the risk of
exchange rate fluctuations, we cannot be certain that we will engage in such
transactions; or, if we do, that those transactions will be successful and that
shifts in the currency exchange rates will not have a material adverse effect on
us.
WE HAVE LIMITED INSURANCE COVERAGE OF OUR NETWORK
We obtain insurance of the type and in the amounts that we believe are
customary in the UK for similar companies. Consistent with this practice, we do
not insure the underground portion of our cable network. Any catastrophe that
affects a significant portion of a system's underground cable network could
result in substantial uninsured losses.
FORWARD-LOOKING STATEMENTS
This Prospectus includes or incorporates by reference certain projections
of broadcast transmission revenues, build-out results and other forward-looking
statements, including those using words such as "believe," "anticipate,"
"should," "intend," "plan," "will," "expects," "estimates," "projects,"
"positioned," "strategy," and similar expressions; in reviewing such information
it should be kept in mind that actual results may differ materially from those
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 those
specified in this Risk Factors section, as well as industry trends, our ability
to continue to design
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network routes, install facilities, obtain and maintain any required government
licenses or approvals and finance construction and development, all in a timely
manner, at reasonable costs and on satisfactory terms and conditions, as well as
assumptions about customer acceptance, churn rates, overall market penetration
and competition from providers of alternative services, and availability, terms
and deployment of capital. We assume no obligation to update projections or
other forward-looking statements to reflect actual funding requirements, capital
expenditures and results, changes in assumptions or in the factors affecting
such projections or other forward-looking statements. There can be no assurance
that:
- any financings will be obtained when required, on acceptable terms or at
all;
- actual amounts required to complete our planned build out will not exceed
the amount we estimate (see "-- We cannot be certain as to future network
construction progress and costs") or that additional financing
substantially in excess of that amount will not be required;
- we will not acquire franchises, licenses or other new businesses that
would require additional capital;
- operating cash flow will meet expectations or that we will be able to
access such cash from its subsidiaries' operations to meet any unfunded
portion of its capital requirements when required or to satisfy the terms
of the notes, or our other debt instruments and agreements for the
incurrence of additional debt financing (see "-- We are a holding company
that is dependent upon cash flow from our subsidiaries -- our ability to
access that cash flow may be limited in some circumstances");
- Our subsidiaries will not incur losses from their exposure to exchange
rate fluctuations or be adversely affected by interest rate fluctuations
(see "-- We are subject to currency risk to the extent we obtain
financing in U.S. dollars but incur expenses in pounds sterling");
- there will not be adverse changes in applicable United States, United
Kingdom or Bermuda tax laws; or
- the effects of monetary union in Europe, when achieved, will not be
materially adverse to us.
All forward-looking statements included or incorporated by reference in this
prospectus are expressly qualified by the foregoing.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
This prospectus and the accompanying letter of transmittal set out the
terms and conditions of the exchange offer. On and subject to those terms and
conditions we will accept for exchange old notes which are properly tendered on
or before the expiration date and not withdrawn as permitted below. The
"expiration date" is 5:00 p.m., New York City time, on , 1999.
However, if we, in our sole discretion, extend the period of time for which the
exchange offer is open, the "expiration date" will be the latest time and date
to which we extend the exchange offer.
As of the date of this prospectus, $625,000,000 aggregate principal amount
of the 11 1/2% old notes and $450,000,000,000 aggregate principal amount at
maturity of the 12 3/8% old notes were outstanding. This prospectus, together
with the letter of transmittal, is first being sent on or about the date of this
prospectus, to all holders of old notes known to us. Our obligation to accept
old notes for exchange under the exchange offer is subject to the conditions
described under "Conditions to the exchange offer" below.
We expressly reserve the right, at any time or on one or more occasions, to
extend the period of time during which the exchange offer is open, and delay
acceptance for exchange of any old notes, by giving oral or written notice of
such extension to you. During any such extension, all old notes previously
tendered will remain subject to the exchange offer and may be accepted for
exchange by us. If we do not accept any old notes tendered for exchange for any
reason they will be returned to you without expense to you as promptly as
practicable after the end of the exchange offer.
Old notes tendered in the exchange offer must be in denominations of
principal amount of $1,000 and any whole multiple of $1,000.
We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any old notes which we have not already accepted
for exchange, upon the occurrence of any of the conditions of the exchange offer
specified below under "Conditions to the exchange offer." We will give oral or
written notice of any extension, amendment, non-acceptance or termination to you
as promptly as practicable. A notice in the case of any extension will be issued
by means of a press release or other public announcement no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled expiration date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to us of old notes by you and the acceptance of your tender by
us will be a binding agreement between us upon the terms and subject to the
conditions set forth in this prospectus and in the accompanying letter of
transmittal in respect of the old notes tendered by you. Except as set forth
below, a holder (which term, for purposes of the exchange offer, includes any
participant in the DTC system whose name appears on a security position listing
as the holder of such old notes) who wishes to tender old notes for exchange
pursuant to the exchange offer must transmit the letter of transmittal,
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properly completed and duly executed, including all other documents required by
such letter of transmittal or (in the case of a book-entry transfer) an agent's
message instead of such letter of transmittal to The Chase Manhattan Bank as
exchange agent at one of the addresses set forth below under "Exchange agent",
on or before the expiration date. In addition, either
- certificates for such old notes must be received by the exchange agent
along with the letter of transmittal before the expiration date,
- a timely confirmation of a book-entry transfer (a "book-entry
confirmation") of such old notes, if such procedure is available, into
the appropriate exchange agent's account at DTC pursuant to the procedure
for book-entry transfer described below, must be received by the exchange
agent before the expiration date along with the letter of transmittal or
an agent's message instead of a letter of transmittal, or
- the holder must comply with the guaranteed delivery procedures described
below.
The term "agent's message" means a message, transmitted by DTC to and
received by the exchange agent and forming a part of a book-entry confirmation,
which states that DTC has received an express acknowledgment from the tendering
participant, which acknowledgment states that such participant has received and
agrees to be bound by, and make the representations and warranties contained in,
the appropriate letter of transmittal and that we may enforce such letter of
transmittal against such participant.
The method of delivery of old notes, letters of transmittal and all other
required documents is at your election and risk. If delivery is by mail, we
recommend that you use registered mail, properly insured, with return receipt
requested. In all cases, you should allow sufficient time to assure delivery
before the expiration date. No letters of transmittal or old notes should be
sent to NTL.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless
- you have not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the letter of transmittal or
- the old notes are tendered for the account of an eligible institution (as
defined below).
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by a firm which is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the United
States or by such other Eligible Institution within the meaning of Rule 17
(A)(d)-15 of the Exchange Act (collectively, "eligible institutions"). If old
notes are registered in the name of a person other than a signer of the letter
of transmittal, the old notes surrendered for exchange must be endorsed by, or
be accompanied by a written instrument or instruments of transfer, or
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exchange, in satisfactory form as determined by us in our sole discretion, duly
executed by the registered holder with the signature thereon guaranteed by an
eligible institution.
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance of old notes tendered for exchange will be determined by
us in our sole discretion. Our determination shall be final and binding. We
reserve the absolute right to reject any and all tenders of any particular old
note not properly tendered or to not accept any particular old note which
acceptance might, in our judgment or the judgment of our counsel, be unlawful.
We also reserve the absolute right to waive any defects or irregularities or
conditions of the exchange offer as to any particular old note either before or
after the expiration date, including the right to waive the ineligibility of any
holder who seeks to tender old notes in the exchange offer. The interpretation
of the terms and conditions of the exchange offer as to any particular old note
either before or after the expiration date, including the appropriate letter of
transmittal and the instructions thereto by us shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of old notes for exchange must be cured within such reasonable period of time as
we shall determine. Neither we, the exchange agent nor any other person shall be
under any duty to give notification of any defect or irregularity with respect
to any tender of old notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If a letter of transmittal is signed by a person or persons other than the
registered holder or holders of old notes, such old notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the old
notes.
If a letter of transmittal or any old notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
us, proper evidence satisfactory to us of their authority to so act must be
submitted with the letter of transmittal.
By tendering, each Holder will represent to us that, among other things,
- the new notes acquired in the exchange offer are being obtained in the
ordinary course of business of the person receiving such new notes,
whether or not such person is the holder,
- that neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
new notes and,
- that neither the holder nor any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of NTL.
If you are an affiliate of NTL, are engaged in or intend to engage in or
have any arrangement with any person to participate in the distribution of the
new notes to be acquired pursuant to the exchange offer, you
(1) cannot rely on the applicable interpretations of the staff of the
Commission and
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(2) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
If you are a broker-dealer who holds old notes acquired for your own
account as a result of market-making activities or other trading activities, and
you receive new notes in exchange for such old notes in the exchange offer, you
may be an "underwriter" within the meaning of the Securities Act and must
acknowledge that you will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such new notes. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, you
will not be deemed to admit that you are an "underwriter" within the meaning of
the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will
- accept, promptly after the expiration date, all old notes properly
tendered,
- issue the new notes promptly after acceptance of the old notes and
- cause the new notes to be authenticated by the trustee.
For purposes of the exchange offer, we shall be deemed to have accepted
properly tendered old notes for exchange when, as and if we have given oral
(promptly confirmed in writing) or written notice thereof to the exchange agent.
For each old note accepted for exchange, the holder of such old note will
receive a new note of the same class having a principal amount at maturity equal
to that of the surrendered old note. If the exchange offer with respect to the
11 1/2% notes is not consummated by June 10, 1999, special interest will accrue
(in addition to the stated interest on the 11 1/2% old notes) from and including
June 11, 1999. If the exchange offer with respect to the 12 3/8% notes is not
consummated by June 14, 1999, special interest will accrue (in addition to the
amortization of original issue discount) from and including June 15, 1999.
Special interest, if any, will be payable in cash semiannually in arrears each
April 1 and October 1, respectively, to holders of record of the old notes on
the immediately preceding March 15 and September 15, respectively, at a rate per
annum equal to 0.50% of the principal amount of the 11 1/2% old notes or the
Accreted Value of the 12 3/8% old notes, as applicable, determined daily. The
aggregate amount of special interest payable pursuant to the above provisions
will in no event exceed 1.50% per annum of the principal amount of the 11 1/2%
old notes or the Accreted Value of the 12 3/8% old notes, as applicable,
determined daily. Upon the consummation of the exchange offer with respect to
the 11 1/2% old notes after June 10, 1999, and upon the consummation of the
exchange offer with respect to the 12 3/8% old notes after June 14, 1999, the
special interest payable on the old notes from the date of such consummation
will cease to accrue and all accrued and unpaid special interest as of the
consummation of the exchange offer shall be paid promptly thereafter to the
holders of record of the old notes immediately prior to the time of such
occurrence. Following the consummation of the exchange offer the interest terms
shall revert to the original terms set forth in the notes.
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The 11 1/2% new notes will bear interest from the most recent date to which
interest has been paid on the 11 1/2% old notes. Accordingly, if the relevant
record date for interest payment occurs after the consummation of the exchange
offer, registered holders of 11 1/2% new notes on such record date will receive
interest accruing from the most recent date to which interest has been paid. If,
however, the relevant record date for interest payment occurs prior to the
consummation of the exchange offer, registered holders of 11 1/2% old notes on
such record date will receive interest accruing from the most recent date to
which interest has been paid. 11 1/2% old notes accepted for exchange will cease
to accrue interest from and after the date of consummation of the exchange
offer, except as set forth in the immediately preceding sentence. If you tender
11 1/2% old notes and they are accepted for exchange, you will not receive any
payment in respect of interest, if any, on such 11 1/2% old notes otherwise
payable on any interest payment date the record date for which occurs on or
after consummation of the exchange offer.
In all cases, issuance of new notes for old notes that are accepted for
exchange in the exchange offer will be made only after timely receipt by the
exchange agent of certificates for such old notes or a timely book-entry
confirmation of such old notes into the exchange agent's account at DTC, the
letter of transmittal properly completed and duly executed or an agent's message
instead and all other required documents. If any old notes tendered by you are
not accepted for any reason set forth in the terms and conditions of the
exchange offer or if you submitted old notes for an amount or quantity greater
than you desire to exchange, such unaccepted or non-exchanged old notes will be
returned without expense to the tendering holder or, in the case of old notes
tendered by book-entry transfer into the exchange agent's account at DTC
pursuant to the book-entry procedures described below, such non-exchanged old
notes will be credited to an account maintained with DTC as promptly as
practicable after the expiration or termination of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will request the establishment of accounts with respect
to the old notes at DTC for purposes of the exchange offer within two business
days after the date of this prospectus unless the exchange agent already has
established an account with DTC suitable for the exchange offer, and if you are
a financial institution that is a participant in DTC's system you may make
book-entry delivery of old notes by causing DTC to transfer such old notes into
the exchange agent's account at DTC in accordance with DTC's procedures for
transfer.
Although you may deliver old notes to the exchange agent in the exchange
offer through book-entry transfer at DTC, the letter of transmittal or a
facsimile of it, with any required signature guarantees or an agent's message
instead and any other required documents, must be transmitted to and received by
the exchange agent at one of the addresses set forth below under "exchange
agent," on or before the expiration date. If this is not possible, the
guaranteed delivery procedures described below must be complied with.
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GUARANTEED DELIVERY PROCEDURES
If you desire to tender old notes and the old notes are not immediately
available, or time will not permit your old notes or other required documents to
reach the exchange agent before the expiration date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected by you if
- the tender is made through an eligible institution,
- before the expiration date, the exchange agent received from such
eligible institution the appropriate notice of guaranteed delivery,
substantially in the form provided by us (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth your
name and address and the amount of old notes tendered, stating that
the tender is being made thereby and guaranteeing that within five
New York Stock Exchange trading days after the date of execution of
the notice of guaranteed delivery, the certificates for all
physically tendered old notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, together with a properly
completed and duly executed letter of transmittal, or facsimile
thereof or agent's message instead, with any required signature
guarantees, and any other documents required by the appropriate
letter of transmittal will be deposited by the eligible institution
with the exchange agent and
- the certificates for all physically tendered old notes, in proper
form for transfer, or a book-entry confirmation, as the case may be,
together with a properly completed and duly executed appropriate
letter of transmittal, or facsimile thereof or Agent's Message in
lieu thereof, with any required signature guarantees, and all other
documents required by the Letter of Transmittal, are received by the
exchange agent within five New York Stock Exchange trading days after
the date of execution of the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
You may withdraw tenders of old notes at any time before the expiration
date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at the addresses set forth below under "exchange
agent". Any such notice of withdrawal must:
- specify the name of the person having tendered the old notes to be
withdrawn,
- identify the old notes to be withdrawn, including the principal amount in
the case of 11 1/2% old notes or the principal amount at maturity in the
case of the 12 3/8% old notes,
- and where certificates for old notes have been transmitted, specify the
name in which such old notes are registered, if different from that of
the withdrawing holder.
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If certificates for old notes have been delivered or otherwise identified
to the exchange agent then, before the release of such certificates the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an eligible institution unless such holder is an eligible
institution. If old notes have been tendered pursuant to the procedure for
book-entry transfer described above, the executed notice of withdrawal,
guaranteed by an eligible institution, unless such holder is an eligible
Institution, must specify the name and number of the account at DTC to be
credited with the withdrawn old notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility,
including time of receipt, of such notices will be determined by us, which
determination shall be final and binding on all parties. Any old notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the exchange offer. Any old notes which you tender for exchange but
which are not exchanged for any reason will be returned to you without cost to
such holder or, in the case of old notes tendered by book-entry transfer into
the exchange agent's account at DTC pursuant to the book-entry transfer
procedures described above, such old notes will be credited to an account
maintained with DTC for the old notes) as soon as practicable after withdrawal,
rejection of tender or termination of the exchange offer. Properly withdrawn old
notes may be retendered by following one of the procedures described under
"-- Procedures for tendering old notes" above at any time on or before the
expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we will not be
required to accept for exchange, or to issue new notes in exchange for, the old
notes and may terminate or amend the exchange offer if at any time before the
acceptance of such old notes for exchange or the exchange of the new notes for
such old notes any of the following events shall occur:
(1) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission,
(a) seeking to restrain or prohibit the making or consummation of
the exchange offer or any other transaction contemplated by
the exchange offer, or assessing or seeking any damages as a
result thereof, or
(b) resulting in a material delay in our ability to accept for
exchange or exchange some or all of the old notes pursuant to
the exchange offer,
or any statute, rule, regulation, order or injunction shall be sought,
proposed, introduced, enacted, promulgated or deemed applicable to the
exchange offer or any of the transactions contemplated by the exchange
offer by any government or governmental authority, domestic or foreign, or
any action shall have been taken, proposed or threatened, by any
government, governmental authority, agency or
33
<PAGE> 39
court, domestic or foreign, that in our sole judgment might directly or
indirectly result in any of the consequences referred to in clauses (a) or
(b) above or, on our sole judgement, might result in the holders of new
notes having obligations with respect to resales and transfers of new notes
which are greater than those described in the interpretation of the
Commission referred to in this prospectus, or would otherwise make it
inadvisable to proceed with the exchange offer; or
(2) there shall have occurred
(a) any general suspension of or general limitation on prices for,
or trading in, securities on any national securities exchange
or in the over-the-counter market,
(b) any limitation by any governmental agency or authority which
may adversely affect the ability of the issuer to complete the
transactions contemplated by the exchange offer,
(c) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any
limitation by any governmental agency or authority which
adversely affects the extension of credit or
(3) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United States,
or, in the case of any of the foregoing existing at the time of the
commencement of the exchange offer, a material acceleration or worsening
thereof; or
(4) any change or any development involving a prospective change shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of NTL and our subsidiaries taken as a whole that, in our
reasonable judgment, is or may be adverse to us, or we shall have become
aware of facts that, in our reasonable judgment, have or may have adverse
significance with respect to the value of the old notes or the new notes;
which, in our reasonable judgment in any case, and regardless of the
circumstances, including any action by us, giving rise to any such condition,
makes it inadvisable to proceed with the exchange offer and/or with such
acceptance or exchange or with such exchange.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in its sole
discretion. The failure by us at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any such old notes, if at such time any
stop order shall be threatened or in effect with respect to the registration
statement of which this
34
<PAGE> 40
prospectus constitutes a part or the qualification of the indentures under the
Trust Indenture Act of 1939, as amended.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as the exchange agent in
respect of the notes for the exchange offer. All executed letters of transmittal
should be sent to the exchange agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
prospectus or of the letter of transmittal in respect of the notes and requests
for notices of guaranteed delivery should be directed to the exchange agent
addressed as follows:
Delivery To: The Chase Manhattan Bank, as exchange agent
<TABLE>
<S> <C>
In New York
By Mail, By Hand and Overnight Courier: By Facsimile:
The Chase Manhattan Bank (212) 638-7380
Corporate Trust-Securities Window (212) 638-7381
Room 234 -- North Building
55 Water Street Confirm by Telephone:
New York, New York 10041 Carlos Esteves: (212) 638-0828
(212) 638-0454
In Luxembourg
By Mail, By Hand and Overnight Courier: By Facsimile:
Chase Manhattan Bank Luxembourg S.A. (352) 46 26 85 380
5 Rue Plaetis
L-2338, Luxembourg Confirm by Telephone:
Veronique Cridel: (352) 46 26 85 284
</TABLE>
Delivery of the letter of transmittal in respect of the notes to an address
other than as set forth above or transmission via facsimile other than as set
forth above does not constitute a valid delivery of such letter of transmittal.
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer except for reimbursement of mailing expenses.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by us and are estimated in the aggregate to be $250,000.
TRANSFER TAXES
You will not be obligated to pay any transfer taxes in connection with any
tender of old notes for exchange, except if you instruct us to register new
notes in the name of, or request that old notes not tendered or not accepted in
the exchange offer be returned to, a person other than the registered tendering
holder, you will be responsible for the payment of any applicable transfer tax
thereon.
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<PAGE> 41
USE OF PROCEEDS
We will not receive any cash proceeds from the exchange of old notes for
new notes in the exchange offer. We used the net proceeds of approximately
$606.5 million from the sale of the 11 1/2% old notes to repay a portion of the
indebtedness that we incurred under the new credit facility to fund the ComTel
acquisition. We used most of the net proceeds of approximately $242 million from
the sale of the 12 3/8% old notes to repay all the remaining indebtedness of
approximately $185 million that we incurred under the new credit facility to
fund the ComTel acquisition. At September 30, 1998, amounts outstanding under
the new credit facility bore interest at a weighted average rate of 9.776%. The
Chase Manhattan Bank has committed to make available to us a L480 million senior
secured credit facility, subject to the renegotiation of the new credit facility
structure and pricing. We intend to arrange for a reduction in the level of
Chase's commitment to make available such a senior secured credit facility by an
amount equal to the amount of net proceeds of the offering of the 12 3/8% notes
remaining after payment in full of all amounts then outstanding under the new
credit facility. We intend to use the balance of the net proceeds of
approximately $57 million from the sale of the 12 3/8% old notes to finance our
construction, capital expenditure and working capital requirements (including
debt service and repayment obligations). In addition, a portion of the net
proceeds may also be used to make acquisitions of businesses or assets related
to our business.
EXCHANGE RATES
The following table sets forth, for the periods indicated, the noon buying
rate for pounds sterling expressed in U.S. dollars per Ll.00.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD END AVERAGE(1) HIGH LOW
- ----------------------- ---------- ---------- ----- -----
<S> <C> <C> <C> <C>
1988.......................................... $1.81 $1.78 $1.91 $1.66
1989.......................................... 1.61 1.63 1.82 1.51
1990.......................................... 1.93 1.79 1.98 1.59
1991.......................................... 1.87 1.76 2.00 1.60
1992.......................................... 1.51 1.76 2.00 1.51
1993.......................................... 1.48 1.50 1.59 1.42
1994.......................................... 1.57 1.53 1.64 1.46
1995.......................................... 1.55 1.58 1.64 1.53
1996.......................................... 1.71 1.56 1.72 1.49
1997.......................................... 1.65 1.64 1.71 1.56
1998.......................................... 1.66 1.66 1.72 1.61
1999 (through February 4)..................... 1.64 1.65 1.66 1.63
</TABLE>
- ---------------
(1) The average of the noon buying rates on the last day of each month during
the relevant period.
36
<PAGE> 42
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1998
and as adjusted for:
(1) the acquisition of Partners (including the sale by Partners of its
interest in Birmingham Cable Corporation Limited and the application of
the proceeds from that transaction prior to the completion of the
acquisition),
(2) the redemption of the 10 7/8% notes on October 15, 1998,
(3) the offering of the 11 1/2% old notes and the application of the net
proceeds from that transaction of approximately $607 million,
(4) the offering of the 12 3/8% old notes and the application of the net
proceeds from that transaction of approximately $242 million and
(5) the offering of convertible notes in December 1998 and the application
of the net proceeds from that transaction of approximately $583 million
(clauses (2), (3), (4) and (5) are collectively referred to in this
prospectus as the "recent debt financings").
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-----------------------------
ACTUAL AS ADJUSTED
-------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and marketable securities............ $ 597,769 $ 1,319,362
========== ===========
Short term debt:
10 7/8% Notes Due 2003(1)................................. $ 148,781 $ --
Partners' 9% Note Payable to Comcast...................... -- 20,450
Current portion of long-term debt......................... -- 3,298
---------- -----------
Total short-term debt............................... $ 148,781 $ 23,748
========== ===========
Long-term debt:
12 3/8% Deferred Coupon Notes Due 2008.................... $ -- $ 249,773
11 1/2% Notes Due 2008.................................... -- 625,000
9 1/2% Notes Due 2008(2).................................. 211,693 211,693
10 3/4% Deferred Coupon Notes Due 2008.................... 316,445 316,445
9 3/4% Deferred Coupon Notes Due 2008..................... 845,172 845,172
10% Notes Due 2007........................................ 400,000 400,000
11 1/2% Deferred Coupon Notes Due 2006.................... 809,150 809,150
12 3/4% Deferred Coupon Notes Due 2005.................... 229,652 229,652
7% Convertible Subordinated Notes Due 2008................ -- 600,000
7% Convertible Subordinated Notes Due 2008................ 275,000 275,000
New Credit Facility....................................... 798,377 --
Partners' 11.20% Discount Debentures Due 2007............. -- 410,230
Partners' Other........................................... -- 8,850
---------- -----------
Total long-term debt................................ 3,885,489 4,980,965
---------- -----------
Senior redeemable exchangeable preferred stock, par value
$0.01 per share, plus accreted dividends; liquidation
preference $121,000,000; 121,000 shares issued and
outstanding............................................... 120,044 120,044
Shareholders' equity (deficiency):
Series preferred stock, $0.01 par value, 10,000,000 shares
authorized; 125,000 shares issued and outstanding....... 1 1
Common stock, $0.01 par value, 400,000,000 shares
authorized, 41,392,000 shares (actual) and 60,092,000
shares (as adjusted) issued and outstanding(3)(4)....... 414 601
Additional paid-in capital(3)............................. 844,368 1,452,661
Accumulated other comprehensive income.................... 184,115 184,115
(Deficit)(1)(5)........................................... (1,053,157) (1,080,572)
---------- -----------
Total shareholders' equity (deficiency)............. (24,259) 556,806
---------- -----------
Total capitalization........................................ $3,981,274 $ 5,657,815
========== ===========
</TABLE>
37
<PAGE> 43
- ---------------
(1) We redeemed all of the outstanding 10 7/8% notes on October 15, 1998 using
cash on deposit with the trustee. We recorded an extraordinary loss from the
early extinguishment of debt of approximately $7.9 million as a result of
the redemption.
(2) Net of unamortized discount of $669,000.
(3) In October 1998, we issued approximately 18,700,000 shares of our common
stock in connection with the completion of the acquisition of Partners.
(4) Does not include an aggregate of 35,715,000 shares of common stock,
consisting of:
(1) 15,773,000 shares of common stock subject to options;
(2) 697,000 shares of common stock subject to warrants;
(3) approximately 2,821,000 shares of common stock issuable upon the
conversion of preferred stock;
(4) 7,261,000 shares of common stock issuable upon conversion of our
existing Convertible Notes; and
(5) 9,796,000 shares of common stock initially issuable upon conversion of
our new Convertible Notes.
(5) In October 1998, we recorded an extraordinary loss from the early
extinguishment of debt of approximately L11.5 million ($20 million) as a
result of the repayment of the new credit facility using the proceeds from
the sale of the 11 1/2% old notes and the 12 3/8% old notes.
38
<PAGE> 44
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of and for the
years ended December 31, 1993, 1994, 1995, 1996 and 1997 have been derived from
our consolidated financial statements and the related notes. The selected
consolidated financial data and balance sheet data as of and for the nine months
ended September 30, 1998 and the selected consolidated financial data for the
nine months ended September 30, 1997 have been derived from our unaudited
consolidated financial statements and the related notes included in this
prospectus, which we believe include all adjustments necessary for a fair
presentation of our financial condition and results of operations for such
periods. The results of operations for interim periods are not necessarily
indicative of the results for a full year's operations. You should read the
following information in conjunction with "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business," the Consolidated Financial Statements of the Company and the related
notes and the other financial data appearing in or incorporated by reference in
this prospectus.
<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
Ratio of earnings to fixed
charges(3)................... -- -- -- -- -- -- --
</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>
39
<PAGE> 45
- ---------------
(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.
(3) Fixed charges consist of interest expense, including capitalized interest,
amortization of fees related to debt financing and rent expense deemed to be
interest. The fixed charges coverage deficiency amounted to $357.1 million,
$355.4 million, $257.1 million, $105.4 million, $31.8 million and $10.4
million for the nine months ended September 30, 1998 and for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993, respectively. For the nine
months ended September 30, 1998 and for the year ended December 31, 1997,
our earnings were insufficient to cover combined fixed charges and preferred
stock dividends by $363.3 million and $367.4 million.
We did not declare or pay any cash dividends during the years indicated.
40
<PAGE> 46
DESCRIPTION OF NOTES
11 1/2% NEW NOTES
GENERAL
The 11 1/2% new notes will be issued pursuant to an indenture (the "11 1/2%
indenture"), dated as of November 2, 1998, between NTL and The Chase Manhattan
Bank, as trustee. The following summary of selected provisions of the 11 1/2%
indenture is not complete and is qualified in its entirety by reference to the
11 1/2% indenture, including the definitions terms used below. The definitions
of some terms used in the following summary are set forth below under
"-- Definitions." In this "Description of Notes," the term "Company" refers to
NTL Incorporated and not any of its Subsidiaries.
The 11 1/2% old notes are, and the 11 1/2% new notes will be, unsecured
obligations of the Company, ranking equal in right of payment with all senior
unsecured Indebtedness of the Company and senior in right of payment to all
subordinated Indebtedness of the Company.
The operations of the Company are conducted through its subsidiaries and,
therefore, the Company is dependent upon the cash flow of its subsidiaries to
meet its obligations, including its obligations under the 11 1/2% notes. As a
result, the 11 1/2% old notes are, and the 11 1/2% new notes will be effectively
subordinated to all existing and future indebtedness and other liabilities and
commitments of such subsidiaries with respect to the cash flow and assets of
those subsidiaries.
Application will be made to list the 11 1/2% new notes on the Luxembourg
Stock Exchange.
PRINCIPAL, MATURITY AND INTEREST
The 11 1/2% new notes will be limited in aggregate principal amount to
$625,000,000. The 11 1/2% new notes will accrue interest at the rate of 11 1/2%
per annum and will be payable in cash, semi-annually in arrears, on April 1 and
October 1 of each year, beginning on April 1, 1999, to the holders of record on
the immediately preceding March 15 in respect of interest payable on the
following April 1 and September 15 in respect of interest payable on the
following October 1. Interest on the 11 1/2% notes will accrue from November 2,
1998, or the most recent date to which interest has been paid or duly provided
for on the 11 1/2% old notes. Interest on overdue principal and to the extent
permitted by law on overdue installments of interest will accrue at a rate equal
to the rate borne by the 11 1/2% new notes. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. A reference to a
payment of interest in respect of the 11 1/2% new notes includes a payment of
special interest, if any, and a reference to a payment of principal includes a
reference to a payment of premium, if any.
The 11 1/2% new notes will be payable both as to principal and interest on
presentation of such 11 1/2% new notes if in certificated form at the offices or
agencies of the Company maintained for such purpose within the City and State of
New York or, at
41
<PAGE> 47
the option of the Company, payment of interest may be made by check mailed to
the holders of the 11 1/2% new notes at their respective addresses set forth in
the register of holders of 11 1/2% new notes or, if a holder so requests, by
wire transfer of immediately available funds to an account previously specified
in writing by such holder to the Company and the Trustee. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the offices of the trustee maintained for such purpose. The Company has
designated Chase Manhattan Bank Luxembourg S.A. to act as paying agent in
Luxembourg if the 11 1/2% new notes are approved for listing on the Luxembourg
Stock Exchange. The 11 1/2% new notes will be payable on maturity on October 1,
2008 at 100% of their principal amount and will be issued in registered form,
without coupons, and in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
Except as referred to herein under "-- Covenants -- Additional Amounts;
Optional Tax Redemption," the 11 1/2% notes are not redeemable at the Company's
option prior to October 1, 2003. Thereafter, the 11 1/2% notes will be subject
to redemption at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on October 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 105.750%
2004........................................................ 103.833%
2005........................................................ 101.917%
2006 and thereafter......................................... 100.000%
</TABLE>
In the case of a redemption of any class of notes referred to herein under
"-- Covenants -- Additional Amounts; Optional Tax Redemption," redemption of
such Notes shall be made at the redemption prices specified in the Indenture
plus accrued and unpaid interest, if any, to the applicable redemption date.
MANDATORY REDEMPTION AND REPURCHASE
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the 11 1/2% notes. The Company is required to make a
Change of Control Offer (as defined below) and an Asset Sale Offer (as defined
below) with respect to a repurchase of the 11 1/2% notes under the circumstances
described under the captions "Change of control" and "Asset sales,"
respectively.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control Triggering Event, each holder of
11 1/2% notes shall have the right to require the Company to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of such holder's
11 1/2% notes pursuant to the offer described below (the "Change of Control
Offer") at a purchase price equal
42
<PAGE> 48
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase (the "Change of Control Payment"). Within 40 days
following any Change of Control Triggering Event, the Company shall mail a
notice to each holder, and, if and as long as the 11 1/2% notes are listed on
the Luxembourg Stock Exchange, publish a notice in one leading newspaper with
circulation in Luxembourg, stating:
(1) that the Change of Control Offer is being made pursuant to the
covenant entitled "Change of Control" and that all 11 1/2% notes tendered
will be accepted for payment;
(2) the purchase price and the purchase date, which shall be no earlier
than 30 days nor later than 40 days from the date such notice is mailed
(the "Change of Control Payment Date");
(3) that any 11 1/2% notes not tendered will continue to accrue
interest;
(4) that, unless the Company defaults in the payment of the Change of
Control Payment, all 11 1/2% Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(5) that holders electing to have any 11 1/2% notes purchased pursuant
to a Change of Control Offer will be required to surrender the 11 1/2%
notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the 11 1/2% notes completed, to the paying agent at the address
specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date;
(6) that holders will be entitled to withdraw their election if the
paying agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of 11 1/2% notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such 11 1/2%
notes purchased; and
(7) that holders whose 11 1/2% notes are being purchased only in part
will be issued new 11 1/2% notes equal in principal amount to the
unpurchased portion of the 11 1/2% notes surrendered, which unpurchased
portion must be equal to $1,000 in principal amount or an integral multiple
thereof.
The Company will comply with the requirements of Rules 13e-4 and 14e-1
under the Securities Exchange Act of 1934, as amended, and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the 11 1/2% notes in connection
with a Change of Control Triggering Event.
On the Change of Control Payment Date, the Company will, to the extent
lawful,
(1) accept for payment 11 1/2% notes or portions thereof tendered
pursuant to the Change of Control Offer,
43
<PAGE> 49
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all 11 1/2% notes or portions thereof so
tendered and
(3) deliver or cause to be delivered to the Trustee the 11 1/2% notes
so accepted together with an Officers' Certificate stating the 11 1/2%
notes or portions thereof tendered to the Company.
The paying agent shall promptly mail to each holder of 11 1/2% notes so
accepted (or, if such a holder requests, wire transfer immediately available
funds to an account previously specified in writing by such holder to the
Company and the paying agent) payment in an amount equal to the purchase price
for such 11 1/2% notes, and the trustee shall promptly authenticate and mail to
each holder a new 11 1/2% note equal in principal amount to any unpurchased
portion of the 11 1/2% notes surrendered, if any; provided that each such new
11 1/2% note shall be in a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control Triggering
Event, the 11 1/2% indenture does not contain any other provisions that permit
the holders of the 11 1/2% notes to require that the Company repurchase or
redeem the 11 1/2% notes in the event of a takeover, recapitalization or similar
restructuring. The 11 1/2% indenture contains covenants which may afford holders
of the 11 1/2% notes protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction, including the
Change of Control provision described above and the provisions described under
"-- Incurrence of Indebtedness and Issuance of Preferred Stock" and "-- Merger,
Consolidation or Sale of Assets" below. Each such covenant is, however, subject
to certain exceptions which may permit the Company to be involved in such a
highly leveraged transaction that may adversely affect the holders of the
11 1/2% notes.
The Change of Control Offer requirement of the 11 1/2% notes may in certain
circumstances make more difficult or discourage a takeover of the Company, and,
thus, the removal of incumbent management. The Change of Control Offer
requirement, however, is not the result of management's knowledge of any
specific effort to accumulate the Company's stock or to obtain control of the
Company by means of a merger, tender offer, solicitation or otherwise, or part
of a plan by management to adopt a series of anti-takeover provisions. Instead,
the Change of Control Offer requirement is a result of negotiations between the
Company and the initial purchasers. Management has not entered into any
agreement or plan involving a Change of Control, although it is possible that
the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control Triggering Event under the 11 1/2%
indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
The indentures for our 9 1/2% notes, in an aggregate principal amount
L125,000,000, our 10 3/4% notes, in an aggregate principal amount at maturity of
L300,000,000, our 9 3/4%
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<PAGE> 50
notes, in an aggregate principal amount at maturity of $1,300,000,000, our 10%
notes, in an aggregate principal amount at maturity of $400,000,000, our 12 3/4%
notes, in an aggregate principal amount at maturity of $277,803,500, our 11 1/2%
deferred coupon notes, in an aggregate principal amount at maturity of
$1,050,000,000, and our 12 3/8% notes, in an aggregate principal amount at
maturity of $450,000,000 which rank equal with our 11 1/2% notes, also contain
change of control provisions. The indentures for our convertible notes, which
are subordinated to the 11 1/2% notes, also contain change of control
provisions.
The Company's ability to pay cash to the holders of 11 1/2% notes pursuant
to a Change of Control Offer may be limited by the Company's then existing
financial resources. See "Risk Factors -- Our substantial leverage could
adversely affect the financial health of the company" and "-- We are a holding
company that is dependant upon cash flow from our subsidiaries -- our ability to
access that cash flow may be limited in some circumstances." The new credit
facility does, and any future credit agreements or other agreements relating to
indebtedness of the Company may, contain prohibitions or restrictions on the
Company's ability to effect a Change of Control Payment. In the event a Change
of Control Triggering Event occurs at a time when such prohibitions or
restrictions are in effect, the Company could seek the consent of its lenders to
the purchase of 11 1/2% notes and other Indebtedness containing change of
control provisions or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will be effectively prohibited from purchasing 11 1/2%
notes. In such case, the Company's failure to purchase tendered 11 1/2% notes
would constitute an Event of Default under the 11 1/2% indenture. Moreover, the
events that constitute a Change of Control or require an Asset Sale Offer under
the 11 1/2% indenture constitute events of default under the Credit Facility and
may also constitute events of default under future debt instruments or credit
agreements of the Company or the Company's Subsidiaries. Such events of default
may permit the lenders under such debt instruments or credit agreements to
accelerate the debt and, if such debt is not paid or repurchased, to enforce
their security interests in what may be all or substantially all of the assets
of the Company's Subsidiaries. Any such enforcement may limit the Company's
ability to raise cash to repay or repurchase the 11 1/2% notes.
The Company will not be required to make a Change of Control Offer in the
event the Company enters into a transaction with management or their affiliates
who are Permitted Holders. The definition of Change of Control includes a phrase
relating to the sale, lease, transfer, conveyance or other disposition of "all
or substantially all" of the Company's assets. Although there is a developing
body of case law interpreting the phrase "substantially all," there is no
precise established definition of the phrase under applicable law. Accordingly,
the ability of a holder of 11 1/2% notes to require the Company to repurchase
such 11 1/2% notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of the Company and its Subsidiaries
to another Person may be uncertain.
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ASSET SALES
The 11 1/2% indenture provides that the Company will not and will not
permit any of its Restricted Subsidiaries to cause, make or suffer to exist any
Asset Sale, unless
(1) no Default exists or is continuing immediately prior to and after
giving effect to such Asset Sale,
(2) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least
equal to the fair market value (evidenced for purposes of this
covenant by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets sold
or otherwise disposed of and
(3) at least 80% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of
(a) Cash Equivalents,
(b) Replacement Assets,
(c) publicly traded Equity Interests of a Person who is, directly
or indirectly, engaged primarily in one or more Cable
Businesses; provided, however, that the Company or such
Restricted Subsidiary shall Monetize such Equity Interests by
sale to one or more Persons (other than to the Company or a
Subsidiary thereof) at a price not less than the fair market
value thereof within 180 days of the consummation of such
Asset Sale, or
(d) any combination of the foregoing clauses (a) through (c);
provided, however, that the amount of
(x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes
thereto), of the Company or any Restricted Subsidiary (other
than liabilities that are by their terms subordinated to the
Notes) that are assumed by the transferee of any such assets
and
(y) any notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are
within five Business Days converted by the Company or such
Restricted Subsidiary into cash, shall be deemed to be Cash
Equivalents (to the extent of the Cash Equivalents received
in such conversion) for purposes of this clause (3).
Within 360 days after any Asset Sale, the Company (or the Restricted
Subsidiary, as the case may be) will cause the Net Proceeds from such Asset Sale
(1) to be used to permanently reduce Indebtedness of a Restricted
Subsidiary or
(2) to be invested or reinvested in Replacement Assets.
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Pending final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from any Asset Sale that are not used or reinvested as
provided in the preceding sentence constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $15 million, the Company will make
an offer (an "Asset Sale Offer") to all holders of 11 1/2% notes and Other
Qualified Notes to purchase the maximum principal amount of 11 1/2% notes and
Other Qualified Notes (determined on a pro rata basis according to the accreted
value or principal amount, as the case may be, of the Notes and the Other
Qualified Notes that may be purchased out of the Excess Proceeds
(1) with respect to the Other Qualified Notes, based on the terms set
forth in the indenture related to each issue of the Other Qualified
Notes and
(2) with respect to the 11 1/2% notes, at an offer price in cash in an
amount equal to 100% of the outstanding principal amount thereof
plus accrued and unpaid interest, if any, to the date fixed for the
closing of such offer, in accordance with the procedures set forth
in the 11 1/2% indenture.
To the extent that the aggregate principal amount or accreted value, as the
case may be, of 11 1/2% notes and Other Qualified Notes tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds the Company may use such
deficiency for general corporate purposes. If the aggregate principal amount or
accreted value, as the case may be, of 11 1/2% notes and Other Qualified Notes
surrendered by holders thereof exceeds the amount of Excess Proceeds then such
remaining Excess Proceeds will be allocated pro rata according to accreted value
or principal amount, as the case may be, to the 11 1/2% notes and each issue of
the Other Qualified Notes, and the Trustee will select the 11 1/2% notes to be
purchased from the amount allocated to the 11 1/2% notes on the basis set forth
under "Selection and Notice" below. Upon completion of such offers to purchase
each of the 11 1/2% notes and the Other Qualified Notes, the amount of Excess
Proceeds will be reset at zero.
Notwithstanding the foregoing, the Company and its Subsidiaries may
(1) sell, lease, transfer, convey or otherwise dispose of assets or
property acquired after October 14, 1993, by the Company or any
Subsidiary in a sale-and-leaseback transaction so long as the
proceeds of such sale are applied within five Business Days to
permanently reduce Indebtedness of a Restricted Subsidiary or if
there is no such Indebtedness or such proceeds exceed the amount of
such Indebtedness then such proceeds or excess proceeds are
reinvested in Replacement Assets within 360 days after such sale,
lease, transfer, conveyance or disposition,
(2) (x) swap or exchange assets or property with a Cable Controlled
Subsidiary or
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(y) issue, sell, lease, transfer, convey or otherwise dispose of
equity securities of any of the Company's Subsidiaries to a
Cable Controlled Subsidiary, in each of cases (x) and (y) so
long as
(A) the ratio of Indebtedness to Annualized Pro Forma EBITDA
of the Company after such transaction is equal to or
less than the ratio of Indebtedness to Annualized Pro
Forma EBITDA of the Company immediately preceding such
transaction; provided, however, that if the ratio of
Indebtedness to Annualized Pro Forma EBITDA of the
Company immediately preceding such transaction is 6:1 or
less, then the ratio of Indebtedness to Annualized Pro
Forma EBITDA of the Company may be 0.5 greater than such
ratio immediately preceding such transaction and
(B) either
(I) the assets so contributed consist solely of a
license to operate a Cable Business and the Net
Households covered by all of the licenses to
operate cable and telephone systems held by the
Company and its Restricted Subsidiaries immediately
after and giving effect to such transaction equals
or exceeds the number of Net Households covered by
all of the licenses to operate cable and telephone
systems held by the Company and its Restricted
Subsidiaries immediately prior to such transaction
or
(II) the assets so contributed consist solely of Cable
Assets and the value of the Capital Stock received,
immediately after and giving effect to such
transaction, as determined by an investment banking
firm of recognized standing with knowledge of the
Cable Business, equals or exceeds the value of the
Cable Assets exchanged for such Capital Stock, or
(3) issue, sell, lease, transfer, convey or otherwise dispose of Equity
Interests of the Company (or any Capital Stock Sales Proceeds
therefrom) to any Person (including Non-Restricted Subsidiaries).
SELECTION AND NOTICE
If less than all of the 11 1/2% notes are to be redeemed at any time,
selection of 11 1/2% notes for redemption will be made by the trustee in
compliance with the requirements of any securities exchange on which the 11 1/2%
notes are listed, or, in the absence of such requirements or if the 11 1/2%
notes are not so listed, on a pro rata basis, provided that no 11 1/2% notes of
$1,000 or less shall be redeemed in part. Notice of redemption shall be mailed
by first class mail at least 30 but not more than 60 days before the redemption
date to each holder of 11 1/2% notes to be redeemed at its registered address.
If any 11 1/2% note is to be redeemed in part only, the notice of
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redemption that relates to such 11 1/2% note shall state the portion of the
principal amount thereof to be redeemed. A new 11 1/2% note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original 11 1/2% note. On and after the
redemption date, interest ceases to accrue on 11 1/2% notes or portions of them
called for redemption.
COVENANTS
Restricted Payments
The 11 1/2% indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution on account of
the Company's or any of its Restricted Subsidiaries' Equity
Interests (other than
(x) dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of the Company or such Restricted
Subsidiary or
(y) dividends or distributions payable to the Company or any
Wholly Owned Subsidiary of the Company, or
(z) pro rata dividends or pro rata distributions payable by a
Restricted Subsidiary);
(2) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company (other than any such Equity
Interests owned by the Company or any Wholly Owned Subsidiary of
the Company);
(3) voluntarily purchase, redeem or otherwise acquire or retire for
value any Indebtedness that is subordinated to the 11 1/2% notes;
or
(4) make any Restricted Investment
(all such payments and other actions set forth in clauses (1)
through (4) above being collectively referred to as "Restricted
Payments"),
unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its
Restricted Subsidiaries after the Issuance Date (including
Restricted Payments permitted by clauses (2) through (9) of
the next succeeding paragraph), is less than the sum of
(x) the difference between Cumulative EBITDA and 1.5 times
Cumulative Interest Expense plus
(y) Capital Stock Sale Proceeds plus
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(z) cash received by the Company or a Restricted
Subsidiary from a Non-Restricted Subsidiary (other
than cash which is or is required to be repaid or
returned to such Non-Restricted Subsidiary);
provided, however, that to the extent that any
Restricted Investment that was made after the date
of the 11 1/2% indenture is sold for cash or
otherwise liquidated or repaid for cash, the amount
credited pursuant to this clause (z) shall be the
lesser of
(A) the cash received with respect to such sale,
liquidation or repayment of such Restricted
Investment (less the cost of such sale, liquidation
or repayment, if any) and
(B) the initial amount of such Restricted Investment, in
each case as determined in good faith by the
Company's Board of Directors.
The foregoing provisions will not prohibit
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment
would have complied with the provisions of the 11 1/2% indenture;
(2) (x) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Restricted
Subsidiary or
(y) an Investment in any Person,
in each case, in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Restricted
Subsidiary of the Company) of other Equity Interests (other than
any Disqualified Stock) of the Company provided that the Company
delivers to the trustee:
(1) with respect to any transaction involving in excess of
$1 million, a resolution of the Board of Directors set
forth in an Officers' Certificate certifying that such
transaction is approved by a majority of the directors
on the Board of Directors; and
(2) with respect to any transaction involving in excess of
$25 million, an opinion as to the fairness to the
Company or such Subsidiary from a financial point of
view issued by an investment banking firm of national
standing with high yield experience, together with an
Officers' Certificate to the effect that such opinion
complies with this clause (2), provided, that the amount
of such proceeds from the sale of such Equity Interests
shall be excluded in each case from Capital Stock Sale
Proceeds for purposes of clause (b)(y), above;
(3) Investments by the Company or any Restricted Subsidiary in a Non-
Controlled Subsidiary which
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(A) has no Indebtedness on a consolidated basis other than
Indebtedness incurred to finance the purchase of equipment
used in a Cable Business,
(B) has no restrictions (other than restrictions imposed or
permitted by the Indenture or the indentures governing the
Other Qualified Notes or any other instrument governing
unsecured indebtedness of the Company which is pari passu
with the Notes) on its ability to pay dividends or make any
other distributions to the Company or any of its Restricted
Subsidiaries,
(C) is or will be a Cable Business and
(D) uses the proceeds of such Investment for constructing a Cable
Business or the working capital needs of a Cable Business;
(4) the redemption, purchase, defeasance, acquisition or retirement of
Indebtedness that is subordinated to the 11 1/2% notes (including
premium, if any, and accrued and unpaid interest) made by exchange
for, or out of the proceeds of the substantially concurrent sale
(other than to a Restricted Subsidiary of the Company) of,
(A) Equity Interests of the Company provided, that the amount of
such proceeds from the sale of such Equity Interests shall be
excluded in each case from Capital Stock Sale Proceeds for purposes
of clause (b)(y), above or
(B) Refinancing Indebtedness permitted to be incurred under the
"Incurrence of Indebtedness and Issuance of Preferred Stock"
covenant;
(5) Investments by the Company or any Restricted Subsidiary in a Non-
Controlled Subsidiary which is or will be a Cable Business in an
amount not to exceed $80 million in the aggregate plus the sum of
(x) cash received by the Company or a Restricted Subsidiary from a
Non-Restricted Subsidiary (other than cash which is or is required
to be repaid or returned to such Non-Restricted Subsidiary) and
(y) Capital Stock Sale Proceeds (excluding the aggregate net sale
proceeds to be received upon conversion of the Convertible
Subordinated Notes), provided, that the amount of such proceeds
from the sale of such Equity Interests shall be excluded in each
case from Capital Stock Sale Proceeds for purposes of clause
(b)(y), above;
(6) Investments by the Company or any Restricted Subsidiary in
Permitted Non-Controlled Assets;
(7) the extension by the Company or any Restricted Subsidiary of trade
credit to a Non-Restricted Subsidiary extended on usual and
customary terms in the ordinary course of business, provided that
the aggregate amount of such trade credit shall not exceed $25
million at any one time;
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(8) the payment of cash dividends on the Preferred Stock accruing on or
after February 15, 2004 or any mandatory redemption or repurchase
of the Preferred Stock, in each case, in accordance with the
Certificate of Designations therefor; and
(9) the exchange of all of the outstanding shares of Preferred Stock
for Subordinated Debentures in accordance with the Certificate of
Designation for the Preferred Stock.
Any Investment in a Subsidiary (other than the issuance, transfer or other
conveyance of Equity Interests of the Company (or any Capital Stock Sales
Proceeds therefrom)) that is designated by the Board of Directors as a
Non-Restricted Subsidiary shall become a Restricted Payment made on the date of
such designation in the amount of the greater of
(x) the book value of such Subsidiary on the date such Subsidiary
becomes a Non-Restricted Subsidiary and
(y) the fair market value of such Subsidiary on such date as determined
(A) in good faith by the Board of Directors of such Subsidiary if
such fair market value is determined to be less than $25
million and
(B) by an investment banking firm of national standing with high
yield underwriting expertise if such fair market value is
determined to be in excess of $25 million.
Not later than the fifth Business Day after making any Restricted Payment
(other than those referred to in sub-clause (7) of the second paragraph
preceding this paragraph), the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "Restricted
Payments" were computed, which calculations may be based upon the Company's
latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The 11 1/2% indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guaranty or otherwise become directly or indirectly liable
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt) and that the Company will not issue any Disqualified Stock and will not
permit any of its Restricted Subsidiaries to issue any shares of preferred stock
that is Disqualified Stock; provided, however, that the Company may incur
Indebtedness or issue shares of Disqualified Stock and any of its Restricted
Subsidiaries may issue shares of preferred stock that is Disqualified Stock if
after giving effect to such issuance or incurrence on a pro forma basis, the sum
of
(x) Indebtedness of the Company and its Restricted Subsidiaries, on a
consolidated basis,
(y) the liquidation value of outstanding preferred stock of Restricted
Subsidiaries and
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(z) the aggregate amount payable by the Company and its Restricted
Subsidiaries, on a consolidated basis, upon redemption of
Disqualified Stock to the extent such amount is not included in the
preceding clause (y) shall be less than the product of Annualized
Pro Forma EBITDA for the latest fiscal quarter for which internal
financial statements are available immediately preceding the date
on which such additional Indebtedness is incurred or such
Disqualified Stock or preferred stock is issued multiplied by 7.0,
determined on a pro forma basis (including a pro forma application
of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock or preferred stock had
been issued, as the case may be, at the beginning of such quarter.
The foregoing limitations will not apply to
(a) the incurrence by the Company or any Restricted Subsidiary of
Indebtedness pursuant to the Credit Facility,
(b) the issuance by any Restricted Subsidiary of preferred stock
(other than Disqualified Stock) to the Company, any Restricted
Subsidiary of the Company or the holders of Equity Interests in
any Restricted Subsidiary on a pro rata basis to such holders,
(c) the incurrence of Indebtedness or the issuance of preferred stock
by the Company or any of its Restricted Subsidiaries the proceeds
of which are (or the credit support provided by any such
Indebtedness is), in each case, used to finance the construction,
capital expenditure and working capital needs of a Cable Business
(including, without limitation, payments made pursuant to any
License), the acquisition of Cable Assets or the Capital Stock of
a Qualified Subsidiary,
(d) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal
amount not to exceed $50 million,
(e) the incurrence by the Company or any Restricted Subsidiary of any
Permitted Acquired Debt,
(f) the incurrence by the Company or any Subsidiary of Indebtedness
issued in exchange for, or the proceeds of which are used to
extend, refinance, renew, replace, or refund the 11 1/2% notes,
Existing Indebtedness or Indebtedness referred to in clauses (a),
(b), (c), (d) or (e) above or Indebtedness incurred pursuant to
the preceding paragraph (the "Refinancing Indebtedness");
provided, however, that
(1) the principal amount of, and any premium payable in respect
of, such Refinancing Indebtedness shall not exceed the principal
amount of Indebtedness so extended, refinanced, renewed, replaced
or refunded (plus the amount of reasonable expenses incurred in
connection therewith);
(2) the Refinancing Indebtedness shall have
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(A) a Weighted Average Life to Maturity equal to or greater
than the Weighted Average Life to Maturity of, and
(B) a stated maturity no earlier than the stated maturity of,
the Indebtedness being extended, refinanced, renewed, replaced or
refunded; and
(3) the Refinancing Indebtedness shall be subordinated in right
of payment to the 11 1/2% notes as and to the extent of the
Indebtedness being extended, refinanced, renewed, replaced or
refunded,
(g) the issuance of the Preferred Stock in lieu of payment of cash
interest on the Subordinated Debentures or the incurrence by the
Company of Indebtedness represented by the Subordinated Debentures
upon the exchange of the Preferred Stock in accordance with the
Certificate of Designations therefor,
(h) Indebtedness under Exchange Rate Contracts, provided that such
Exchange Rate Contracts are related to payment obligations under
Existing Indebtedness or Indebtedness incurred under this
paragraph or the preceding paragraph that are being hedged
thereby, and not for speculation and that the aggregate notional
amount under each such Exchange Rate Contract does not exceed the
aggregate payment obligations under such Indebtedness,
(i) Indebtedness under Interest Rate Agreements, provided that the
obligations under such agreements are related to payment
obligations on Existing Indebtedness or Indebtedness otherwise
incurred pursuant to this paragraph or the preceding paragraph,
and not for speculation,
(j) the incurrence of Indebtedness between the Company and any
Restricted Subsidiary, between or among Restricted Subsidiaries
and between any Restricted Subsidiary and other holders of Equity
Interests of such Restricted Subsidiary (or other Persons
providing funding on their behalf) on a pro rata basis and on
substantially identical principal financial terms, provided,
however, that if any such Restricted Subsidiary that is the payee
of any such Indebtedness ceases to be a Restricted Subsidiary or
transfers such Indebtedness (other than to the Company or a
Restricted Subsidiary of the Company), such events shall be
deemed, in each case, to constitute the incurrence of such
Indebtedness by the Company or by a Restricted Subsidiary, as the
case may be, at the time of such event, and
(k) Indebtedness of the Company and/or any Restricted Subsidiary in
respect of performance bonds of the Company or any Subsidiary or
surety bonds provided by the Company or any Restricted Subsidiary
received in the ordinary course of business in connection with the
construction or operation of a Cable Business.
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Any redesignation of a Non-Restricted Subsidiary as a Restricted Subsidiary
shall be deemed for purposes of the foregoing covenant to be an incurrence of
Indebtedness by the Company and its Restricted Subsidiaries of the Indebtedness
of such Non-Restricted Subsidiary as of the time of such redesignation to the
extent such Indebtedness does not already constitute Indebtedness of the Company
or one of its Restricted Subsidiaries.
Liens
The 11 1/2% indenture provides that neither the Company nor any of its
Restricted Subsidiaries may directly or indirectly create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except:
(1) Permitted Liens;
(2) Liens securing Indebtedness and related obligations incurred under
clauses (a), (b), (c), (d), (e), (h), (i) and (k) of the second
paragraph of the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant;
(3) Liens on the assets acquired or leased with the proceeds of
Indebtedness permitted to be incurred under the "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant; and
(4) Liens securing Refinancing Indebtedness permitted to be incurred
under the "Incurrence of Indebtedness and Issuance of Preferred
Stock" covenant; provided that the Refinancing Indebtedness so
issued and secured by such Lien shall not be secured by any
property or assets of the Company or any of its Restricted
Subsidiaries other than the property or assets subject to the Liens
securing such Indebtedness being refinanced.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The 11 1/2% indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to
(1) (a) pay dividends or make any other distributions to the Company or
any of its Subsidiaries
(A) on its Capital Stock or
(B) with respect to any other interest or participation in,
or measured by, its profits, or
(b) pay any indebtedness owed to the Company or any of its
Subsidiaries or
(2) make loans or advances to the Company or any of its Subsidiaries or
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(3) transfer any of its properties or assets to the Company or any of
its Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of
(a) Existing Indebtedness as in effect on the Issuance Date,
(b) the 11 1/2% indenture and the 11 1/2% notes,
(c) any agreement covering or relating to Indebtedness permitted
to be incurred under clause (a), (b), (c), (d), (e), (h) or
(i) (but only, in the case of clause (h) or (i), to the extent
contemplated by the then-existing Credit Facility) of the
second paragraph of the "Incurrence of Indebtedness and
Issuance of Preferred Stock" covenant, provided that the
provisions of such agreement permit any action referred to in
clause (1) above in aggregate amounts sufficient to enable the
payment of interest and principal and mandatory repurchases
pursuant to the terms of the 11 1/2% indenture and the 11 1/2%
notes but provided further that:
(x) any such agreement may nevertheless encumber, prohibit
or restrict any action referred to in clause (1) above
if an event of default under such agreement has
occurred and is continuing or would occur as a result
of any such action; and
(y) any such agreement may nevertheless contain
(I) restrictions limiting the payment of dividends or
the making of any other distributions to all or a
portion of excess cash-flow (or any similar
formulation thereof) and
(II) subordination provisions governing Indebtedness
owed to the Company or any Restricted Subsidiary,
(4) applicable law,
(5) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Subsidiaries as
in effect at the time of such acquisition (except to the
extent such Indebtedness was incurred in connection with such
acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of
the Person, so acquired; provided that the EBITDA of such
Person is not taken into account in determining whether such
acquisition was permitted by the terms of the 11 1/2%
indenture,
(6) customary nonassignment provisions in leases entered into in
the ordinary course of business and consistent with past
practices,
(7) provisions of joint venture or stockholder agreements, so long
as such provisions are determined by a resolution of the Board
of Directors to be, at the time of such determination,
customary for such agreements,
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(8) with respect to clause (c) above, purchase money obligations
for property acquired in the ordinary course of business or
the provisions of any agreement with respect to any Asset Sale
(or transaction which, but for its size, would be an Asset
Sale), solely with respect to the assets being sold, or
(9) permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such
Refinancing Indebtedness are determined by a resolution of the
Board of Directors to be no more restrictive than those
contained in the agreements governing the Indebtedness being
refinanced.
Merger, Consolidation or Sale of Assets
The 11 1/2% indenture provides that the Company may not consolidate or
merge with or into (whether or not the Company is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions to, another corporation, Person or entity unless
(1) the Company is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the
United Kingdom, the Netherlands, the Netherlands Antilles, Bermuda
or the Cayman Islands or of the United States, any state thereof or
the District of Columbia;
(2) the entity or Person formed by or surviving any such consolidation
or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other
disposition will have been made assumes all the Obligations
(including the due and punctual payment of Additional Amounts (as
defined in the 11 1/2% Indenture) if the surviving corporation is a
corporation organized or existing under the laws of the United
Kingdom, the Netherlands, the Netherlands Antilles, Bermuda or the
Cayman Islands) of the Company, pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, under
the 11 1/2% notes and the 11 1/2% indenture;
(3) immediately after such transaction no Default or Event of Default
exists;
(4) the Company or any entity or Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been
made will have a ratio of Indebtedness to Annualized Pro Forma
EBITDA equal to or less than the ratio of Indebtedness to
Annualized Pro Forma EBITDA of the Company immediately preceding
the transaction provided, however, that if the ratio of
Indebtedness to Annualized Pro Forma EBITDA of the Company
immediately preceding such transaction is 6:1 or less, then the
ratio of
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Indebtedness to Annualized Pro Forma EBITDA of the Company may be
0.5 greater than such ratio immediately preceding such transaction;
and
(5) such transaction would not result in the loss of any material
authorization or Material License of the Company or its
Subsidiaries.
Additional Amounts; Optional Tax Redemption
The 11 1/2% indenture provides that the "Payment of Additional Amounts"
provision therein, relating to United Kingdom, Netherlands, Netherlands
Antilles, Bermuda and Cayman Islands withholding and other United Kingdom,
Netherlands, Netherlands Antilles, Bermuda and Cayman Islands taxes, and the
"Optional Tax Redemption" provision therein, relating to the Company's option to
redeem the 11 1/2% notes under certain circumstances if Additional Amounts are
payable, apply to the 11 1/2% notes in certain circumstances. The provisions of
the 11 1/2% indenture relating to the payment of Additional Amounts will only
apply in the event that the Company becomes, or a successor to the Company is, a
corporation organized or existing under the laws of the United Kingdom, the
Netherlands, the Netherlands Antilles, Bermuda or the Cayman Islands. In such
circumstances, all payments made by the Company on the 11 1/2% notes will be
made without deduction or withholding, for or on account of, any and all present
or future taxes, duties, assessments, or governmental charges of whatever nature
unless the deduction or withholding of such taxes, duties, assessments or
governmental charges is then required by law. If any deduction or withholding
for or on account of any present or future taxes, assessments or other
governmental charges of the United Kingdom, the Netherlands, the Netherlands
Antilles, Bermuda or the Cayman Islands (or any political subdivision or taxing
authority thereof or therein) shall at any time be required in respect of any
amounts to be paid by the Company under the 11 1/2% notes, the Company will pay
or cause to be paid such additional amounts ("Additional Amounts") as may be
necessary in order that the net amounts received by a holder of the 11 1/2%
notes after such deduction or withholding shall be not less than the amounts
specified in the 11 1/2% notes to which the holder of such 11 1/2% notes is
entitled; provided, however, that the Company shall not be required to make any
payment of Additional Amounts for or on account of:
(1) any tax, assessment or other governmental charge to the extent such
tax, assessment or other governmental charge would not have been
imposed but for
(a) the existence of any present or former connection between
such holder (or between a fiduciary, settlor, beneficiary,
member or shareholder of, or possessor of a power over, such
holder, if such holder is an estate, nominee, trust,
partnership or corporation), other than the holding of the
11 1/2% notes or the receipt of amounts payable in respect of
the 11 1/2% notes and the United Kingdom, the Netherlands,
the Netherlands Antilles, Bermuda or the Cayman Islands or
any political subdivision or taxing authority thereof or
therein, including, without limitation, such holder (or such
fiduciary,
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settlor, beneficiary, member, shareholder or possessor) being
or having been a citizen or resident thereof or being or
having been present or engaged in trade or business therein
or having had a permanent establishment therein or
(b) the presentation of the 11 1/2% notes (where presentation is
required) for payment on a date more than 30 days after the
date on which such payment became due and payable or the date
on which payment thereof is duly provided for, whichever
occurs later, except to the extent that the holder would have
been entitled to Additional Amounts had the 11 1/2% notes been
presented on the last day of such period of 30 days;
(2) any governmental charge that is imposed or withheld by reason of
the failure to comply by the holder of the 11 1/2% notes or, if
different, the beneficial owner of the interest payable on the
11 1/2% notes, with a timely request of the Company addressed to
such holder or beneficial owner to provide information, documents
or other evidence concerning the nationality, identity or
connection with the taxing jurisdiction of such holder or
beneficial owner which is required or imposed by a statute,
regulation or administrative practice of the taxing jurisdiction as
a precondition to exemption from all or part of such tax assessment
or governmental charge;
(3) any estate, inheritance, gift, sales, transfer, personal property
or similar tax assessment or other governmental charge;
(4) any tax assessment or other governmental charge which is
collectible otherwise than by withholding from payments of
principal amount, redemption amount, Change of Control Payment or
interest with respect to a 11 1/2% note or withholding from the
proceeds of a sale or exchange of a 11 1/2% note;
(5) any tax, assessment or other governmental charge required to be
withheld by any paying agent from any payment of principal amount,
redemption amount, Change of Control Payment or interest with
respect to a 11 1/2% note, if such payment can be made, and is in
fact made, without such withholding by any other paying agent
located inside the United States;
(6) any tax, assessment or other governmental charge imposed on a
holder that is not the beneficial owner of a 11 1/2% note to the
extent that the beneficial owner would not have been entitled to
the payment of any such Additional Amounts had the beneficial owner
directly held the 11 1/2% note;
(7) any combination of items (1), (2), (3), (4), (5) and (6) above;
nor shall Additional Amounts be paid with respect to any payment of the
principal of, or any interest on the 11 1/2% notes to any holder who is a
fiduciary or partnership or other than the sole beneficial owner of such payment
to the extent that a beneficiary or settlor
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would not have been entitled to any Additional Amounts had such beneficiary or
settlor been the holder of the 11 1/2% notes.
The 11 1/2% notes may be redeemed at the option of the Company, in whole
but not in part, upon not less than 30 nor more than 60 days notice, at any time
at a redemption price equal to the principal amount thereof plus accrued and
unpaid interest to the date fixed for redemption if after the Issuance Date
there has occurred any change in or amendment to the laws (or any regulations or
official rulings promulgated thereunder) of the United Kingdom, the Netherlands,
the Netherlands Antilles, Bermuda or the Cayman Islands (or any political
subdivision or taxing authority thereof or therein), or any change in or
amendment to the official application or interpretation of such laws, regulation
or rulings (a "Change in Tax Law") which becomes effective after the Issuance
Date, as a result of which the Company is or would be so required on the next
succeeding Interest Payment Date to pay Additional Amounts with respect to the
11 1/2% notes with respect to withholding taxes imposed by the United Kingdom,
the Netherlands, the Netherlands Antilles, Bermuda or the Cayman Islands, (or
any political subdivision or taxing authority thereof or therein) (a
"Withholding Tax") and such Withholding Tax is imposed at a rate that exceeds
the rate (if any) at which Withholding Tax was imposed on the Issuance Date
provided, that,
(w) this paragraph shall not apply to the extent that, at the Relevant
Date it was known or would have been known had professional advice
of a nationally recognized accounting firm in the United Kingdom,
Netherlands, Netherlands Antilles, Bermuda or the Cayman Islands,
as the case may be, been sought, that a Change in Tax Law in the
United Kingdom, the Netherlands, the Netherlands Antilles, Bermuda
or the Cayman Islands, was to occur after the Issuance Date,
(x) no such notice of redemption may be given earlier than 90 days
prior to the earliest date on which the Company would be obliged to
pay such Additional Amounts were a payment in respect of the
11 1/2% notes then due,
(y) at the time such notice of redemption is given, such obligation to
pay such Additional Amount remains in effect and
(z) the payment of such Additional Amounts cannot be avoided by the use
of any reasonable measures available to the Company.
The 11 1/2% notes may also be redeemed, in whole but not in part, at any
time at a redemption price equal to the principal amount thereof plus accrued
and unpaid interest to the date fixed for redemption if the person formed after
the Issuance Date by a consolidation, amalgamation, reorganization or
reconstruction (or other similar arrangement) of the Company or the person into
which the Company is merged after the Issuance Date or to which the Company
conveys, transfers or leases its properties and assets after the Issuance
substantially as an entirety (collectively, a "Subsequent Consolidation") is
required, as a consequence of such Subsequent Consolidation and as a consequence
of a Change in Tax Law in the United Kingdom, the Netherlands, the
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Netherlands Antilles, Bermuda or the Cayman Islands occurring after the date of
such Subsequent Consolidation to pay Additional Amounts with respect to Notes
with respect to Withholding Tax and such Withholding Tax is imposed at a rate
that exceeds the rate (if any) at which Withholding Tax was or would have been
imposed on the date of such Subsequent Consolidation, provided, however, that
this paragraph shall not apply to the extent that, at the date of such
Subsequent Consolidation it was known or would have been known had professional
advice of a nationally recognized accounting firm in the United Kingdom, the
Netherlands, the Netherlands Antilles, Bermuda or the Cayman Islands, as the
case may be, been sought, that a Change in Tax Law in the United Kingdom, the
Netherlands, the Netherlands Antilles, Bermuda or the Cayman Islands, was to
occur after such date.
The Company will also pay, or make available for payment, to holders on the
redemption date any Additional Amounts resulting from the payment of such
redemption price.
Transactions with Affiliates
The 11 1/2% indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or amend any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an "Affiliate Transaction"), unless
(1) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Subsidiary than those that could
have been obtained in a comparable transaction by the Company or
such Subsidiary with an unrelated Person and
(2) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction involving aggregate
payments in excess of $1 million or any series of Affiliate
Transactions with an Affiliate involving aggregate payments
in excess of $1 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying
that such Affiliate Transaction complies with clause (1)
above and such Affiliate Transaction is approved by a
majority of the disinterested directors on the Board of
Directors and
(b) with respect to any Affiliate Transaction or any series of
Affiliate Transactions involving aggregate payments in excess
of $25 million, an opinion as to the fairness to the Company
or such Subsidiary from a financial point of view issued by an
investment banking firm of national standing with high yield
experience together with an Officers' Certificate to the
effect that such opinion complies with this clause (ii);
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provided, however, that notwithstanding the foregoing provisions, the following
shall not be deemed to be Affiliate Transactions:
(1) any employment agreement entered into by the Company or any of its
Subsidiaries in the ordinary course of business and consistent with
the past practice of the Company or its predecessor or such
Subsidiary;
(2) transactions between or among the Company and/or its Restricted
Subsidiaries;
(3) transactions permitted by the provisions of the Indenture described
above under the covenant "Restricted Payments;"
(4) Liens permitted under the Liens covenant which are granted by the
Company or any of its Subsidiaries to an unrelated Person for the
benefit of the Company or any other Subsidiary of the Company;
(5) any transaction pursuant to an agreement in effect on the Issuance
Date;
(6) the incurrence of Indebtedness by a Restricted Subsidiary where
such Indebtedness is owed to the holders of the Equity Interests of
such Restricted Subsidiary on a pro rata basis and on substantially
identical principal financial terms;
(7) management, operating, service or interconnect agreements entered
into in the ordinary course of business with any Cable Business in
which the Company or any Restricted Subsidiary has an Investment
and which is not a Cable Controlled Subsidiary (and of which no
Affiliate of the Company is an Affiliate other than as a result of
such Investment); and
(8) any tax sharing agreement.
Reports
Whether or not required by the rules and regulations of the Commission, so
long as any 11 1/2% notes are outstanding, the Company will file with the
Commission and furnish to the holders of 11 1/2% notes all quarterly and annual
financial information required to be contained in a filing with the Commission
on Forms 10-Q and 10-K (or the equivalent thereof under the Exchange Act for
foreign private issuers in the event the Company becomes a corporation organized
under the laws of the United Kingdom, the Netherlands, the Netherlands Antilles,
Bermuda or the Cayman Islands), including a "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants, in each case, as required by the rules and regulations
of the Commission as in effect on the Issuance Date. If and as long as the
11 1/2% notes are listed on the Luxembourg Stock Exchange, copies of such
reports will also be available at the specified office of the Luxembourg Agent.
The Company does not publish unconsolidated financial reports.
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EVENTS OF DEFAULT AND REMEDIES
The 11 1/2% indenture provides that each of the following constitutes an
Event of Default:
(1) default for 30 days in the payment when due of interest (and
Additional Amounts, if applicable) on the 11 1/2% notes;
(2) default in payment when due of principal on the 11 1/2% notes;
(3) failure by the Company to comply with the provisions described
under the covenants "Change of Control," "Restricted Payments" or
"Incurrence of Indebtedness and Issuance of Preferred Stock";
(4) failure by the Company for 60 days after notice to comply with
certain other covenants and agreements contained in the 11 1/2%
indenture or the 11 1/2% notes;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries), whether such
Indebtedness or guarantee now exists, or is created after the
Issuance Date, which default
(a) is caused by a failure to pay when due principal or interest
on such Indebtedness within the grace period provided in such
Indebtedness (which failure continues beyond any applicable
grace period) (a "Payment Default") or
(b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of
any such Indebtedness, together with the principal amount of
any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so
accelerated, aggregates $10 million or more;
(6) failure by the Company or any Restricted Subsidiary of the Company
to pay final judgments (other than any judgment as to which a
reputable insurance company has accepted full liability)
aggregating in excess of $5 million, which judgments are not stayed
within 60 days after their entry;
(7) certain events of bankruptcy or insolvency with respect to the
Company or any of its Material Subsidiaries; and
(8) the revocation of a Material License.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of then outstanding 11 1/2% notes
may declare all the 11 1/2% notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company or any
Material Subsidiary, all outstanding 11 1/2% notes will become due
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and payable without further action or notice. Holders of the 11 1/2% notes may
not enforce the 11 1/2% indenture or the 11 1/2% notes except as provided in the
11 1/2% indenture. Subject to certain limitations, holders of a majority in
principal amount of outstanding 11 1/2% notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
11 1/2% notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of each class of
11 1/2% notes then outstanding by notice to the Trustee may on behalf of the
holders of all of the applicable class of 11 1/2% notes waive any existing
Default or Event of Default and its consequences under the 11 1/2% indenture
except a continuing Default or Event of Default in the payment of interest on,
or the principal of, the 11 1/2% notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the 11 1/2% indenture, and the Company is required,
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the Company,
as such, shall have any liability for any Obligations of the Company under the
11 1/2% notes or the 11 1/2% indenture or for any claim based on, in respect of,
or by reason of, such Obligations or their creation. Each holder of the 11 1/2%
notes by accepting a 11 1/2% note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the 11 1/2%
notes. Such waiver may not be effective to waive liabilities under the federal
securities laws, and it is the view of the Commission that a waiver of such
liabilities is against public policy.
DEFEASANCE AND DISCHARGE OF THE INDENTURE AND THE NOTES
If the Company irrevocably deposits, or causes to be deposited, in trust
with the Trustee or the Paying Agent, at any time prior to the stated maturity
of the 11 1/2% notes or the date of redemption of all the outstanding 11 1/2%
notes, as trust funds in trust, money or direct noncallable obligations of or
guaranteed by the United States of America in an amount sufficient, in the
opinion of a nationally recognized firm of independent public accountants,
(without reinvestment thereof) to pay timely and discharge the entire principal
of the then outstanding 11 1/2% notes and all interest due thereon to maturity
or redemption, the 11 1/2% indenture shall cease to be of further effect as to
all outstanding 11 1/2% notes ("Defeasance") except, among other things, as to
(1) remaining rights of registration of transfer and substitution and
exchange of the 11 1/2% notes,
(2) rights of holders to receive payment of principal of and interest
on the 11 1/2% notes, and
(3) the rights, obligations and immunities of the Trustee.
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In order to exercise Defeasance:
(1) the Company shall have delivered to the Trustee an Opinion of
Counsel reasonably acceptable to the Trustee confirming that
(a) the Company has received from, or there has been published
by, the Internal Revenue Service, a ruling or
(b) since the date of the 11 1/2% indenture, there has been a
change in the applicable federal income tax law, in either
case to the effect that, and based thereon, such Opinion of
Counsel shall confirm that the holders of the outstanding
11 1/2% Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Defeasance
and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would
have been the case if such Defeasance had not occurred;
(2) no Event of Default shall have occurred and be continuing on the
date of such deposit (other than an Event of Default resulting from
the borrowing of funds to be applied to such deposit) or insofar as
Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after
the date of deposit;
(3) such Defeasance shall not result in a breach or violation of, or
constitute a default under, any material agreement or instrument
(other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(4) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(5) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company
with the intent of preferring the holders of 11 1/2% notes over the
other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or
others;
(6) the deposit shall not result in the Company, the Trustee or the
trust being subject to the Investment Company Act of 1940;
(7) holders of the 11 1/2% notes will have a valid, perfected and
unavoidable (under applicable bankruptcy or insolvency laws),
subject to the passage of time referred to in clause (iv) above,
first priority security interest in the trust funds; and
(8) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent relating to the Defeasance have been complied
with.
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UNCLAIMED MONEY, PRESCRIPTION
If money deposited with the Trustee or Paying Agent for the payment of
principal or interest remains unclaimed for two years, the Trustee and the
Paying Agent shall pay the money back to the Company at its written request.
After that, holders of 11 1/2% notes entitled to the money must look to the
Company for payment unless an abandoned property law designates another person
and all liability of the Trustee and such Paying Agent shall cease. Other than
as set forth in this paragraph, the 11 1/2% indenture does not provide for any
prescription period for the payment of interest and principal on the 11 1/2%
notes.
TRANSFER AND EXCHANGE
A holder may transfer or exchange interests in the 11 1/2% notes in
accordance with procedures described in "Book-Entry; Delivery and Form." The
Registrar and the Trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
holder to pay any taxes and fees required by law or permitted by the 11 1/2%
indenture. The Company is not required to transfer or exchange any 11 1/2% note
selected for redemption. Also, the Company is not required to transfer or
exchange any 11 1/2% note for a period of 15 days before a selection of 11 1/2%
notes to be redeemed.
The registered holder of a 11 1/2% note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the 11 1/2% indenture
or 11 1/2% notes may be amended or supplemented with the consent of the holders
of at least a majority in principal amount of the then outstanding 11 1/2% notes
(including consents obtained in connection with a tender offer or exchange offer
for such 11 1/2% notes), and any existing default or compliance with any
provision of the 11 1/2% indenture or 11 1/2% notes may be waived with the
consent of the holders of a majority in principal amount of the then outstanding
11 1/2% notes (including consents obtained in connection with a tender offer or
exchange offer for such 11 1/2% notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any 11 1/2% notes held by a non-consenting holder of 11 1/2%
notes)
(1) reduce the amount of 11 1/2% notes whose holders must consent to an
amendment, supplement or waiver,
(2) reduce the principal of or change the fixed maturity of any 11 1/2%
note or alter the provisions with respect to the redemption of the
11 1/2% notes (except for repurchases of the 11 1/2% notes pursuant
to the covenants described above under the captions "-- Asset
Sales" and "-- Change of Control"),
(3) reduce the rate of or change the time for payment of interest on
any 11 1/2% note,
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(4) waive a default in the payment of principal of or interest on any
11 1/2% notes (except a rescission of acceleration of the 11 1/2%
notes by the holders of at least a majority in aggregate principal
amount of the 11 1/2% notes and a waiver of the payment default
that resulted from such acceleration),
(5) make any 11 1/2% note payable in money other than that stated in
the 11 1/2% notes,
(6) make any change in the provisions of the 11 1/2% indenture relating
to waivers of past Defaults or the rights of holders of 11 1/2%
notes to receive payments of principal of or interest on the
11 1/2% notes,
(7) waive a redemption payment with respect to any 11 1/2% note, or
(8) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of notes,
the Company and the Trustee may amend or supplement the indenture or notes to
cure any ambiguity, defect or inconsistency, to provide for uncertificated notes
in addition to or in place of certificated Notes, to provide for the assumption
of the Company's obligations to holders of the notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the holders of the notes or that does not adversely affect the legal
rights under the Indenture of any such holder, or to comply with requirements of
the Commission in order to maintain the qualification of the 11 1/2% indenture
under the Trust Indenture Act.
Any notice or communication to a holder of 11 1/2% notes shall be mailed by
first-class mail to such holder's address as shown in the register kept by the
Registrar. If a notice or communication is mailed in the manner provided in the
preceding sentence within the time period prescribed, it is duly given, whether
or not the addressee receives it. In addition, if and as long as the 11 1/2%
notes are listed on the Luxembourg Stock Exchange, all notices regarding the
11 1/2% notes shall be published in English in one leading newspaper with
circulation in Luxembourg. It is expected that publication of notices will
normally be made in the Luxembourger Wort in Luxembourg.
GOVERNING LAW
The 11 1/2% notes and the 11 1/2% indenture will be governed exclusively by
the laws of the State of New York.
CONCERNING THE TRUSTEE
The 11 1/2% indenture contains limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
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The holders of a majority in principal amount of then outstanding 11 1/2%
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee under the 11 1/2%
indenture, subject to certain exceptions. The 11 1/2% indenture provides that in
case an Event of Default shall occur (which shall not be cured), the Trustee
will be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the 11 1/2% indenture at the request of any holder of 11 1/2% notes,
unless such holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
The Chase Manhattan Bank is also the trustee for all of the Existing Notes
and the Convertible Notes.
LISTING
Application will be made to list the 11 1/2% new notes on the Luxembourg
Stock Exchange. The legal notice relating to the issue of the 11 1/2% new notes
and the Certificate of Incorporation and By-laws of the Company will be
registered prior to the listing with the Registrar of the District Court in
Luxembourg, where such documents are available for inspection and where copies
thereof can be obtained upon request. In addition, if and as long as the 11 1/2%
notes are listed on the Luxembourg Stock Exchange, an agent for making payments
on, and transfers of, 11 1/2% notes will be maintained in Luxembourg. The
Company has initially designated Chase Manhattan Bank Luxembourg S.A. as its
agent for such purposes.
DEFINITIONS
Set forth below are selected defined terms used in the 11 1/2% indenture.
Reference is made to the indenture for a full definition of all terms, as well
as any other capitalized terms used in this description of the 11 1/2% notes for
which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, Indebtedness
of any other Person (the "Acquired Person") existing at the time such Acquired
Person merged with or into or became a Subsidiary of such specified Person,
including Indebtedness incurred in connection with, or in contemplation of, such
Acquired Person merging with or into or becoming a Subsidiary of such specified
Person.
"Acquired Person" has the meaning specified in the definition of Acquired
Debt.
"Adjusted Total Assets" means the total amount of assets of the Company and
its Restricted Subsidiaries (including the amount of any Investment in any
Non-Restricted Subsidiary), except to the extent resulting from write-ups of
assets (other than write-ups in connection with accounting for acquisitions in
conformity with GAAP), after deducting therefrom
(1) all current liabilities of the Company and its Restricted
Subsidiaries, and
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(2) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, all as calculated
in conformity with GAAP.
For purposes of this Adjusted Total Assets definition,
(a) assets shall be calculated less applicable accumulated
depreciation, accumulated amortization and other valuation
reserves, and
(b) all calculations shall exclude all intercompany items.
"Adjusted Total Controlled Assets" means the total amount of assets of the
Company and its Cable Controlled Subsidiaries, except to the extent resulting
from write-ups of assets (other than write-ups in connection with accounting for
acquisitions in conformity with GAAP), after deducting therefrom
(1) all current liabilities of the Company and such Cable Controlled
Subsidiaries; and
(2) all goodwill, trade names, trademarks, patients, unamortized debt
discount and expense and other like intangibles of the Company and
such Restricted Subsidiaries, all as calculated in conformity with
GAAP;
provided that Adjusted Total Controlled Assets shall be reduced (to the extent
not otherwise reduced in accordance with GAAP) by an amount equal to the
aggregate amount of all Investments of the Company or any such Cable Controlled
Subsidiaries in any Person other than a Cable Controlled Subsidiary, except Cash
Equivalents. For purposes of this Adjusted Total Controlled Assets definition,
(a) assets shall be calculated less applicable accumulated
depreciation, accumulated amortization and other valuation
reserves, and
(b) all calculations shall exclude all intercompany items.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Annualized Pro Forma EBITDA" means, with respect to any Person, such
Person's Pro Forma EBITDA for the latest fiscal quarter multiplied by four.
"Asset Sale" means
(1) any sale, lease, transfer, conveyance or other disposition of any
assets (including by way of a sale-and-leaseback) other than the
sale or transfer of inventory or goods held for sale in the
ordinary course of business
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(provided that the sale, lease, transfer, conveyance or other
disposition of all or substantially all of the assets of the
Company shall be governed by the provisions of the Indenture
described under the captions "Change of Control" or "Merger,
Consolidation or Sale of Assets") or
(2) any issuance, sale, lease, transfer, conveyance or other
disposition of any Equity Interests of any of the Company's
Restricted Subsidiaries to any Person;
in either case other than
(a) to
(A) the Company,
(B) any Wholly Owned Subsidiary, or
(C) any Subsidiary which is a Subsidiary of the Company on the
Issuance Date provided that at the time of and after
giving effect to such issuance, sale, lease, transfer,
conveyance or other disposition to such Subsidiary, the
Company's ownership percentage in such Subsidiary is equal
to or greater than such percentage on the Issuance Date or
(b) the issuance, sale, transfer, conveyance or other disposition
of Equity Interests of a Subsidiary in exchange for capital
contributions made on a pro rata basis by the holders of the
Equity Interests of such Subsidiary.
"Cable Assets" means tangible or intangible assets, licenses (including,
without limitation, Licenses) and computer software used in connection with a
Cable Business.
"Cable Business" means
(i) any Person directly or indirectly operating, or owning a license
to operate, a cable and/or television and/or telephone and/or
telecommunications system or service principally within the United
Kingdom and/or the Republic of Ireland and
(ii) any Cable Related Business.
"Cable Controlled Property" means a Cable Controlled Subsidiary or a Cable
Asset held by a Cable Controlled Subsidiary.
"Cable Controlled Subsidiary" means any Restricted Subsidiary which is
primarily engaged, directly or indirectly, in one or more Cable Businesses.
"Cable Related Business" means a Person which directly or indirectly owns
or provides a service or product used in a Cable Business, including, without
limitation, any television programming, production and/or licensing business or
any programming guide or telephone directory business or content or software
related thereto.
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"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock, including, without
limitation, partnership interests.
"Capital Stock Sale Proceeds" means the aggregate net sale proceeds
(including from the sale of any property received for the Capital Stock or the
fair market value of such property, as determined by an independent appraisal
firm) received by the Company or any Subsidiary of the Company from the issue or
sale (other than to a Subsidiary) by the Company of any class of its Capital
Stock after October 14, 1993 (including Capital Stock of the Company issued
after October 14, 1993 upon conversion of or in exchange for other securities of
the Company).
"Cash Equivalents" means
(1) Permitted Currency,
(2) securities issued or directly and fully guaranteed or insured by
the United States government, a European Union member government or
any agency or instrumentality thereof having maturities of not more
than six months and two days from the date of acquisition,
(3) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any commercial bank(s)
domiciled in the United States, the United Kingdom, the Republic of
Ireland or any other European Union member having capital and
surplus in excess of $500 million,
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
entered into with any financial institution meeting the
qualifications specified in clause (3) above,
(5) commercial paper rated P-1 or the equivalent thereof by Moody's or
A-1 or the equivalent thereof by S&P and in each case maturing
within six months and two days after the date of acquisition and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1)-(5) of this
definition.
"Change of Control" means
(1) the sale, lease or transfer of all or substantially all of the
assets of the Company to any "Person" or "group" (within the
meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act or
any successor provision to either of the foregoing, including any
group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act) (other than any Permitted Holder),
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(2) the approval by the requisite stockholders of the Company of a plan
of liquidation or dissolution of the Company,
(3) any "Person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act or any successor provision to either
of the foregoing, including any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning of
Rule 13d-5(b)(1) under the Exchange Act), other than any Permitted
Holder, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than 50% of the total voting power
of all classes of the voting stock of the Company and/or warrants
or options to acquire such voting stock, calculated on a fully
diluted basis, unless, as a result of such transaction, the
ultimate direct or indirect ownership of the Company is
substantially the same immediately after such transaction as it was
immediately prior to such transaction, or
(4) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Company's Board of
Directors (together with any new directors whose election or
appointment by such board or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of
the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to
constitute a majority of the Company's Board of Directors then in
office.
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Ratings Decline.
"Consolidated Interest Expense" means, for any Person, for any period, the
amount of interest in respect of Indebtedness (including amortization of
original issue discount, amortization of debt issuance costs, and non-cash
interest payments on any Indebtedness and the interest portion of any deferred
payment obligation and after taking into account the effect of elections made
under any Interest Rate Agreement, however denominated, with respect to such
Indebtedness), the amount of Redeemable Dividends, Restricted Subsidiary
Preferred Stock Dividends and the interest component of rentals in respect of
any capital lease obligation paid, in each case whether accrued or scheduled to
be paid or accrued by such Person and its Subsidiaries (other than
Non-Restricted Subsidiaries) during such period to the extent such amounts were
deducted in computing Consolidated Net Income, determined on a consolidated
basis in accordance with GAAP. For purposes of this definition, interest on a
capital lease obligation shall be deemed to accrue at an interest rate
reasonably determined by such Person to be the rate of interest implicit in such
capital lease obligation in accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries (other than
Non-
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Restricted Subsidiaries) for such period, on a consolidated basis, determined in
accordance with GAAP; provided, that
(1) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid
to the referent Person or a Wholly Owned Subsidiary,
(2) the Net Income of any Person that is a Subsidiary (other than a
Subsidiary of which at least 80% of the Capital Stock having
ordinary voting power for the election of directors or other
governing body of such Subsidiary is owned by the referent Person
directly or indirectly through one or more Subsidiaries) shall be
included only to the extent of the amount of dividends or
distributions paid to the referent Person or a Wholly Owned
Subsidiary,
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition
shall be excluded and
(4) the cumulative effect of a change in accounting principles shall be
excluded.
"Convertible Subordinated Notes" means the Company's 7% Convertible
Subordinated Notes issued pursuant to an indenture dated as of June 12, 1996
also between the Company and The Chase Manhattan Bank (formerly known as
Chemical Bank), as trustee.
"Credit Facility" means the Facilities Agreement dated October 17, 1997
between NTL (UK) Group Inc., as principal guarantor, Chase Manhattan plc, as
arranger, Chase Manhattan International Limited, as agent and security trustee
and the Chase Manhattan Bank as issuer, as such Facilities Agreement may be
supplemented, amended, restated, modified, renewed, refunded, replaced or
refinanced, in whole or in part, from time to time in an aggregate outstanding
principal amount not to exceed the greater of
(1) L555 million and
(2) the amount of the aggregate commitments thereunder as the same may
be increased after March 13, 1998 as contemplated by the Facilities
Agreement as amended or supplemented to March 13, 1998, but in no
event greater than L875 million, less, in each case, the aggregate
amount of all Net Proceeds of Asset Sales that have been applied to
permanently reduce Indebtedness under the Credit Facility pursuant
to the covenant described above under "-- Asset Sales."
Indebtedness that may otherwise be incurred under the Indenture may, but need
not, be incurred under the Credit Facility without regard to the limit set forth
in the preceding sentence. Indebtedness outstanding under the Credit Facility on
the date of the Indenture shall be deemed to have been incurred on such date in
reliance on the
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exception provided by clause (a) of the second paragraph of the covenant
described above under "-- Incurrence of Indebtedness and Issuance of Preferred
Stock."
"Cumulative EBITDA" means the cumulative EBITDA of the Company from and
after the Issuance Date to the end of the fiscal quarter immediately preceding
the date of a proposed Restricted Payment, or, if such cumulative EBITDA for
such period is negative, minus the amount by which such cumulative EBITDA is
less than zero; provided, however, that EBITDA of Non-Restricted Subsidiaries
shall not be included.
"Cumulative Interest Expense" means the aggregate amount of Consolidated
Interest Expense paid, accrued or scheduled to be paid or accrued by the Company
from the Issuance Date to the end of the fiscal quarter immediately preceding a
proposed Restricted Payment, determined on a consolidated basis in accordance
with GAAP.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the Notes mature.
"EBITDA" means, for any Person, for any period, an amount equal to
(1) the sum of
(a) Consolidated Net Income for such period (exclusive of any
gain or loss realized in such period upon an Asset Sale),
plus
(b) the provision for taxes for such period based on income or
profits to the extent such income or profits were included
in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (i)
hereof, plus
(c) Consolidated Interest Expense for such period, plus
(d) depreciation for such period on a consolidated basis, plus
(e) amortization of intangibles for such period on a
consolidated basis, plus
(f) any other non-cash item reducing Consolidated Net Income
for such period (excluding any such non-cash item to the
extent that it represents an accrual of or reserve for
cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period),
minus
(2) all non-cash items increasing Consolidated Net Income for such
period, all for such Person and its Subsidiaries determined in
accordance with GAAP consistently applied.
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"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any Indebtedness that is
convertible into, or exchangeable for, Capital Stock).
"European Union member" means any country that is or becomes a member of
the European Union or any successor organization thereto.
"Exchange Rate Contract" means, with respect to any Person, any currency
swap agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance and other
agreements or arrangements, or combination thereof, the principal purpose of
which is to provide protection against fluctuations in currency exchange rates.
An Exchange Rate Contract may also include an Interest Rate Agreement.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the Issuance Date, until such amounts are repaid,
including, without limitation, the Existing Notes.
"Existing Notes" means the Old Notes and the Convertible Subordinated
Notes.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect on the Issuance Date and are applied on a consistent basis.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing the balance
deferred and unpaid of the purchase price of any property (including pursuant to
capital leases and sale-and-leaseback transactions) or representing any hedging
obligations under an Exchange Rate Contract or an Interest Rate Agreement,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than obligations
under an Exchange Rate Contract or an Interest Rate Agreement) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
and also includes, to the extent not otherwise included, the Guarantee of items
which would be included within this definition. The amount of any Indebtedness
outstanding as of any date shall be the accreted value thereof, in the case of
any Indebtedness issued with original issue discount.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate swap agreement, interest rate cap agreement, interest rate collar agreement
or other similar
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agreement the principal purpose of which is to protect the party indicated
therein against fluctuations in interest rates.
"Investment Grade" means BBB- or higher by S&P or Baa3 or higher by Moody's
or the equivalent of such ratings by S&P or Moody's. In the event that the
Company shall be permitted to select any other Rating Agency, the equivalent of
such ratings by such Rating Agency shall be used.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
Guarantees), advances or capital contributions (excluding commission, travel and
similar advances and loans, joint property ownership and other arrangements, in
each case, made to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Issuance Date" means the date on which the Notes are first authenticated
and issued.
"License" means any license issued or awarded pursuant to the Broadcasting
Act 1990, the Cable and Broadcasting Act 1984, the Telecommunications Act 1984
or the Wireless Telegraphy Act 1948 (in each case, as such Acts may, from time
to time be, amended, modified or re-enacted) (or equivalent statutes of any
jurisdiction) to operate or own a Cable Business.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent or successor statutes) of any
jurisdiction).
"Material License" means a License held by the Company or any of its
Subsidiaries which License at the time of determination covers a number of Net
Households which equals or exceeds 5% of the aggregate number of Net Households
covered by all of the Licenses held by the Company and its Subsidiaries at such
time.
"Material Subsidiary" means
(1) NTL UK Group, Inc. (formerly known as OCOM Sub II, Inc.), NTLIH,
NTL Group Limited, CableTel Surrey Limited, CableTel Cardiff
Limited, CableTel Glasgow, CableTel Newport and CableTel Kirklees
and
(2) any other Subsidiary of the Company which is a "significant
subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the
Securities Act of 1933 and the Exchange Act (as such Regulation is
in effect on the date of the Indenture).
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"Monetize" means a strategy with respect to Equity Interests that generates
an amount of cash equal to the fair value of such Equity Interests.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Households" means the product of
(1) the number of households covered by a License in the United Kingdom
and
(2) the percentage of the entity holding such License which is owned
directly or indirectly by the Company.
"Net Income" means, with respect to any Person for a specific period, the
net income (loss) of such Person during such period, determined in accordance
with GAAP, excluding, however, any gain (but not loss) during such period,
together with any related provision for taxes on such gain (but not loss),
realized during such period in connection with any Asset Sale (including,
without limitation, dispositions pursuant to sale-and-leaseback transactions),
and excluding any extraordinary gain (but not loss) during such period, together
with any related provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale, net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets.
"Non-Controlled Subsidiary" means an entity which is not a Cable Controlled
Subsidiary.
"Non-Recourse Debt" means Indebtedness or that portion of Indebtedness as
to which none of the Company, nor any Restricted Subsidiary:
(1) provides credit support (including any undertaking, agreement or
instrument which would constitute Indebtedness);
(2) is directly or indirectly liable; or
(3) constitutes the lender.
"Non-Restricted Subsidiary" means
(1) a Subsidiary that
(a) at the time of its designation by the Board of Directors as a
Non-Restricted Subsidiary has not acquired any assets (other
than as specifically permitted by clause (e) of "Permitted
Investments" or by
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the "Restricted Payments" covenant), at any previous time,
directly or indirectly from the Company or any of its
Restricted Subsidiaries,
(b) has no Indebtedness other than Non-Recourse Debt and
(c) that at the time of such designation, after giving pro forma
effect to such designation, the ratio of Indebtedness to
Annualized Pro Forma EBITDA of the Company is equal to or less
than the ratio of Indebtedness to Annualized Pro Forma EBITDA
of the Company immediately preceding such designation,
provided, however, that if the ratio of Indebtedness to
Annualized Pro Forma EBITDA of the Company immediately
preceding such designation is 6:1 or less, then the ratio of
Indebtedness to Annualized Pro Forma EBITDA of the Company may
be 0.5 greater than such ratio immediately preceding such
designation;
(2) any Subsidiary which
(a) has been acquired or capitalized out of or by Equity Interests
of the Company or Capital Stock Sales Proceeds therefrom,
(b) has no Indebtedness other than Non-Recourse Debt and
(c) is designated as a Non-Restricted Subsidiary by the Board of
Directors or is merged, amalgamated or consolidated with or
into, or its assets or capital stock is to be transferred to,
a Non-Restricted Subsidiary; or
(3) any Subsidiary of a Non-Restricted Subsidiary.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Old Notes" means the 12 3/4% Notes, the 11 1/2% Deferred Coupon Notes, the
10 3/4% Notes, the 10% Notes, the 9 3/4% Notes and the 9 1/2% Notes.
"Other Qualified Notes" means any outstanding senior indebtedness of the
Company issued pursuant to an indenture having a provision substantially similar
to the Asset Sale Offer provision contained in the Indenture (including, without
limitation, the 12 3/4% Notes, the 11 1/2% Deferred Coupon Notes, the 10 3/4%
Notes, the 10% Notes, the 9 3/4% Notes and the 9 1/2% Notes).
"Permitted Acquired Debt" means, with respect to any Acquired Person
(including, for this purpose, any Non-Restricted Subsidiary at the time such
Non-Restricted Subsidiary becomes a Restricted Subsidiary), Acquired Debt of
such Acquired Person and its Subsidiaries in an amount (determined on a
consolidated basis) not exceeding the sum of
(1) amount of the gross book value of property, plant and equipment of
the Acquired Person and its Subsidiaries as set forth on the most
recent
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consolidated balance sheet of the Acquired Person (which may be
unaudited) prior to the date it becomes an Acquired Person and
(2) the aggregate amount of any Cash Equivalents held by such Acquired
Person at the time it becomes an Acquired Person.
"Permitted Currency" means the lawful currency of the United States or a
European Union member.
"Permitted Designee" means
(1) a spouse or a child of a Permitted Holder,
(2) trusts for the benefit of a Permitted Holder or a spouse or child
of a Permitted Holder,
(3) in the event of the death or incompetence of a Permitted Holder,
his estate, heirs, executor, administrator, committee or other
personal representative or
(4) any Person so long as a Permitted Holder owns at least 50% of the
voting power of all classes of the voting stock of such Person.
"Permitted Holders" means George S. Blumenthal, J. Barclay Knapp and their
Permitted Designees.
"Permitted Investments" means
(1) any Investments in the Company or in a Cable Controlled Property or
in a Qualified Subsidiary (including, without limitation,
(a) Guarantees of Indebtedness of the Company, a Cable Controlled
Subsidiary or a Qualified Subsidiary,
(b) Liens securing such Indebtedness or Guarantees or
(c) the payment of any balance deferred and unpaid of the purchase
price of any Qualified Subsidiary;
(2) any Investments in Cash Equivalents;
(3) Investments by the Company in Indebtedness of a counter-party to an
Exchange Rate Contract for hedging a Permitted Currency exchange
risk that are made, for purposes other than speculation, in
connection with such contract to hedge not more than the aggregate
principal amount of the Indebtedness being hedged (or, in the case
of Indebtedness issued with original issue discount, based on the
amounts payable after the amortization of such discount);
(4) Investments by the Company or any Subsidiary of the Company in a
Person, if as a result of such Investment
(a) such Person becomes a Cable Controlled Subsidiary or
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(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets
to, or is liquidated into, the Company or a Wholly Owned
Subsidiary of the Company; and
(5) any issuance, transfer or other conveyance of Equity Interests in
the Company (or any Capital Stock Sales Proceeds therefrom) to a
Subsidiary of the Company.
"Permitted Liens" means
(1) Liens in favor of the Company;
(2) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Subsidiary of
the Company; provided, that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not secure
any property or assets of the Company or any of its Subsidiaries
other than the property or assets subject to the Liens prior to
such merger or consolidation;
(3) liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary
course of business which secure payment of obligations not more
than 60 days past due or are being contested in good faith and by
appropriate proceedings;
(4) Liens existing on the Issuance Date;
(5) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently
concluded; provided, that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have
been made therefor and
(6) easements, rights of way, restrictions and other similar easements,
licenses, restrictions on the use of properties or minor
imperfections of title that, in the aggregate, are not material in
amount, and do not in any case materially detract from the
properties subject thereto or interfere with the ordinary conduct
of the business of the Company or its Restricted Subsidiaries.
"Permitted Non-Controlled Assets" means Equity Interests in any Person
primarily engaged, directly or indirectly, in one or more Cable Businesses if
such Equity Interests
(1) were acquired by the Company or any of its Restricted Subsidiaries
in connection with any Asset Sale or any Investment otherwise
permitted under the terms of the Indenture and
(2) to the extent that, after giving pro forma effect to the
acquisition thereof by the Company or any of its Restricted
Subsidiaries, Adjusted Total Controlled Assets is greater than 80%
of Adjusted Total Assets based on the most recent consolidated
balance sheet of the Company.
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"Pro Forma EBITDA" means for any Person, for any period, the EBITDA of such
Person as determined on a consolidated basis for such Person and its
Subsidiaries in accordance with GAAP after giving effect to the following:
(1) if, during or after such period, such Person or any of its
Subsidiaries shall have made any Asset Sale, Pro Forma EBITDA of
such Person and its Subsidiaries for such period shall be reduced
by an amount equal to the Pro Forma EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Sale
for the period or increased by an amount equal to the Pro Forma
EBITDA (if negative) directly attributable thereto for such period
and
(2) if, during or after such period, such Person or any of its
Subsidiaries completes an acquisition of any Person or business
which immediately after such acquisition is a Subsidiary of such
Person or whose assets are held directly by such Person or a
Subsidiary of such Person, Pro Forma EBITDA shall be computed so as
to give pro forma effect to the acquisition of such Person or
business (without giving effect to clause (iii)of the definition of
Consolidated Net Income);
and provided further that, with respect to the Company, all of the
foregoing references to "Subsidiary" or "Subsidiaries" shall be
deemed to refer only to a "Restricted Subsidiary" or "Restricted
Subsidiaries" of the Company.
"Qualified Subsidiary" means a Wholly Owned Subsidiary, or an entity that
will become a Wholly Owned Subsidiary after giving effect to the transaction
being considered, that at the time of and after giving effect to the
consummation of the transaction under consideration,
(1) is a Cable Business or holds only Cable Assets,
(2) has no Indebtedness (other than Indebtedness being incurred to
consummate such transaction) and
(3) has no encumbrances or restrictions (other than such encumbrances
or restrictions imposed or permitted by the Indenture, the
indentures governing the Old Notes or any other instrument
governing unsecured indebtedness of the Company which is pari passu
with the Notes) on its ability to pay dividends or make any other
distributions to the Company or any of its Subsidiaries.
"Rating Agencies" means
(1) S&P,
(2) Moody's and
(3) if S&P or Moody's or both shall not make a rating of the Notes
publicly available, a nationally recognized securities rating
agency or agencies, as the case may be, selected by the Company,
which shall be substituted for S&P or Moody's or both, as the case
may be.
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"Rating Category" means
(1) with respect to S&P, any of the following categories: BB, B, CCC,
CC, C and D (or equivalent successor categories),
(2) with respect to Moody's, any of the following categories: Ba, B,
Caa, Ca, C and D (or equivalent successor categories) and
(3) the equivalent of any such category of S&P or Moody's used by
another Rating Agency.
In determining whether the rating of the Notes has decreased by one or more
gradations, gradations within Rating Categories (+ and -- for S&P; 1, 2 and 3
for Moody's; or the equivalent gradations for another Rating Agency) shall be
taken into account (e.g., with respect to S&P, a decline in a rating from BB to
BB-, as well as from BB- to B+, will constitute a decrease of one gradation).
"Rating Date" means that date which is 90 days prior to the earlier of
(1) a Change of Control and
(2) public notice of the occurrence of a Change of Control or of the
intention by the Company or any Permitted Holder to effect a Change
of Control.
"Ratings Decline" means the occurrence of any of the following events on,
or within six months after, the date of public notice of the occurrence of a
Change of Control or of the intention of the Company or any Person to effect a
Change of Control (which period shall be extended so long as the rating of any
of the Company's debt securities is under publicly announced consideration for
possible downgrade by any of the Rating Agencies):
(1) in the event that any of the Company's debt securities are rated by
both of the Rating Agencies on the Rating Date as Investment Grade,
the rating of such securities by either of the Rating Agencies
shall be below Investment Grade,
(2) in the event that any of the Company's debt securities are rated by
either, but not both, of the Rating Agencies on the Rating Date as
Investment Grade, the rating of such securities by both of the
Rating Agencies shall be below Investment Grade, or
(3) in the event any of the Company's debt securities are rated below
Investment Grade by both of the Rating Agencies on the Rating Date,
the rating of such securities by either Rating Agency shall be
decreased by one or more gradations (including gradations within
Rating Categories as well as between Rating Categories).
"Redeemable Dividend" means, for any dividend with regard to Disqualified
Stock, the quotient of the dividend divided by the difference between one and
the maximum statutory federal income tax rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Disqualified Stock.
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"Replacement Assets" means
(1) Cable Assets,
(2) Equity Interests of any Person engaged, directly or indirectly,
primarily in a Cable Business, which Person is or will become on
the date of acquisition thereof a Restricted Subsidiary as a result
of the Company's acquiring such Equity Interests,
(3) Permitted Non-Controlled Assets or
(4) any combination of the foregoing.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company which is not a
Non-Restricted Subsidiary.
"Restricted Subsidiary Preferred Stock Dividend" means, for any dividend
with regard to preferred stock of a Restricted Subsidiary, the quotient of the
dividend divided by the difference between one and the maximum statutory federal
income tax rate (expressed as a decimal number between 1 and 0) then applicable
to the issuer of such preferred stock.
"S&P" means Standard & Poor's Ratings Group and its successors.
"Subordinated Debentures" means the debentures exchangeable by the Company
for the Preferred Stock in accordance with the Certificate of Designation
therefor.
"Subsidiary" means any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund, serial
maturity or other required payments of principal, including payment
at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment, by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary all
of the Capital Stock of which (except directors' qualifying shares) is at the
time owned directly or indirectly by the Company.
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12 3/8% NEW NOTES
GENERAL
The 12 3/8% new notes will be issued pursuant to an Indenture (the "12 3/8%
indenture"), dated as of November 6, 1998, between NTL and The Chase Manhattan
Bank, as trustee. The following summary of selected provisions of the 12 3/8%
indenture is complete and is qualified in its entirety by reference to the
12 3/8% indenture, including the definitions in the 12 3/8% indenture of some of
the terms used below. The definitions of some terms used in the following
summary are set forth below under "-- Definitions." In this "Description of
Notes," the term "Company" refers to NTL Incorporated and not any of its
Subsidiaries.
The 12 3/8% old notes are, and the 12 3/8% new notes will be, unsecured
obligations of the Company, ranking pari passu in right of payment with all
senior unsecured Indebtedness of the Company and senior in right of payment to
all subordinated Indebtedness of the Company.
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the 12 3/8% notes. As a
result, the 12 3/8% old notes are, and the 12 3/8% new notes will be,
effectively subordinated to all existing and future indebtedness and other
liabilities and commitments of such Subsidiaries with respect to the cash flow
and assets of those Subsidiaries.
Application will be made to list the 12 3/8% new notes on the Luxembourg
Stock Exchange.
PRINCIPAL, MATURITY AND INTEREST
The 12 3/8% new notes will be limited in aggregate principal amount at
maturity to $450,000,000. The 12 3/8% new notes will be issued at a substantial
discount from their principal amount at maturity. Until October 1, 2003, no
interest will accrue on the 12 3/8% new notes, but the Accreted Value of the
12 3/8% new notes will increase (representing amortization of original issue
discount) between the date of original issuance and October 1, 2003, on a
semiannual bond equivalent basis using a 360-day year comprised of twelve 30-day
months, such that the Accreted Value of the 12 3/8% new notes shall be equal to
the full principal amount at maturity of the 12 3/8% new notes on October 1,
2003. From October 1, 2003, interest on the 12 3/8% new notes will accrue at the
rate of 12 3/8% per annum and will be payable in cash, semiannually in arrears,
on each April 1 and October 1, commencing April 1, 2004, to holders of record on
the immediately preceding March 15 in respect of interest payable on the
following April 1 and September 15 in respect of interest payable on the
following October 1. Interest on overdue principal and (to the extent permitted
by law) on overdue installments of interest will accrue at a rate equal to the
rate borne by the 12 3/8% new notes. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. A reference to a payment of
principal in respect of the 12 3/8% new notes includes a
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<PAGE> 90
payment of premium, if any. A reference to a payment of interest in respect of
the 12 3/8% new notes includes a payment of special interest, if any.
The Accreted Value of each 12 3/8% note on each semi-annual accrual date
will be as set forth below:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
- ------------------------ --------------
<S> <C>
April 1, 1999.......................................... $ 582.55
October 1, 1999........................................ $ 618.60
April 1, 2000.......................................... $ 656.88
October 1, 2000........................................ $ 697.52
April 1, 2001.......................................... $ 740.68
October 1, 2001........................................ $ 786.51
April 1, 2002.......................................... $ 835.17
October 1, 2002........................................ $ 886.85
April 1, 2003.......................................... $ 941.73
October 1, 2003........................................ $1,000.00
</TABLE>
The 12 3/8% notes will be payable both as to principal and interest on
presentation of such notes if in certificated form at the offices or agencies of
the Company maintained for such purpose within the City and State of New York
or, at the option of the Company, payment of interest may be made by check
mailed to the holders of the 12 3/8% new notes at their respective addresses set
forth in the register of holders of 12 3/8% new notes or, if a holder so
requests, by wire transfer of immediately available funds to an account
previously specified in writing by such holder to the Company and the trustee.
Until otherwise designated by the Company, the Company's office or agency in New
York will be the offices of the trustee maintained for such purpose. The Company
has designated Chase Manhattan Bank Luxembourg S.A. to act as paying agent in
Luxembourg if the 12 3/8% new notes are approved for listing on the Luxembourg
Stock Exchange. The 12 3/8% new notes will be payable on maturity on October 1,
2008 at 100% of their principal amount and will be issued in registered form,
without coupons, and in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
Except as referred to herein under "-- Covenants -- Additional Amounts;
Optional Tax Redemption," the 12 3/8% notes are not redeemable at the Company's
option prior to October 1, 2003. Thereafter, the 12 3/8% notes will be subject
to redemption at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on October 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 106.188%
2004........................................................ 104.125%
2005........................................................ 102.063%
2006 and thereafter......................................... 100.000%
</TABLE>
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In the case of a redemption of any class of notes referred to herein under
"-- Covenants -- Additional Amounts; Optional Tax Redemption," redemption of
such Notes shall be made at the redemption prices specified in the Indenture
plus accrued and unpaid interest, if any, to the applicable redemption date.
MANDATORY REDEMPTION AND REPURCHASE
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the 12 3/8% notes. The Company is required to make a
Change of Control Offer (as defined below) and an Asset Sale Offer (as defined
below) with respect to a repurchase of the 12 3/8% notes under the circumstances
described under the captions "Change of control" and "Asset sales,"
respectively.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control Triggering Event, each holder of
12 3/8% notes shall have the right to require the Company to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of such holder's
12 3/8% notes pursuant to the offer described below (the "Change of Control
Offer") at a purchase price equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (or, in the case of
repurchases of 12 3/8% notes prior to October 1, 2003, at a purchase price equal
to 101% of the Accreted Value thereof as of the date of purchase) (the "Change
of Control Payment"). Within 40 days following any Change of Control Triggering
Event, the Company shall mail a notice to each holder, and, if and as long as
the 12 3/8% notes are listed on the Luxembourg Stock Exchange, publish a notice
in one leading newspaper with circulation in Luxembourg, stating:
(1) that the Change of Control Offer is being made pursuant to the
covenant entitled "Change of Control" and that all 12 3/8% notes
tendered will be accepted for payment;
(2) the purchase price and the purchase date, which shall be no earlier
than 30 days nor later than 40 days from the date such notice is
mailed (the "Change of Control Payment Date");
(3) that any 12 3/8% Notes not tendered will continue to accrue
interest (and, if applicable, the Accreted Value of any 12 3/8%
notes not tendered will continue to increase as provided in such
12 3/8% notes);
(4) that, unless the Company defaults in the payment of the Change of
Control Payment, all 12 3/8% Notes accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest after
the Change of Control Payment Date (and, if applicable, the
Accreted Value of any 12 3/8% Notes tendered will cease to increase
as provided in such 12 3/8% Notes);
(5) that holders electing to have any 12 3/8% notes purchased pursuant
to a Change of Control Offer will be required to surrender the
12 3/8% notes, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the 12 3/8% notes completed, to the
paying agent at the address
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<PAGE> 92
specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date;
(6) that holders will be entitled to withdraw their election if the
paying agent receives, not later than the close of business on the
second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the
name of the holder, the principal amount of 12 3/8% notes delivered
for purchase, and a statement that such holder is withdrawing his
election to have such 12 3/8% notes purchased; and
(7) that holders whose 12 3/8% notes are being purchased only in part
will be issued new 12 3/8% notes equal in principal amount to the
unpurchased portion of the 12 3/8% Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or
an integral multiple thereof.
The Company will comply with the requirements of Rules 13e-4 and 14e-1
under the Securities Exchange Act of 1934, as amended, and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the 12 3/8% Notes in connection
with a Change of Control Triggering Event.
On the Change of Control Payment Date, the Company will, to the extent
lawful,
(1) accept for payment 12 3/8% notes or portions thereof tendered
pursuant to the Change of Control Offer,
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all 12 3/8% notes or portions thereof
so tendered and
(3) deliver or cause to be delivered to the Trustee the 12 3/8% notes
so accepted together with an Officers' Certificate stating the
12 3/8% notes or portions thereof tendered to the Company. The
paying agent shall promptly mail to each holder of 12 3/8% notes so
accepted (or, if such a holder requests, wire transfer immediately
available funds to an account previously specified in writing by
such holder to the Company and the paying agent) payment in an
amount equal to the purchase price for such 12 3/8% notes, and the
Trustee shall promptly authenticate and mail to each holder a new
12 3/8% note equal in principal amount to any unpurchased portion
of the 12 3/8% notes surrendered, if any; provided that each such
new 12 3/8% note shall be in a principal amount of $1,000 or an
integral multiple thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
Except as described above with respect to a Change of Control Triggering
Event, the 12 3/8% indenture does not contain any other provisions that permit
the holders of the 12 3/8% notes to require that the Company repurchase or
redeem the 12 3/8% notes in the event of a takeover, recapitalization or similar
restructuring. The 12 3/8% indenture contains covenants which may afford holders
of the 12 3/8% notes protection in the event
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of a highly leveraged transaction, reorganization, restructuring, merger or
similar transaction, including the Change of Control provision described above
and the provisions described under "-- Incurrence of Indebtedness and Issuance
of Preferred Stock" and "-- Merger, Consolidation or Sale of Assets" below. Each
such covenant is, however, subject to certain exceptions which may permit the
Company to be involved in such a highly leveraged transaction that may adversely
affect the holders of the 12 3/8% notes.
The Change of Control Offer requirement of the 12 3/8% notes may in certain
circumstances make more difficult or discourage a takeover of the Company, and,
thus, the removal of incumbent management. The Change of Control Offer
requirement, however, is not the result of management's knowledge of any
specific effort to accumulate the Company's stock or to obtain control of the
Company by means of a merger, tender offer, solicitation or otherwise, or part
of a plan by management to adopt a series of anti-takeover provisions. Instead,
the Change of Control Offer requirement is a result of negotiations between the
Company and the initial purchasers. Management has not entered into any
agreement or plan involving a Change of Control, although it is possible that
the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control Triggering Event under the 12 3/8%
indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
The indentures for our 11 1/2% notes, in an aggregate principal amount of
$625,000,000, our 9 1/2% notes, in an aggregate principal amount L125,000,000
($208,337,500), our 10 3/4% notes, in an aggregate principal amount at maturity
of L300,000,000 ($500,010,000), our 9 3/4% notes, in an aggregate principal
amount at maturity of $1,300,000,000, our 10% notes, in an aggregate principal
amount at maturity of $400,000,000, our 12 3/4% notes, in an aggregate principal
amount at maturity of $277,803,500, and our 11 1/2% deferred coupon notes, in an
aggregate principal amount at maturity of $1,050,000,000, which rank pari passu
with the 12 3/8% notes, also contain change of control provisions. The
indentures for our convertible notes, which are subordinated to the 12 3/8%
notes, also contain change of control provisions.
The Company's ability to pay cash to the holders of 12 3/8% notes pursuant
to a Change of Control Offer may be limited by the Company's then existing
financial resources. See "Risk Factors -- Our substantial leverage could
adversely affect the financial health of the company" and "-- We are a holding
company that is dependent upon cash flow from our subsidiaries -- our ability to
access that cash flow may be limited in some circumstances." The new credit
facility does, and any future credit agreements or other agreements relating to
indebtedness of the Company may, contain prohibitions or restrictions on the
Company's ability to effect a Change of Control Payment. In the event a Change
of Control Triggering Event occurs at a time when such prohibitions or
restrictions are in effect, the Company could seek the consent of its lenders to
the purchase of Notes and other Indebtedness containing change of control
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provisions or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will be effectively prohibited from purchasing 12 3/8%
notes. In such case, the Company's failure to purchase tendered 12 3/8% notes
would constitute an Event of Default under the 12 3/8% indenture. Moreover, the
events that constitute a Change of Control or require an Asset Sale Offer under
the 12 3/8% indenture constitute events of default under the Credit Facility and
may also constitute events of default under future debt instruments or credit
agreements of the Company or the Company's Subsidiaries. Such events of default
may permit the lenders under such debt instruments or credit agreements to
accelerate the debt and, if such debt is not paid or repurchased, to enforce
their security interests in what may be all or substantially all of the assets
of the Company's Subsidiaries. Any such enforcement may limit the Company's
ability to raise cash to repay or repurchase the 12 3/8% notes.
The Company will not be required to make a Change of Control Offer in the
event the Company enters into a transaction with management or their affiliates
who are Permitted Holders. The definition of Change of Control includes a phrase
relating to the sale, lease, transfer, conveyance or other disposition of "all
or substantially all" of the Company's assets. Although there is a developing
body of case law interpreting the phrase "substantially all," there is no
precise established definition of the phrase under applicable law. Accordingly,
the ability of a holder of 12 3/8% notes to require the Company to repurchase
such 12 3/8% notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of the Company and its Subsidiaries
to another Person may be uncertain.
ASSET SALES
The 12 3/8% indenture provides that the Company will not and will not
permit any of its Restricted Subsidiaries to cause, make or suffer to exist any
Asset Sale, unless
(1) no Default exists or is continuing immediately prior to and after
giving effect to such Asset Sale,
(2) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least
equal to the fair market value (evidenced for purposes of this
covenant by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets sold
or otherwise disposed of and
(3) at least 80% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of
(a) Cash Equivalents,
(b) Replacement Assets,
(c) publicly traded Equity Interests of a Person who is, directly
or indirectly, engaged primarily in one or more Cable
Businesses; provided, however, that the Company or such
Restricted Subsidiary
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<PAGE> 95
shall Monetize such Equity Interests by sale to one or more
Persons (other than to the Company or a Subsidiary thereof) at
a price not less than the fair market value thereof within 180
days of the consummation of such Asset Sale, or
(d) any combination of the foregoing clauses (a) through (c);
provided, however, that the amount of
(x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes
thereto), of the Company or any Restricted Subsidiary (other
than liabilities that are by their terms subordinated to the
Notes) that are assumed by the transferee of any such assets
and
(y) any notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are
within five Business Days converted by the Company or such
Restricted Subsidiary into cash, shall be deemed to be Cash
Equivalents (to the extent of the Cash Equivalents received in
such conversion) for purposes of this clause (3).
Within 360 days after any Asset Sale, the Company (or the Restricted
Subsidiary, as the case may be) will cause the Net Proceeds from such Asset Sale
(1) to be used to permanently reduce Indebtedness of a Restricted
Subsidiary or
(2) to be invested or reinvested in Replacement Assets. Pending final
application of any such Net Proceeds, the Company may temporarily
reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the 12 3/8%
Indenture.
Any Net Proceeds from any Asset Sale that are not used or reinvested as
provided in the preceding sentence constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $15 million, the Company will make
an offer (an "Asset Sale Offer") to all holders of 12 3/8% notes and Other
Qualified Notes to purchase the maximum principal amount of 12 3/8% notes and
Other Qualified Notes (determined on a pro rata basis according to the accreted
value or principal amount, as the case may be, of the 12 3/8% Notes and the
Other Qualified Notes that may be purchased out of the Excess Proceeds
(1) with respect to the Other Qualified Notes, based on the terms set
forth in the indenture related to each issue of the Other Qualified
Notes and
(2) with respect to the 12 3/8% notes, at an offer price in cash in an
amount equal to 100% of the outstanding principal amount thereof
plus accrued and unpaid interest, if any, to the date fixed for the
closing of such offer (or, in the case of repurchases of 12 3/8%
notes prior to October 1, 2003, at a purchase price equal to 100%
of the Accreted Value thereof as of the
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<PAGE> 96
date of repurchase), in accordance with the procedures set forth in
the 12 3/8% indenture.
To the extent that the aggregate principal amount or accreted value, as the
case may be, of 12 3/8% notes and Other Qualified Notes tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds the Company may use such
deficiency for general corporate purposes. If the aggregate principal amount or
accreted value, as the case may be, of 12 3/8% notes and Other Qualified Notes
surrendered by holders thereof exceeds the amount of Excess Proceeds then such
remaining Excess Proceeds will be allocated pro rata according to accreted value
or principal amount, as the case may be, to the 12 3/8% notes and each issue of
the Other Qualified Notes, and the Trustee will select the 12 3/8% notes to be
purchased from the amount allocated to the 12 3/8% notes on the basis set forth
under "Selection and Notice" below. Upon completion of such offers to purchase
each of the 12 3/8% notes and the Other Qualified Notes, the amount of Excess
Proceeds will be reset at zero.
Notwithstanding the foregoing, the Company and its Subsidiaries may
(1) sell, lease, transfer, convey or otherwise dispose of assets or
property acquired after October 14, 1993, by the Company or any
Subsidiary in a sale-and-leaseback transaction so long as the
proceeds of such sale are applied within five Business Days to
permanently reduce Indebtedness of a Restricted Subsidiary or if
there is no such Indebtedness or such proceeds exceed the amount of
such Indebtedness then such proceeds or excess proceeds are
reinvested in Replacement Assets within 360 days after such sale,
lease, transfer, conveyance or disposition,
(2) (x) swap or exchange assets or property with a Cable Controlled
Subsidiary or
(y) issue, sell, lease, transfer, convey or otherwise dispose of
equity securities of any of the Company's Subsidiaries to a
Cable Controlled Subsidiary, in each of cases (x) and (y) so
long as
(A) the ratio of Indebtedness to Annualized Pro Forma EBITDA
of the Company after such transaction is equal to or less
than the ratio of Indebtedness to Annualized Pro Forma
EBITDA of the Company immediately preceding such
transaction; provided, however, that if the ratio of
Indebtedness to Annualized Pro Forma EBITDA of the Company
immediately preceding such transaction is 6:1 or less,
then the ratio of Indebtedness to Annualized Pro Forma
EBITDA of the Company may be 0.5 greater than such ratio
immediately preceding such transaction and
(B) either
(I) the assets so contributed consist solely of a
license to operate a Cable Business and the Net
Households covered
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by all of the licenses to operate cable and
telephone systems held by the Company and its
Restricted Subsidiaries immediately after and giving
effect to such transaction equals or exceeds the
number of Net Households covered by all of the
licenses to operate cable and telephone systems held
by the Company and its Restricted Subsidiaries
immediately prior to such transaction or
(II) the assets so contributed consist solely of Cable
Assets and the value of the Capital Stock received,
immediately after and giving effect to such
transaction, as determined by an investment banking
firm of recognized standing with knowledge of the
Cable Business, equals or exceeds the value of the
Cable Assets exchanged for such Capital Stock, or
(3) issue, sell, lease, transfer, convey or otherwise dispose of Equity
Interests of the Company (or any Capital Stock Sales Proceeds
therefrom) to any Person (including Non-Restricted Subsidiaries).
SELECTION AND NOTICE
If less than all of the 12 3/8% notes are to be redeemed at any time,
selection of 12 3/8% notes for redemption will be made by the Trustee in
compliance with the requirements of any securities exchange on which the 12 3/8%
notes are listed, or, in the absence of such requirements or if the 12 3/8%
notes are not so listed, on a pro rata basis, provided that no 12 3/8% notes of
$1,000 or less shall be redeemed in part. Notice of redemption shall be mailed
by first class mail at least 30 but not more than 60 days before the redemption
date to each holder of 12 3/8% notes to be redeemed at its registered address.
If any 12 3/8% note is to be redeemed in part only, the notice of redemption
that relates to such 12 3/8% note shall state the portion of the principal
amount thereof to be redeemed. A new 12 3/8% note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original 12 3/8% note. On and after the redemption
date, interest ceases to accrue (and, if applicable, the Accreted Value of any
12 3/8% notes tendered will cease to increase as provided in such 12 3/8% notes)
on 12 3/8% notes or portions of them called for redemption.
COVENANTS
Restricted Payments
The 12 3/8% indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution on account of
the Company's or any of its Restricted Subsidiaries' Equity
Interests (other than (x) dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or
such Restricted Subsidiary or (y) dividends or distributions
payable to the Company or any Wholly
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Owned Subsidiary of the Company, or (z) pro rata dividends or pro
rata distributions payable by a Restricted Subsidiary);
(2) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company (other than any such Equity
Interests owned by the Company or any Wholly Owned Subsidiary of
the Company);
(3) voluntarily purchase, redeem or otherwise acquire or retire for
value any Indebtedness that is subordinated to the Notes; or
(4) make any Restricted Investment
(all such payments and other actions set forth in clauses (1) through
(4) above being collectively referred to as "Restricted Payments"),
unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its
Restricted Subsidiaries after the Issuance Date (including
Restricted Payments permitted by clauses (2) through (9) of
the next succeeding paragraph), is less than the sum of
(x) the difference between Cumulative EBITDA and 1.5 times
Cumulative Interest Expense plus
(y) Capital Stock Sale Proceeds plus
(z) cash received by the Company or a Restricted Subsidiary
from a Non-Restricted Subsidiary (other than cash which is
or is required to be repaid or returned to such
Non-Restricted Subsidiary); provided, however, that to the
extent that any Restricted Investment that was made after
the date of the 12 3/8% Indenture is sold for cash or
otherwise liquidated or repaid for cash, the amount
credited pursuant to this clause (z) shall be the lesser
of
(A) the cash received with respect to such sale,
liquidation or repayment of such Restricted
Investment (less the cost of such sale, liquidation
or repayment, if any) and
(B) the initial amount of such Restricted Investment, in
each case as determined in good faith by the
Company's Board of Directors.
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The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment
would have complied with the provisions of the 12 3/8% Indenture;
(2) (a) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Restricted Subsidiary or
(b) an Investment in any Person,
in each case, in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Restricted Subsidiary of
the Company) of other Equity Interests (other than any Disqualified
Stock) of the Company provided that the Company delivers to the
trustee:
(I) with respect to any transaction involving in excess of $1
million, a resolution of the Board of Directors set forth in
an Officers' Certificate certifying that such transaction is
approved by a majority of the directors on the Board of
Directors; and
(II) with respect to any transaction involving in excess of $25
million, an opinion as to the fairness to the Company or such
Subsidiary from a financial point of view issued by an
investment banking firm of national standing with high yield
experience, together with an Officers' Certificate to the
effect that such opinion complies with this clause (2),
provided, that the amount of such proceeds from the sale of
such Equity Interests shall be excluded in each case from
Capital Stock Sale Proceeds for purposes of clause (2)(b),
above;
(3) Investments by the Company or any Restricted Subsidiary in a Non-
Controlled Subsidiary which
(A) has no Indebtedness on a consolidated basis other than
Indebtedness incurred to finance the purchase of equipment
used in a Cable Business,
(B) has no restrictions (other than restrictions imposed or
permitted by the Indenture or the indentures governing the
Other Qualified Notes or any other instrument governing
unsecured indebtedness of the Company which is pari passu
with the Notes) on its ability to pay dividends or make any
other distributions to the Company or any of its Restricted
Subsidiaries,
(C) is or will be a Cable Business and
(D) uses the proceeds of such Investment for constructing a Cable
Business or the working capital needs of a Cable Business;
(4) the redemption, purchase, defeasance, acquisition or retirement of
Indebtedness that is subordinated to the 12 3/8% Notes (including
premium, if any, and accrued and unpaid interest) made by exchange
for, or out of the
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proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of,
(A) Equity Interests of the Company provided, that the amount of
such proceeds from the sale of such Equity Interests shall be
excluded in each case from Capital Stock Sale Proceeds for
purposes of clause (b)(y), above or
(B) Refinancing Indebtedness permitted to be incurred under the
"Incurrence of Indebtedness and Issuance of Preferred Stock"
covenant;
(5) Investments by the Company or any Restricted Subsidiary in a Non-
Controlled Subsidiary which is or will be a Cable Business in an
amount not to exceed $80 million in the aggregate plus the sum of
(x) cash received by the Company or a Restricted Subsidiary from
a Non-Restricted Subsidiary (other than cash which is or is
required to be repaid or returned to such Non-Restricted
Subsidiary) and
(y) Capital Stock Sale Proceeds (excluding the aggregate net sale
proceeds to be received upon conversion of the Convertible
Subordinated Notes), provided, that the amount of such
proceeds from the sale of such Equity Interests shall be
excluded in each case from Capital Stock Sale Proceeds for
purposes of clause (b)(y), above;
(6) Investments by the Company or any Restricted Subsidiary in
Permitted Non-Controlled Assets;
(7) the extension by the Company or any Restricted Subsidiary of trade
credit to a Non-Restricted Subsidiary extended on usual and
customary terms in the ordinary course of business, provided that
the aggregate amount of such trade credit shall not exceed $25
million at any one time;
(8) the payment of cash dividends on the Preferred Stock accruing on or
after February 15, 2004 or any mandatory redemption or repurchase
of the Preferred Stock, in each case, in accordance with the
Certificate of Designations therefor; and
(9) the exchange of all of the outstanding shares of Preferred Stock
for Subordinated Debentures in accordance with the Certificate of
Designation for the Preferred Stock.
Any Investment in a Subsidiary (other than the issuance, transfer or other
conveyance of Equity Interests of the Company (or any Capital Stock Sales
Proceeds therefrom)) that is designated by the Board of Directors as a
Non-Restricted Subsidiary shall become a Restricted Payment made on the date of
such designation in the amount of the greater of
(x) the book value of such Subsidiary on the date such Subsidiary
becomes a Non-Restricted Subsidiary and
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(y) the fair market value of such Subsidiary on such date as determined
(A) in good faith by the Board of Directors of such Subsidiary if
such fair market value is determined to be less than $25
million and
(B) by an investment banking firm of national standing with high
yield underwriting expertise if such fair market value is
determined to be in excess of $25 million.
Not later than the fifth Business Day after making any Restricted Payment
(other than those referred to in sub-clause (7) of the second paragraph
preceding this paragraph), the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "Restricted
Payments" were computed, which calculations may be based upon the Company's
latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The 12 3/8% indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guaranty or otherwise become directly or indirectly liable
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt) and that the Company will not issue any Disqualified Stock and will not
permit any of its Restricted Subsidiaries to issue any shares of preferred stock
that is Disqualified Stock; provided, however, that the Company may incur
Indebtedness or issue shares of Disqualified Stock and any of its Restricted
Subsidiaries may issue shares of preferred stock that is Disqualified Stock if
after giving effect to such issuance or incurrence on a pro forma basis, the sum
of
(x) Indebtedness of the Company and its Restricted Subsidiaries, on a
consolidated basis,
(y) the liquidation value of outstanding preferred stock of Restricted
Subsidiaries and
(z) the aggregate amount payable by the Company and its Restricted
Subsidiaries, on a consolidated basis, upon redemption of
Disqualified Stock to the extent such amount is not included in the
preceding clause (y) shall be less than the product of Annualized
Pro Forma EBITDA for the latest fiscal quarter for which internal
financial statements are available immediately preceding the date
on which such additional Indebtedness is incurred or such
Disqualified Stock or preferred stock is issued multiplied by 7.0,
determined on a pro forma basis (including a pro forma application
of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock or preferred stock had
been issued, as the case may be, at the beginning of such quarter.
The foregoing limitations will not apply to:
(a) the incurrence by the Company or any Restricted Subsidiary of
Indebtedness pursuant to the Credit Facility,
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(b) the issuance by any Restricted Subsidiary of preferred stock (other
than Disqualified Stock) to the Company, any Restricted Subsidiary
of the Company or the holders of Equity Interests in any Restricted
Subsidiary on a pro rata basis to such holders,
(c) the incurrence of Indebtedness or the issuance of preferred stock
by the Company or any of its Restricted Subsidiaries the proceeds
of which are (or the credit support provided by any such
Indebtedness is), in each case, used to finance the construction,
capital expenditure and working capital needs of a Cable Business
(including, without limitation, payments made pursuant to any
License), the acquisition of Cable Assets or the Capital Stock of a
Qualified Subsidiary,
(d) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount not to
exceed $50 million,
(e) the incurrence by the Company or any Restricted Subsidiary of any
Permitted Acquired Debt,
(f) the incurrence by the Company or any Subsidiary of Indebtedness
issued in exchange for, or the proceeds of which are used to
extend, refinance, renew, replace, or refund the 12 3/8% Notes,
Existing Indebtedness or Indebtedness referred to in clauses (a),
(b), (c), (d) or (e) above or Indebtedness incurred pursuant to the
preceding paragraph (the "Refinancing Indebtedness"); provided,
however, that
(1) the principal amount of, and any premium payable in respect
of, such Refinancing Indebtedness shall not exceed the
principal amount of Indebtedness so extended, refinanced,
renewed, replaced or refunded (plus the amount of reasonable
expenses incurred in connection therewith);
(2) the Refinancing Indebtedness shall have
(A) a Weighted Average Life to Maturity equal to or greater
than the Weighted Average Life to Maturity of, and
(B) a stated maturity no earlier than the stated maturity of,
the Indebtedness being extended, refinanced, renewed,
replaced or refunded; and
(3) the Refinancing Indebtedness shall be subordinated in right of
payment to the 12 3/8% notes as and to the extent of the
Indebtedness being extended, refinanced, renewed, replaced or
refunded,
(g) the issuance of the Preferred Stock in lieu of payment of cash
interest on the Subordinated Debentures or the incurrence by the
Company of Indebtedness represented by the Subordinated Debentures
upon the
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exchange of the Preferred Stock in accordance with the Certificate
of Designations therefor,
(h) Indebtedness under Exchange Rate Contracts, provided that such
Exchange Rate Contracts are related to payment obligations under
Existing Indebtedness or Indebtedness incurred under this paragraph
or the preceding paragraph that are being hedged thereby, and not
for speculation and that the aggregate notional amount under each
such Exchange Rate Contract does not exceed the aggregate payment
obligations under such Indebtedness,
(i) Indebtedness under Interest Rate Agreements, provided that the
obligations under such agreements are related to payment
obligations on Existing Indebtedness or Indebtedness otherwise
incurred pursuant to this paragraph or the preceding paragraph, and
not for speculation,
(j) the incurrence of Indebtedness between the Company and any
Restricted Subsidiary, between or among Restricted Subsidiaries and
between any Restricted Subsidiary and other holders of Equity
Interests of such Restricted Subsidiary (or other Persons providing
funding on their behalf) on a pro rata basis and on substantially
identical principal financial terms, provided, however, that if any
such Restricted Subsidiary that is the payee of any such
Indebtedness ceases to be a Restricted Subsidiary or transfers such
Indebtedness (other than to the Company or a Restricted Subsidiary
of the Company), such events shall be deemed, in each case, to
constitute the incurrence of such Indebtedness by the Company or by
a Restricted Subsidiary, as the case may be, at the time of such
event, and
(k) Indebtedness of the Company and/or any Restricted Subsidiary in
respect of performance bonds of the Company or any Subsidiary or
surety bonds provided by the Company or any Restricted Subsidiary
received in the ordinary course of business in connection with the
construction or operation of a Cable Business.
Any redesignation of a Non-Restricted Subsidiary as a Restricted Subsidiary
shall be deemed for purposes of the foregoing covenant to be an incurrence of
Indebtedness by the Company and its Restricted Subsidiaries of the Indebtedness
of such Non-Restricted Subsidiary as of the time of such redesignation to the
extent such Indebtedness does not already constitute Indebtedness of the Company
or one of its Restricted Subsidiaries.
Liens
The 12 3/8% indenture provides that neither the Company nor any of its
Restricted Subsidiaries may directly or indirectly create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except:
(1) Permitted Liens;
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(2) Liens securing Indebtedness and related obligations incurred under
clauses (a), (b), (c), (d), (e), (h), (i) and (k) of the second
paragraph of the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant;
(3) Liens on the assets acquired or leased with the proceeds of
Indebtedness permitted to be incurred under the "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant; and
(4) Liens securing Refinancing Indebtedness permitted to be incurred
under the "Incurrence of Indebtedness and Issuance of Preferred
Stock" covenant; provided that the Refinancing Indebtedness so
issued and secured by such Lien shall not be secured by any
property or assets of the Company or any of its Restricted
Subsidiaries other than the property or assets subject to the Liens
securing such Indebtedness being refinanced.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The 12 3/8% indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to
(1) (a) pay dividends or make any other distributions to the Company or
any of its Subsidiaries
(A) on its Capital Stock or
(B) with respect to any other interest or participation in, or
measured by, its profits, or
(b) pay any indebtedness owed to the Company or any of its
Subsidiaries or
(2) make loans or advances to the Company or any of its Subsidiaries or
(3) transfer any of its properties or assets to the Company or any of
its Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of:
(a) Existing Indebtedness as in effect on the Issuance Date,
(b) the 12 3/8% indenture and the 12 3/8% notes,
(c) any agreement covering or relating to Indebtedness permitted
to be incurred under clause (a), (b), (c), (d), (e), (h) or
(i) (but only, in the case of clause (h) or (i), to the extent
contemplated by the then-existing Credit Facility) of the
second paragraph of the "Incurrence of Indebtedness and
Issuance of Preferred Stock" covenant, provided that the
provisions of such agreement permit any action referred to in
clause (1) above in aggregate amounts sufficient to enable the
payment of interest and principal and mandatory repurchases
pursuant
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to the terms of the 12 3/8% Indenture and the 12 3/8% Notes
but provided further that:
(x) any such agreement may nevertheless encumber, prohibit or
restrict any action referred to in clause (1) above if an
event of default under such agreement has occurred and is
continuing or would occur as a result of any such action;
and
(y) any such agreement may nevertheless contain
(I) restrictions limiting the payment of dividends or
the making of any other distributions to all or a
portion of excess cash-flow (or any similar
formulation thereof) and
(II) subordination provisions governing Indebtedness owed
to the Company or any Restricted Subsidiary,
(4) applicable law,
(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Subsidiaries as in effect at
the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with such acquisition),
which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired; provided that
the EBITDA of such Person is not taken into account in determining
whether such acquisition was permitted by the terms of the 12 3/8%
Indenture,
(6) customary nonassignment provisions in leases entered into in the
ordinary course of business and consistent with past practices,
(7) provisions of joint venture or stockholder agreements, so long as
such provisions are determined by a resolution of the Board of
Directors to be, at the time of such determination, customary for
such agreements,
(8) with respect to clause (c) above, purchase money obligations for
property acquired in the ordinary course of business or the
provisions of any agreement with respect to any Asset Sale (or
transaction which, but for its size, would be an Asset Sale),
solely with respect to the assets being sold, or
(9) permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Refinancing Indebtedness
are determined by a resolution of the Board of Directors to be no
more restrictive than those contained in the agreements governing
the Indebtedness being refinanced.
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Merger, Consolidation or Sale of Assets
The 12 3/8% indenture provides that the Company may not consolidate or
merge with or into (whether or not the Company is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions to, another corporation, Person or entity unless
(1) the Company is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the
United Kingdom, the Netherlands, the Netherlands Antilles, Bermuda
or the Cayman Islands or of the United States, any state thereof or
the District of Columbia;
(2) the entity or Person formed by or surviving any such consolidation
or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other
disposition will have been made assumes all the Obligations
(including the due and punctual payment of Additional Amounts (as
defined in the 12 3/8% Indenture) if the surviving corporation is a
corporation organized or existing under the laws of the United
Kingdom, the Netherlands, the Netherlands Antilles, Bermuda or the
Cayman Islands) of the Company, pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, under
the 12 3/8% notes and the 12 3/8% indenture;
(3) immediately after such transaction no Default or Event of Default
exists;
(4) the Company or any entity or Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been
made will have a ratio of Indebtedness to Annualized Pro Forma
EBITDA equal to or less than the ratio of Indebtedness to
Annualized Pro Forma EBITDA of the Company immediately preceding
the transaction provided, however, that if the ratio of
Indebtedness to Annualized Pro Forma EBITDA of the Company
immediately preceding such transaction is 6:1 or less, then the
ratio of Indebtedness to Annualized Pro Forma EBITDA of the Company
may be 0.5 greater than such ratio immediately preceding such
transaction; and
(5) such transaction would not result in the loss of any material
authorization or Material License of the Company or its
Subsidiaries.
Additional Amounts; Optional Tax Redemption
The 12 3/8% indenture provides that the "Payment of Additional Amounts"
provision therein, relating to United Kingdom, Netherlands, Netherlands
Antilles, Bermuda and Cayman Islands withholding and other United Kingdom,
Netherlands, Netherlands Antilles, Bermuda and Cayman Islands taxes, and the
"Optional Tax Redemption" provision therein, relating to the Company's option to
redeem the 12 3/8% notes under
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certain circumstances if Additional Amounts are payable, apply to the 12 3/8%
notes in certain circumstances. The provisions of the 12 3/8% indenture relating
to the payment of Additional Amounts will only apply in the event that the
Company becomes, or a successor to the Company is, a corporation organized or
existing under the laws of the United Kingdom, the Netherlands, the Netherlands
Antilles, Bermuda or the Cayman Islands. In such circumstances, all payments
made by the Company on the 12 3/8% notes will be made without deduction or
withholding, for or on account of, any and all present or future taxes, duties,
assessments, or governmental charges of whatever nature unless the deduction or
withholding of such taxes, duties, assessments or governmental charges is then
required by law. If any deduction or withholding for or on account of any
present or future taxes, assessments or other governmental charges of the United
Kingdom, the Netherlands, the Netherlands Antilles, Bermuda or the Cayman
Islands (or any political subdivision or taxing authority thereof or therein)
shall at any time be required in respect of any amounts to be paid by the
Company under the 12 3/8% notes, the Company will pay or cause to be paid such
additional amounts ("Additional Amounts") as may be necessary in order that the
net amounts received by a holder of the 12 3/8% notes after such deduction or
withholding shall be not less than the amounts specified in the 12 3/8% notes to
which the holder of such 12 3/8% notes is entitled; provided, however, that the
Company shall not be required to make any payment of Additional Amounts for or
on account of:
(1) any tax, assessment or other governmental charge to the extent such
tax, assessment or other governmental charge would not have been
imposed but for
(a) the existence of any present or former connection between
such holder (or between a fiduciary, settlor, beneficiary,
member or shareholder of, or possessor of a power over, such
holder, if such holder is an estate, nominee, trust,
partnership or corporation), other than the holding of the
12 3/8% notes or the receipt of amounts payable in respect of
the 12 3/8% notes and the United Kingdom, the Netherlands,
the Netherlands Antilles, Bermuda or the Cayman Islands or
any political subdivision or taxing authority thereof or
therein, including, without limitation, such holder (or such
fiduciary, settlor, beneficiary, member, shareholder or
possessor) being or having been a citizen or resident thereof
or being or having been present or engaged in trade or
business therein or having had a permanent establishment
therein or
(b) the presentation of the 12 3/8% notes (where presentation is
required) for payment on a date more than 30 days after the
date on which such payment became due and payable or the date
on which payment thereof is duly provided for, whichever
occurs later, except to the extent that the holder would have
been entitled to Additional Amounts had the 12 3/8% notes
been presented on the last day of such period of 30 days;
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(2) any tax, assessment or other governmental charge that is imposed or
withheld by reason of the failure to comply by the holder of the
12 3/8% notes or, if different, the beneficial owner of the
interest payable on the 12 3/8% notes, with a timely request of the
Company addressed to such holder or beneficial owner to provide
information, documents or other evidence concerning the
nationality, identity or connection with the taxing jurisdiction of
such holder or beneficial owner which is required or imposed by a
statute, regulation or administrative practice of the taxing
jurisdiction as a precondition to exemption from all or part of
such tax assessment or governmental charge;
(3) any estate, inheritance, gift, sales, transfer, personal property
or similar tax assessment or other governmental charge;
(4) any tax assessment or other governmental charge which is
collectible otherwise than by withholding from payments of
principal amount, redemption amount, Change of Control Payment or
interest with respect to a 12 3/8% note or withholding from the
proceeds of a sale or exchange of a 12 3/8% note;
(5) any tax, assessment or other governmental charge required to be
withheld by any paying agent from any payment of principal amount,
redemption amount, Change of Control Payment or interest with
respect to a 12 3/8% note, if such payment can be made, and is in
fact made, without such withholding by any other paying agent
located inside the United States;
(6) any tax, assessment or other governmental charge imposed on a
holder that is not the beneficial owner of a 12 3/8% note to the
extent that the beneficial owner would not have been entitled to
the payment of any such Additional Amounts had the beneficial owner
directly held the 12 3/8% note;
(7) any combination of items (1), (2), (3), (4), (5) and (6) above;
nor shall Additional Amounts be paid with respect to any payment of the
principal of, or any interest on the 12 3/8% notes to any holder who is a
fiduciary or partnership or other than the sole beneficial owner of such payment
to the extent that a beneficiary or settlor would not have been entitled to any
Additional Amounts had such beneficiary or settlor been the holder of the
12 3/8% notes.
The 12 3/8% notes may be redeemed at the option of the Company, in whole
but not in part, upon not less than 30 nor more than 60 days notice, at any time
at a redemption price equal to the principal amount thereof plus accrued and
unpaid interest to the date fixed for redemption (or in the case of redemption
of Notes prior to October 1, 2003, at a redemption price equal to 100% of the
Accreted Value thereof as of the date of purchase) if after the Issuance Date
there has occurred any change in or amendment to the laws (or any regulations or
official rulings promulgated thereunder) of the United Kingdom, the Netherlands,
the Netherlands Antilles, Bermuda or the Cayman Islands (or any political
subdivision or taxing authority thereof or therein), or any change in or
amendment to the official application or interpretation of such laws, regulation
or rulings
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(a "Change in Tax Law") which becomes effective after the Issuance Date, as a
result of which the Company is or would be so required on the next succeeding
Interest Payment Date to pay Additional Amounts with respect to the 12 3/8%
notes with respect to withholding taxes imposed by the United Kingdom, the
Netherlands, the Netherlands Antilles, Bermuda or the Cayman Islands, (or any
political subdivision or taxing authority thereof or therein) (a "Withholding
Tax") and such Withholding Tax is imposed at a rate that exceeds the rate (if
any) at which Withholding Tax was imposed on the Issuance Date provided, that,
(w) this paragraph shall not apply to the extent that, at the Relevant
Date it was known or would have been known had professional advice
of a nationally recognized accounting firm in the United Kingdom,
Netherlands, Netherlands Antilles, Bermuda or the Cayman Islands,
as the case may be, been sought, that a Change in Tax Law in the
United Kingdom, the Netherlands, the Netherlands Antilles, Bermuda
or the Cayman Islands, was to occur after the Issuance Date,
(x) no such notice of redemption may be given earlier than 90 days
prior to the earliest date on which the Company would be obliged to
pay such Additional Amounts were a payment in respect of the
12 3/8% Notes then due,
(y) at the time such notice of redemption is given, such obligation to
pay such Additional Amount remains in effect and
(z) the payment of such Additional Amounts cannot be avoided by the use
of any reasonable measures available to the Company.
The 12 3/8% notes may also be redeemed, in whole but not in part, at any
time at a redemption price equal to the principal amount thereof plus accrued
and unpaid interest to the date fixed for redemption if the person formed after
the Issuance Date by a consolidation, amalgamation, reorganization or
reconstruction (or other similar arrangement) of the Company or the person into
which the Company is merged after the Issuance Date or to which the Company
conveys, transfers or leases its properties and assets after the Issuance
substantially as an entirety (collectively, a "Subsequent Consolidation") is
required, as a consequence of such Subsequent Consolidation and as a consequence
of a Change in Tax Law in the United Kingdom, the Netherlands, the Netherlands
Antilles, Bermuda or the Cayman Islands occurring after the date of such
Subsequent Consolidation to pay Additional Amounts with respect to Notes with
respect to Withholding Tax and such Withholding Tax is imposed at a rate that
exceeds the rate (if any) at which Withholding Tax was or would have been
imposed on the date of such Subsequent Consolidation, provided, however, that
this paragraph shall not apply to the extent that, at the date of such
Subsequent Consolidation it was known or would have been known had professional
advice of a nationally recognized accounting firm in the United Kingdom, the
Netherlands, the Netherlands Antilles, Bermuda or the Cayman Islands, as the
case may be, been sought, that a Change in Tax Law in the United Kingdom, the
Netherlands, the Netherlands Antilles, Bermuda or the Cayman Islands, was to
occur after such date.
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The Company will also pay, or make available for payment, to holders on the
redemption date any Additional Amounts resulting from the payment of such
redemption price.
Transactions with Affiliates
The 12 3/8% indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or amend any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an "Affiliate Transaction"), unless
(1) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Subsidiary than those that could
have been obtained in a comparable transaction by the Company or
such Subsidiary with an unrelated Person and
(2) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction involving aggregate
payments in excess of $1 million or any series of Affiliate
Transactions with an Affiliate involving aggregate payments in
excess of $1 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (1) above and such
Affiliate Transaction is approved by a majority of the
disinterested directors on the Board of Directors and
(b) with respect to any Affiliate Transaction or any series of
Affiliate Transactions involving aggregate payments in excess
of $25 million, an opinion as to the fairness to the Company
or such Subsidiary from a financial point of view issued by an
investment banking firm of national standing with high yield
experience together with an Officers' Certificate to the
effect that such opinion complies with this clause (ii);
provided, however, that notwithstanding the foregoing provisions, the following
shall not be deemed to be Affiliate Transactions:
(1) any employment agreement entered into by the Company or any of its
Subsidiaries in the ordinary course of business and consistent with
the past practice of the Company or its predecessor or such
Subsidiary;
(2) transactions between or among the Company and/or its Restricted
Subsidiaries;
(3) transactions permitted by the provisions of the Indenture described
above under the covenant "Restricted Payments;"
(4) Liens permitted under the Liens covenant which are granted by the
Company or any of its Subsidiaries to an unrelated Person for the
benefit of the Company or any other Subsidiary of the Company;
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(5) any transaction pursuant to an agreement in effect on the Issuance
Date;
(6) the incurrence of Indebtedness by a Restricted Subsidiary where
such Indebtedness is owed to the holders of the Equity Interests of
such Restricted Subsidiary on a pro rata basis and on substantially
identical principal financial terms;
(7) management, operating, service or interconnect agreements entered
into in the ordinary course of business with any Cable Business in
which the Company or any Restricted Subsidiary has an Investment
and which is not a Cable Controlled Subsidiary (and of which no
Affiliate of the Company is an Affiliate other than as a result of
such Investment); and
(8) any tax sharing agreement.
Reports
Whether or not required by the rules and regulations of the Commission, so
long as any 12 3/8% notes are outstanding, the Company will file with the
Commission and furnish to the holders of 12 3/8% notes all quarterly and annual
financial information required to be contained in a filing with the Commission
on Forms 10-Q and 10-K (or the equivalent thereof under the Exchange Act for
foreign private issuers in the event the Company becomes a corporation organized
under the laws of the United Kingdom, the Netherlands, the Netherlands Antilles,
Bermuda or the Cayman Islands), including a "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants, in each case, as required by the rules and regulations
of the Commission as in effect on the Issuance Date. If and as long as the
12 3/8% notes are listed on the Luxembourg Stock Exchange, copies of such
reports will also be available at the specified office of the Luxembourg Agent.
The Company does not publish unconsolidated financial reports.
EVENTS OF DEFAULT AND REMEDIES
The 12 3/8% indenture provides that each of the following constitutes an
Event of Default:
(1) default for 30 days in the payment when due of interest (and
Additional Amounts, if applicable) on the 12 3/8% notes;
(2) default in payment when due of principal on the 12 3/8% notes;
(3) failure by the Company to comply with the provisions described
under the covenants "Change of Control," "Restricted Payments" or
"Incurrence of Indebtedness and Issuance of Preferred Stock";
(4) failure by the Company for 60 days after notice to comply with
certain other covenants and agreements contained in the 12 3/8%
indenture or the 12 3/8% notes;
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(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries), whether such
Indebtedness or guarantee now exists, or is created after the
Issuance Date, which default (a) is caused by a failure to pay when
due principal or interest on such Indebtedness within the grace
period provided in such Indebtedness (which failure continues
beyond any applicable grace period) (a "Payment Default") or (b)
results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or
the maturity of which has been so accelerated, aggregates $10
million or more;
(6) failure by the Company or any Restricted Subsidiary of the Company
to pay final judgments (other than any judgment as to which a
reputable insurance company has accepted full liability)
aggregating in excess of $5 million, which judgments are not stayed
within 60 days after their entry;
(7) certain events of bankruptcy or insolvency with respect to the
Company or any of its Material Subsidiaries; and
(8) the revocation of a Material License.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of then outstanding 12 3/8% notes
may declare all the 12 3/8% notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company or any
Material Subsidiary, all outstanding 12 3/8% notes will become due and payable
without further action or notice. Holders of the 12 3/8% notes may not enforce
the 12 3/8% indenture or the 12 3/8% notes except as provided in the 12 3/8%
indenture. Subject to certain limitations, holders of a majority in principal
amount of outstanding 12 3/8% notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from holders of the 12 3/8% notes
notice of any continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal or interest) if it determines
that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of 12 3/8% notes
then outstanding by notice to the Trustee may on behalf of the holders of all of
the 12 3/8% notes waive any existing Default or Event of Default and its
consequences under the 12 3/8% indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the 12 3/8% notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the 12 3/8% indenture, and the Company is required,
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the Company,
as such, shall have any liability for any Obligations of the Company under the
12 3/8% notes or the 12 3/8% indenture or for any claim based on, in respect of,
or by reason of, such Obligations or their creation. Each holder of the 12 3/8%
notes by accepting a 12 3/8% note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the 12 3/8%
notes. Such waiver may not be effective to waive liabilities under the federal
securities laws, and it is the view of the Commission that a waiver of such
liabilities is against public policy.
DEFEASANCE AND DISCHARGE OF THE INDENTURE AND THE NOTES
If the Company irrevocably deposits, or causes to be deposited, in trust
with the Trustee or the Paying Agent, at any time prior to the stated maturity
of the 12 3/8% notes or the date of redemption of all the outstanding 12 3/8%
notes, as trust funds in trust, money or direct noncallable obligations of or
guaranteed by the United States of America in an amount sufficient, in the
opinion of a nationally recognized firm of independent public accountants,
(without reinvestment thereof) to pay timely and discharge the entire principal
(or, if applicable, all amounts payable in respect of Accreted Value) of the
then outstanding 12 3/8% notes and all interest due thereon to maturity or
redemption, the 12 3/8% indenture shall cease to be of further effect as to all
outstanding 12 3/8% notes ("Defeasance") except, among other things, as to
(1) remaining rights of registration of transfer and substitution and
exchange of the 12 3/8% notes,
(2) rights of holders to receive payment of principal of (or, if
applicable, payments in respect of Accreted Value) and interest on
the 12 3/8% notes, and
(3) the rights, obligations and immunities of the Trustee.
In order to exercise Defeasance:
(1) the Company shall have delivered to the Trustee an Opinion of
Counsel reasonably acceptable to the Trustee confirming that
(a) the Company has received from, or there has been published by,
the Internal Revenue Service, a ruling or
(b) since the date of the 12 3/8% indenture, there has been a
change in the applicable federal income tax law, in either
case to the effect that, and based thereon, such Opinion of
Counsel shall confirm that the holders of the outstanding
Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Defeasance and will be
subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if
such Defeasance had not occurred;
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(2) no Event of Default shall have occurred and be continuing on the
date of such deposit (other than an Event of Default resulting from
the borrowing of funds to be applied to such deposit) or insofar as
Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after
the date of deposit;
(3) such Defeasance shall not result in a breach or violation of, or
constitute a default under, any material agreement or instrument
(other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(4) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(5) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company
with the intent of preferring the holders of 12 3/8% notes over the
other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or
others;
(6) the deposit shall not result in the Company, the Trustee or the
trust being subject to the Investment Company Act of 1940;
(7) holders of the 12 3/8% notes will have a valid, perfected and
unavoidable (under applicable bankruptcy or insolvency laws),
subject to the passage of time referred to in clause (iv) above,
first priority security interest in the trust funds; and
(8) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent relating to the Defeasance have been complied
with.
UNCLAIMED MONEY, PRESCRIPTION
If money deposited with the Trustee or Paying Agent for the payment of
principal or interest remains unclaimed for two years, the Trustee and the
Paying Agent shall pay the money back to the Company at its written request.
After that, holders of 12 3/8% Notes entitled to the money must look to the
Company for payment unless an abandoned property law designates another person
and all liability of the Trustee and such Paying Agent shall cease. Other than
as set forth in this paragraph, the 12 3/8% Indenture does not provide for any
prescription period for the payment of interest and principal on the 12 3/8%
Notes.
TRANSFER AND EXCHANGE
A holder may transfer or exchange interests in the 12 3/8% notes in
accordance with procedures described in "Book-Entry; Delivery and Form." The
Registrar and the Trustee may require a holder, among other things, to furnish
appropriate endorsements
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and transfer documents and the Company may require a holder to pay any taxes and
fees required by law or permitted by the 12 3/8% indenture. The Company is not
required to transfer or exchange any 12 3/8% note selected for redemption. Also,
the Company is not required to transfer or exchange any 12 3/8 note for a period
of 15 days before a selection of 12 3/8% notes to be redeemed.
The registered holder of a 12 3/8% note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the 12 3/8% indenture
or 12 3/8% notes may be amended or supplemented with the consent of the holders
of at least a majority in principal amount of the then outstanding 12 3/8% notes
(including consents obtained in connection with a tender offer or exchange offer
for such 12 3/8% notes), and any existing default or compliance with any
provision of the 12 3/8% indenture or 12 3/8% notes may be waived with the
consent of the holders of a majority in principal amount of the then outstanding
12 3/8% notes (including consents obtained in connection with a tender offer or
exchange offer for such 12 3/8% notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any 12 3/8% notes held by a non-consenting holder of 12 3/8%
notes):
(1) reduce the amount of 12 3/8% notes whose holders must consent to an
amendment, supplement or waiver,
(2) reduce the principal of or change the fixed maturity of any 12 3/8%
note or alter the provisions with respect to the redemption of the
12 3/8% notes (except for repurchases of the 12 3/8% notes pursuant to
the covenants described above under the captions "-- Asset Sales" and
"-- Change of Control"),
(3) reduce the rate of or change the time for payment of interest on any
12 3/8% note,
(4) waive a default in the payment of principal of or interest on any
12 3/8% notes (except a rescission of acceleration of the 12 3/8% notes
by the holders of at least a majority in aggregate principal amount of
the 12 3/8% notes and a waiver of the payment default that resulted
from such acceleration),
(5) make any 12 3/8% note payable in money other than that stated in the
12 3/8% notes,
(6) make any change in the provisions of the 12 3/8% indenture relating to
waivers of past Defaults or the rights of holders of 12 3/8% notes to
receive payments of principal of or interest on the 12 3/8% notes,
(7) waive a redemption payment with respect to any 12 3/8% note or
(8) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of 12 3/8%
notes, the Company and the Trustee may amend or supplement the 12 3/8% indenture
or 12 3/8%
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notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated 12 3/8% notes in addition to or in place of certificated 12 3/8%
notes, to provide for the assumption of the Company's obligations to holders of
the 12 3/8% notes in the case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the holders of the
12 3/8% notes or that does not adversely affect the legal rights under the
12 3/8% indenture of any such holder, or to comply with requirements of the
Commission in order to maintain the qualification of the 12 3/8% indenture under
the Trust Indenture Act.
Any notice or communication to a holder of 12 3/8% notes shall be mailed by
first-class mail to such holder's address as shown in the register kept by the
Registrar. If a notice or communication is mailed in the manner provided in the
preceding sentence within the time period prescribed, it is duly given, whether
or not the addressee receives it. In addition, if and as long as the 12 3/8%
notes are listed on the Luxembourg Stock Exchange, all notices regarding the
12 3/8% notes shall be published in English in one leading newspaper with
circulation in Luxembourg. It is expected that publication of notices will
normally be made in the Luxembourger Wort in Luxembourg.
GOVERNING LAW
The 12 3/8% notes and the 12 3/8% indenture will be governed exclusively by
the laws of the State of New York.
CONCERNING THE TRUSTEE
The 12 3/8% indenture contains limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The holders of a majority in principal amount of then outstanding 12 3/8%
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee under the 12 3/8%
indenture, subject to certain exceptions. The 12 3/8% indenture provides that in
case an Event of Default shall occur (which shall not be cured), the Trustee
will be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the 12 3/8% indenture at the request of any holder of 12 3/8% notes,
unless such holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
The Chase Manhattan Bank is also the trustee for all of the Existing Notes
and the Convertible Notes.
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LISTING
Application will be made to list the 12 3/8% new notes on the Luxembourg
Stock Exchange. The legal notice relating to the issue of the 12 3/8% new notes
and the Certificate of Incorporation and By-laws of the Company will be
registered prior to the listing with the Registrar of the District Court in
Luxembourg, where such documents are available for inspection and where copies
thereof can be obtained upon request. In addition, if and as long as the 12 3/8%
notes are listed on the Luxembourg Stock Exchange, an agent for making payments
on, and transfers of, 12 3/8% notes will be maintained in Luxembourg. The
Company has initially designated Chase Manhattan Bank Luxembourg S.A. as its
agent for such purposes.
DEFINITIONS
Set forth below are selected defined terms used in the 12 3/8% indenture.
Reference is made to the 12 3/8% Indenture for a full definition of all terms,
as well as any other capitalized terms used in this description of the 12 3/8%
notes for which no definition is provided.
"Accreted Value" means, as of any date of determination prior to October
1, 2003, with respect to any Note, the sum of
(a) the initial offering price (which shall be calculated by discounting
the aggregate principal amount at maturity of such Note, at a rate of
12 3/8% per annum, compounded semiannually on each April 1 and October
1, from October 1, 2003 to the date of issuance) of such Note, and
(b) the portion of the excess of the principal amount of such Note over
such initial offering price which shall have been accreted thereon
through such date, such amount to be so accreted on a daily basis at a
rate of 12 3/8% per annum of the initial offering price of a Note
compounded semiannually on each April 1 and October 1 from the date of
issuance of the Note through the date of determination, computed on the
basis of a 360-day year of twelve 30-day months.
"Acquired Debt" means, with respect to any specified Person, Indebtedness
of any other Person (the "Acquired Person") existing at the time such Acquired
Person merged with or into or became a Subsidiary of such specified Person,
including Indebtedness incurred in connection with, or in contemplation of, such
Acquired Person merging with or into or becoming a Subsidiary of such specified
Person.
"Acquired Person" has the meaning specified in the definition of Acquired
Debt.
"Adjusted Total Assets" means the total amount of assets of the Company and
its Restricted Subsidiaries (including the amount of any Investment in any
Non-Restricted Subsidiary), except to the extent resulting from write-ups of
assets (other than write-ups in connection with accounting for acquisitions in
conformity with GAAP), after deducting therefrom
(1) all current liabilities of the Company and its Restricted Subsidiaries,
and
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(2) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, all as calculated in
conformity with GAAP.
For purposes of this Adjusted Total Assets definition,
(a) assets shall be calculated less applicable accumulated
depreciation, accumulated amortization and other valuation
reserves, and
(b) all calculations shall exclude all intercompany items.
"Adjusted Total Controlled Assets" means the total amount of assets of the
Company and its Cable Controlled Subsidiaries, except to the extent resulting
from write-ups of assets (other than write-ups in connection with accounting for
acquisitions in conformity with GAAP), after deducting therefrom
(1) all current liabilities of the Company and such Cable Controlled
Subsidiaries; and
(2) all goodwill, trade names, trademarks, patients, unamortized debt
discount and expense and other like intangibles of the Company and such
Restricted Subsidiaries, all as calculated in conformity with GAAP;
provided that Adjusted Total Controlled Assets shall be reduced (to the extent
not otherwise reduced in accordance with GAAP) by an amount equal to the
aggregate amount of all Investments of the Company or any such Cable Controlled
Subsidiaries in any Person other than a Cable Controlled Subsidiary, except Cash
Equivalents. For purposes of this Adjusted Total Controlled Assets definition,
(a) assets shall be calculated less applicable accumulated depreciation,
accumulated amortization and other valuation reserves, and
(b) all calculations shall exclude all intercompany items.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Annualized Pro Forma EBITDA" means, with respect to any Person, such
Person's Pro Forma EBITDA for the latest fiscal quarter multiplied by four.
"Asset Sale" means
(1) any sale, lease, transfer, conveyance or other disposition of any
assets (including by way of a sale-and-leaseback) other than the
sale or transfer of inventory or goods held for sale in the
ordinary course of business (provided that the sale, lease,
transfer, conveyance or other disposition of
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all or substantially all of the assets of the Company shall be
governed by the provisions of the Indenture described under the
captions "Change of Control" or "Merger, Consolidation or Sale of
Assets") or
(2) any issuance, sale, lease, transfer, conveyance or other
disposition of any Equity Interests of any of the Company's
Restricted Subsidiaries to any Person; in either case other than
(a) to
(A) the Company,
(B) any Wholly Owned Subsidiary, or
(C) any Subsidiary which is a Subsidiary of the Company on the
Issuance Date provided that at the time of and after
giving effect to such issuance, sale, lease, transfer,
conveyance or other disposition to such Subsidiary, the
Company's ownership percentage in such Subsidiary is equal
to or greater than such percentage on the Issuance Date or
(b) the issuance, sale, transfer, conveyance or other disposition
of Equity Interests of a Subsidiary in exchange for capital
contributions made on a pro rata basis by the holders of the
Equity Interests of such Subsidiary.
"Cable Assets" means tangible or intangible assets, licenses (including,
without limitation, Licenses) and computer software used in connection with a
Cable Business.
"Cable Business" means
(i) any Person directly or indirectly operating, or owning a license
to operate, a cable and/or television and/or telephone and/or
telecommunications system or service principally within the United
Kingdom and/or the Republic of Ireland and
(ii) any Cable Related Business.
"Cable Controlled Property" means a Cable Controlled Subsidiary or a Cable
Asset held by a Cable Controlled Subsidiary.
"Cable Controlled Subsidiary" means any Restricted Subsidiary which is
primarily engaged, directly or indirectly, in one or more Cable Businesses.
"Cable Related Business" means a Person which directly or indirectly owns
or provides a service or product used in a Cable Business, including, without
limitation, any television programming, production and/or licensing business or
any programming guide or telephone directory business or content or software
related thereto.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock, including, without
limitation, partnership interests.
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"Capital Stock Sale Proceeds" means the aggregate net sale proceeds
(including from the sale of any property received for the Capital Stock or the
fair market value of such property, as determined by an independent appraisal
firm) received by the Company or any Subsidiary of the Company from the issue or
sale (other than to a Subsidiary) by the Company of any class of its Capital
Stock after October 14, 1993 (including Capital Stock of the Company issued
after October 14, 1993 upon conversion of or in exchange for other securities of
the Company).
"Cash Equivalents" means
(1) Permitted Currency,
(2) securities issued or directly and fully guaranteed or insured by
the United States government, a European Union member government or
any agency or instrumentality thereof having maturities of not more
than six months and two days from the date of acquisition,
(3) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any commercial bank(s)
domiciled in the United States, the United Kingdom, the Republic of
Ireland or any other European Union member having capital and
surplus in excess of $500 million,
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
entered into with any financial institution meeting the
qualifications specified in clause (3) above,
(5) commercial paper rated P-1 or the equivalent thereof by Moody's or
A-1 or the equivalent thereof by S&P and in each case maturing
within six months and two days after the date of acquisition and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1)-(5) of this
definition.
"Change of Control" means
(1) the sale, lease or transfer of all or substantially all of the
assets of the Company to any "Person" or "group" (within the
meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act or
any successor provision to either of the foregoing, including any
group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act) (other than any Permitted Holder),
(2) the approval by the requisite stockholders of the Company of a plan
of liquidation or dissolution of the Company,
(3) any "Person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act or any successor provision to either
of the
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foregoing, including any group acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than any Permitted
Holder, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than 50% of the total voting power
of all classes of the voting stock of the Company and/or warrants
or options to acquire such voting stock, calculated on a fully
diluted basis, unless, as a result of such transaction, the
ultimate direct or indirect ownership of the Company is
substantially the same immediately after such transaction as it was
immediately prior to such transaction, or
(4) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Company's Board of
Directors (together with any new directors whose election or
appointment by such board or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of
the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to
constitute a majority of the Company's Board of Directors then in
office.
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Ratings Decline.
"Consolidated Interest Expense" means, for any Person, for any period, the
amount of interest in respect of Indebtedness (including amortization of
original issue discount, amortization of debt issuance costs, and non-cash
interest payments on any Indebtedness and the interest portion of any deferred
payment obligation and after taking into account the effect of elections made
under any Interest Rate Agreement, however denominated, with respect to such
Indebtedness), the amount of Redeemable Dividends, Restricted Subsidiary
Preferred Stock Dividends and the interest component of rentals in respect of
any capital lease obligation paid, in each case whether accrued or scheduled to
be paid or accrued by such Person and its Subsidiaries (other than
Non-Restricted Subsidiaries) during such period to the extent such amounts were
deducted in computing Consolidated Net Income, determined on a consolidated
basis in accordance with GAAP. For purposes of this definition, interest on a
capital lease obligation shall be deemed to accrue at an interest rate
reasonably determined by such Person to be the rate of interest implicit in such
capital lease obligation in accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries (other than
Non-Restricted Subsidiaries) for such period, on a consolidated basis,
determined in accordance with GAAP; provided, that
(1) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid
to the referent Person or a Wholly Owned Subsidiary,
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(2) the Net Income of any Person that is a Subsidiary (other than a
Subsidiary of which at least 80% of the Capital Stock having
ordinary voting power for the election of directors or other
governing body of such Subsidiary is owned by the referent Person
directly or indirectly through one or more Subsidiaries) shall be
included only to the extent of the amount of dividends or
distributions paid to the referent Person or a Wholly Owned
Subsidiary,
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition
shall be excluded and
(4) the cumulative effect of a change in accounting principles shall be
excluded.
"Convertible Subordinated Notes" means the Company's 7% Convertible
Subordinated Notes issued pursuant to an indenture dated as of June 12, 1996
also between the Company and The Chase Manhattan Bank (formerly known as
Chemical Bank), as trustee.
"Credit Facility" means the Facilities Agreement dated October 17, 1997
between NTL (UK) Group Inc., as principal guarantor, Chase Manhattan plc, as
arranger, Chase Manhattan International Limited, as agent and security trustee
and the Chase Manhattan Bank as issuer, as such Facilities Agreement may be
supplemented, amended, restated, modified, renewed, refunded, replaced or
refinanced, in whole or in part, from time to time in an aggregate outstanding
principal amount not to exceed the greater of
(1) L555 million and
(2) the amount of the aggregate commitments thereunder as the same may be
increased after March 13, 1998 as contemplated by the Facilities
Agreement as amended or supplemented to March 13, 1998, but in no event
greater than L875 million, less, in each case, the aggregate amount of
all Net Proceeds of Asset Sales that have been applied to permanently
reduce Indebtedness under the Credit Facility pursuant to the covenant
described above under "-- Asset Sales."
Indebtedness that may otherwise be incurred under the Indenture may, but need
not, be incurred under the Credit Facility without regard to the limit set forth
in the preceding sentence. Indebtedness outstanding under the Credit Facility on
the date of the Indenture shall be deemed to have been incurred on such date in
reliance on the exception provided by clause (a) of the second paragraph of the
covenant described above under "-- Incurrence of Indebtedness and Issuance of
Preferred Stock."
"Cumulative EBITDA" means the cumulative EBITDA of the Company from and
after the Issuance Date to the end of the fiscal quarter immediately preceding
the date of a proposed Restricted Payment, or, if such cumulative EBITDA for
such period is
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negative, minus the amount by which such cumulative EBITDA is less than zero;
provided, however, that EBITDA of Non-Restricted Subsidiaries shall not be
included.
"Cumulative Interest Expense" means the aggregate amount of Consolidated
Interest Expense paid, accrued or scheduled to be paid or accrued by the Company
from the Issuance Date to the end of the fiscal quarter immediately preceding a
proposed Restricted Payment, determined on a consolidated basis in accordance
with GAAP.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the Notes mature.
"EBITDA" means, for any Person, for any period, an amount equal to
(1) the sum of
(a) Consolidated Net Income for such period (exclusive of any gain
or loss realized in such period upon an Asset Sale), plus
(b) the provision for taxes for such period based on income or
profits to the extent such income or profits were included in
computing Consolidated Net Income and any provision for taxes
utilized in computing net loss under clause (i) whereof, plus
(c) Consolidated Interest Expense for such period, plus
(d) depreciation for such period on a consolidated basis, plus
(e) amortization of intangibles for such period on a consolidated
basis, plus
(f) any other non-cash item reducing Consolidated Net Income for
such period (excluding any such non-cash item to the extent
that it represents an accrual of or reserve for cash expenses
in any future period or amortization of a prepaid cash expense
that was paid in a prior period),
minus
(2) all non-cash items increasing Consolidated Net Income for such
period, all for such Person and its Subsidiaries determined in
accordance with GAAP consistently applied.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any Indebtedness that is
convertible into, or exchangeable for, Capital Stock).
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"European Union member" means any country that is or becomes a member of
the European Union or any successor organization thereto.
"Exchange Rate Contract" means, with respect to any Person, any currency
swap agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance and other
agreements or arrangements, or combination thereof, the principal purpose of
which is to provide protection against fluctuations in currency exchange rates.
An Exchange Rate Contract may also include an Interest Rate Agreement.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the Issuance Date, until such amounts are repaid,
including, without limitation, the Existing Notes.
"Existing Notes" means the Old Notes and the Convertible Subordinated
Notes.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect on the Issuance Date and are applied on a consistent basis.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing the balance
deferred and unpaid of the purchase price of any property (including pursuant to
capital leases and sale-and-leaseback transactions) or representing any hedging
obligations under an Exchange Rate Contract or an Interest Rate Agreement,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than obligations
under an Exchange Rate Contract or an Interest Rate Agreement) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
and also includes, to the extent not otherwise included, the Guarantee of items
which would be included within this definition. The amount of any Indebtedness
outstanding as of any date shall be the accreted value thereof, in the case of
any Indebtedness issued with original issue discount.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate swap agreement, interest rate cap agreement, interest rate collar agreement
or other similar agreement the principal purpose of which is to protect the
party indicated therein against fluctuations in interest rates.
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"Investment Grade" means BBB- or higher by S&P or Baa3 or higher by Moody's
or the equivalent of such ratings by S&P or Moody's. In the event that the
Company shall be permitted to select any other Rating Agency, the equivalent of
such ratings by such Rating Agency shall be used.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
Guarantees), advances or capital contributions (excluding commission, travel and
similar advances and loans, joint property ownership and other arrangements, in
each case, made to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Issuance Date" means the date on which the Notes are first authenticated
and issued.
"License" means any license issued or awarded pursuant to the Broadcasting
Act 1990, the Cable and Broadcasting Act 1984, the Telecommunications Act 1984
or the Wireless Telegraphy Act 1948 (in each case, as such Acts may, from time
to time be, amended, modified or re-enacted) (or equivalent statutes of any
jurisdiction) to operate or own a Cable Business.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent or successor statutes) of any
jurisdiction).
"Material License" means a License held by the Company or any of its
Subsidiaries which License at the time of determination covers a number of Net
Households which equals or exceeds 5% of the aggregate number of Net Households
covered by all of the Licenses held by the Company and its Subsidiaries at such
time.
"Material Subsidiary" means
(1) NTL UK Group, Inc. (formerly known as OCOM Sub II, Inc.), NTLIH,
NTL Group Limited, CableTel Surrey Limited, CableTel Cardiff
Limited, CableTel Glasgow, CableTel Newport and CableTel Kirklees
and
(2) any other Subsidiary of the Company which is a "significant
subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the
Securities Act of 1933 and the Exchange Act (as such Regulation is
in effect on the date of the Indenture).
"Monetize" means a strategy with respect to Equity Interests that generates
an amount of cash equal to the fair value of such Equity Interests.
"Moody's" means Moody's Investors Service, Inc. and its successors.
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"Net Households" means the product of
(1) the number of households covered by a License in the United Kingdom
and
(2) the percentage of the entity holding such License which is owned
directly or indirectly by the Company.
"Net Income" means, with respect to any Person for a specific period, the
net income (loss) of such Person during such period, determined in accordance
with GAAP, excluding, however, any gain (but not loss) during such period,
together with any related provision for taxes on such gain (but not loss),
realized during such period in connection with any Asset Sale (including,
without limitation, dispositions pursuant to sale-and-leaseback transactions),
and excluding any extraordinary gain (but not loss) during such period, together
with any related provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale, net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets.
"Non-Controlled Subsidiary" means an entity which is not a Cable Controlled
Subsidiary.
"Non-Recourse Debt" means Indebtedness or that portion of Indebtedness as
to which none of the Company, nor any Restricted Subsidiary:
(1) provides credit support (including any undertaking, agreement or
instrument which would constitute Indebtedness);
(2) is directly or indirectly liable; or
(3) constitutes the lender.
"Non-Restricted Subsidiary" means
(1) a Subsidiary that
(a) at the time of its designation by the Board of Directors as a
Non-Restricted Subsidiary has not acquired any assets (other
than as specifically permitted by clause (e) of "Permitted
Investments" or by the "Restricted Payments" covenant), at any
previous time, directly or indirectly from the Company or any
of its Restricted Subsidiaries,
(b) has no Indebtedness other than Non-Recourse Debt and
(c) that at the time of such designation, after giving pro forma
effect to such designation, the ratio of Indebtedness to
Annualized Pro Forma
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EBITDA of the Company is equal to or less than the ratio of
Indebtedness to Annualized Pro Forma EBITDA of the Company
immediately preceding such designation, provided, however,
that if the ratio of Indebtedness to Annualized Pro Forma
EBITDA of the Company immediately preceding such designation
is 6:1 or less, then the ratio of Indebtedness to Annualized
Pro Forma EBITDA of the Company may be 0.5 greater than such
ratio immediately preceding such designation;
(2) any Subsidiary which
(a) has been acquired or capitalized out of or by Equity Interests
of the Company or Capital Stock Sales Proceeds therefrom,
(b) has no Indebtedness other than Non-Recourse Debt and
(c) is designated as a Non-Restricted Subsidiary by the Board of
Directors or is merged, amalgamated or consolidated with or
into, or its assets or capital stock is to be transferred to,
a Non-Restricted Subsidiary; or
(3) any Subsidiary of a Non-Restricted Subsidiary.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Old Notes" means the 12 3/4% Notes, the 11 1/2% Deferred Coupon Notes, the
10 3/4% Notes, the 10% Notes, the 9 3/4% Notes, the 9 1/2% Notes and the 11 1/2%
Notes.
"Other Qualified Notes" means any outstanding senior indebtedness of the
Company issued pursuant to an indenture having a provision substantially similar
to the Asset Sale Offer provision contained in the Indenture (including, without
limitation, the 12 3/4% Notes, the 11 1/2% Deferred Coupon Notes, the 10 3/4%
Notes, the 10% Notes, the 9 3/4% Notes, the 9 1/2% Notes and the 11 1/2% Notes).
"Permitted Acquired Debt" means, with respect to any Acquired Person
(including, for this purpose, any Non-Restricted Subsidiary at the time such
Non-Restricted Subsidiary becomes a Restricted Subsidiary), Acquired Debt of
such Acquired Person and its Subsidiaries in an amount (determined on a
consolidated basis) not exceeding the sum of
(1) amount of the gross book value of property, plant and equipment of
the Acquired Person and its Subsidiaries as set forth on the most
recent consolidated balance sheet of the Acquired Person (which may
be unaudited) prior to the date it becomes an Acquired Person and
(2) the aggregate amount of any Cash Equivalents held by such Acquired
Person at the time it becomes an Acquired Person.
"Permitted Currency" means the lawful currency of the United States or a
European Union member.
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"Permitted Designee" means
(1) a spouse or a child of a Permitted Holder,
(2) trusts for the benefit of a Permitted Holder or a spouse or child
of a Permitted Holder,
(3) in the event of the death or incompetence of a Permitted Holder,
his estate, heirs, executor, administrator, committee or other
personal representative or
(4) any Person so long as a Permitted Holder owns at least 50% of the
voting power of all classes of the voting stock of such Person.
"Permitted Holders" means George S. Blumenthal, J. Barclay Knapp and their
Permitted Designees.
"Permitted Investments" means
(1) any Investments in the Company or in a Cable Controlled Property or
in a Qualified Subsidiary (including, without limitation,
(a) Guarantees of Indebtedness of the Company, a Cable Controlled
Subsidiary or a Qualified Subsidiary,
(b) Liens securing such Indebtedness or Guarantees or
(c) the payment of any balance deferred and unpaid of the purchase
price of any Qualified Subsidiary;
(2) any Investments in Cash Equivalents;
(3) Investments by the Company in Indebtedness of a counter-party to an
Exchange Rate Contract for hedging a Permitted Currency exchange
risk that are made, for purposes other than speculation, in
connection with such contract to hedge not more than the aggregate
principal amount of the Indebtedness being hedged (or, in the case
of Indebtedness issued with original issue discount, based on the
amounts payable after the amortization of such discount);
(4) Investments by the Company or any Subsidiary of the Company in a
Person, if as a result of such Investment
(a) such Person becomes a Cable Controlled Subsidiary or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets
to, or is liquidated into, the Company or a Wholly Owned
Subsidiary of the Company; and
(5) any issuance, transfer or other conveyance of Equity Interests in
the Company (or any Capital Stock Sales Proceeds therefrom) to a
Subsidiary of the Company.
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"Permitted Liens" means
(1) Liens in favor of the Company;
(2) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Subsidiary of
the Company; provided, that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not secure
any property or assets of the Company or any of its Subsidiaries
other than the property or assets subject to the Liens prior to
such merger or consolidation;
(3) liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary
course of business which secure payment of obligations not more
than 60 days past due or are being contested in good faith and by
appropriate proceedings;
(4) Liens existing on the Issuance Date;
(5) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently
concluded; provided, that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have
been made therefor and
(6) easements, rights of way, restrictions and other similar easements,
licenses, restrictions on the use of properties or minor
imperfections of title that, in the aggregate, are not material in
amount, and do not in any case materially detract from the
properties subject thereto or interfere with the ordinary conduct
of the business of the Company or its Restricted Subsidiaries.
"Permitted Non-Controlled Assets" means Equity Interests in any Person
primarily engaged, directly or indirectly, in one or more Cable Businesses if
such Equity Interests
(1) were acquired by the Company or any of its Restricted Subsidiaries
in connection with any Asset Sale or any Investment otherwise
permitted under the terms of the Indenture and
(2) to the extent that, after giving pro forma effect to the
acquisition thereof by the Company or any of its Restricted
Subsidiaries, Adjusted Total Controlled Assets is greater than 80%
of Adjusted Total Assets based on the most recent consolidated
balance sheet of the Company.
"Pro Forma EBITDA" means for any Person, for any period, the EBITDA of such
Person as determined on a consolidated basis for such Person and its
Subsidiaries in accordance with GAAP after giving effect to the following:
(1) if, during or after such period, such Person or any of its
Subsidiaries shall have made any Asset Sale, Pro Forma EBITDA of
such Person and its Subsidiaries for such period shall be reduced
by an amount equal to the Pro Forma EBITDA (if positive) directly
attributable to the assets which
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are the subject of such Asset Sale for the period or increased by
an amount equal to the Pro Forma EBITDA (if negative) directly
attributable thereto for such period and
(2) if, during or after such period, such Person or any of its
Subsidiaries completes an acquisition of any Person or business
which immediately after such acquisition is a Subsidiary of such
Person or whose assets are held directly by such Person or a
Subsidiary of such Person, Pro Forma EBITDA shall be computed so as
to give pro forma effect to the acquisition of such Person or
business (without giving effect to clause (iii) of the definition
of Consolidated Net Income); and provided further that, with
respect to the Company, all of the foregoing references to
"Subsidiary" or "Subsidiaries" shall be deemed to refer only to a
"Restricted Subsidiary" or "Restricted Subsidiaries" of the
Company.
"Qualified Subsidiary" means a Wholly Owned Subsidiary, or an entity that
will become a Wholly Owned Subsidiary after giving effect to the transaction
being considered, that at the time of and after giving effect to the
consummation of the transaction under consideration,
(1) is a Cable Business or holds only Cable Assets,
(2) has no Indebtedness (other than Indebtedness being incurred to
consummate such transaction) and
(3) has no encumbrances or restrictions (other than such encumbrances
or restrictions imposed or permitted by the Indenture, the
indentures governing the Old Notes or any other instrument
governing unsecured indebtedness of the Company which is pari passu
with the Notes) on its ability to pay dividends or make any other
distributions to the Company or any of its Subsidiaries.
"Rating Agencies" means
(1) S&P,
(2) Moody's and
(3) if S&P or Moody's or both shall not make a rating of the Notes
publicly available, a nationally recognized securities rating
agency or agencies, as the case may be, selected by the Company,
which shall be substituted for S&P or Moody's or both, as the case
may be.
"Rating Category" means
(1) with respect to S&P, any of the following categories: BB, B, CCC,
CC, C and D (or equivalent successor categories),
(2) with respect to Moody's, any of the following categories: Ba, B,
Caa, Ca, C and D (or equivalent successor categories) and
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(3) the equivalent of any such category of S&P or Moody's used by
another Rating Agency.
In determining whether the rating of the Notes has decreased by one or more
gradations, gradations within Rating Categories (+ and -- for S&P; 1, 2 and 3
for Moody's; or the equivalent gradations for another Rating Agency) shall be
taken into account (e.g., with respect to S&P, a decline in a rating from BB to
BB-, as well as from BB- to B+, will constitute a decrease of one gradation).
"Rating Date" means that date which is 90 days prior to the earlier of
(1) a Change of Control and
(2) public notice of the occurrence of a Change of Control or of the
intention by the Company or any Permitted Holder to effect a Change
of Control.
"Ratings Decline" means the occurrence of any of the following events on,
or within six months after, the date of public notice of the occurrence of a
Change of Control or of the intention of the Company or any Person to effect a
Change of Control (which period shall be extended so long as the rating of any
of the Company's debt securities is under publicly announced consideration for
possible downgrade by any of the Rating Agencies):
(1) in the event that any of the Company's debt securities are rated by
both of the Rating Agencies on the Rating Date as Investment Grade,
the rating of such securities by either of the Rating Agencies
shall be below Investment Grade,
(2) in the event that any of the Company's debt securities are rated by
either, but not both, of the Rating Agencies on the Rating Date as
Investment Grade, the rating of such securities by both of the
Rating Agencies shall be below Investment Grade, or
(3) in the event any of the Company's debt securities are rated below
Investment Grade by both of the Rating Agencies on the Rating Date,
the rating of such securities by either Rating Agency shall be
decreased by one or more gradations (including gradations within
Rating Categories as well as between Rating Categories).
"Redeemable Dividend" means, for any dividend with regard to Disqualified
Stock, the quotient of the dividend divided by the difference between one and
the maximum statutory federal income tax rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Disqualified Stock.
"Replacement Assets" means
(1) Cable Assets,
(2) Equity Interests of any Person engaged, directly or indirectly,
primarily in a Cable Business, which Person is or will become on
the date of acquisition thereof a Restricted Subsidiary as a result
of the Company's acquiring such Equity Interests,
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(3) Permitted Non-Controlled Assets or
(4) any combination of the foregoing.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company which is not a
Non-Restricted Subsidiary.
"Restricted Subsidiary Preferred Stock Dividend" means, for any dividend
with regard to preferred stock of a Restricted Subsidiary, the quotient of the
dividend divided by the difference between one and the maximum statutory federal
income tax rate (expressed as a decimal number between 1 and 0) then applicable
to the issuer of such preferred stock.
"S&P" means Standard & Poor's Ratings Group and its successors.
"Subordinated Debentures" means the debentures exchangeable by the Company
for the Preferred Stock in accordance with the Certificate of Designation
therefor.
"Subsidiary" means any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(1) the sum of the products obtained by multiplying,
(a) the amount of each then remaining installment, sinking fund, serial
maturity or other required payments of principal, including payment
at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment, by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary all
of the Capital Stock of which (except directors' qualifying shares) is at the
time owned directly or indirectly by the Company.
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REGISTRATION RIGHTS
The following summary of the registration rights provided in the
registration rights agreements and the old notes is not complete. You should
refer to the registration rights agreements and the old notes for a full
description of the registration rights that apply to the old notes.
Holders of new notes are not generally entitled to any registration rights
with respect to such new notes. Pursuant to the registration rights agreements,
holders of old notes are entitled to some registration rights. Pursuant to the
registration rights agreements, we agreed to file with the Commission a
registration statement, including a prospectus, on the appropriate form under
the Securities Act with respect to an offer to exchange each class of the old
notes for new notes registered under the Securities Act with terms substantially
identical to those of each class of the old notes. Upon the effectiveness of the
exchange offer registration statement, we will offer to the holders of transfer
restricted securities pursuant to the exchange offer, who are able to make
certain representations with respect to the applicable class of old notes, the
opportunity to exchange their transfer restricted securities for new notes of
the applicable class. If
(1) with respect to any class of the old notes we are not required to file
the exchange offer registration statement or permitted to consummate
the exchange offer because the exchange offer is not permitted by
applicable law or Commission policy or
(2) any holder of transfer restricted notes notifies us within the
specified time period that
(A) it is prohibited by law or Commission policy from participating in
the exchange offer or
(B) that it may not resell the exchange securities acquired by it in
the exchange offer to the public without delivering a prospectus
and the prospectus contained in the exchange offer registration
statement is not appropriate or available for such resales or
(C) that it is a broker-dealer and owns old notes acquired directly
from us or an affiliate of NTL, we will file with the Commission a
shelf registration statement to cover resales of the applicable old
notes by the holders who satisfy some conditions relating to the
provision of information in connection with the shelf registration
statement. We will use our best efforts to cause the applicable
registration statement to be declared effective as promptly as
possible by the Commission.
For purposes of the foregoing, "transfer restricted notes" means each old
note until
(1) the date on which such note has been exchanged by a person other than a
broker-dealer for a new note in the exchange offer,
(2) following the exchange by a broker-dealer in the exchange offer of an
old note for a new note, the date on which such new note is sold to a
purchaser who
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receives from such broker-dealer on or prior to the date of such sale a
copy of the prospectus contained in the exchange offer registration
statement,
(3) the date on which such old note has been effectively registered under
the Securities Act and disposed of in accordance with the shelf
registration statement,
(4) the date on which such old note is distributed to the public pursuant
to Rule 144 under the Securities Act or any similar provision then in
effect or is saleable pursuant to Rule 144(k) under the Securities Act
or
(5) the date upon which such old note ceases to be outstanding.
The registration rights agreements provide that
(1) we will file an exchange offer registration statement with the
Commission on or prior to January 31, 1999 with respect to the 11 1/2%
new notes, and on or prior to February 4, 1999 with respect to the
12 3/8% new notes,
(2) we will use our best efforts to have the exchange offer registration
statement declared effective by the Commission on or prior to May 1,
1999 with respect to the 11 1/2% new notes, and on or prior to May 5,
1999 with respect to the 12 3/8% new notes,
(3) unless the exchange offer would not be permitted by applicable law or
Commission policy, we will commence the exchange offer and use our best
efforts to issue on or prior to June 10, 1999, 11 1/2% new notes in
exchange for all 11 1/2% old notes tendered prior thereto in the
exchange offer and to issue on or prior to June 14, 1999, 12 3/8% new
notes in exchange for all 12 3/8% old notes tendered prior thereto in
the exchange offer and
(4) if obligated to file the shelf registration statement, we will use our
best efforts to file the shelf registration statement with the
Commission as promptly as practicable after such filing obligation
arises and to cause the shelf registration to be declared effective by
the Commission on or prior to June 10, 1999 with respect to the 11 1/2%
new notes, and on or prior to June 14, 1999 with respect to the 12 3/8%
new notes.
If, with respect to any class of the notes
(1) we fail to file the exchange offer registration statement on or before
the date specified for such filing,
(2) the exchange offer registration statement is not declared effective on
or prior to May 1, 1999 with respect to the 11 1/2% new notes, and on
or prior to May 5, 1999 with respect to the 12 3/8% new notes or
(3) we fail to consummate the exchange offer, or a shelf registration
statement is not declared effective, within the specified time frames
(each such event referred to in clauses (1) through (3) above a
"registration default"), then we will pay special interest pursuant to
provisions of the old notes to each holder of the applicable old notes.
Special interest will accrue from and including
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(1) February 1, 1999 with respect to the 11 1/2% notes and February 5,
1999 with respect to the 12 3/8% notes, in the case of clause (1)
above,
(2) May 2, 1999 with respect to the 11 1/2% notes and May 6, 1999 with
respect to the 12 3/8% notes, in the case of clause (2) above,
(3) June 11, 1999 with respect to the 11 1/2% notes and June 15, 1999
with respect to the 12 3/8% notes, in the case of clause (3) above
or
(4) June 11, 1999 with respect to the 11 1/2% notes and June 15, 1999
with respect to the 12 3/8% notes, in the case of clause (4) above
(each such period referred to in clauses (1)-(4) above an "Accrual
Period"),
at a rate per annum equal to 0.50% of the principal amount of the
11 1/2% old notes or the accreted value of the 12 3/8% old notes, as
applicable (determined daily).
The amount of the special interest will increase by an additional 0.50% of
the principal amount of the 11 1/2% old notes or the accreted value of the
12 3/8% old notes, as applicable with respect to each subsequent applicable
accrual period until all registration defaults have been cured, up to a maximum
amount of special interest of 1.50% per annum of the principal amount of the
11 1/2% old notes or the accreted value of the 12 3/8% old notes, as applicable
(determined daily). All accrued special interest will be paid by us on each
Interest Payment Date to the applicable Global Note holder by wire transfer of
immediately available funds or by federal funds check and to holders of
Certificated Securities by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
special interest will cease.
In the event that a shelf registration statement is declared effective
pursuant to the terms of a registration rights agreement, if we fail to keep
such registration statement continuously effective for the period required by
the registration rights agreement, then from such time as the shelf registration
statement is no longer effective until the earlier of
(1) the date that the shelf registration statement is again deemed
effective,
(2) November 2, 2000 with respect to the 11 1/2% old notes or November 6,
2000 with respect to the 12 3/8% old notes or
(3) the date as of which all of the transfer restricted notes are sold
pursuant to the shelf registration statement,
special interest pursuant to provisions of the notes shall accrue at a rate per
annum equal to 0.50% of the principal amount of the 11 1/2% old notes or the
Accreted Value of the 12 3/8% old notes, as applicable (determined daily) (1.00%
thereof if the shelf registration statement is no longer effective for 30 days
or more) and shall be payable in cash semiannually in arrears on each April 1
and October 1 of each year, to the holders of record on the immediately
preceding March 15 and September 15, respectively. We will be permitted to
suspend use of the prospectus that is part of any shelf registration
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statement during certain periods of time and in certain circumstances relating
to pending corporate developments and public filings with Commission and similar
events.
Special interest on the old notes, if any, will be computed on the basis of
a 360-day year comprised of twelve 30-day months.
Holders of old notes will be required to make certain representations to us
as described in the registration rights agreement in order to participate in the
exchange offer and will be required to deliver information to be used in
connection with the shelf registration statement and to provide comments on the
shelf registration statement within the time periods set forth in the
registration rights agreement in order to have their notes included in the shelf
registration statement and benefit from the provisions regarding special
interest pursuant to provisions of the old notes, as set forth above.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material U.S. federal income tax
consequences of an exchange of old notes for the new notes and the ownership of
the new notes. It deals only with notes held as capital assets by initial
holders of old notes, and does not deal with special situations, such as those
of dealers in securities, financial institutions, insurance companies and
holders whose "functional currency" is not the U.S. dollar, or special rules
with respect to straddle or "hedging" transactions. The discussion below is
based upon the Internal Revenue Code of 1986, as amended and regulations,
rulings and judicial decisions thereunder as of the date hereof, and such
authorities may be repealed, revoked or modified (including retroactively) so as
to result in federal income tax consequences different from those discussed
below.
You are urged to consult your tax advisor regarding the tax consequences
that may be specific to you of the exchange of old notes for new notes and the
ownership of the new notes, as well as any tax consequences arising under any
state, local or foreign laws.
As used herein, the term "U.S. holder" means a beneficial owner of a note
that is for United States federal income tax purposes
(1) a citizen or resident of the United States,
(2) a corporation, partnership or other entity created or organized under
the laws of the United States or any political subdivision thereof or
therein,
(3) an estate or trust described in Section 7701(a)(30) of the Internal
Revenue Code, or
(4) a person whose worldwide income or gain is otherwise subject to U.S.
federal income taxation on a net income basis.
As used herein, the term "Non-U.S. holder" means a holder of a note that is not
a U.S. holder.
EXCHANGE OF NOTES
There will be no federal income tax consequences to holders exchanging old
notes for new notes pursuant to the exchange offer since the exchange offer will
be by operation of the original terms of the old notes, pursuant to a unilateral
act by us, and will not result in any material alteration in the terms of the
old notes. Each exchanging holder will have the same adjusted tax basis and
holding period in the new notes as it had in the old notes immediately before
the exchange.
TAXATION OF NOTES -- U.S. HOLDERS
Payments of Interest. Payments of interest on the 11 1/2% notes generally
will be taxable to a U.S. holder as ordinary interest income at the time such
payments are accrued or received (in accordance with the U.S. holder's method of
accounting for federal income tax purposes).
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If NTL meets the Foreign Active Business Requirement discussed below,
interest, including OID as defined below, paid on the notes may be treated as
foreign source income. Due to the factual nature of the issue, however, it is
not certain that NTL will meet such requirement.
Original Issue Discount. Because the 12 3/8% old notes were issued with
original issue discount ("OID"), the 12 3/8% new notes issued in exchange for
the 12 3/8% old notes will also bear OID that each U.S. holder of a 12 3/8% new
note generally will be required to include in income as it accrues on a
yield-to-maturity basis over the term of the 12 3/8% new note in advance of cash
payments attributable to such income (regardless of whether the holder is a cash
or accrual basis taxpayer). The amount of OID with respect to a 12 3/8% new note
will equal the excess of the stated redemption price at maturity of such 12 3/8%
new note over its issue price. The stated redemption price at maturity will
include all payments required to be made on the 12 3/8% new note, whether
denominated as principal or interest (other than payments subject to remote or
incidental contingencies). The issue price of the 12 3/8% new notes equals the
issue price of the 12 3/8% old notes, which was $55.505 per $1,000 principal
amount at maturity.
A U.S. holder of a debt instrument that bears OID is required to include in
gross income an amount equal to the sum of the daily portions of OID for each
day during the taxable year in which such holder holds the debt instrument. The
daily portions of OID are determined by allocating to each day in an accrual
period the pro rata portion of the OID that is allocable to the accrual period.
The amount of OID that is allocable to an accrual period with respect to 12 3/8%
new notes generally will be equal to the product of the adjusted issue price of
such notes at the beginning of the accrual period (the issue price of the
12 3/8% new notes determined as described above, generally increased by all
prior accruals of OID and decreased by the amount of payments made on such
12 3/8% new notes) and the 12 3/8% new notes' yield-to-maturity (the discount
rate, which, when applied to all payments under the 12 3/8% new notes and
12 3/8% old notes, results in a present value equal to the issue price of such
12 3/8% new notes). In the case of the final accrual period, the allocable OID
generally is the difference between the amount payable at maturity and the
adjusted issue price at the beginning of the accrual period. All payments on a
12 3/8% Note generally will be viewed first as a payment of previously accrued
OID (to the extent thereof), with payments considered made from the earliest
accrual period, and then as a payment of principal.
NTL will furnish annually to the Internal Revenue Service and to U.S.
holders (other than with respect to certain exempt holders, including, in
particular, corporations) information with respect to the OID accruing while the
12 3/8% notes were held by the U.S. Holders.
Under certain circumstances described above, the Company will be required
to pay special interest on the 12 3/8% notes if it fails to comply with certain
of its obligations under the registration rights agreement. Although not free
from doubt, such additional amount should be taxable to a U.S. holder as
ordinary income at the time it accrues or is received in accordance with such
holder's regular method of accounting. It is possible,
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however, that the IRS may take a different position, in which case the timing
and the amount of income on the 12 3/8% notes may be different.
Disposition of Notes. A U.S. holder will generally recognize gain or loss
upon the sale, exchange, retirement or other disposition of new notes equal to
the difference between the amount realized on the disposition (other than
amounts attributable to accrued but unpaid interest) and the U.S. holder's
adjusted tax basis in the new notes. A U.S. holder's adjusted tax basis in a new
note will generally be the cost of the old note, (and, in the case of 12 3/8%
new notes) increased by any OID previously included in income by such holder and
decreased by any amount received on the note that is not treated as ordinary
interest income. Such gain or loss generally would be capital gain or loss. In
the case of a U.S. holder who is an individual, such capital gain will be
subject to tax at a maximum 20% rate if the holding period for the new note
(which includes the holding period of the old note) is more than one year.
TAXATION OF NOTES -- NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a new note that is a Non-U.S. holder.
Subject to the discussion of backup withholding below, payments of interest
(including OID) on a new note to any Non-U.S. holder will generally not be
subject to U.S. federal income or withholding tax, provided that:
(1) the holder is not
(a) a direct or indirect owner of 10% or more of the total voting power
of all voting stock of NTL,
(b) a controlled foreign corporation related to NTL through stock
ownership or
(c) a foreign tax-exempt organization or a foreign private foundation
for U.S. federal income tax purposes,
(2) such interest payments are not effectively connected with the conduct
by the Non-U.S. holder of a trade or business within the United States
and
(3) NTL or its paying agent receives
(a) from the Non-U.S. holder, a properly completed Form W-8 (or
substitute Form W-8) under penalties of perjury which provides the
Non-U.S. holder's name and address and certifies that the Non-U.S.
holder of the note is a Non-U.S. holder or
(b) from a security clearing organization, bank or other financial
institution that holds the notes in the ordinary course of its
trade or business (a "financial institution") on behalf of the
Non-U.S. holder, certification under penalties of perjury that such
a Form W-8 (or substitute Form W-8) has been received by it, or by
another such financial institution, from the Non-U.S. holder, and a
copy of the Form W-8 (or substitute Form W-8) is furnished to the
payor.
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A Non-U.S. holder that does not qualify for exemption from withholding
under the preceding paragraph generally will be subject to withholding of U.S.
federal income tax at the rate of 30% (or lower applicable treaty rate) on
payments of interest (including OID) on the new notes unless the foreign active
business requirement is met, as described below.
If the payments of interest (including OID) on a new note are effectively
connected with the conduct by a Non-U.S. holder of a trade or business in the
United States, such payments will be subject to U.S. federal income tax on a net
basis at the rates applicable to United States persons generally (and, with
respect to corporate holders, may also be subject to a 30% branch profits tax).
If payments are subject to U.S. federal income tax on a net basis in accordance
with the rules described in the preceding sentence, such payments will not be
subject to United States withholding tax so long as the holder provides NTL or
its paying agent with a properly executed Form 4224.
In addition, if NTL can show to the satisfaction of the IRS that at least
80% of the gross income from all sources for the 3-year period ending with the
close of NTL's taxable year preceding the interest payment (or such period as
may be applicable) is "active foreign business income" (the "foreign active
business requirement"), then such interest would be treated as foreign source
income that is not subject to U.S. withholding. Active foreign business income
is generally gross income of a corporation derived from sources outside the
U.S., or is attributable to income so derived by a subsidiary of the
corporation, which is attributable to the active conduct of a trade or business
in the foreign jurisdiction by the corporation (or subsidiary). It is uncertain
whether NTL would meet this test for treating interest income as non-U.S.
source.
Non-U.S. holders should consult any applicable income tax treaties, which
may provide for a lower rate of withholding tax exemption from or reduction of
branch profits tax, or other rules different from those described above.
Sale, Exchange or Redemption of Notes. Subject to the discussion
concerning backup withholding, any gain realized by a Non-U.S. holder on the
sale, exchange, retirement or other disposition of a new note generally will not
be subject to a U.S. federal income tax, unless
(1) such gain is effectively connected with the conduct by such Non-U.S.
holder of a trade or business within the United States,
(2) the Non-U.S. holder is an individual who is present in the United
States for 183 days or more in the taxable year of the disposition and
certain other conditions are satisfied, or
(3) the Non-U.S. holder is subject to tax pursuant to the provisions of
U.S. tax law applicable to certain U.S. expatriates.
Federal Estate Tax. New notes held (or treated as held) by an individual
who is a Non-U.S. holder at the time of his or her death will not be subject to
U.S. federal estate tax provided that
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(1) the individual does not actually or constructively own 10% or more of
the total voting power of all voting stock of NTL and
(2) income on the notes was not effectively connected with the conduct by
such Non-U.S. holder of a trade or business within the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Payments, including OID, with respect to the new notes and the proceeds
upon the sale or other disposition of the new notes may be subject to the
information reporting and possible U.S. backup withholding at a 31% rate. Backup
withholding will not apply to U.S. holders who furnish a correct taxpayer
identification number and provide other certification or who are otherwise
exempt from backup withholding. Copies of those information returns may also be
made available, under the provisions of a specific treaty or agreement, to the
tax authorities of the country in which the Non-U.S. holder resides.
The regulations provide that backup withholding, which generally is a
withholding tax imposed at the rate of 31% on payments to persons that fail to
furnish certain required information, and information reporting will not apply
to payments made in respect to the new notes by NTL to a Non-U.S. holder, if the
holder certifies as to its non-U.S. status under penalties of perjury or
otherwise establishes an exemption, provided that neither the Company nor its
paying agent has actual knowledge that the holder is a U.S. person or that the
condition of any other exemption are not, if fact, satisfied.
The payment of the proceeds from the disposition of new notes to or through
the United States office of any broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding unless the owner certifies
as to its non-U.S. status under penalty of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not,
if fact, satisfied. The payment of the proceeds from the disposition of a new
note to or through a non-U.S. office of a non-U.S. broker that is not a U.S.
related person will not be subject to information reporting or backup
withholding. For this purpose, a "U.S. related person" is
(1) a "controlled foreign corporation" for U.S. federal income tax
purposes or
(2) a foreign person 50% or more of whose gross income from all sources
for the three-year period ending with the close of its taxable year
preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities that are
effectively connected with the conduct of a U.S. trade or business.
In the case of the payment of proceeds from the disposition of new notes to
or through a non-U.S. office of a broker that is a U.S. related person, the
regulations require information reporting on the payment unless the broker has
documentary evidence in its files that the owner is a Non-U.S. holder and the
broker has no knowledge to the contrary. Backup withholding will not apply to
payments made through
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foreign offices of a broker that is a U.S. person or a U.S. related person,
absent actual knowledge that the payee is a U.S. person.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. holder will be allowed as a refund or a credit against such Non-U.S.
holder's federal income tax liability, provided that the requisite procedures
are followed.
The Treasury Department recently promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general, the
final regulations do not significantly alter the substantive withholding and
information reporting requirements but rather unify current certification
procedures and forms and clarify reliance standards. The final regulations are
generally effective for payments made after December 31, 1999, subject to
certain transition rules. Non-U.S. holders should consult their own tax advisors
with respect to the impact, if any, of the final regulations.
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PLAN OF DISTRIBUTION
If you are a broker-dealer and hold old notes for your own account as a
result of market-making activities or other trading activities and you receive
new notes in exchange for old notes in the exchange offer, you may be a
statutory underwriter and must acknowledge that you will deliver a prospectus in
connection with any resale of such new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
such old notes were acquired as a result of market-making activities or other
trading activities. We acknowledge and, unless you are a broker-dealer, you must
acknowledge that you are not engaged in, do not intend to engage in, and have no
arrangement or understanding with any person to participate in a distribution of
new notes. We have agreed that starting on the expiration date of the exchange
offer and ending on the close of business on the 180th day following the
expiration date, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such new notes. Any broker-dealer
that resells new notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
state that by acknowledging that it will deliver and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of 180 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal.
We have agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holders of the notes) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the notes, including any broker-dealers, against various liabilities,
including liabilities under the Securities Act.
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BOOK-ENTRY; DELIVERY AND FORM
THE EXCHANGE
New notes exchanged for old notes through DTC may be represented by one or
more global notes. The global new notes will be deposited on the date of the
closing of the exchange offer with the trustee as custodian of DTC and pursuant
to a FAST Balance Certificate Agreement between the trustee or the registrar, as
the case may be, and DTC and registered in the name of Cede & Co., as nominee of
DTC. Such nominee is referred to as the "global security holder".
New notes exchanged for old notes which are in the form of registered
definitive certificates will be issued in the form of certificated notes. Such
certificated notes may, unless the global new notes have previously been
exchanged for certificated notes, be exchanged for an interest in the global new
notes representing the principal amount at maturity of new notes being
transferred.
DEPOSITORY PROCEDURES
DTC has advised us that DTC is a limited-purpose trust company created to
hold notes for its participating organizations (collectively, the
"participants") and to facilitate the clearance and settlement of transactions
in those securities between the participants through electronic book-entry
changes in accounts of the participants. The participants include securities
brokers and dealers (including the initial purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's system is
also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly (collectively, the "indirect
participants"). Persons who are not participants may beneficially own notes held
by or on behalf of DTC only through the participants or the indirect
participants. The ownership interest and transfer of ownership interest of each
actual purchaser of each note held by or on behalf of DTC are recorded on the
records of the participants and the indirect participants.
Euroclear and CEDEL hold securities for participating organizations and
facilitate the clearance and settlement of securities transactions between their
respective Participants through electronic book-entry changes in accounts of
such participants. Euroclear and CEDEL provide to their participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing.
Euroclear and CEDEL interface with domestic securities markets. Euroclear and
CEDEL Participants and financial institutions such as initial purchasers,
securities brokers and dealers, banks, trust companies and certain other
organizations. Indirect access to Euroclear or CEDEL is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodian relationship with a Euroclear or CEDEL participant, either
directly or indirectly.
DTC has also advised us that pursuant to procedures established by it,
(1) upon deposit of the global new notes, DTC will credit the accounts
of participants with portions of the principal amount of the global
new notes representing the new notes and
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(2) ownership of such interests in the global new notes will be shown
on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC with respect to the
participants, or by the participants and the indirect participants
with respect to other owners of beneficial interests in the global
new notes.
Investors in a global new note may hold their interests therein directly
through DTC, if they are participants in such system, or indirectly through
organizations including Euroclear and CEDEL which are participants in such
system. Euroclear and CEDEL will hold interests in a global new note on behalf
of their participants through their respective depositories, which in turn will
hold such interests in the global new note customers' securities accounts in
their respective names on the books of DTC. The Morgan Guaranty Trust Company,
Brussels office, will initially act as depository for Euroclear, and Citibank,
N.A., will initially act as depository for CEDEL. All interests in a global new
note, including those held through Euroclear or CEDEL, may be subject to the
procedures and requirements of DTC. Those interests held through Euroclear or
CEDEL may also be subject to the procedures and requirements of such system.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a global new note to such persons may be
limited to that extent. Because DTC can act only on behalf of the Participants,
which in turn act on behalf of the indirect participants and certain banks, the
ability of a person having beneficial interests in a global new note to pledge
such interests to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interests, may be affected by the
lack of a physical certificate evidencing such interests.
Except as described below, owners of interests in the global new notes will
not have new notes registered in their names, will not receive physical delivery
of new notes in certificated form and will not be considered the registered
owners or holders of new notes under the indentures for any purpose.
Payments in respect of the principal of and premium, if any and interest on
a global new note will be made through one or more paying agents appointed under
the indentures (which will initially include the trustee) and will be payable to
DTC or its nominee in its capacity as the registered holder under the applicable
indenture. Under the terms of the indentures, NTL and the trustee will treat the
persons in whose names the new notes, including the global new notes
representing the new notes, are registered as the owners thereof for the purpose
of receiving such payments and for any and all other purposes whatsoever.
Consequently, none of NTL, the trustee, any transfer agent or any agent of NTL,
the trustee or any transfer agent has or will have any responsibility or
liability for
(1) any aspect or accuracy of DTC's records or any participant's or
indirect participant's records relating to or payments made on account
of beneficial ownership interests in the global notes, or for
maintaining, supervising or reviewing any of DTC's records or any
participant's or indirect participant's records relating to the
beneficial ownership interests in the global new notes, or
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<PAGE> 146
(2) any other matter relating to the actions and practices of DTC or any of
the participants or the indirect participants.
DTC has advised us that its current practice, upon receipt of any payment
in respect of notes such as the new notes (including principal and interest), is
to credit the accounts of the relevant participants with the payment on the
payment date, in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security as shown on the records
of DTC. Payments by the participants and the indirect participants to the
beneficial owners of new notes will be governed by standing instructions and
customary practices and will not be the responsibility of any of DTC, the
trustee, the registrar, the transfer agent or NTL. None of NTL, the registrar,
the transfer agent or the trustee will be liable for any delay by DTC or any of
the participants in identifying the beneficial owners of the notes, and NTL, the
registrar, the transfer agent and the trustee may conclusively rely on and will
be protected in relying on instructions from DTC or its nominee as the
registered owner of the global notes for all purposes.
Except for trades involving only Euroclear and CEDEL participants,
interests in the global notes will trade in DTC's same-day funds settlement
system and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and the participants.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures and will be settled in same-day funds. Transfers between
accountholders in Euroclear and CEDEL will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between the account holders in DTC, on the one hand,
and account holders in Euroclear or CEDEL, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or CEDEL, as
the case may be, by its respective depository; however, such cross-market
transactions will require delivery of instructions to Euroclear or CEDEL, as the
case may be, by the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time) of such system.
Euroclear or CEDEL, as the case may be, will, if the transaction meets its
settlement requirements, deliver instructions to its respective depository to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant global note in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear and CEDEL account holders may not deliver instructions directly
to the depositories for Euroclear or CEDEL.
Because of time zone differences, the securities account of a Euroclear or
CEDEL account holder purchasing an interest in a global note from an account
holder in DTC will be credited, and any such crediting will be reported to the
relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear or CEDEL) immediately
following the settlement date of DTC. Cash received in Euroclear or CEDEL as a
result of sales of interests in a global new note by or through a Euroclear or
CEDEL account holder to a Participant in DTC
141
<PAGE> 147
will be received with value on the settlement date of DTC but will be available
in the relevant Euroclear or CEDEL cash account only as of the business day for
Euroclear or CEDEL following DTC's settlement date.
DTC has advised us that it will take any action permitted to be taken by a
holder of new notes only at the direction of one or more participants to whose
account with DTC interests in the global notes are credited and only in respect
of such portion of the aggregate principal amount of the notes as to which such
participant or participants has or have given such direction. However, if any of
the events described under "-- Exchange of book entry notes for certificated
notes" occurs, DTC reserves the right to exchange the global new notes for notes
in certificated form and to distribute such new notes to its participants.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that we believe to be
reliable, but we take no responsibility for the accuracy thereof.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the global new notes among account
holders in DTC and account holders of Euroclear and CEDEL, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of NTL, the registrar, the
transfer agent or the trustee nor any agent of NTL, the registrar, the transfer
agent or the trustee will have any responsibility for the performance by DTC,
Euroclear or CEDEL or their respective participants, indirect participants or
account holders of their respective obligations under the rules and procedures
governing their operations.
Exchange of book-entry notes for certificated notes
A global new note is exchangeable for definitive new notes in registered
certificated form if
(1) DTC
(x) notifies us that it is unwilling or unable to continue as
depository for the global new note and we then fail to appoint a
successor depository within 90 days or
(y) has ceased to be a clearing agency registered under the Exchange
Act,
(2) we, at our option, notify the trustee in writing that we elect to cause
the issuance of the new notes in certificated form or
(3) there shall have occurred and be continuing a Default or an Event of
Default with respect to the new notes.
In all cases, certificated notes delivered in exchange for any global note or
beneficial interests therein will be registered in the names, and issued in any
approved denominations, requested by or on behalf of the depository (in
accordance with its customary procedures).
If certificated new notes are issued and a holder of a certificated new
note claims that the note has been lost, destroyed or wrongfully taken or if
such new note is
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<PAGE> 148
mutilated and is surrendered to the trustee (or, as long as the new notes are
listed on the Luxembourg Stock Exchange, at the specified office of the transfer
agent in Luxembourg), we shall issue and the trustee shall authenticate a
replacement new note if the trustee's and our requirements are met. If required
by the trustee or us, an indemnity bond must be sufficient in the judgment of
both to protect NTL, the trustee, any agent or any authenticating agent from any
loss which any of them may suffer if a new note is replaced. We may charge for
our expenses in replacing a new note.
In case any such mutilated, destroyed, lost or stolen new note has become
or is about to become due and payable, or is about to be purchased by us
pursuant to the provisions of the indenture, NTL in its discretion may, instead
of issuing a new new note, pay or purchase such new note, as the case may be.
LEGAL MATTERS
The validity of the issuance of the New Notes will be passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, special
counsel for the Company.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as of December 31, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997, as set forth in their report, which
is included in this prospectus. Our consolidated financial statements are
included in reliance on their report, given on their authority as experts in
accounting and auditing.
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 report, which is
also included herein and have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
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 and have been so included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
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.
143
<PAGE> 149
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 incorporated by reference 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 given on their authority as experts in
accounting and auditing.
ENFORCEABILITY OF CIVIL LIABILITIES
A substantial majority of our assets are located outside the United States.
As a result, it may not be possible for you to realize in the United States upon
judgments of courts of the United States predicated upon the civil liability
under the federal securities laws of the United States. The United States and
England do not currently have a treaty providing for the reciprocal recognition
and enforcement of judgments, other than arbitration awards, in civil and
commercial matters. Therefore, a final judgment for the payment of a fixed debt
or sum of money rendered by any United States court based on civil liability,
whether or not predicated solely upon the United States federal securities laws,
would not automatically be enforceable in England. In order to enforce in
England a United States judgment, proceedings must be initiated by way of common
law action before a court of competent jurisdiction in England. An English court
will, subject to what is said below, normally order summary judgment on the
basis that there is no defense to the claim for payment and will not
reinvestigate the merits of the original dispute. In such an action, an English
court will treat the United States judgment as creating a valid debt upon which
the judgment creditor could bring an action for payment, as long as
(1) the United States court had jurisdiction over the original proceeding,
(2) the judgment is final and conclusive on the merits,
(3) the judgment does not contravene English public policy,
(4) the judgment must not be for a tax, penalty or a judgment arrived at by
doubling, trebling or otherwise multiplying a sum assessed as
compensation for the loss or damage sustained and
(5) the judgment has not been obtained by fraud or in breach of the
principles of natural justice.
Based on the foregoing, there can be no assurance that you will be able to
enforce in England judgments in civil and commercial matters obtained in any
United States court. There is doubt as to whether an English court would impose
civil liability in an original action predicated solely upon the United States
federal securities laws brought in a court of competent jurisdiction in England.
144
<PAGE> 150
GENERAL INFORMATION
CLEARING SYSTEMS
The International Security Identification Number ("ISIN") for the 11 1/2%
new notes is and the common code is . The ISIN for the
12 3/8% new notes is and the common code is .
AUTHORIZATION
The issue of the 11 1/2% new notes was authorized by a resolution of the
board of directors of NTL on October 26, 1998. The issue of the 12 3/8% new
notes was authorized by a resolution of the board of directors of NTL on October
30, 1998.
AVAILABLE DOCUMENTS, FINANCIAL REPORTS AND INFORMATION
Copies of the indentures and the registration rights agreements referred to
in this prospectus will, so long as the notes are listed on the Luxemburg Stock
Exchange, be available for inspection during normal business hours at the office
of our Luxembourg agent specified on the inside back cover of this prospectus.
A copy of the Certificate of Incorporation and By-laws of NTL will be
available for inspection during normal business hours at the office of the
Luxembourg Agent.
Whether or not required by the rules and regulations of the Commission, so
long as the notes are outstanding, we will file with the Commission and furnish
to holders of notes all quarterly and annual financial information required to
be contained in a filing with the Commission on Forms 10-Q and 10-K (or the
equivalent thereof under the Exchange Act for foreign private issuers in the
event we become a corporation organized under the laws of the United Kingdom,
the Netherlands, the Netherlands Antilles, Bermuda or the Cayman Islands),
including a "Management's Discussion and Analysis or Results of Operations and
Financial Condition" and, with respect to the annual information only, a report
thereon by our certified independent public accountants, in each case, as
required by the rules and regulations of the Commission as in effect on November
6, 1998.
In compliance with Forms 10-Q and 10-K, we currently publish audited annual
consolidated financial reports and unaudited quarterly consolidated financial
reports. As long as the notes are listed on the Luxembourg Stock Exchange,
copies of such reports or any other reports we are required to furnish to
holders of the notes in accordance with the preceding paragraph, will be
available at the specified office of the listing, paying and transfer agent in
Luxembourg. We do not publish unconsolidated financial reports.
Copies of reports, proxy statements and other information concerning NTL
filed by NTL with the Commission will, as long as the notes are listed on the
Luxembourg Stock Exchange, be available at the specified office of the listing,
paying and transfer agent in Luxembourg.
MATERIAL ADVERSE CHANGE
Except as disclosed in this prospectus, there has been no material adverse
change in the financial position of NTL since September 30, 1998.
145
<PAGE> 151
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
</TABLE>
F-1
<PAGE> 152
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statement of Operations for the Years Ended
December 31, 1997, December 31, 1996 and December 31,
1995...................................................... F-71
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
</TABLE>
F-2
<PAGE> 153
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
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
</TABLE>
F-3
<PAGE> 154
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> 155
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> 156
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> 157
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> 158
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> 159
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> 160
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> 161
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
F-11
<PAGE> 162
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
F-12
<PAGE> 163
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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> 164
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
F-14
<PAGE> 165
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12 3/4% 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.
(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-15
<PAGE> 166
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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 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
F-16
<PAGE> 167
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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").
F-17
<PAGE> 168
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Subordinated Debentures, if issued, will bear interest at a rate of 13%
per annum, payable semiannually in arrears on February 15 and August 15 of each
year commencing with the first such date to occur after the date of exchange.
Interest accruing on or prior to February 15, 2004 may, at the option of the
Company, be paid in cash, by the issuance of additional Subordinated Debentures
or in any combination of the foregoing. The Subordinated Debentures will be
redeemable, at the Company's option, in whole or in part, on or after February
15, 2002 at a redemption price of 106.5% that declines annually to 100% in 2005,
in each case together with accrued and unpaid interest to the redemption date.
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.
F-18
<PAGE> 169
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-19
<PAGE> 170
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-20
<PAGE> 171
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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.
F-21
<PAGE> 172
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-22
<PAGE> 173
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-23
<PAGE> 174
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
F-24
<PAGE> 175
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-25
<PAGE> 176
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
F-26
<PAGE> 177
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-27
<PAGE> 178
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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> 179
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> 180
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 23,347,000
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) $ (18.26)
============= =============
</TABLE>
See accompanying notes.
F-30
<PAGE> 181
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> 182
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> 183
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.
F-33
<PAGE> 184
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- COMTEL ACQUISITION (CONTINUED)
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 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
F-34
<PAGE> 185
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- AMALGAMATION WITH COMCAST UK CABLE PARTNERS LIMITED (CONTINUED)
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.
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> 186
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.
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
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,
F-36
<PAGE> 187
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- LONG-TERM DEBT (CONTINUED)
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 PIK Preferred Stock was valued at
75,000,000 pounds sterling ($126,277,000), the fair
F-37
<PAGE> 188
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- SERIES PREFERRED STOCK (CONTINUED)
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> 189
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)
F-39
<PAGE> 190
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
(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 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> 191
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> 192
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> 193
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> 194
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> 195
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> 196
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
F-46
<PAGE> 197
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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 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.
F-47
<PAGE> 198
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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.
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> 199
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.
F-49
<PAGE> 200
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Revenue Recognition
Service income is recognized as service is provided. Credit risk is managed
by disconnecting services to subscribers who are delinquent.
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.
F-50
<PAGE> 201
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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.
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
F-51
<PAGE> 202
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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.
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.
F-52
<PAGE> 203
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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 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> 204
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> 205
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
F-55
<PAGE> 206
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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.
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
F-56
<PAGE> 207
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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.
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
F-57
<PAGE> 208
COMCAST UK CABLE PARTNERS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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.
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> 209
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> 210
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> 211
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> 212
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> 213
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
F-63
<PAGE> 214
NTL (BERMUDA) LIMITED (FORMERLY COMCAST UK
CABLE PARTNERS LIMITED) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
2. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
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.
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
F-64
<PAGE> 215
NTL (BERMUDA) LIMITED (FORMERLY COMCAST UK
CABLE PARTNERS LIMITED) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
3. AMALGAMATION WITH NTL (CONTINUED)
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 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> 216
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
F-66
<PAGE> 217
NTL (BERMUDA) LIMITED (FORMERLY COMCAST UK
CABLE PARTNERS LIMITED) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
5. LONG-TERM DEBT (CONTINUED)
the sale of the Birmingham Cable interest. The banks have agreed to suspend the
UK Holdings Credit Facility for 90 days 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.
F-67
<PAGE> 218
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
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.
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> 219
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> 220
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> 221
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> 222
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> 223
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> 224
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> 225
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> 226
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
F-76
<PAGE> 227
BIRMINGHAM CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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 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
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<PAGE> 228
BIRMINGHAM CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Barclays Bank PLC entered into a five year L175.0 million Swap, whereby the
subsidiary receives fixed interest at a rate of 8.83% 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
F-78
<PAGE> 229
BIRMINGHAM CABLE CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
expenditures of Telewest's Network Service Center, which provides telephony
support to the Company. The Company has a telephony 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> 230
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> 231
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> 232
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> 233
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> 234
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> 235
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> 236
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
F-86
<PAGE> 237
CABLE LONDON PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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 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> 238
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> 239
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> 240
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
F-90
<PAGE> 241
CABLE LONDON PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Company. As of 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> 242
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> 243
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> 244
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> 245
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> 246
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> 247
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> 248
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> 249
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
F-99
<PAGE> 250
COMTEL UK FINANCE B.V.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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> 251
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> 252
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> 253
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
F-103
<PAGE> 254
COMTEL UK FINANCE B.V.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. DEBT AND CAPITAL LEASE OBLIGATIONS -- (CONTINUED)
guilder denominated loan from Vision Networks and bears interest at a rate of
LIBOR as of December 31, 1997, and 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> 255
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> 256
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> 257
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> 258
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> 259
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> 260
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> 261
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> 262
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> 263
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> 264
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> 265
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> 266
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> 267
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> 268
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> 269
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>
FOUR MONTHS
YEAR ENDED ENDED
SIX 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> 270
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> 271
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> 272
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> 273
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> 274
- ------------------------------------------------------
- ------------------------------------------------------
You should rely only on the information contained in this document or that
we have referred you to. We have not authorized any other person to provide you
with different information. This prospectus may be delivered to you after the
date of this prospectus. However, you should realize that the affairs of NTL may
have changed since the date of this prospectus. This prospectus will not reflect
such changes. You should not consider this prospectus to be an offer or
solicitation relating to the notes in any jurisdiction in which such an offer or
solicitation is not authorized.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find More Information... i
Incorporation of Certain Documents by
Reference........................... ii
Prospectus Summary.................... 1
Risk Factors.......................... 15
The Exchange Offer.................... 27
Use of Proceeds....................... 36
Exchange Rates........................ 36
Capitalization........................ 37
Selected Consolidated Financial
Data................................ 39
Description of Notes.................. 41
Registration Rights................... 128
Federal Income Tax Considerations..... 132
Plan of Distribution.................. 138
Book-Entry; Delivery and Form......... 139
Legal Matters......................... 143
Experts............................... 143
Enforceability of Civil Liabilities... 144
General Information................... 144
Index to Financial Statements......... F-1
</TABLE>
Until , 1999, which is 90 days after the date of this
prospectus, if you are a dealer effecting transactions in the new notes, whether
or not you are participating in the exchange offer, you may be required to
deliver a prospectus. This obligation is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
[LOGO]
NTL Incorporated
$625,000,000
11 1/2% Series B
Senior Notes Due 2008
$450,000,000
12 3/8% Series B
Senior Deferred
Coupon Notes Due 2008
------------------------
PROSPECTUS
------------------------
February , 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 275
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 102 of the Delaware General Corporation Law (the
"DGCL"), the Company's Amended and Restated Certificate of Incorporation
eliminates a director's personal liability for monetary damages to the Company
and its stockholders arising from a breach or alleged breach of a director's
fiduciary duty except for liability under Section 174 of the DGCL or liability
for a breach of the director's duty of loyalty to the Company or its
stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law or for any transaction in
which the director derived an improper personal benefit. The effect of this
provision in the certificate of incorporation is to eliminate the rights of the
Company and its stockholders (through stockholders, derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from negligent or
grossly negligent behavior) except in the situations described above.
The Company's Restated By-laws provide that directors and officers of the
Company shall be indemnified against liabilities arising from their service as
directors and officers to the full extent permitted by law. Section 145 of the
DGCL empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the best interests
of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
Section 145 also empowers a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the fight of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar standards, except
that no indemnification may be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless, and only to the extent that, the Court of Chancery or the court in which
such action was brought shall determine that despite the adjudication of
liability such person
II-1
<PAGE> 276
is fairly and reasonably entitled to indemnify for such expenses which the court
shall deem proper.
Section 145 further provides that to the extent that a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to above or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation is empowered to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liabilities under Section 145.
The Company has entered into a director and officer indemnity agreement
("Indemnity Agreement") with each officer and director of the Company (an
"Indemnitee"). Under the bylaws and these Indemnity Agreements, the Company must
indemnify an Indemnitee to the fullest extent permitted by the DGCL for losses
and expenses incurred in connection with actions in which the indemnitee is
involved by reason of having been a director or officer of the Company. The
Company is also obligated to advance expenses an indemnitee may incur in
connection with such actions before any resolution of the action.
ITEM 21. EXHIBITS
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1 Purchase Agreement, dated October 26, 1998, by and among the
Company and Morgan Stanley & Co. Incorporated, Chase
Securities Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Goldman, Sachs & Co., with respect to the
11 1/2% Notes*
1.2 Purchase Agreement, dated October 30, 1998, by and among the
Company and Morgan Stanley & Co. Incorporated, Chase
Securities Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Goldman, Sachs & Co., with respect to the
12 3/8% Notes*
3.1 Restated Certificate of Incorporation of the Company, as
amended by the Certificate of Amendment, dated June 5, 1996
and the Certificate of Amendment dated October 29, 1998**
3.1(a) Certificate of Ownership and Merger, dated as of March 26,
1997(6)
3.2 Restated By-laws of the Company(1)
4.1 Indenture, dated as of November 2, 1998, by and between the
Company and The Chase Manhattan Bank, as Trustee, with
respect to the 11 1/2% Notes*
4.2 Indenture, dated as of November 6, 1998, by and between the
Company and The Chase Manhattan Bank, as Trustee, with
respect to the 12 3/8% Notes*
</TABLE>
II-2
<PAGE> 277
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
4.3 Registration Rights Agreement, dated as of November 2, 1998,
by and among the Company and Morgan Stanley & Co.
Incorporated, Chase Securities Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Goldman, Sachs & Co.
with respect to the 11 1/2% Notes*
4.4 Registration Rights Agreement, dated as of November 6, 1998,
by and among the Company and Morgan Stanley & Co.
Incorporated, Chase Securities Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Goldman, Sachs & Co.
with respect to the 12 3/8% Notes*
4.5 Indenture, dated as of February 12, 1997, by and between the
Company and The Chase Manhattan Bank, as Trustee, with
respect to the 10% Notes(10)
4.6 Certificate of Designation, dated February 12, 1997, with
respect to the Redeemable Preferred Stock(10)
4.7 Registration Rights Agreement, dated February 12, 1997, by
and among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, Chase Securities Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated with respect to
the 10% Notes(10)
4.8 Registration Rights Agreement, dated February 12, 1997, by
and among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, Chase Securities Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated with respect to
the Redeemable Preferred Stock(10)
4.9 Form of 11 1/2% New Notes (included in Exhibit 4.1)
4.10 Form of 12 3/8% New Notes (included in Exhibit 4.2)
4.11 Indenture, dated as of June 12, 1996, by and between the
Company and Chemical Bank, as Trustee, with respect to the
7% Convertible Notes(8)
4.12 Registration Rights Agreement, dated June 12, 1996, by and
among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and Salomon Brothers Inc, with
respect to the 7% Convertible Notes(8)
4.13 Indenture, dated as of January 30, 1996, by and among the
Company and Chemical Bank, as Trustee, with respect to the
11 1/2% Notes(7)
4.14 Registration Rights Agreement, dated January 30, 1996, by
and among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, Salomon Brothers Inc and Chase
Securities, Inc., with respect to the 11 1/2% Notes(7)
4.15 Indenture, dated as of April 20, 1995, by and among the
Company and Chemical Bank, as Trustee, with respect to the
12 3/4% Notes(2)
4.16 First Supplemental Indenture, dated as of January 22, 1996,
by and among the Company and Chemical Bank, as Trustee with
respect to the Indenture included as Exhibit 4.19(7)
4.17 Registration Agreement, dated April 13, 1995 by and among
the Company and Salomon Brothers Inc, Donaldson, Lufkin &
Jenrette Securities Corporation and Goldman, Sachs & Co.,
with respect to the 12 3/4% Notes(2)
4.18 Indenture, dated as of April 20, 1995, by and among the
Company and Chemical Bank, as Trustee, with respect to the
7 1/4% Convertible Notes(3)
</TABLE>
II-3
<PAGE> 278
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
4.19 Registration Agreement, dated April 12, 1995, by and among
the Company and Salomon Brothers Inc, Donaldson, Lufkin &
Jenrette Securities Corporation and Goldman Sachs & Co.,
with respect to the 7 1/4% Convertible Notes(3)
4.20 Indenture, dated as of October 1, 1993, by and among the
Company and Chemical Bank, as Trustee with respect to the
10 7/8% Senior Notes(4)
4.21 First Supplemental Indenture, dated January 23, 1996, by and
among the Company and Chemical Bank, as Trustee, with
respect to the Indenture included as Exhibit 4.24(7)
4.22 Rights Agreement, dated as of October 1, 1993, between the
Company and Continental Transfer & Trust Company, as Rights
Agent(1)
4.23 Indenture, dated as of November 15, 1995, between Comcast
U.K. Cable Partners Limited and Bank of Montreal Trust
Company, as Trustee, with respect to the 11.20% Senior
Discount Debentures Due 2007 of Comcast U.K. Cable Partners
Limited.(12)
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
the legality of the notes being registered hereby**
10.1 Compensation Plan Agreements, as amended and restated
effective June 3, 1997(11)
10.2 Form of Director and Officer Indemnity Agreement (together
with a schedule of executed Indemnity Agreements)(2)
11.1 Statement of computation of per share earnings(11)
12.1 Computation of Ratio of Earnings to Fixed Charges and
Combined Fixed Charges and Preferred Stock Dividends**
21.1 Subsidiaries of the Company(11)
23.1 Consent of Ernst & Young, LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Deloitte & Touche -- Birmingham
23.4 Consent of Deloitte & Touche -- London
23.5 Consent of Deloitte & Touche -- Comtel
23.6 Consent of Coopers & Lybrand -- ComTel
23.7 Consent of KPMG -- Diamond
23.8 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1)
25.1 Form T-1 Statement of Eligibility of Trustee with respect to
Indenture included as Exhibit 4.1**
25.2 Form T-1 Statement of Eligibility of Trustee with respect to
Indenture included as Exhibit 4.2**
99.1 Form of Letter of Transmittal in respect of the Notes*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Letter to Client*
</TABLE>
II-4
<PAGE> 279
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
99.4 Form of Letter to Brokers, Dealers, Trust Companies and
others Nominees*
99.5 Prescribed Diffusion Service License, dated July 21, 1987,
issued to British Cable Services Limited (now held by
CableTel Surrey and Hampshire Limited) for the area of West
Surrey and East Hampshire, England(5)
99.6 Prescribed Diffusion Service License, dated December 3,
1990, issued to Clyde Cablevision (renamed CableTel Glasgow)
for the area of Inverclyde, Scotland(5)
99.7 Prescribed Diffusion Service License, dated December 3,
1990, issued to Clyde Cablevision (renamed CableTel Glasgow)
for the area of Bearsden and Milngavie, Scotland(5)
99.8 Prescribed Diffusion Service License, dated December 3,
1990, issued to Newport Cablevision Limited (renamed
CableTel Newport) for the area of Newport, Wales(5)
99.9 Prescribed Diffusion Service License, dated July 10, 1984,
issued to Clyde Cablevision (renamed CableTel Glasgow) for
the area of North Glasgow and Clydebank, Strathclyde,
Scotland(5)
99.10 Prescribed Diffusion Service License, dated December 3,
1990, issued to Clyde Cablevision (renamed CableTel Glasgow)
for the area of Greater Glasgow, Scotland(5)
99.11 Prescribed Diffusion Service License, dated December 3,
1990, issued to Clyde Cablevision (renamed CableTel Glasgow)
for the area of Paisley and Renfrew, Scotland(5)
99.12 Prescribed Diffusion Service License, dated December 3,
1990, issued to Cable and Satellite Television Holdings Ltd
(renamed CableTel West Glamorgan Limited) for the area of
West Glamorgan, Wales(5)
99.13 Prescribed Diffusion Service License, dated December 3,
1990, issued to British Cable Services Limited for the area
of Cardiff and Penarth, Wales (now held by CableTel Cardiff
Limited)(5)
99.14 Prescribed Diffusion Service License, dated December 3,
1990, issued to Kirklees Cable (renamed CableTel Kirklees)
for the area of Huddersfield and Dewsbury, West Yorkshire,
England(5)
99.15 Prescribed Diffusion Service License, dated December 3,
1990, issued to CableVision Communications Company of
Hertfordshire Ltd (renamed CableTel Hertfordshire Limited)
for the area of Broxbourne and East Hertfordshire,
England(5)
99.16 Prescribed Diffusion Service License, dated December 3,
1990, issued to CableVision Communications Company Ltd
(renamed CableTel Central Hertfordshire Limited) for the
area of Central Hertfordshire, England(5)
99.17 Prescribed Diffusion Service License, dated March 26, 1990,
issued to CableVision Bedfordshire Limited (renamed CableTel
Bedfordshire Ltd.) for the area of Luton and South
Bedfordshire(5)
</TABLE>
II-5
<PAGE> 280
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
99.18 Prescribed Diffusion Service License, dated December 3,
1990, issued to CableVision North Bedfordshire Ltd (renamed
CableTel North Bedfordshire Ltd.) for the area of North
Bedfordshire, England(5)
99.19 Local Delivery Service License, dated October 2, 1995,
issued to CableTel Northern Ireland Limited for Northern
Ireland(5)
99.20 Local Delivery Service License, dated December 6, 1995,
issued to CableTel South Wales Limited for Glamorgan and
Gwent, Wales(5)
99.21 Local Delivery Service License, dated March 13, 1991, issued
to Maxwell Cable TV Limited for Pembroke Dock, Dyfed, Wales
(now held by Metro South Wales Limited)(5)
99.22 Local Delivery Service License, dated March 15, 1991, issued
to Maxwell Cable TV Limited for Camarthen, Wales (now held
by Metro South Wales Limited)(5)
99.23 Local Delivery Service License, dated March 15, 1991, issued
to Maxwell Cable TV Limited for Milford Haven, Wales (now
held by Metro South Wales Limited)(5)
99.24 Local Delivery Service License, dated March 15, 1991, issued
to Maxwell Cable TV Limited for Cwmgors (Amman Valley), West
Glamorgan, Wales(5)
99.25 Local Delivery Service License, dated March 15, 1991, issued
to Maxwell Cable TV Limited for Ammanford, West Glamorgan,
Wales(5)
99.26 Local Delivery Service License, dated March 15, 1991, issued
to Maxwell Cable TV Limited for Brecon, Gwent, Wales(5)
99.27 Local Delivery Service License, dated March 15, 1991, issued
to Maxwell Cable TV Limited for Haverfordwest, Preseli,
Wales(5)
99.28 Local Delivery Service License, dated March 15, 1991, issued
to Maxwell Cable TV Limited for Neyland, Preseli, Wales (now
held by Metro South Wales Limited)(5)
99.29 License, dated January 11, 1991, issued to Cablevision
Communications Company of Hertfordshire Ltd (renamed
CableTel Hertfordshire Limited) for the Hertford, Cheshunt
and Ware (Lea Valley) cable franchise, England(5)
99.30 License, dated December 8, 1990, issued to Cablevision
Communications Company Limited for Central Hertfordshire
(renamed CableTel Central Hertfordshire Limited), England(5)
99.31 License, dated August 23, 1989, issued to Cablevision
Bedfordshire Limited for Bedford and surrounding areas,
England(5)
99.32 License, dated January 9, 1991, issued to Cablevision North
Bedfordshire Ltd for North Bedfordshire, England(5)
99.33 License, dated January 29, 1991, issued to Clyde Cablevision
(renamed CableTel Glasgow) for the Inverclyde Cable
Franchise, Scotland(5)
99.34 License, dated January 29, 1991, issued to Clyde Cablevision
(renamed CableTel Glasgow) for the Bearsden and Milngavie
Cable Franchise, Scotland(5)
</TABLE>
II-6
<PAGE> 281
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
99.35 License, dated January 29, 1991, issued to Clyde Cablevision
(renamed CableTel Glasgow) for the Paisley and Renfrew Cable
Franchise, Scotland(5)
99.36 License, dated June 7, 1985, issued to Clyde Cablevision Ltd
(renamed CableTel Glasgow) for North West Glasgow and
Clydebank, Scotland(5)
99.37 License, dated January 29, 1991, issued to Clyde Cablevision
(renamed CableTel Glasgow) for the Greater Glasgow cable
franchise, Scotland(5)
99.38 License, dated October 13, 1993, issued to Insight
Communications Cardiff Limited (renamed CableTel Cardiff
Limited) for Cardiff, Wales(5)
99.39 License, dated January 22, 1991, issued to Newport
Cablevision Limited (renamed CableTel Newport), for Newport
Cable franchise Wales(5)
99.40 License, dated May 18, 1990, issued to Cable and Satellite
Television Holdings Limited (renamed CableTel West
Glamorgan) for West Glamorgan, Wales(5)
99.41 License, dated December 20, 1990, issued to Kirklees Cable
(renamed CableTel Kirklees) for the Huddersfield and
Dewsbury cable franchise, England(5)
99.42 License, dated October 13, 1993, issued to Insight
Communications Guildford Limited (renamed CableTel Surrey
and Hampshire Limited) for the West Surrey/East Hampshire
(Guildford) Cable Franchise, England(5)
99.43 License, dated January 20, 1995, issued to CableTel
Bedfordshire Ltd. for the area of South Bedfordshire,
England(5)
99.44 License, dated January 20, 1995, issued to CableTel North
Bedfordshire Ltd. for the area of Bedford, England(5)
99.45 License, dated January 20, 1992, issued to Cable and
Satellite Television Holdings Limited (renamed CableTel West
Glamorgan Limited) for the area of Swansea, Neath and Port
Talbot, Wales(5)
99.46 License, dated January 20, 1995, issued to Cabletel
Hertfordshire Ltd. for the area of Hertford, Cheshunt and
Ware (Lea Valley), England(5)
99.47 License, dated January 20, 1995, issued to Cabletel Central
Hertfordshire Ltd. for the area of Central Hertfordshire,
England(5)
99.48 License, dated July 21, 1995, issued to CableTel Kirklees(5)
99.49 License, dated June 8, 1995, issued to CableTel Bedfordshire
Ltd.(5)
99.50 License, dated October 27, 1995, issued to Metro South Wales
Limited for the area of Neyland, Wales(5)
99.51 License, dated October 27, 1995, issued to Metro South Wales
Limited for the area of Cwmgors, Wales(5)
99.52 License, dated October 27, 1995, issued to Metro South Wales
Limited for the area of Ammanford, Wales(5)
99.53 License, dated October 27, 1995, issued to Metro South Wales
Limited for the area of Carmarthen, Wales(5)
99.54 License, dated October 27, 1995, issued to Metro South Wales
Limited for the area of Haverfordwest, Wales(5)
</TABLE>
II-7
<PAGE> 282
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
99.55 License, dated October 27, 1995, issued to Metro South Wales
Limited for the area of Pembroke Dock, Wales(5)
99.56 License, dated October 27, 1995, issued to Metro South Wales
Limited for the area of Milford Haven, Wales(5)
99.57 License, dated October 27, 1995, issued to CableTel South
Wales Limited for the area of Glamorgan and Gwent, Wales(5)
99.58 License, dated January 26, 1996, issued to Cabletel South
Wales Limited, for part of the Glamorgan area(5)
99.59 License, dated November 3, 1997, issued to NTL (UK) Group,
Inc. for the Provision of Radio Fixed Access Operator
Services(10)
99.60 Agreement and Plan of Amalgamation; Undertaking of Comcast
Corporation; Undertaking of Warburg, Pincus Investors,
L.P.(11)
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1, File No. 33-63570.
(2) Incorporated by reference from the Company's Registration Statement on Form
S-4, File No. 33-92794.
(3) Incorporated by reference from the Company's Registration Statement on Form
S-3, File No. 33-92792.
(4) Incorporated by reference from the Company's Registration Statement on Form
S-1, File No. 33-63572.
(5) Incorporated by reference from the Company's Form 8-K, filed with the
Commission on March 20, 1996.
(6) Incorporated by reference from the Company's Form 8-K, filed with the
Commission on March 26, 1997.
(7) Incorporated by reference to the Company's Registration Statement on Form
S-4, File No. 333-1010.
(8) Incorporated by reference to the Company's Registration Statement on Form
S-3, File No. 333-07879.
(9) Incorporated by reference to the Company's Registration Statement on Form
S-3, File No. 333-16751.
(10) Incorporated by reference to the Company's Annual Report on Form 10-K,
filed on March 28, 1997.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K,
filed with the Commission on March 30, 1998.
(12) Incorporated by reference to the Registration Statement on Form S-3, File
No. 33-96932, of Comcast U.K. Cable Partners Limited.
II-8
<PAGE> 283
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to section 15(d) of the Securities
Exchange Act) that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Trust
Indenture Act.
II-9
<PAGE> 284
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of New York, State of New York, on the 12th day of February, 1999.
NTL Incorporated
By /s/ RICHARD J. LUBASCH
------------------------------------
Richard J. Lubasch
Senior Vice President --
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE S. BLUMENTHAL Chairman of the Board, Treasurer February 12, 1999
- --------------------------------- and Director
George S. Blumenthal
/s/ J. BARCLAY KNAPP President, Chief Executive and February 12, 1999
- --------------------------------- Financial Officer and Director
J. Barclay Knapp
/s/ GREGG GORELICK Vice President -- Controller February 12, 1999
- ---------------------------------
Gregg Gorelick
/s/ SIDNEY R. KNAFEL Director February 12, 1999
- ---------------------------------
Sidney R. Knafel
/s/ TED H. MCCOURTNEY Director February 12, 1999
- ---------------------------------
Ted H. McCourtney
/s/ DEL MINTZ Director February 12, 1999
- ---------------------------------
Del Mintz
/s/ ALAN J. PATRICOF Director February 12, 1999
- ---------------------------------
Alan J. Patricof
/s/ WARREN POTASH Director February 12, 1999
- ---------------------------------
Warren Potash
/s/ MICHAEL S. WILLNER Director February 12, 1999
- ---------------------------------
Michael S. Willner
</TABLE>
II-10
<PAGE> 285
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1 Purchase Agreement, dated October 26, 1998, by and among the
Company and Morgan Stanley & Co. Incorporated, Chase
Securities Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Goldman, Sachs & Co., with respect to the
11 1/2% Notes*
1.2 Purchase Agreement, dated October 30, 1998, by and among the
Company and Morgan Stanley & Co. Incorporated, Chase
Securities Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Goldman, Sachs & Co., with respect to the
12 3/8% Notes*
3.1 Restated Certificate of Incorporation of the Company, as
amended by the Certificate of Amendment, dated June 5, 1996
and the Certificate of Amendment dated October 29, 1998**
3.1(a) Certificate of Ownership and Merger, dated as of March 26,
1997(6)
3.2 Restated By-laws of the Company(1)
4.1 Indenture, dated as of November 2, 1998, by and between the
Company and The Chase Manhattan Bank, as Trustee, with
respect to the 11 1/2% Notes*
4.2 Indenture, dated as of November 6, 1998, by and between the
Company and The Chase Manhattan Bank, as Trustee, with
respect to the 12 3/8% Notes*
4.3 Registration Rights Agreement, dated as of November 2, 1998,
by and among the Company and Morgan Stanley & Co.
Incorporated, Chase Securities Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Goldman, Sachs & Co.
with respect to the 11 1/2% Notes*
4.4 Registration Rights Agreement, dated as of November 6, 1998,
by and among the Company and Morgan Stanley & Co.
Incorporated, Chase Securities Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Goldman, Sachs & Co.
with respect to the 12 3/8% Notes*
4.5 Indenture, dated as of February 12, 1997, by and between the
Company and The Chase Manhattan Bank, as Trustee, with
respect to the 10% Notes(10)
4.6 Certificate of Designation, dated February 12, 1997, with
respect to the Redeemable Preferred Stock(10)
4.7 Registration Rights Agreement, dated February 12, 1997, by
and among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, Chase Securities Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated with respect to
the 10% Notes(10)
4.8 Registration Rights Agreement, dated February 12, 1997, by
and among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, Chase Securities Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated with respect to
the Redeemable Preferred Stock(10)
4.9 Form of 11 1/2% New Notes (included in Exhibit 4.1)
4.10 Form of 12 3/8% New Notes (included in Exhibit 4.2)
4.11 Indenture, dated as of June 12, 1996, by and between the
Company and Chemical Bank, as Trustee, with respect to the
7% Convertible Notes(8)
</TABLE>
<PAGE> 286
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
4.12 Registration Rights Agreement, dated June 12, 1996, by and
among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and Salomon Brothers Inc, with
respect to the 7% Convertible Notes(8)
4.13 Indenture, dated as of January 30, 1996, by and among the
Company and Chemical Bank, as Trustee, with respect to the
11 1/2% Notes(7)
4.14 Registration Rights Agreement, dated January 30, 1996, by
and among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, Salomon Brothers Inc and Chase
Securities, Inc., with respect to the 11 1/2% Notes(7)
4.15 Indenture, dated as of April 20, 1995, by and among the
Company and Chemical Bank, as Trustee, with respect to the
12 3/4% Notes(2)
4.16 First Supplemental Indenture, dated as of January 22, 1996,
by and among the Company and Chemical Bank, as Trustee with
respect to the Indenture included as Exhibit 4.19(7)
4.17 Registration Agreement, dated April 13, 1995 by and among
the Company and Salomon Brothers Inc, Donaldson, Lufkin &
Jenrette Securities Corporation and Goldman, Sachs & Co.,
with respect to the 12 3/4% Notes(2)
4.18 Indenture, dated as of April 20, 1995, by and among the
Company and Chemical Bank, as Trustee, with respect to the
7 1/4% Convertible Notes(3)
4.19 Registration Agreement, dated April 12, 1995, by and among
the Company and Salomon Brothers Inc, Donaldson, Lufkin &
Jenrette Securities Corporation and Goldman Sachs & Co.,
with respect to the 7 1/4% Convertible Notes(3)
4.20 Indenture, dated as of October 1, 1993, by and among the
Company and Chemical Bank, as Trustee with respect to the
10 7/8% Senior Notes(4)
4.21 First Supplemental Indenture, dated January 23, 1996, by and
among the Company and Chemical Bank, as Trustee, with
respect to the Indenture included as Exhibit 4.24(7)
4.22 Rights Agreement, dated as of October 1, 1993, between the
Company and Continental Transfer & Trust Company, as Rights
Agent(1)
4.23 Indenture, dated as of November 15, 1995, between Comcast
U.K. Cable Partners Limited and Bank of Montreal Trust
Company, as Trustee, with respect to the 11.20% Senior
Discount Debentures Due 2007 of Comcast U.K. Cable Partners
Limited.(12)
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
the legality of the notes being registered hereby**
10.1 Compensation Plan Agreements, as amended and restated
effective June 3, 1997(11)
10.2 Form of Director and Officer Indemnity Agreement (together
with a schedule of executed Indemnity Agreements)(2)
11.1 Statement of computation of per share earnings(11)
12.1 Computation of Ratio of Earnings to Fixed Charges and
Combined Fixed Charges and Preferred Stock Dividends**
21.1 Subsidiaries of the Company(11)
</TABLE>
<PAGE> 287
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
23.1 Consent of Ernst & Young, LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Deloitte & Touche -- Birmingham
23.4 Consent of Deloitte & Touche -- London
23.5 Consent of Deloitte & Touche -- Comtel
23.6 Consent of Coopers & Lybrand -- ComTel
23.7 Consent of KPMG -- Diamond
23.8 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1)**
25.1 Form T-1 Statement of Eligibility of Trustee with respect to
Indenture included as Exhibit 4.1**
25.2 Form T-1 Statement of Eligibility of Trustee with respect to
Indenture included as Exhibit 4.2**
99.1 Form of Letter of Transmittal in respect of the Notes*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Letter to Client*
99.4 Form of Letter to Brokers, Dealers, Trust Companies and
others Nominees*
99.5 Prescribed Diffusion Service License, dated July 21, 1987,
issued to British Cable Services Limited (now held by
CableTel Surrey and Hampshire Limited) for the area of West
Surrey and East Hampshire, England(5)
99.6 Prescribed Diffusion Service License, dated December 3,
1990, issued to Clyde Cablevision (renamed CableTel Glasgow)
for the area of Inverclyde, Scotland(5)
99.7 Prescribed Diffusion Service License, dated December 3,
1990, issued to Clyde Cablevision (renamed CableTel Glasgow)
for the area of Bearsden and Milngavie, Scotland(5)
99.8 Prescribed Diffusion Service License, dated December 3,
1990, issued to Newport Cablevision Limited (renamed
CableTel Newport) for the area of Newport, Wales(5)
99.9 Prescribed Diffusion Service License, dated July 10, 1984,
issued to Clyde Cablevision (renamed CableTel Glasgow) for
the area of North Glasgow and Clydebank, Strathclyde,
Scotland(5)
99.10 Prescribed Diffusion Service License, dated December 3,
1990, issued to Clyde Cablevision (renamed CableTel Glasgow)
for the area of Greater Glasgow, Scotland(5)
99.11 Prescribed Diffusion Service License, dated December 3,
1990, issued to Clyde Cablevision (renamed CableTel Glasgow)
for the area of Paisley and Renfrew, Scotland(5)
99.12 Prescribed Diffusion Service License, dated December 3,
1990, issued to Cable and Satellite Television Holdings Ltd
(renamed CableTel West Glamorgan Limited) for the area of
West Glamorgan, Wales(5)
</TABLE>
<PAGE> 288
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
99.13 Prescribed Diffusion Service License, dated December 3,
1990, issued to British Cable Services Limited for the area
of Cardiff and Penarth, Wales (now held by CableTel Cardiff
Limited)(5)
99.14 Prescribed Diffusion Service License, dated December 3,
1990, issued to Kirklees Cable (renamed CableTel Kirklees)
for the area of Huddersfield and Dewsbury, West Yorkshire,
England(5)
99.15 Prescribed Diffusion Service License, dated December 3,
1990, issued to CableVision Communications Company of
Hertfordshire Ltd (renamed CableTel Hertfordshire Limited)
for the area of Broxbourne and East Hertfordshire,
England(5)
99.16 Prescribed Diffusion Service License, dated December 3,
1990, issued to CableVision Communications Company Ltd
(renamed CableTel Central Hertfordshire Limited) for the
area of Central Hertfordshire, England(5)
99.17 Prescribed Diffusion Service License, dated March 26, 1990,
issued to CableVision Bedfordshire Limited (renamed CableTel
Bedfordshire Ltd.) for the area of Luton and South
Bedfordshire(5)
99.18 Prescribed Diffusion Service License, dated December 3,
1990, issued to CableVision North Bedfordshire Ltd (renamed
CableTel North Bedfordshire Ltd.) for the area of North
Bedfordshire, England(5)
99.19 Local Delivery Service License, dated October 2, 1995,
issued to CableTel Northern Ireland Limited for Northern
Ireland(5)
99.20 Local Delivery Service License, dated December 6, 1995,
issued to CableTel South Wales Limited for Glamorgan and
Gwent, Wales(5)
99.21 Local Delivery Service License, dated March 13, 1991, issued
to Maxwell Cable TV Limited for Pembroke Dock, Dyfed, Wales
(now held by Metro South Wales Limited)(5)
99.22 Local Delivery Service License, dated March 15, 1991, issued
to Maxwell Cable TV Limited for Camarthen, Wales (now held
by Metro South Wales Limited)(5)
99.23 Local Delivery Service License, dated March 15, 1991, issued
to Maxwell Cable TV Limited for Milford Haven, Wales (now
held by Metro South Wales Limited)(5)
99.24 Local Delivery Service License, dated March 15, 1991, issued
to Maxwell Cable TV Limited for Cwmgors (Amman Valley), West
Glamorgan, Wales(5)
99.25 Local Delivery Service License, dated March 15, 1991, issued
to Maxwell Cable TV Limited for Ammanford, West Glamorgan,
Wales(5)
99.26 Local Delivery Service License, dated March 15, 1991, issued
to Maxwell Cable TV Limited for Brecon, Gwent, Wales(5)
99.27 Local Delivery Service License, dated March 15, 1991, issued
to Maxwell Cable TV Limited for Haverfordwest, Preseli,
Wales(5)
99.28 Local Delivery Service License, dated March 15, 1991, issued
to Maxwell Cable TV Limited for Neyland, Preseli, Wales (now
held by Metro South Wales Limited)(5)
</TABLE>
<PAGE> 289
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
99.29 License, dated January 11, 1991, issued to Cablevision
Communications Company of Hertfordshire Ltd (renamed
CableTel Hertfordshire Limited) for the Hertford, Cheshunt
and Ware (Lea Valley) cable franchise, England(5)
99.30 License, dated December 8, 1990, issued to Cablevision
Communications Company Limited for Central Hertfordshire
(renamed CableTel Central Hertfordshire Limited), England(5)
99.31 License, dated August 23, 1989, issued to Cablevision
Bedfordshire Limited for Bedford and surrounding areas,
England(5)
99.32 License, dated January 9, 1991, issued to Cablevision North
Bedfordshire Ltd for North Bedfordshire, England(5)
99.33 License, dated January 29, 1991, issued to Clyde Cablevision
(renamed CableTel Glasgow) for the Inverclyde Cable
Franchise, Scotland(5)
99.34 License, dated January 29, 1991, issued to Clyde Cablevision
(renamed CableTel Glasgow) for the Bearsden and Milngavie
Cable Franchise, Scotland(5)
99.35 License, dated January 29, 1991, issued to Clyde Cablevision
(renamed CableTel Glasgow) for the Paisley and Renfrew Cable
Franchise, Scotland(5)
99.36 License, dated June 7, 1985, issued to Clyde Cablevision Ltd
(renamed CableTel Glasgow) for North West Glasgow and
Clydebank, Scotland(5)
99.37 License, dated January 29, 1991, issued to Clyde Cablevision
(renamed CableTel Glasgow) for the Greater Glasgow cable
franchise, Scotland(5)
99.38 License, dated October 13, 1993, issued to Insight
Communications Cardiff Limited (renamed CableTel Cardiff
Limited) for Cardiff, Wales(5)
99.39 License, dated January 22, 1991, issued to Newport
Cablevision Limited (renamed CableTel Newport), for Newport
Cable franchise Wales(5)
99.40 License, dated May 18, 1990, issued to Cable and Satellite
Television Holdings Limited (renamed CableTel West
Glamorgan) for West Glamorgan, Wales(5)
99.41 License, dated December 20, 1990, issued to Kirklees Cable
(renamed CableTel Kirklees) for the Huddersfield and
Dewsbury cable franchise, England(5)
99.42 License, dated October 13, 1993, issued to Insight
Communications Guildford Limited (renamed CableTel Surrey
and Hampshire Limited) for the West Surrey/East Hampshire
(Guildford) Cable Franchise, England(5)
99.43 License, dated January 20, 1995, issued to CableTel
Bedfordshire Ltd. for the area of South Bedfordshire,
England(5)
99.44 License, dated January 20, 1995, issued to CableTel North
Bedfordshire Ltd. for the area of Bedford, England(5)
99.45 License, dated January 20, 1992, issued to Cable and
Satellite Television Holdings Limited (renamed CableTel West
Glamorgan Limited) for the area of Swansea, Neath and Port
Talbot, Wales(5)
99.46 License, dated January 20, 1995, issued to Cabletel
Hertfordshire Ltd. for the area of Hertford, Cheshunt and
Ware (Lea Valley), England(5)
</TABLE>
<PAGE> 290
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
99.47 License, dated January 20, 1995, issued to Cabletel Central
Hertfordshire Ltd. for the area of Central Hertfordshire,
England(5)
99.48 License, dated July 21, 1995, issued to CableTel Kirklees(5)
99.49 License, dated June 8, 1995, issued to CableTel Bedfordshire
Ltd.(5)
99.50 License, dated October 27, 1995, issued to Metro South Wales
Limited for the area of Neyland, Wales(5)
99.51 License, dated October 27, 1995, issued to Metro South Wales
Limited for the area of Cwmgors, Wales(5)
99.52 License, dated October 27, 1995, issued to Metro South Wales
Limited for the area of Ammanford, Wales(5)
99.53 License, dated October 27, 1995, issued to Metro South Wales
Limited for the area of Carmarthen, Wales(5)
99.54 License, dated October 27, 1995, issued to Metro South Wales
Limited for the area of Haverfordwest, Wales(5)
99.55 License, dated October 27, 1995, issued to Metro South Wales
Limited for the area of Pembroke Dock, Wales(5)
99.56 License, dated October 27, 1995, issued to Metro South Wales
Limited for the area of Milford Haven, Wales(5)
99.57 License, dated October 27, 1995, issued to CableTel South
Wales Limited for the area of Glamorgan and Gwent, Wales(5)
99.58 License, dated January 26, 1996, issued to Cabletel South
Wales Limited, for part of the Glamorgan area(5)
99.59 License, dated November 3, 1997, issued to NTL (UK) Group,
Inc. for the Provision of Radio Fixed Access Operator
Services(10)
99.60 Agreement and Plan of Amalgamation; Undertaking of Comcast
Corporation; Undertaking of Warburg, Pincus Investors,
L.P.(11)
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1, File No. 33-63570.
(2) Incorporated by reference from the Company's Registration Statement on Form
S-4, File No. 33-92794.
(3) Incorporated by reference from the Company's Registration Statement on Form
S-3, File No. 33-92792.
(4) Incorporated by reference from the Company's Registration Statement on Form
S-1, File No. 33-63572.
(5) Incorporated by reference from the Company's Form 8-K, filed with the
Commission on March 20, 1996.
<PAGE> 291
(6) Incorporated by reference from the Company's Form 8-K, filed with the
Commission on March 26, 1997.
(7) Incorporated by reference to the Company's Registration Statement on Form
S-4, File No. 333-1010.
(8) Incorporated by reference to the Company's Registration Statement on Form
S-3, File No. 333-07879.
(9) Incorporated by reference to the Company's Registration Statement on Form
S-3, File No. 333-16751.
(10) Incorporated by reference to the Company's Annual Report on Form 10-K,
filed on March 28, 1997.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K,
filed with the Commission on March 30, 1998.
(12) Incorporated by reference to the Registration Statement on Form S-3, File
No. 33-96932, of Comcast U.K. Cable Partners Limited.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 20, 1998, in Amendment No. 1 to the
Registration Statement (Form S-4) and related Prospectus of NTL Incorporated for
the registration of its 12 3/8% Senior Deferred Coupon Notes due 2008 and
11 1/2% Senior Notes due 2008.
/s/ ERNST & YOUNG LLP
February 11, 1999
New York, New York
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-71279 of NTL Incorporated on Form S-4 of our report dated February 27, 1998,
appearing in the Prospectus, which is part of this Registration Statement, on
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.
We also consent to the references to us under the headings "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 11, 1999
<PAGE> 1
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-71279 of NTL Incorporated on Form S-4 of our report dated February 27, 1998
(March 16, 1998 as to Note 3), appearing in the Prospectus, which is part of
this Registration Statement, on 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 subsidiaries.
We also consent to the reference to us under the headings "Experts" in such
Prospectus.
/s/ Deloitte & Touche
Birmingham, England
February 11, 1999
<PAGE> 1
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-71279 of NTL Incorporated on Form S-4 of our report dated February 27, 1998,
appearing in the Prospectus, which is part of this Registration Statement, on
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 Cable London
PLC and subsidiaries.
We also consent to the reference to us under the headings "Experts" in such
Prospectus.
/s/ Deloitte & Touche
London, England
February 11, 1999
<PAGE> 1
Exhibit 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated June 5, 1998 (except Note 10 as to which the date is
July 16, 1998) with respect to the financial statements of ComTel UK Finance
B.V., and of our report dated June 5, 1998 (except Note 9 as to which the date
is July 16, 1998) with respect to the combined financial statements of
Telecential Communications (Canada) Limited and Telecential Communications (UK)
Limited, included in (i) the Registration Statement on Form S-3 relating to the
resale by certain securityholders of 7% Convertible Subordinated Notes Due 2008
of NTL Incorporated and (ii) Amendment No. 1 to the Registration Statement on
Form S-4 relating to the offer by NTL Incorporated to exchange its 11 1/2%
Series B Senior Notes due 2008 and 12 3/8% Series B Senior Deferred Coupon Notes
due 2008, which have been registered under the Securities Act 1933, as amended,
for the related series of its issued and outstanding 11 1/2% Senior Notes Due
2008 and 12 3/8% Senior Deferred Coupon Notes Due 2008.
/s/ Deloitte & Touche
Deloitte & Touche
Chartered Accountants
Bracknell, England
February 11, 1999
<PAGE> 1
EXHIBIT 23.6
11 February 1999
We hereby consent to the inclusion in the Registration Statement of NTL
Incorporated on Form S-4 (file No. 333-71279), of our report, dated 5 June 1998,
except for Note 10 as to which the date is 16 July 1998, on our audit of the
Combined Financial Information of ComTel UK Finance B.V. as of and for the year
ended 31 December 1996. We also consent to the references to our firm under the
caption "Experts".
/s/ COOPERS & LYBRAND
Coopers & Lybrand
Chartered Accountants
London, United Kingdom
<PAGE> 1
Exhibit 23.7
CONSENT OF INDEPENDENT AUDITORS
To the board of directors
Diamond Cable Communications Plc
We consent to the use of our report with respect to Diamond Cable
Communications Plc incorporated by reference herein and to references to our
firm under the headings "Experts" in the Registration Statement on Form S-4 of
NTL Incorporated.
/s/ KPMG
-------------------
KPMG
Nottingham, England
February 11, 1999
